<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
[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
COMMISSION FILE NUMBER 001-13279
UNOVA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-4647021
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
21900 BURBANK BOULEVARD 91367-7418
WOODLAND HILLS, CALIFORNIA (ZIP CODE)
WWW.UNOVA.COM
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 992-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A JUNIOR NEW YORK STOCK EXCHANGE
PARTICIPATING PREFERRED STOCK
</TABLE>
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.
On February 29, 2000, the aggregate market value of the Registrant's voting
stock held by non-affiliates was $630.7 million.
On February 29, 2000, there were 55,551,929 shares of Common Stock outstanding,
exclusive of treasury shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
UNOVA, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1: Business.................................................... 1
Item 2: Properties.................................................. 10
Item 3: Legal Proceedings........................................... 11
Item 4: Submission of Matters to a Vote of Security Holders......... 11
PART II
Item 5: Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6: Selected Financial Data..................................... 12
Item 7: Management's Discussion and Analysis of Financial Condition
and Results
of Operations............................................... 13
Item 7A: Quantitative and Qualitative Disclosures about Market
Risk........................................................ 18
Item 8: Financial Statements and Supplementary Data................. 18
Item 9: Disagreements on Accounting and Financial Disclosure........ 18
PART III
Item 10: Directors and Executive Officers of the Registrant.......... 19
Item 11: Executive Compensation...................................... 20
Item 12: Security Ownership of Certain Beneficial Owners and
Management.................................................. 20
Item 13: Certain Relationships and Related Transactions.............. 20
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 20
Signatures.................................................. 23
</TABLE>
<PAGE> 3
PART I:
ITEM 1. BUSINESS
GENERAL
UNOVA, Inc. and subsidiaries (the "Company" or "UNOVA") is an industrial
technologies company providing global customers with solutions for improving
their efficiency and productivity. The Company operates in two primary
businesses: Automated Data Systems ("ADS") and Industrial Automation Systems
("IAS"). The IAS businesses are further disaggregated into two reportable
segments based on their respective markets: Integrated Production Systems
("IPS") and Advanced Manufacturing Equipment ("AME"). For the year ended
December 31, 1999, UNOVA reported revenues and segment operating profits of
$2,108.7 million and $118.9 million, respectively.
The Automated Data Systems segment comprises wireless networking and mobile
computing products and services, and Internet-enabled automated data collection,
principally serving industrial and logistics/supply chain management markets.
Customers include logistics, distribution and transportation companies, food and
beverage operations, manufacturing industries, health care providers and
government agencies.
Within the IAS businesses, the Integrated Production Systems segment includes
integrated manufacturing systems, metal-cutting production systems, body welding
and assembly systems, and precision grinding and abrasive operations, primarily
serving the worldwide automotive, off-road vehicle, and diesel engine
industries. The Advanced Manufacturing Equipment segment provides stand-alone
machine tools, primarily for the aerospace and manufacturing industries.
UNOVA became an independent public company upon the distribution of its common
stock to the shareholders of Western Atlas Inc. ("WAI") on October 31, 1997. The
Company is a Delaware Corporation and its headquarters are located in Woodland
Hills, California.
See Note K to the consolidated and combined financial statements for financial
information by reportable segment and by geographical area. Information related
to business acquisitions, investments, and dispositions is set forth in Note B
to the consolidated and combined financial statements.
PRODUCTS AND SERVICES
AUTOMATED DATA SYSTEMS SEGMENT
The Automated Data Systems segment provides complete supply-chain management,
automated data collection ("ADC") and mobile computing systems solutions and is
operated by the Company's wholly owned subsidiary, Intermec Technologies
Corporation. Norand Corporation ("Norand") and United Barcode Industries, Inc.
("UBI") were acquired early in 1997 and merged into the existing Intermec
organization. In 1998, Intermec acquired the radio-frequency identification
("RFID") business unit of Amtech Corporation known as the Amtech Systems Group
("Amtech Systems"). Amtech Systems is a supplier of wireless data technologies
for intelligent item tracking and identification, electronic toll collection,
rail and motor fleet tracking, and access control to parking and other
structures.
ADS accounted for 41%, 50% and 44% of the Company's consolidated and combined
revenues in 1999, 1998 and 1997, respectively.
Major ADS offices and manufacturing facilities are located in the states of
Iowa, Ohio and Washington; and internationally in the United Kingdom, the
Netherlands, Sweden, and France.
Intermec is organized to deliver "solutions" involving customized combinations
of technology, services, and software to customers in the healthcare, retail,
industrial/manufacturing, transportation and utilities markets.
ADS products are primarily used by non-office workers such as field
representatives, warehouse and delivery personnel, manufacturing and other
employees who typically operate outside the traditional
1
<PAGE> 4
ITEM 1. BUSINESS (CONTINUED)
office environment. Product applications include sales order input, order
tracking, and order delivery; tracking of work-in-process and finished goods
through manufacturing, distribution and other commercial operations; and
real-time monitoring of inventory levels and order status to improve
productivity, quality and responsiveness. The data collected and exchanged by
workers in these applications is often the most critical, and is also the most
susceptible to errors or omissions due to illegible handwriting, inaccurate
keystrokes, or overlooked transactions.
Customers purchase ADC and data exchange technologies to improve the accuracy of
data transferred to and from these front-line workers. This access to better
overall information provides them with competitive advantages. In addition to
existing applications, ADC technologies are increasingly used for automating
information exchange within supply chains, and facilitating shipment and
fulfillment of Internet e-commerce orders.
Wireless Networks Products & Services: Intermec has market leadership in
developing wireless Local Area Network ("LAN") software and systems. It was the
first to provide a network architecture that allows customers to use multiple
radio technologies within one LAN system. This Radio Independent(TM) wireless
LAN solution supports all major radio technologies, including synthesized UHF,
900 MHz and 2.4 GHz direct sequence and frequency-hopping, spread-spectrum radio
technologies, and gives customers the ability to choose the most efficient radio
technology for their facilities to solve data rate, transmission speed and range
issues in order to create a reliable communications environment. To ensure
compatibility with customer host systems, all major industry standard networks
are supported. Most recently, Intermec has joined the Wireless Ethernet
Compatibility Alliance ("WECA") initiative which is a move to provide open
constructive standards for wireless networking.
Intermec has developed an extensive line of hand-held computers and
vehicle-mounted terminals that combine PC-type capability with scanning and data
transmission abilities. Intermec's family of products ranges from low-cost,
hand-held batch data collection devices to sophisticated and powerful terminals,
computers and network products. Its "open systems" design philosophy delivers
maximum product flexibility to customers with diverse application requirements.
Industrial Computing and Communications Terminals: The Company is a leader in
ruggedized mobile computing systems that provide front-line workers with
comprehensive data communications, wide-area networks, application software,
hand-held and truck-mounted PC-based products with peripherals and printer
solutions. In combination with wireless communications, mobile computing enables
remote workers to have access to centralized computer applications and databases
and to send and receive information through wireless networks for improved
productivity, efficiency and accuracy of data. Mobile computing applications
provide real-time automation of sales, distribution, electronic billing,
dispatching, routing and other customer information.
Identification Systems: Intermec's Identification Systems products, which
include wands, imagers, charge-couple devices (CCD), badge and laser scanners
and printers and media products, are able to read or collect data, and then
print the data on customized labels and tags.
The Company's line of flexible "on demand" bar code printers ranges from
low-cost, light to heavy-duty industrial models that accommodate a wide array of
printing widths, materials and label configurations. A variety of specialty
printers provides custom capabilities including color printing, a global
language enabler and high-resolution (400 DPI) printing that ensures sharp fonts
and precise graphics, even on extremely small labels such as those used by the
electronics industry. Intermec also supports its customers with a broad range of
label and tag solutions and other supplies for its printer product range.
Radio-Frequency Identification: Marketed under the Amtech brand name, the
Company designs, markets, manufactures, integrates and supports innovative RFID
products and services for electronic toll and traffic management; rail,
intermodal and fleets; and access control for parking, security, airports and
ground transportation. The Company is currently developing the next generation
of low-cost RFID products for supply chain applications such as shipping labels
and pallet tags with embedded electronic
2
<PAGE> 5
ITEM 1. BUSINESS (CONTINUED)
memory chips that can be reprogrammed via low-power radio signals. These
"intelligent" labels, and other examples of RFID technology, are being evaluated
by customers in the transportation, security, manufacturing and logistics
markets. Intermec plans to offer its new technology for integration with
existing automatic identification and data capture solutions such as bar code,
mobile computing and other enterprise-wide information systems.
Technologies/Trends. Intermec is consistently broadening the application of
wireless networking, ADC and mobile computing by developing or integrating new
technologies into its products. Recent examples include new high-speed wireless
networking products, new Windows CE data collection computers, and new devices
that use the Internet to simplify the management of wireless networks. The
Company is also developing a complete range of products based on its RFID
technology, comprising labels, printers, and scanners.
INDUSTRIAL AUTOMATION SYSTEMS
The Company is a leading developer of value-added manufacturing technologies and
products that span the production cycle from process engineering and design and
prototyping to systems integration. The Integrated Production Systems segment
primarily serves the global automotive, off-road vehicle and diesel engine
industries. The Advanced Manufacturing Equipment segment satisfies customer
needs in the aerospace, electronics, durable goods and general job shop markets.
IAS major offices and production facilities are located in Illinois, Kentucky,
Michigan, Ohio and Pennsylvania and internationally in Canada, the United
Kingdom and Germany.
INTEGRATED PRODUCTION SYSTEMS SEGMENT
To create an integrated manufacturing solution, many of the segment's products
and systems are sold in combination, including metal-cutting solutions,
precision grinding machines or assembly and testing systems. By working closely
with customers, especially in the product design and engineering phases, the
Company is able to design manufacturing processes that reduce capital
requirements, lower lifecycle costs, eliminate costly shop floor programming and
improve productivity by reducing downtime during operations.
Major industrial manufacturers use one or more of the Company's dedicated and
flexible/modular systems to make the following products: powertrain components
(engines, transmissions and connecting rods); chassis components (steering
knuckles, rear axle housings and brake calipers); automotive and truck bodies
(welding and assembly systems); engine components (precision camshafts and
crankshafts). The Integrated Production Systems Segment accounted for 45%, 43%
and 56% of the Company's consolidated and combined revenues in 1999, 1998 and
1997, respectively.
Metal-Cutting: Manufacturing solutions designed and integrated by the Company
range from stand-alone machines for light duty, general purpose metalworking, to
complete, turnkey manufacturing solutions for heavy-duty or high-volume
metal-cutting operations. Product lines include machining centers;
non-synchronous, ring- or dial-transfer systems for low-volume requirements;
modular, flexible systems for medium-volume production requirements; and
dedicated modular transfer lines for high-volume production. Through its
Assembly and Test Systems operations, the Company also designs and builds
specialized assembly and/or testing equipment and systems for a variety of
automotive manufacturing and other industries.
Precision Grinding and Abrasives: The Company is an innovator of cylindrical
grinding products and processes that improve accuracy and reliability in
critical mechanical parts. For example, precision-ground camshafts and cam lobes
for internal combustion engines translate into improved engine durability and
performance, with lower emissions and better fuel economies. Precision-ground
air compressor pistons result in lower friction and energy consumption in air
conditioning systems. Superabrasive grinding wheels, electronic controls,
high-precision, maintenance-free hydrostatic bear-
3
<PAGE> 6
ITEM 1. BUSINESS (CONTINUED)
ings and other state-of-the-art grinding technologies enable today's car
manufacturers to machine parts with precision measured in the sub-micron range.
Research into the processing of new materials also has resulted in the
development of ultra-high-precision grinding and finishing techniques. These
advances are being applied to requirements of the microelectronics, computer,
aerospace and optics industries for the manufacture of materials such as
composites, silicon, glass and ceramics.
Auto Body Assembly Systems: The Company designs and integrates automated systems
to form, assemble and weld high-quality auto and truck bodies as well as other
industrial products. Robotic systems are integrated with high-precision holding
and alignment fixtures and high-volume welding equipment to produce components
and subassemblies. Proprietary processes have been developed specifically to
assemble doors, hoods and trunk lids, which historically represent the most
critical "fit and finish" manufacturing parts of car bodies.
Using 3-D computer simulations, the Company has established one of the broadest
process and tool design capabilities in the industry. Tool design and
prototyping are now linked into the product engineering process, reducing costs
and risks for automotive and aerospace customers long before their programs move
into the capital investment stage.
ADVANCED MANUFACTURING EQUIPMENT SEGMENT
The Company's AME segment offers stand-alone equipment such as multi-axis
machines; profiling, tape-laying and fiber placement systems for composite
structures; vertical and horizontal metal-cutting machining centers; and test
and automation equipment for integration into production lines. The Company also
makes unique, CNC-controlled machinery that forms large-scale structures from
unidirectional composite tapes and fibers. These machines are used by defense,
commercial and general aviation aircraft manufacturers to make airframes,
rockets or spacecraft components (vertical stabilizers, missile casings,
fuselages). Acquired in October of 1998, Advanced Manufacturing Equipment
accounted for 14%, and 7% of the Company's consolidated and combined revenues in
1999 and 1998, respectively.
Technologies/Trends. IAS continues to develop manufacturing technologies to
broaden its product offerings and respond to automotive customers' needs to
lower costs, improve fuel consumption and decrease car emissions. New "agile"
machining centers and flexible fixturing systems have been introduced, or are
under development, to reduce fixed costs for high-volume machining. Advances in
grinding technologies may allow IAS to move into other markets, where the
Company's machines can be applied to finish ceramic and silicon materials with
extreme accuracy. The Company is also continuing to advance its capabilities for
processing advanced materials such as composites, aluminum alloys, titanium and
compacted graphite iron (CGI).
BUSINESS STRATEGY
The Company's strategy is to develop products, processes and services that help
improve productivity and efficiency in a variety of manufacturing and
distribution applications. Each of the Company's segments offers single products
as well as integrated solutions to its customers.
Future growth in these businesses is expected to result from expansion of the
Company's existing operations and customer base, and through selected
acquisitions. In seeking acquisitions, the Company will concentrate on
technologies, products and services that enhance customer productivity and
efficiency, and that can be characterized as growth drivers.
AUTOMATED DATA SYSTEMS SEGMENT
In the ADS market, the growth of Internet e-commerce has created increased
opportunities and demand for technologies that improve levels of service and
responsiveness.
4
<PAGE> 7
ITEM 1. BUSINESS (CONTINUED)
Warehouses and logistics operations already rely on wireless networks and
hand-held and mobile computers to transmit inventory data to central host
computers. When information is updated real time, customers have greater
visibility into their current business operations, and avoid inventory shortages
and improve customer service by providing more accurate shipping and delivery
information. That capability becomes more vital in e-commerce operations because
technologically savvy customers demand instant information about product
availability and rapid order delivery. As competition places more pressure on
customers for faster operational performance, they are upgrading their supply
chain "execution" technologies to improve financial measures such as inventory
and asset turnover, and customer satisfaction standards, such as delivery speed,
in-stock availability and order accuracy.
The Company plans to increase its product development and marketing activities
in the areas of e-commerce and supply-chain execution to capitalize on strong
demand and overall market growth.
INDUSTRIAL AUTOMATION SYSTEMS
For the IAS businesses, the Company plans to continue developing its existing
customer base by seeking a greater role in customer projects by continuing its
emphasis on product development and by expanding its international activities.
The ongoing development of the Company's systems and solutions activities will
depend primarily on the application of new technologies and products to maintain
its position in this technology-driven market. The Company believes it has the
necessary technical expertise to achieve this goal. Future geographic
opportunities have been identified outside North America, particularly in
Europe, South America and Asia. To capitalize on these markets, the Company has
recently changed the organizational structure of these segments to a more global
span of control. IAS now manages its marketing and operating resources on a
global, rather than regional basis.
In recent years, cost-cutting needs and quality requirements in the automotive
industry have strengthened the Company's relationships with its customers. The
carmakers' trend toward fewer suppliers has benefited the Company and allowed it
to expand its market participation. These market-driven changes also have forced
many smaller competitors to either withdraw from the market or to reduce their
role to that of second or third tier suppliers. The Company's strategy is to
maintain its extensive outsourcing network of qualified suppliers in North
America and overseas, thereby avoiding unnecessary vertical integration and
gaining flexibility in its market approach.
MARKETS AND CUSTOMERS
AUTOMATED DATA SYSTEMS SEGMENT
The Automated Data Systems market is extensive because its technologies,
including low-cost small systems, can be used by customers of any size.
Worldwide sales of automated data systems equipment reached over $8 billion in
1999, according to estimates from independent research sources. These sources
also predict that the overall market will continue to grow at an annual rate of
approximately 12% to 15% over the next several years.
Market growth is driven by the global need for technologies and solutions that
improve quality, productivity and cost-efficiency in business and government,
particularly through logistics automation, supply-chain management, ERP and
e-commerce solutions. Worldwide coverage is accomplished through a dedicated
sales and service organization, supplemented with indirect channel partners and
distributors.
Through its application of technologies in the manufacturing,
warehouse-distribution, transportation, health care, government, field service
and utilities markets, the Company maintains a strong position in the global ADC
market.
5
<PAGE> 8
ITEM 1. BUSINESS (CONTINUED)
The Company sells and services its products through multiple sales and
distribution channels; a direct field sales force that concentrates on large,
complex systems sales; value-added resellers who offer applications-specific
solutions; and alliances with major systems integrators and distributors. The
Company's direct sales organization serves customers from offices throughout
North America and Europe and in some selected countries outside these regions.
An indirect sales channel includes long-time exclusive relationships with
value-added distributors and master resellers.
Although the Company obtains a majority of its sales through indirect sales
channels, no individual value-added distributor or reseller is material to our
overall revenues. The Company also maintains contact with customers and
prospective users through user forums for automated data systems applications
and technologies.
The mobile computing systems market consists of several applications, such as
route accounting for the distribution and package/parcel delivery industries,
sales merchandising, remote delivery and field service. These applications are
generally used in the consumer products, food, beverage, wholesale, parcel
delivery, freight, field service, and home service industries.
Manufacturing applications include the collection and communication of
information related to receipt of materials, work-in-process, finished goods
inventory and other manufacturing functions. Warehousing and distribution center
applications involve the collection and communication of information related to
receiving materials to be stored, storage locations, materials retrieval and
shipping. Retail applications include the automation of shelf label maintenance
and product shipping and receiving functions.
The Company also designs, manufactures, markets, installs and supports equipment
and systems based on its RFID technology that are used extensively by railroads,
toll collection and parking operations. These customers are located in North and
South America, Europe and Asia.
Additional international sales opportunities exist in countries where mobile
computing systems market practices and other applications are similar to those
in the U.S. The extent of RF systems opportunities in any particular country is
based on the level of industrialization, the status of bar coding
implementation, and the RF regulatory environment. The major markets for
printers are manufacturing, distribution, warehousing, transportation, health
care, government and other services.
INDUSTRIAL AUTOMATION SYSTEMS
The Company participates in the automotive, aerospace and general manufacturing
markets. Investments by automotive customers are driven by model changes,
competitive pressures, government regulations such as emission standards and
gasoline consumption rates, and the customers' own internal spending cycles.
Investments in diesel engine manufacturing are influenced by the infrastructure
needs of emerging industrial nations and by the efficiency benefits diesel
engines offer for heavy and light trucks and utility vehicles.
Integrated Production Systems' customers are the major auto and diesel
manufacturers and their Tier One suppliers. Although the passenger car and light
truck industries continue to represent IPS' largest market, business from diesel
engine manufacturers also has grown in recent years.
The Company believes that future growth in the IPS and AME segments will be
dependent on their ability to market their full range of products and services
to their combined customer base and to expand into other industrial
manufacturing markets. This strategy is supported by a global IAS management
structure that provides for unified marketing and product support.
A substantial part of the IPS segment's total revenue is currently generated by
worldwide automotive and diesel engine industry purchases of automated
manufacturing systems, including integrated machining, body welding and assembly
and precision grinding systems. Among customers for such equipment, U.S. and
Canadian auto and auto-related manufacturers currently account for the majority
of IPS sales. The
6
<PAGE> 9
ITEM 1. BUSINESS (CONTINUED)
remainder of sales represents products manufactured and sold in Europe and those
exported from the Company's production facilities, mostly for installation in
Latin America and Asia.
Both IAS segments' revenues are influenced by the capital investment plans of
customers. These plans are typically strategic and long-range, driven by
customers' competitive product issues, as well as environmental issues related
to compliance with emissions. Short-term business cycles, such as monthly
product sales, typically do not delay or interrupt capital investment decisions
of major automotive customers.
Recent major customers include U.S.-based Boeing Corporation, Briggs & Stratton,
Cummins, DaimlerChrysler, Ford, General Motors, Navistar, and Raytheon; and
Western Europe-based BMW/Rover, Fiat, Mercedes Benz, Jaguar, Peugeot, Renault,
Volkswagen, Volvo and the European subsidiaries of the large U.S. manufacturers.
The Company also has won major systems contracts for the "transplant"
manufacturing facilities of foreign automakers, including both European and
Japanese, and also serves the automotive components manufacturing market.
COMPETITION
Strong competition exists both in the domestic and international markets for the
Company's products and services. Products are sold and projects are won in the
marketplace based on price, technology, and service.
AUTOMATED DATA SYSTEMS SEGMENT
The market for ADC/mobile computing systems is highly fragmented. Based on
independent market surveys, management believes that Intermec Technologies
Corporation is one of the largest participants in terms of revenues. The other
two major participants are Symbol Technologies and Telxon. The Company also
faces strong competition for single product lines from specialized suppliers,
like Zebra, for printers.
The market for mobile computing and RF products is highly competitive and
rapidly changing. Some firms manufacture and market hand-held systems for route
accounting applications, including Telxon and Fujitsu. In addition, a number of
firms manufacture and market radio-linked data communication products, including
LXE, Symbol, Teklogix and Telxon. On the printer side, the Company faces
competition from Zebra/Eltron, Datamax and many others, depending on the
geographic area.
The Company competes primarily on the basis of its technologies: open-systems
architecture, networking and communications expertise and applications software.
Other attributes, such as quality of support services, product functionality,
performance and ruggedness are important for market success.
INDUSTRIAL AUTOMATION SYSTEMS
While product quality and innovation are key competitive factors to win market
share, pricing is a major decision point in the global market for Integrated
Productions Systems and Advanced Manufacturing Equipment. IAS' strength is the
ability to design reliable and efficient manufacturing processes for its
customers and combine them with cost-effective machining solutions in order to
win orders against strong global competition.
The North American and European markets for high-volume production systems for
engines and transmissions is divided among approximately 10 major competitors
and numerous smaller participants. Major competitors are Thyssen, Ingersoll
Milling and Grob-Werke (Germany).
In the body welding and assembly systems market, the Company is faced with
competitors that are involved in a broad range of assembly equipment and other
competitors that provide "niche" machines. Primary competitors include DCT, PICO
(Comau), Valiant (Thyssen), and Utica in North America; Thyssen, FFT, Kuka and
Comau in Europe.
7
<PAGE> 10
ITEM 1. BUSINESS (CONTINUED)
In the worldwide market for high-precision grinding of engine parts, the Company
has achieved a strong market position through innovative products that improve
customer efficiency while reducing their capital costs. Major competitors are
the foreign companies Koyo and Toyoda in Japan; the Schleifring Group, Junker in
Germany; and Giustina in Italy.
Advanced Manufacturing Equipment faces separate competitors in its different
product markets such as Ingersoll Milling, DST (Germany) and Forrest Line
(France) in aerospace systems; Mazak, Okuma and Mori Seiki (all Japan) in
production systems; and Thyssen/Fadal and Haas (both North America) in the
market for stand-alone machines.
RESEARCH AND DEVELOPMENT
Company-wide expenditures on research and development activities amounted to
$74.1 million, $71.5 million and $53.1 million, substantially all of which was
sponsored by the Company, in the years ended December 31, 1999, 1998 and 1997,
respectively. The Company expensed a total of $211.5 million of acquired
in-process research and development in 1997. See further discussion in Note B to
the consolidated and combined financial statements.
PATENTS AND TRADEMARKS
The Company owns a large number of patents, trademarks and copyrights relating
to its manufactured products, which have been secured over a period of years.
These patents, trademarks and copyrights have contributed to the Company's
growth and may continue to be of value in the future. However, the Company
generally is not dependent upon the protection of any patent, patent application
or patent license agreement, or group thereof, and would not be materially
affected by expiration thereof.
SEASONALITY; BACKLOG
Sales backlog was $856 million, $831 million and $395 million at December 31,
1999, 1998 and 1997, respectively. The operations of the Company are not
seasonal to any appreciable degree. The majority of the Company's backlog is
concentrated in the IAS segments. The ADS market typically operates without a
significant backlog of firm orders and does not consider backlog to be a
relevant measure of future sales.
EMPLOYEES
At December 31, 1999, the Company had approximately 9,577 full-time employees,
of which approximately 3,740 are engaged in the ADS segment, approximately 4,130
in the IPS segment, approximately 1,601 in the AME segment, and approximately
106 in corporate and shared services.
ENVIRONMENTAL AND REGULATORY MATTERS
During 1999, the amounts incurred to comply with federal, state and local
legislation pertaining to environmental standards did not have a material effect
upon the capital expenditures or earnings of the Company.
Radio emissions are the subject of governmental regulation in all countries in
which the Company currently conducts business. In North America, both the
Canadian and the U.S. governments publish relevant regulations, and changes to
these regulations are made only after public discussion. In some countries
regulatory changes can be introduced with little or no grace period for
implementing the specified changes. Furthermore, there is little consistency
among the regulations of various countries outside North America, and future
regulatory changes in North America are possible. These conditions introduce
uncertainty into the product planning process and could have an adverse effect
on the ADC/ Mobile Computing business.
8
<PAGE> 11
ITEM 1. BUSINESS (CONTINUED)
The European Community ("EC") has passed a directive requiring its members to
adopt laws relating to electro-magnetic compatibility and emissions standards.
These standards will apply to ADC/Mobile Computing products sold in EC member
countries as those countries adopt the EC standards into law. Currently, the
Company believes that its products materially comply with the regulations in
force for each of the EC member countries.
RAW MATERIALS
The Company uses a wide variety of raw materials in the manufacture of its
products and obtains such raw materials from a variety of suppliers. No single
supplier provides 10% or more of the Company's raw materials, nor do raw
materials from any one supplier generate 10% or more of the Company's
consolidated revenues. The Company does not have any long-term supply agreements
relating to raw materials.
9
<PAGE> 12
ITEM 2. PROPERTIES
The Company's executive offices, in leased premises, are located at 21900
Burbank Boulevard, Woodland Hills, California. Its principal plants and offices
have an aggregate floor area of approximately 6,343,030 square feet, of which
5,213,020 square feet (82%) are located in the United States, and 1,130,010
square feet (18%) are located outside of the United States, primarily in the
United Kingdom, Germany and Canada.
These properties are used by the business segments as follows:
<TABLE>
<CAPTION>
SQUARE
FEET
---------
<S> <C>
Automated Data Systems...................................... 925,045
Integrated Production Systems............................... 3,445,594
Advanced Manufacturing Equipment............................ 1,933,472
---------
6,304,111
=========
</TABLE>
Approximately 4,549,461 square feet (72%) of the principal plant, office and
commercial floor area is owned by the Company, and the balance is held under
lease.
The Company's plants and offices in the United States are situated in 21
locations in the following states:
<TABLE>
<CAPTION>
SQUARE
STATE FEET
- ----- ---------
<S> <C>
Ohio........................................................ 1,791,258
Michigan.................................................... 1,614,478
Pennsylvania................................................ 495,662
Washington.................................................. 325,500
Illinois.................................................... 309,571
Iowa........................................................ 258,325
Kentucky.................................................... 152,483
Other states................................................ 265,743
---------
5,213,020
=========
</TABLE>
The above-mentioned facilities are in satisfactory condition and suitable for
the particular purposes for which they were acquired or constructed and are
adequate for present operations.
The foregoing information excludes Company-held properties leased to others and
also excludes plants or offices which, when added to all other of the Company's
plants and offices in the same city, have a total floor area of less than 50,000
square feet.
10
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
The Company is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business. Although the results of
litigation proceedings cannot be predicted with certainty, the Company believes
that the ultimate resolution of these proceedings will not have a material
adverse effect on the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Quarterly Financial Information (unaudited)................. F-25
</TABLE>
11
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
UNOVA, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:(1)
Sales and Service Revenues............. $2,108.7 $1,662.7 $1,426.2 $1,164.7 $ 942.9
-------- -------- -------- -------- -------
Operating Costs and Expenses
Cost of sales and service............ 1,501.0 1,110.8 981.4 841.8 669.3
Selling, general and
administrative(2)................. 454.4 383.7 535.9 218.7 194.1
Depreciation and amortization........ 66.0 57.0 40.6 27.0 26.1
-------- -------- -------- -------- -------
Total........................ 2,021.4 1,551.5 1,557.9 1,087.5 889.5
-------- -------- -------- -------- -------
Other Income, Net...................... 31.5
--------
Earnings (Loss) before Interest and
Taxes................................ 87.3 142.7 (131.7) 77.2 53.4
Interest Expense, Net(3)............... (38.0) (25.7) (16.7) (7.1) (9.3)
Taxes on Income........................ (19.7) (47.3) (23.0) (28.1) (17.9)
-------- -------- -------- -------- -------
Net Earnings (Loss).................... $ 29.6 $ 69.7 $ (171.4) $ 42.0 $ 26.2
======== ======== ======== ======== =======
Basic Net Earnings (Loss) per Share.... $ 0.54 $ 1.28 $ (3.17) $ 0.78 $ 0.49
Diluted Net Earnings (Loss) per
Share................................ $ 0.54 $ 1.27 $ (3.17) $ 0.78 $ 0.49
Shares used for Basic Earnings (Loss)
per Share(4)......................... 55,111 54,620 54,056 53,892 53,892
Shares used for Diluted Earnings (Loss)
per Share(4)......................... 55,120 54,703 54,056 53,892 53,892
FINANCIAL POSITION (AT END OF YEAR):(1)
Total Assets........................... $1,903.5 $1,979.2 $1,356.4 $1,073.8 $ 919.0
Notes Payable and Current Portion of
Long-term Obligations................ $ 64.0 $ 237.3 $ 86.6 $ 27.5 $ 22.2
Long-term Obligations.................. $ 365.4 $ 366.5 $ 216.9 $ 14.5 $ 14.1
Allocated Portion of Western Atlas
Debt................................. $ 109.6 $ 112.4
Working Capital........................ $ 447.8 $ 392.2 $ 277.8 $ 266.0 $ 194.7
Current Ratio.......................... 1.7 1.5 1.6 1.6 1.6
Total Debt as a Percentage of Total
Capitalization....................... 37% 46% 34% 21% 23%
</TABLE>
- ---------------
(1) Information related to business acquisitions, investments, and dispositions
is included in Note B to the consolidated and combined financial statements.
(2) Selling, general and administrative costs include allocated charges from
Western Atlas of $13.5 million, $22.2 million and $19.9 million for the
years ended December 31, 1997, 1996 and 1995, respectively. The year ended
December 31, 1997 includes charges of $211.5 million, or $3.91 per share,
for the value of acquired in-process research and development activities
resulting from acquisitions made during the year.
(3) Interest expense includes allocated charges from Western Atlas of $12.0
million, $8.3 million and $8.4 million for the years ended December 31,
1997, 1996 and 1995, respectively.
(4) In thousands. The number of common shares used to calculate basic and
diluted earnings per share prior to 1997 is based on the number of shares of
Western Atlas common stock that was outstanding as of June 30, 1997.
12
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company operates in two primary businesses: Automated Data Systems ("ADS")
and Industrial Automation Systems ("IAS"). The IAS businesses are further
disaggregated into two reportable segments based on their respective markets:
Integrated Production Systems and Advanced Manufacturing Equipment. Sales and
service revenues and segment operating profit for the years ended December 31,
1999, 1998 and 1997 (excluding the $211.5 million charges for acquired
in-process research and development), were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
SALES AND SERVICE REVENUES
Automated Data Systems.................................... $ 877.2 $ 829.4 $ 636.4
Industrial Automation Systems:
Integrated Production Systems........................... 937.3 719.3 789.8
Advanced Manufacturing Equipment........................ 294.2 114.0
-------- -------- --------
Total Sales and Service Revenues................ $2,108.7 $1,662.7 $1,426.2
======== ======== ========
SEGMENT OPERATING PROFIT
Automated Data Systems.................................... $ 26.4 $ 55.4 $ 9.1
Industrial Automation Systems:
Integrated Production Systems........................... 86.8 73.2 94.6
Advanced Manufacturing Equipment........................ 5.7 3.7
-------- -------- --------
Total Segment Operating Profit.................. $ 118.9 $ 132.3 $ 103.7
======== ======== ========
</TABLE>
Year Ended December 31, 1999 Compared to 1998
Total sales and service revenues increased $446.0 million, or 27%, for the year
ended December 31, 1999 compared with the corresponding prior year. Total
segment operating profit decreased $13.4 million, or 10%, for the year ended
December 31, 1999 compared to the corresponding prior year.
Automated Data Systems: ADS segment sales increased $47.8 million, or 6%, and
operating profit decreased $29.0 million, or 52%, for the year ended December
31, 1999 compared with the corresponding prior year. The increase in sales is
due primarily to the inclusion of a full year's results in 1999 from the
acquisition of Amtech Systems in May 1998, and an increase in intellectual
property ("IP") licensing revenues, offset partially by decreased sales of other
ADS products, primarily mobile computing. Mobile computing revenues were
impacted by customers' focus on internal Year 2000 issues. The decrease in
operating profit was the result of additional operating expenses and order
fulfillment costs related to the implementation of a new management information
system at Intermec's main production facility and decreased product sales,
offset partially by IP licensing margins.
Industrial Automation Systems: Integrated Production Systems revenues increased
$218.0 million, or 30%, and related operating profit increased $13.6 million, or
19%, for the year ended December 31, 1999 compared with the corresponding prior
year. The increase in revenues is primarily attributable to 1999 including the
full year's results of the 1998 acquisition of R&B Machine Tool and an increase
in activity for the domestic operations. The increase in operating profit was
due to the increase in activity for the domestic operations and operating
profits contributed by the 1998 acquisition, partially offset by costs
associated with product and operational process problems at Honsberg Lamb in
Germany. Operating profits as a percentage of sales decreased primarily due to
contract losses at Honsberg Lamb. Integrated Production Systems backlog
increased from $556.6 million at December 31, 1998 to $627.7 million at December
31, 1999.
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In October 1998, UNOVA acquired the machine tool business of Cincinnati
Milacron, which was renamed Cincinnati Machine, a UNOVA Company ("Cincinnati
Machine") for approximately $187.3 million in cash. The division, which
comprises the Company's Advanced Manufacturing Equipment segment, is engaged in
the design, manufacture, sale and servicing of standard and advanced computer
numerically controlled metal cutting machine tools for the industrial component,
aerospace, job shop, fluid power and automotive industries. The acquisition was
funded using the Company's committed credit facility and was accounted for under
the purchase method of accounting.
Advanced Manufacturing Equipment revenues increased $180.2 million, or 158%,
while related operating profit increased $2.0 million, or 54%, for the year
ended December 31, 1999 compared with the corresponding prior year. The increase
in revenues and operating profit is attributable to 1999 including the full
year's results of the 1998 acquisition of Cincinnati Machine. Operating profit
as a percentage of sales decreased due to lower utilization levels. Backlog
decreased from $148.9 million at December 31, 1998 to $102.5 million at December
31, 1999.
Depreciation and amortization increased from $57.0 million to $66.0 million from
the year ended December 31, 1998 to the year ended December 31, 1999. This
increase is primarily due to additional depreciation from acquisitions and an
increase in the level of fixed assets over the prior year.
Selling, general and administrative ("SG&A") expense increased $70.8 million
from $383.7 million for the year ended December 31, 1998 to $454.5 million for
the year ended December 31, 1999. As a percentage of sales, SG&A decreased from
23% in 1998 to 22% in 1999. The percentage decrease is attributable to the
change in the business mix of the Company from 1998 to 1999 offset by amortized
costs and discounts in SG&A from the sale of undivided interests in UNOVA's
trade accounts receivable. The two IAS segments' sales increased as a percentage
of total company sales from 50% for the year ended December 31, 1998 to 58% for
the year ended December 31, 1999, while ADS sales decreased from 50% to 42% for
the same years. The IAS businesses carry lower SG&A ratios compared to the ADS
segment.
Net interest expense was $38.0 million and $25.7 million for the years ended
December 31, 1999 and 1998, respectively. The increase is attributable to higher
outstanding debt during 1999 that was incurred to finance the 1998 acquisitions
of Cincinnati Machine, R&B Machine and Amtech Systems and the normal capital
expenditures and working capital needs of the operations.
Year Ended December 31, 1998 Compared to 1997
Total sales and service revenues increased $236.5 million, or 17%, for the year
ended December 31, 1998 compared with the corresponding prior period. Total
segment operating profit increased $28.6 million, or 28%, for the year ended
December 31, 1998 compared to the corresponding prior period.
Automated Data Systems: ADS segment sales increased $193.0 million, or 30%, and
operating profit increased $46.3 million, or 509%, for the year ended December
31, 1998 compared with the corresponding prior year. The sales and operating
profit increases are due primarily to new IP licensing revenues, internal growth
and the contribution of a full year of operations and the realization of
improved profitability from the integration of the 1997 acquisitions of Norand
Corporation ("Norand") and United Barcode Industries ("UBI"), offset by
information system problems that negatively impacted the results of the third
and fourth quarter.
Industrial Automation Systems: Integrated Production Systems revenues decreased
$70.5 million, or 9%, while related operating profit decreased $21.4 million, or
23%, for the year ended December 31, 1998 compared with the corresponding prior
year. The Integrated Production Systems segment began several new projects in
1998 that did not materially impact sales and operating profits until 1999.
Delays caused by unexpected customer changes were encountered in the engineering
phase of these new
14
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
projects. Conversely, during the first half of 1997, the manufacturing systems
operations experienced a higher level of sales and profits from contracts in the
final delivery and installation phase. Startup issues on a new product line at
Honsberg Lamb also impacted operating profit in 1998. Backlog increased from
$332.0 million at December 31, 1997 to $556.6 million at December 31, 1998.
During the third quarter of 1998, UNOVA acquired R&B Machine Tool Company ("R&B
Machine"), a specialty machine and retooling company. This acquisition was
funded using short-term uncommitted credit lines. In June 1998, the Company
acquired the radio frequency identification ("RFID") business unit of Amtech
Corporation known as the Amtech Systems Division ("Amtech Systems"). Amtech
Systems is a supplier of wireless data technologies for electronic toll
collection, rail and motor fleet tracking, and access control to parking and
other structures.
Depreciation and amortization increased from $40.7 million to $57.0 million from
the year ended December 31, 1997 to the year ended December 31, 1998. This
increase is primarily due to higher amortization of goodwill and other
intangibles resulting from the Norand and UBI acquisitions, as well as
additional depreciation from capital expenditures and business acquisitions.
Selling, general and administrative expense increased $59.3 million from the
year ended December 31, 1997 to the year ended December 31, 1998. However, as a
percentage of sales, SG&A remained constant at 23% in both years. The increase
in the amount is due primarily to 1998 acquisitions as well as the increase in
the Company's sales and service revenues over the prior year.
Net interest expense was $25.7 million and $16.7 million for the years ended
December 31, 1998 and 1997, respectively. The increase is attributable to an
increase in outstanding debt due primarily to the acquisitions of Norand and UBI
in 1997 and Cincinnati Machine, R&B Machine and Amtech Systems in 1998.
Other income, net consists of a gain of $35.5 million recognized on the sale of
UNOVA's corporate headquarters building, offset by other non-operating expenses.
FOREIGN CURRENCY TRANSACTIONS
The Company is subject to the effects of international currency fluctuations due
to the global nature of its operations. Currency transaction net losses for the
year ended December 31, 1999 were $3.0 million, net of taxes. Currency
transaction gains and losses for the years ended December 31, 1998 and 1997 were
not significant. It is not possible to predict the Company's exposure to foreign
currency fluctuations beyond the near term because revenues generated from
particular foreign jurisdictions vary widely over time.
For fiscal year 1999, the Company derived approximately 26% of its revenues and
10% of its operating profits (exclusive of corporate overhead) from non-U.S.
operations. At December 31, 1999, identifiable assets attributable to foreign
operations comprised 19% of total assets. As the largest components of these
foreign assets are attributable to European operations, the exposure of
identifiable assets to foreign currency fluctuations or expropriations is not
significant.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities increased from $17.7 million at December 31, 1998
to $25.2 million at December 31, 1999. Total debt decreased from $603.8 million
at December 31, 1998 to $429.4 million at December 31, 1999. Improved working
capital management provided funds from operations that were utilized to repay
borrowings.
The Company has two unsecured committed credit facilities with banks from which
it may borrow up to $500.0 million. Under these credit facilities, the Company
may borrow at the prime rate or at rates based
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
on the London Inter Bank Offered Rate, rates borne by certificates of deposit or
other rates that are mutually acceptable to the banks and the Company. At
February 11, 2000, $300.0 million of these credit facilities was available for
the Company's general use.
In June 1999, a financing subsidiary of UNOVA entered into an agreement to sell
undivided interests in a revolving pool of the Company's trade accounts
receivable to a financial institution which issues its short-term debt backed by
receivables acquired in similar transactions. The financing subsidiary purchased
these receivables, irrevocably and without recourse, from the Company under a
separate agreement. Under the terms of these agreements, UNOVA is entitled to
receive up to $100.0 million of proceeds from the sale of undivided interests in
the receivables. At December 31, 1999, net proceeds from these agreements were
approximately $100.0 million and have been reflected as a reduction of accounts
receivable on the consolidated balance sheet. Costs associated with these
agreements were $2.6 million for the year ended December 31, 1999 and have been
classified as selling, general and administrative expenses.
In March 1998, the Company sold $200.0 million principal amount of senior
unsecured debt in an underwritten offering. The debt comprised $100.0 million of
6.875% seven-year notes, at a price of 99.867 and $100.0 million of 7.00%
ten-year notes, at a price of 99.856. Including underwriting fees, discounts and
effects of forward rate agreements, the effective interest rates on the
seven-year and ten-year notes are 7.125% and 7.175%, respectively. The net
proceeds of approximately $198.0 million were used by the Company to repay
outstanding debt.
The Company expects that cash flow from operations, along with available
borrowing capacity, will be adequate to meet working capital requirements.
YEAR 2000
The Year 2000 issue is the result of computer programs designed to define a year
using two digits rather than four. As such, a date sensitive field using "00"
could be recognized as the year 1900 rather than the year 2000, potentially
causing a system failure or other business disruption.
The operating segments of the Company formed internal review teams that assessed
the Company's exposure to Year 2000 problems. As a result of these reviews,
non-Year 2000 compliant information technology and non-information technology
systems were identified. The Company completed modifications or replacements and
testing to achieve Year 2000 compliance utilizing both internal and external
resources. In addition, the Company actively worked with its significant
suppliers and customers to assess their Year 2000 compliance efforts and the
Company's exposure from them.
The Company also assessed the capability of its products to determine whether
they are Year 2000 compliant. The Company believes that all of its current
products are Year 2000 compliant. UNOVA has not tested products that are no
longer sold by the Company and the Company does not believe it is legally
responsible for costs incurred by customers related to ensuring their Year 2000
capability. However, the Company is providing customer support services related
to Year 2000 issues. UNOVA defines "Year 2000 compliant" as a product that, when
used properly and in conformity with the product information provided by the
Company, will accurately convey data between the twentieth and twenty-first
centuries, including leap year calculations, provided that all other technology
used in combination with the product properly exchanges data with the UNOVA
product.
Management is not aware of any significant adverse effects of Year 2000 on the
systems and operations of the Company. Through December 31, 1999, the total
cumulative cost of these Year 2000 compliance activities was approximately $10.1
million. Of these costs, approximately $1.5 million were expensed and the
remaining $8.6 million were capitalizable. Management does not anticipate
significant additional Year 2000 costs. Based on currently available
information, management does not believe that Year 2000 issues had or will have
a material adverse impact on the Company's financial condition or results of
16
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
operations. However, the Year 2000 problem has potential consequences, some of
which are not reasonably foreseeable, and there can be no assurance that
unforeseen consequences will not arise.
While management believes that no customer, vendor, or service provider is
individually significant to the Company's operations, we have no information
that indicates a significant customer may be unable to purchase from the
Company; a significant vendor may be unable to sell to the Company; or a
significant service provider may be unable to provide services to the Company,
in each case because of Year 2000 compliance problems. While the Company
currently does not anticipate problems related to third party Year 2000 issues,
the Company will continue to assess potential risk from third parties. However,
there can be no assurance that Year 2000 problems originating with a customer,
vendor, service provider or other third party will not occur.
INFLATION
In the opinion of management, inflation has not been a significant factor in the
markets in which the Company operates and has not had a significant impact upon
the results of its operations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133 (an amendment of FASB Statement No. 133). Under the provisions of this
statement, the effective date of Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No.
133"), is deferred to fiscal years beginning after June 15, 2000. The Company is
currently evaluating the impact of adopting SFAS No. 133.
FORWARD-LOOKING STATEMENTS
The Company cautions readers that, in addition to the historical information
covered in this discussion and analysis, included are certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934. These forward-looking
statements are based on management's beliefs as well as on assumptions made by
and information currently available to management. They include, but are not
limited to, statements about the demand for the Company's products and services,
the Company's ability to profitably exploit new technologies acquired or
developed, and the Company's ability to realize its intentions with respect to
the future performance of acquired operations. Such forward-looking statements
are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which could cause the Company's future results to
differ materially from those expressed or implied in any forward-looking
statements made by, or on behalf of, the Company. Such factors include, but are
not limited to, the following: fluctuations in the strength of the automotive
and aerospace markets; technological changes and developments, particularly in
the ADC/Mobile Computing System industry; the presence of competitors with
greater financial and other resources; the availability and cost of materials
and supplies; relations with the Company's employees; the Company's ability to
manage its operating costs and to integrate acquired businesses in an effective
manner; worldwide political stability and economic conditions; regulatory
uncertainties; operating risks associated with international operations; and the
risk that the Company's due diligence procedures may have failed to reveal
undisclosed material information concerning acquired operations. Any
forward-looking statements should be considered in light of these factors, many
of which are beyond the Company's ability to control or predict. Readers are
cautioned not to place undue reliance on forward-looking statements. The Company
disclaims any obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
17
<PAGE> 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily from its short-term and
long-term borrowings and to exchange rate risk with respect to its foreign
operations and from foreign currency transactions.
Interest Rates: The information presented below summarizes the Company's cash
flows for its borrowings and related interest rates by dates of maturity.
Variable interest rates disclosed represent the weighted average rates of the
borrowings at December 31, 1999. Fair values for fixed rate borrowings have been
determined based on quoted market prices. The fair values for variable rate
borrowings approximate their carrying value. The information presented below
should be read in conjunction with Note C to the Consolidated and Combined
Financial Statements.
<TABLE>
<CAPTION>
DEBT 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
---- ------- ----- -------- -------- -------- ---------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $200,000 $200,000 $167,882
Average Interest Rate 6.94%
Variable Rate $64,002 $179 $150,003 $15,204 $229,388 $229,388
Average Interest Rate 4.56% 7.22% 7.18% 5.96%
</TABLE>
Foreign Exchange Rates: Due to its global operations, the Company's cash flow
and earnings are exposed to foreign exchange rate fluctuations. When
appropriate, the Company may attempt to limit its exposure to changing foreign
exchange rates by entering into short-term foreign currency exchange contracts.
As of December 31, 1999, the Company held short-term contracts for the purpose
of hedging foreign currency cash flows with an aggregate notional amount of
$86.8 million. The Company does not enter into any foreign currency contracts
for speculative or trading purposes. Contracts that effectively meet risk
reduction and correlation criteria are accounted for as hedges and, accordingly,
gains and losses from mark-to-market are deferred in the cost basis of the
underlying transaction. In those circumstances when it is not appropriate to
account for contracts as hedges, gains and losses from mark-to-market are
recorded currently in earnings. A hypothetical 10% change in the relevant
currency rates at December 31, 1999 would not result in a material gain or loss.
Additionally, any change in the value of the contracts, real or hypothetical,
should be substantially offset by an inverse change in the value of the
underlying hedged item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Responsibility for Financial Reporting......... F-1
Independent Auditors' Report................................ F-2
Consolidated and Combined Statements of Operations.......... F-3
Consolidated Balance Sheets................................. F-4
Consolidated and Combined Statements of Cash Flows.......... F-5
Consolidated and Combined Statements of Changes in
Shareholders' Investment.................................. F-6
Notes to Consolidated and Combined Financial Statements..... F-7
Quarterly Financial Information (unaudited)................. F-25
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
18
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information relating to directors of the Company under "Board of
Directors" in the Company's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 11, 2000 (the "2000 Proxy Statement"),
which is incorporated herein by reference.
The executive officers of the Company are elected each year by the Board of
Directors at its first meeting following the Annual Meeting of Shareholders to
serve during the ensuing year and until their respective successors are elected
and qualify. There are no family relationships between any of the executive
officers of the Company. The following information indicates the positions and
ages of the Company's executive officers at March 15, 2000 and their business
experience during the prior five years:
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND PRINCIPAL BUSINESS AFFILIATIONS
NAME AGE DURING PAST FIVE YEARS
---- --- -------------------------------------------------------------
<S> <C> <C>
Daniel S. Bishop............... 50 Senior Vice President and General Counsel since October 1999.
Prior thereto, Vice President, General Counsel and Secretary
of Paxar Corporation from November 1997 to October 1999. Vice
President, Strategic Development, Human Resources, General
Counsel and Secretary of Monarch Marking Systems, Inc. from
March 1996 to November 1997. Vice President and Associate
General Counsel of Western Atlas from March 1993 to March
1996.
Larry D. Brady................. 57 President and Chief Operating Officer since August 1999. For
prior business experience, see the description of Directors
in "Board of Directors" in the 2000 Proxy Statement.
Alton J. Brann................. 58 Chairman of the Board and Chief Executive Officer since
October 1997. For prior business experience, see the
description of Directors in "Board of Directors" in the 2000
Proxy Statement.
Charles A. Cusumano............ 53 Vice President, Finance, and Controller since May 1999. Vice
President, Finance, from October 1997 to May 1999. Prior
thereto, Vice President, Finance, of Western Atlas from
October 1996 to October 1997. Vice President and Controller
of Western Atlas from March 1994 to September 1996.
Elmer C. Hull, Jr. ............ 43 Vice President and Treasurer since July 1999. Prior thereto,
Treasurer from October 1998 to July 1999. Vice President,
Finance, of the Company's Landis division from July 1995 to
October 1998. Held various positions with Landis beginning
with Chief Accountant in 1978.
Michael E. Keane............... 44 Senior Vice President and Chief Financial Officer since
October 1997. Prior thereto, Senior Vice President and Chief
Financial Officer of Western Atlas since October 1996. Vice
President and Treasurer of Western Atlas from March 1994 to
September 1996.
Robert G. O'Malley............. 54 Senior Vice President since July 1999 and President of
Intermec Technologies Corporation since June 1999. Prior
thereto, Chief Executive Officer from March 1998 to June 1999
and President from November 1996 to March 1998 of Pinacor,
Inc. Vice President -- Services Marketing of Pinacor from
January 1996 to November 1996. President, MicroAge Data
Services, MCCI, from May 1995 to December 1995. Prior
thereto, held various positions with IBM Corporation since
January 1976.
Charles E. Wolfbauer........... 61 Vice President since October 1997 and President of the
Company's Lamb Technicon Machining Systems division since May
1998 and previously President of the Company's Lamb Technicon
Body & Assembly Systems division from October 1997 to May
1998. Prior thereto, Vice President of Western Atlas Inc.
from May 1994 to October 1997 and President of its Lamb
Technicon, North American Operations from March 1994 to
October 1997.
</TABLE>
19
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION
See the information relating to executive compensation under the captions
"Summary Compensation Table," "Stock Option Information," "Change of Control
Employment Arrangements" and "Retirement Benefits" of the Company's 2000 Proxy
Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information with respect to beneficial ownership of the Company's voting
securities by each director, certain executive officers and all executive
officers and directors as a group, and by any person known to beneficially own
more than 5% of any class of voting security of the Company, under the caption
"Security Ownership by Certain Beneficial Owners and Management" of the
Company's 2000 Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information with respect to certain relationships and related
transactions under the caption "Certain Relationships and Related Transactions"
of the Company's 2000 Proxy Statement, which is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(a)(1) Financial Statements
See Part II, Item 8
(a)(2) Financial Statement Schedules
All schedules and notes specified under Regulation S-X are
omitted because they are either not applicable, not required
or the information called for therein appears in the
consolidated and combined financial statements or notes
thereto.
(a)(3) Executive Compensation Plans and Arrangements 21
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant
during the quarter ended December 31, 1999
(c) Index to Exhibits E-1
</TABLE>
20
<PAGE> 23
UNOVA, INC.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
<TABLE>
<CAPTION>
REPORT WITH WHICH
DESCRIPTION EXHIBIT NO. EXHIBIT WAS FILED
----------- ----------- -----------------
<S> <C> <C>
Employee Benefits Agreement dated October 31, 1997, 10.3 September 30, 1997
between Western Atlas Inc. and UNOVA, Inc. Form 10-Q
Form of Change of Control Employment Agreements with 10.5 September 30, 1997
Alton J. Brann, Michael E. Keane, Norman L. Roberts, Form 10-Q
Larry D. Brady, Robert G. O'Malley and certain other
officers of the Company.
Amendment to the Form of Change of Control Employment 10.6 December 31, 1999
Agreements with Alton J. Brann, Larry D. Brady, Michael Form 10-K
E. Keane, Robert G. O'Malley and certain other officers
of the Company.
Form of Change of Control Employment Agreement with 10.7 December 31, 1999
Charles E. Wolfbauer and certain other officers of the Form 10-K
Company.
Employment Agreement between Intermec Corporation and 10.8 Form 10
Michael Ohanian, dated May 18, 1995, as amended.
Amendment No. 1 to Employment Agreement between 10.9 December 31, 1997
Intermec Corporation and Michael Ohanian, dated Form 10-K
February 28, 1997.
Amendment No. 2 to Employment Agreement between 10.10 December 31, 1997
Intermec Technologies Corporation and Michael Ohanian, Form 10-K
dated February 28, 1998.
Amendment No. 3 to Employment Agreement between 10.11 December 31, 1998
Intermec Corporation and Michael Ohanian, dated May 20, Form 10-K
1998.
Amendment No. 4 to Employment Agreement between 10.12 December 31, 1998
Intermec Corporation and Michael Ohanian, dated Form 10-K
February 28, 1999.
Amendment No. 5 to Employment Agreement between 10.13 June 30, 1999
Intermec Corporation and Michael Ohanian, dated May 18, Form 10-Q
1999.
UNOVA, Inc. Restoration Plan. 10.16 Form 10
UNOVA, Inc. Supplemental Executive Retirement Plan. 10.17 Form 10 Amendment No. 1
Amendment No. 1 to UNOVA, Inc. Supplemental Executive 10.18 September 30, 1998
Retirement Plan, dated September 23, 1998. Form 10-Q
Amendment No. 2 to UNOVA, Inc. Supplemental Executive 10.19 December 31, 1998
Retirement Plan, dated March 11, 1999. Form 10-K
Amendment No. 3 to UNOVA, Inc. Supplemental Executive 10.20 December 31, 1999
Retirement Plan, dated March 15, 2000. Form 10-K
Supplemental Retirement Agreement between UNOVA, Inc. 10.21 Form 10 Amendment No. 1
and Alton J. Brann dated October 1997.
Amendment No. 1 to Supplemental Retirement Agreement 10.22 September 30, 1998
between UNOVA, Inc. and Alton J. Brann, dated September Form 10-Q
23, 1998.
</TABLE>
21
<PAGE> 24
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
REPORT WITH WHICH
DESCRIPTION EXHIBIT NO. EXHIBIT WAS FILED
----------- ----------- -----------------
<S> <C> <C>
Amendment No. 2 to Supplemental Executive Retirement 10.23 December 31, 1998
Agreement between UNOVA, Inc. and Alton J. Brann, dated Form 10-K
March 11, 1999.
Amendment No. 3 to Supplemental Executive Retirement 10.24 December 31, 1999
Agreement between UNOVA, Inc. and Alton J. Brann, dated Form 10-K
March 15, 2000.
Supplemental Executive Retirement Agreement between 10.25 December 31, 1999
UNOVA, Inc. and Larry D. Brady dated March 15, 2000. Form 10-K
Employment Agreement between UNOVA, Inc. and Clayton A. 10.26 Form 10 Amendment No. 1
Williams, dated August 1997.
Amendment No. 1 to Employment Agreement between UNOVA, 10.27 December 31, 1997
Inc. and Clayton A. Williams, dated March 24, 1998. Form 10-K
Amendment No. 2 to Employment Agreement between UNOVA, 10.28 December 31, 1998
Inc. and Clayton A. Williams, dated May 18, 1998. Form 10-K
UNOVA, Inc. 1997 Stock Incentive Plan. 10.29 September 30, 1997
Form 10-Q
UNOVA, Inc. Executive Severance Plan (As Amended 10.31 December 31, 1999
November 18, 1999). Form 10-K
Form of Promissory Notes in favor of the Company given 10.32 September 30, 1997
by certain officers and key employees. Form 10-Q
Board resolution dated September 24, 1997 establishing 10.33 September 30, 1997
the UNOVA, Inc. Incentive Loan Program. Form 10-Q
UNOVA, Inc. Group Executive Survivor Benefit Plan. 10.34 December 31, 1999
Form 10-K
UNOVA, Inc. 1999 Stock Incentive Plan. 10.35 1999 Proxy Statement
UNOVA, Inc. Management Incentive Compensation Plan. 10.36 1999 Proxy Statement
UNOVA, Inc. Executive Medical Benefit Plan. 10.37 December 31, 1998
Form 10-K
Letter Offering Employment to Larry Brady as President 10.38 June 30, 1999
and Chief Operating Officer of UNOVA, Inc., accepted by Form 10-Q
Mr. Brady on June 16, 1999.
Restricted Stock Agreement between UNOVA, Inc. and 10.39 September 30, 1999
Larry Brady. Form 10-Q
Letter Offering Employment to Robert O'Malley as 10.40 December 31, 1999
President of Intermec Technologies Corporation, as Form 10-K
accepted by Mr. O'Malley on May 26, 1999.
</TABLE>
22
<PAGE> 25
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.
UNOVA, INC.
/s/ MICHAEL E. KEANE
--------------------------------------
Michael E. Keane
Senior Vice President and
Chief Financial Officer
March 15, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
/s/ PAUL BANCROFT, III Director March 15, 2000
- --------------------------------------------------------
Paul Bancroft, III
/s/ LARRY D. BRADY Director, President, and March 15, 2000
- -------------------------------------------------------- Chief Operating Officer
Larry D. Brady
/s/ ALTON J. BRANN Director, Chairman of the March 15, 2000
- -------------------------------------------------------- Board, and Chief Executive
Alton J. Brann Officer
/s/ JOSEPH T. CASEY Director March 15, 2000
- --------------------------------------------------------
Joseph T. Casey
/s/ WILLIAM C. EDWARDS Director March 15, 2000
- --------------------------------------------------------
William C. Edwards
/s/ STEPHEN E. FRANK Director March 15, 2000
- --------------------------------------------------------
Stephen E. Frank
/s/ CLAIRE W. GARGALLI Director March 15, 2000
- --------------------------------------------------------
Claire W. Gargalli
/s/ ORION L. HOCH Director March 15, 2000
- --------------------------------------------------------
Orion L. Hoch
/s/ STEVEN B. SAMPLE Director March 15, 2000
- --------------------------------------------------------
Steven B. Sample
/s/ WILLIAM D. WALSH Director March 15, 2000
- --------------------------------------------------------
William D. Walsh
/s/ CHARLES A. CUSUMANO Vice President, Finance, March 15, 2000
- -------------------------------------------------------- and Controller (Chief
Charles A. Cusumano Accounting Officer)
</TABLE>
23
<PAGE> 26
UNOVA, INC.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated and combined financial statements of UNOVA, Inc. and
subsidiaries and related financial information included in this Annual Report,
have been prepared by the Company, whose management is responsible for their
integrity. These statements, which necessarily reflect estimates and judgments,
have been prepared in conformity with generally accepted accounting principles.
The Company maintains a system of internal controls to provide reasonable
assurance that assets are safeguarded and transactions are properly executed and
recorded. As part of this system, the Company has an internal audit staff to
monitor compliance with and the effectiveness of established procedures.
The consolidated and combined financial statements have been audited by Deloitte
& Touche LLP, independent auditors, whose report appears on page F-2.
The Audit and Compliance Committee of the Board of Directors, which consists
solely of directors who are not employees of the Company, meets periodically
with management, the independent auditors and the Company's internal auditors to
review the scope of their activities and reports relating to internal controls
and financial reporting matters. The independent and internal auditors have full
and free access to the Audit and Compliance Committee and meet with the
Committee both with and without the presence of Company management.
/s/ Michael E. Keane
Senior Vice President and
Chief Financial Officer
February 11, 2000
F-1
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
UNOVA, Inc.
Woodland Hills, California
We have audited the accompanying consolidated balance sheets of UNOVA, Inc. and
subsidiaries (as described in Note A) as of December 31, 1999 and 1998, and the
related consolidated and combined statements of operations, changes in
shareholders' investment, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated and combined financial statements present
fairly, in all material respects, the financial position of UNOVA, Inc. and
subsidiaries as of December 31, 1999 and 1998, 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 generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
February 11, 2000
F-2
<PAGE> 28
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Sales and Service Revenues......................... $2,108,749 $1,662,663 $1,426,247
---------- ---------- ----------
Costs and Expenses
Cost of sales and service........................ 1,500,974 1,110,799 981,380
Selling, general and administrative.............. 454,473 383,663 324,405
Depreciation and amortization.................... 65,974 57,043 40,672
Acquired in-process research and development
charges....................................... 211,500
Interest, net.................................... 38,015 25,715 16,689
---------- ---------- ----------
Total Costs and Expenses................. 2,059,436 1,577,220 1,574,646
---------- ---------- ----------
Other Income, Net.................................. 31,523
----------
Earnings (Loss) before Taxes on Income............. 49,313 116,966 (148,399)
Taxes on Income.................................... (19,725) (47,253) (22,968)
---------- ---------- ----------
Net Earnings (Loss)................................ $ 29,588 $ 69,713 $ (171,367)
========== ========== ==========
Basic Earnings (Loss) per Share.................... $ 0.54 $ 1.28 $ (3.17)
========== ========== ==========
Diluted Earnings (Loss) per Share.................. $ 0.54 $ 1.27 $ (3.17)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-3
<PAGE> 29
UNOVA, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 25,239 $ 17,708
Accounts receivable, net of allowance for doubtful
accounts of $20,375 (1999) and $24,021 (1998).......... 596,885 662,885
Inventories, net of progress billings..................... 310,175 336,005
Deferred tax assets....................................... 158,170 141,773
Other current assets...................................... 19,873 21,129
---------- ----------
Total Current Assets.............................. 1,110,342 1,179,500
Property, Plant and Equipment, Net.......................... 270,899 286,171
Goodwill and Other Intangibles, Net of Accumulated
Amortization
of $87,883 (1999) and $70,244 (1998)...................... 399,131 400,164
Other Assets................................................ 123,167 113,381
---------- ----------
Total Assets................................................ $1,903,539 $1,979,216
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities
Accounts payable and accrued expenses..................... $ 509,188 $ 456,812
Payroll and related expenses.............................. 89,309 93,199
Notes payable and current portion of long-term
obligations............................................ 64,002 237,276
---------- ----------
Total Current Liabilities......................... 662,499 787,287
---------- ----------
Long-term Obligations....................................... 365,386 366,487
---------- ----------
Deferred Tax Liabilities.................................... 44,777 42,154
---------- ----------
Other Long-term Liabilities................................. 99,577 81,863
---------- ----------
Commitments and Contingencies...............................
Shareholders' Investment
Preferred stock; 50,000,000 shares authorized.............
Common stock; shares outstanding:
55,551,064 (1999) and 54,942,655 (1998)................ 556 549
Additional paid-in capital................................ 652,157 645,054
Retained earnings......................................... 91,260 61,672
Accumulated other comprehensive loss:
Cumulative currency translation adjustment............. (12,673) (5,850)
---------- ----------
Total Shareholders' Investment.................... 731,300 701,425
---------- ----------
Total Liabilities and Shareholders' Investment.............. $1,903,539 $1,979,216
========== ==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-4
<PAGE> 30
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash and Cash Equivalents at Beginning of Year........... $ 17,708 $ 13,685 $ 149,467
--------- --------- ---------
Cash Flows from Operating Activities:
Net earnings (loss).................................... 29,588 69,713 (171,367)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities (net of
acquisitions):
Acquired in-process research and development charges... 211,500
Depreciation and amortization..................... 65,974 57,043 40,672
Change in prepaid pension costs, net.............. (15,246) (14,620) (11,217)
Deferred taxes.................................... (6,065) (437) 2,162
Gain on sale of property plant and equipment,
net............................................ (1,333) (35,043)
Changes in operating assets and liabilities:
Proceeds from sale of accounts receivable...... 100,000
Accounts receivable............................ (36,741) (109,096) 39,752
Inventories.................................... 24,287 (67,223) (9,167)
Other current assets........................... (1,019) 13,889 (12,540)
Accounts payable and accrued expenses.......... 39,898 69,922 (53,830)
Payroll and related expenses................... (12,587) 13,493 6,238
Other operating activities........................ 7,021 6,823 (1,247)
--------- --------- ---------
Net cash provided by operating activities...... 193,777 4,464 40,956
--------- --------- ---------
Cash Flows from Investing Activities:
Capital expenditures................................... (61,149) (83,776) (30,310)
Proceeds from sale of property, plant and equipment.... 30,356 71,118 7,198
Changes in other assets................................ 8,926 (3,402) (16,987)
Acquisition of businesses, net of cash acquired........ (287,350) (400,754)
Other investing activities............................. 3,914 (1,089) 206
--------- --------- ---------
Net cash used in investing activities.......... (17,953) (304,499) (440,647)
--------- --------- ---------
Cash Flows from Financing Activities:
Repayment of borrowings................................ (288,573) (457,271) (95,607)
Proceeds from borrowings............................... 114,029 754,780 276,698
Dividend paid to Western Atlas Inc. ................... (230,000)
Net transactions with Western Atlas Inc. .............. 190,338
Change in due to Western Atlas Inc. ................... 120,426
Other financing activities............................. 6,251 6,549 2,054
--------- --------- ---------
Net cash provided by (used in) financing
activities................................... (168,293) 304,058 263,909
--------- --------- ---------
Resulting Increase (Decrease) in Cash and Cash Equivalents... 7,531 4,023 (135,782)
--------- --------- ---------
Cash and Cash Equivalents at End of Year................. $ 25,239 $ 17,708 $ 13,685
========= ========= =========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-5
<PAGE> 31
UNOVA, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN
SHAREHOLDERS' INVESTMENT
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ACCUMULATED NET
ADDITIONAL RETAINED OTHER INVESTMENT
COMMON PAID-IN EARNINGS COMPREHENSIVE BY WESTERN
TOTAL STOCK CAPITAL (DEFICIT) INCOME (LOSS) ATLAS
-------- ------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997.............. $574,508 $ 574,508
--------
Comprehensive Loss before Distribution
Date:
Net loss to Distribution Date....... (163,326) (163,326)
Currency translation adjustment to
Distribution Date................. (3,699) (3,699)
--------
Comprehensive Loss before
Distribution Date............... (167,025)
--------
Net transactions with Western Atlas
Inc................................. 190,338 190,338
--------
Distribution of common stock to UNOVA
shareholders......................... $ 545 $601,689 $ (4,413) (597,821)
Comprehensive Loss from Distribution
Date to December 31, 1997:
Net loss from Distribution Date to
December 31, 1997................. (8,041) $(8,041)
Currency translation adjustment from
Distribution Date to December 31,
1997............................... (2,345) (2,345)
--------
Comprehensive Loss from
Distribution Date to December
31, 1997........................ (10,386)
--------
Other................................. 2,054 2,054
-------- ------- -------- ------- -------- ---------
BALANCE, DECEMBER 31, 1997............ 589,489 545 603,743 (8,041) (6,758) -
--------
Comprehensive Income:
Net earnings........................ 69,713 69,713
Currency translation adjustment..... 908 908
--------
Comprehensive Income.............. 70,621
--------
Distribution-related tax benefit...... 34,809 34,809
Issuances of common stock............. 6,506 4 6,502
-------- ------- -------- ------- -------- ---------
BALANCE, DECEMBER 31, 1998............ 701,425 549 645,054 61,672 (5,850) -
--------
Comprehensive Income:
Net earnings........................ 29,588 29,588
Currency translation adjustment..... (6,823) (6,823)
--------
Comprehensive Income.............. 22,765
--------
Issuances of common stock............. 7,110 7 7,103
-------- ------- -------- ------- -------- ---------
BALANCE, DECEMBER 31, 1999............ $731,300 $ 556 $652,157 $91,260 $(12,673) $ -
======== ======= ======== ======= ======== =========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-6
<PAGE> 32
UNOVA, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
General Information. UNOVA, Inc. and subsidiaries ("UNOVA" or the "Company")
became an independent public company on October 31, 1997 (the "Distribution
Date"), when all of the UNOVA common stock was distributed to holders of common
stock of Western Atlas Inc. ("WAI"), in the form of a dividend (the
"Distribution"). Every WAI shareholder of record on October 24, 1997 was
entitled to receive one share of UNOVA common stock for each WAI share of common
stock held.
Nature of Operations. UNOVA is an industrial technologies company providing
global customers with solutions for improving their efficiency and productivity.
The Company operates in two primary businesses: Automated Data Systems ("ADS")
and Industrial Automation Systems ("IAS"). The IAS businesses are further
disaggregated into two reportable segments based on their respective markets
served: Integrated Production Systems ("IPS") and Advanced Manufacturing
Equipment ("AME"). The ADS business segment comprises mobile computing and
wireless communication systems products and services, principally serving the
industrial market. Customers are global distribution and transportation
companies, food and beverage operations, manufacturing industries, health care
providers and government agencies. The IPS segment includes integrated
manufacturing systems, body welding and assembly systems, and precision grinding
and abrasives operations, primarily serving the worldwide automotive, off-road
vehicle, and diesel engine industries. The AME segment comprises machining
systems and stand alone machine tools primarily serving the aerospace and
manufacturing industries.
Principles of Consolidation and Combination. The consolidated and combined
financial statements include the accounts of UNOVA, Inc. and its wholly owned
subsidiaries and companies in which UNOVA has a controlling interest.
Investments in companies over which UNOVA has influence but not a controlling
interest are accounted for using the equity method. Investments in other
companies are carried at cost. All material intercompany transactions have been
eliminated.
The combined financial statements for all periods presented prior to the
Distribution Date include the historical accounts and operations of the former
WAI businesses that comprised the Company at the Distribution Date. They
include, at their historical amounts, the assets, liabilities, revenues and
expenses directly related and those allocated to these businesses. A pro-rata
share of certain general and administrative corporate costs incurred by WAI
prior to the Distribution Date have been allocated to the Company based on the
relative ratio of projected costs to be incurred by WAI and the Company
individually. Such costs include general management, legal, tax, treasury,
insurance, financial audit, financial reporting, human resources and real estate
services.
The Company's debt prior to the Distribution Date includes an allocation of a
portion of WAI's corporate debt, based on the Company's estimated past capital
requirements. Interest expense related thereto has been included in the
Company's statements of operations and cash flows at WAI's estimated blended
historical rate of interest on long-term borrowings of 7.5%.
Management believes the above stated allocations were made on a reasonable
basis; however, they do not necessarily reflect the results of operations which
would have occurred had the Company been an independent entity nor are they
necessarily indicative of future expenses or income (see Note J).
Use of Estimates in the Preparation of Financial Statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses for each reported period. Actual results could differ from
those estimates.
Cash Equivalents. The Company considers time deposits and commercial paper
purchased within three months of their date of maturity to be cash equivalents.
F-7
<PAGE> 33
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out or last-in, first-out method.
Revenue Recognition. Revenues are generally recognized when products are shipped
or as services are performed. Revenues and profits on long-term contracts are
recorded under the percentage-of-completion, cost to cost method of accounting.
Any anticipated losses on contracts are charged to operations as soon as they
are determinable. General and administrative costs are expensed as incurred.
Research and Development. Research and development costs are charged to expense
as incurred. Total expenditures on research and development activities amounted
to $74.1 million, $71.5 million and $53.1 million, in the years ended December
31, 1999, 1998, and 1997, respectively. The Company expensed a total of $211.5
million of acquired in-process research and development in 1997. See further
discussion in Note B.
Other Income, Net. In the year ended December 31, 1998, other income, net
consists of a gain of $35.5 million recognized on the sale of UNOVA's corporate
headquarters building, offset by other non-operating expenses.
Property, Plant and Equipment. Property, plant and equipment is stated at cost.
Depreciation, computed generally by the straight-line method for financial
reporting purposes, is provided for over the estimated useful lives of the
related assets.
Income Taxes. The Company accounts for income taxes using the asset and
liability approach, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. This
method also requires the recognition of future tax benefits such as net
operating loss carryforwards and other tax credits. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered. Valuation allowances are provided for deferred tax assets if it is
more likely than not that they will be realized.
The Company's domestic operations and their foreign branches were included in
WAI's consolidated tax returns (for periods prior to the Distribution Date). Any
tax benefits related to these operations have been recorded in these financial
statements if such were realizable by WAI on a consolidated basis. Foreign
entities included in these financial statements pay taxes in accordance with
local laws and regulations.
Concentrations of Credit Risk. Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. The Company places its cash and cash
equivalents with high credit quality institutions and limits the amount of
credit exposure with any one institution. Concentrations of credit risk with
respect to trade receivables are limited because a large number of
geographically diverse customers make up the Company's customer base, thus
spreading the credit risk. The Company evaluates the creditworthiness of its
customers and maintains an allowance for anticipated losses.
No customer was significant to the Company's revenues in 1999 and 1998. In 1997,
one automotive customer represented 13% of revenues.
Foreign Currencies. The currency effects of translating the financial statements
of the Company's foreign entities that operate in local currency environments
are included in the "cumulative currency translation adjustment" component of
accumulated other comprehensive income (loss). Currency transaction gains and
losses are included in the consolidated and combined statements of operations.
Currency transaction net losses for the year ended December 31, 1999 were $3.0
million, net of taxes. Currency transaction gains and losses for the years ended
December 31, 1998 and 1997 were not significant.
F-8
<PAGE> 34
NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments. When appropriate, the Company may attempt to limit its
exposure to changing foreign exchange rates by entering into short-term foreign
currency exchange contracts. As of December 31, 1999, the Company held
short-term contracts for the purpose of hedging foreign currency cash flows with
an aggregate notional amount of $86.8 million. The Company does not enter into
any foreign currency contracts for speculating or trading purposes. Contracts
that effectively meet risk reduction and correlation criteria are accounted for
as hedges and, accordingly, gains and losses from mark-to-market are deferred in
the cost basis of the underlying transaction. In those circumstances when it is
not appropriate to account for contracts as hedges, gains and losses from
mark-to-market are recorded currently in earnings.
Goodwill and Other Intangibles. Goodwill is amortized on a straight-line basis
over periods ranging from 15 to 40 years. Other intangibles are amortized on a
straight-line basis over periods ranging from 4 to 18 years.
Impairment of Long-Lived Assets and Goodwill. The Company assesses the
recoverability of long-lived assets and goodwill when circumstances indicate
that the carrying amount of an asset may not be fully recoverable. An impairment
is recorded to writedown long-lived assets and goodwill to their estimated fair
value if the undiscounted cash flows estimated to be generated by the asset are
less than its carrying amount.
Environmental Costs. Provisions for environmental costs are recorded when the
Company determines its responsibility for remedial efforts and such amounts are
reasonably estimable.
New Accounting Pronouncements. In June 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133 (an amendment of FASB Statement No. 133). Under the
provisions of this statement, the effective date of Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS No. 133"), is deferred to fiscal years beginning after June
15, 2000. The Company is currently evaluating the impact of adopting SFAS No.
133.
Reclassifications. Certain prior year amounts have been reclassified to conform
to the current year presentation.
F-9
<PAGE> 35
NOTE B: BUSINESS ACQUISITIONS AND INVESTMENTS
ACQUISITIONS AND INVESTMENTS
In October 1998, UNOVA acquired the machine tool business of Cincinnati Milacron
for approximately $187.3 million in cash. The division, which was renamed
Cincinnati Machine, a UNOVA Company ("Cincinnati Machine"), is engaged in the
design, manufacture, sale and servicing of standard and advanced computer
numerically controlled metal cutting machine tools for the industrial component,
aerospace, job shop, fluid power and automotive industries. The acquisition was
funded using the Company's committed credit facility and was accounted for under
the purchase method of accounting. Accordingly, the acquisition cost has been
allocated to the net assets acquired based on their relative fair values. In
conjunction with the acquisition management began to formulate a plan to cease
domestic manufacturing of certain machines models, and to terminate employees at
domestic and foreign locations. During 1999, the Company adjusted the
preliminary allocation of the purchase price to include approximately $19.8
million of additional liabilities for costs to exit the manufacturing activities
and terminate employees, and $4.1 million for additional postretirement
obligations and pension liabilities. The acquisition resulted in $17.8 million
allocated to goodwill that is being amortized over 25 years using the
straight-line method. At December 31, 1999, the Company has substantially
completed the process of exiting these activities and terminating employees.
During the third quarter of 1998, UNOVA acquired R&B Machine Tool Company ("R&B
Machine"), a specialty machine and retooling company. This acquisition was
funded using short-term uncommitted credit lines. In June 1998, the Company
acquired the radio frequency identification ("RFID") business unit of Amtech
Corporation known as the Amtech Systems Division ("Amtech Systems"). Amtech
Systems is a supplier of wireless data technologies for electronic toll
collection, rail and motor fleet tracking, and access control to parking and
other structures. The Company had previously purchased $10.0 million of Amtech
Corporation common stock which was applied towards the purchase price of Amtech
Systems. Although these acquisitions are integral to the Company's business
strategy, they are not material in the aggregate to UNOVA's consolidated
financial statements.
The Company acquired Norand Corporation ("Norand") on March 3, 1997, and United
Barcode Industries ("UBI") on April 4, 1997. Norand designs, manufactures and
markets mobile computing systems and wireless data communications networks using
radio frequency technology. UBI, a European-based ADC company, manufactures bar
code on-demand printers with labels and ribbons as well as hand-held scanners.
These two companies were consolidated in Intermec Technologies Corporation, the
Company's Automated Data Systems segment. Both acquisitions were funded by
Western Atlas borrowings and cash on hand, and have been accounted for under the
purchase method of accounting. Accordingly, the acquisition costs (approximately
$280.0 million and $107.0 million for Norand and UBI, respectively) were
allocated to the net assets acquired based upon their relative fair values. Such
allocation resulted in $203.3 million assigned to acquired in-process research
and development activities; $154.1 million assigned to goodwill (amortized over
25 years using the straight-line method); and $29.0 million assigned to other
intangibles (amortized over periods ranging from four to 18 years using the
straight-line method). During the second quarter of 1997, the Company expensed
the amounts assigned to acquired in-process research and development projects
that had not yet achieved technological feasibility in accordance with Financial
Accounting Standards Board Interpretation No. 4 ("FIN 4").
The Company acquired the remaining 51% of Honsberg, a German machine tool maker,
in the second quarter of 1997. The initial 49% of Honsberg was acquired during
1995. The Company purchased the stamping, engineering and prototyping division
of Modern Prototype Company in September 1997. In December 1997, UNOVA acquired
Goldcrown Machinery, Inc., a manufacturer of precision centerless grinding
systems. Although these acquisitions are integral to the Company's business
strategy, they are not material in the aggregate to UNOVA's consolidated and
combined financial statements.
In December 1997, the Company acquired radio frequency identification ("RFID")
technology from IBM Corporation. In connection with this acquisition, the
Company recorded a $13.0 million after-tax charge in 1997 to expense acquired
in-process research and development in accordance with FIN 4 and the
F-10
<PAGE> 36
NOTE B: BUSINESS ACQUISITIONS AND INVESTMENTS (CONTINUED)
anticipated loss on a related long-term contract. The Company is using this
acquired technology to further develop its own RFID technology.
CASH FLOW DISCLOSURE
The fair values of acquired assets and liabilities, at their respective
acquisition dates, are presented below for supplemental cash flow disclosure
purposes. The 1998 balances include the preliminary allocations to the acquired
assets and liabilities of Cincinnati Machine, R&B Machine and Amtech. The 1997
balances include Norand, UBI, Honsberg, Modern Prototype and Goldcrown
Machinery.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
--------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Current assets.............................................. $263,266 $ 164,153
Property, plant and equipment............................... 111,593 29,093
Goodwill and intangibles.................................... 50,983 201,380
Other non-current assets.................................... 17,864 55,956
Total debt.................................................. (29,221) (84,163)
Other current liabilities................................... (85,049) (146,724)
Other non-current liabilities............................... (9,154) (11,642)
In-process research and development......................... 203,300
-------- ---------
Purchase price.............................................. 320,282 411,353
Less non-cash payment of Amtech common stock................ (10,000)
Less cash acquired.......................................... (22,932) (10,599)
-------- ---------
Cash paid for acquisitions, net of cash acquired............ $287,350 $ 400,754
======== =========
</TABLE>
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST
Cash and cash equivalents amounted to $25.2 million and $17.7 million at
December 31, 1999 and December 31, 1998, respectively, and consisted mainly of
time deposits and commercial paper.
Notes payable and long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
--------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Borrowings under credit facility, with interest at 7.0%
(1999) and 5.4% (1998), due 2002.......................... $150,000 $ 200,000
Debentures, with interest at 6.875%, due 2005............... 100,000 100,000
Debentures, with interest at 7.00%, due 2008................ 100,000 100,000
Notes payable, with average interest at 4.5% (1999) and 5.3%
(1998), due 2000.......................................... 62,888 186,024
Industrial revenue bonds, with average interest at 5.3%
(1999) and 5.5% (1998), due July 2005..................... 13,500 13,500
Other, with average interest at 7.1% (1999) and 6.9% (1998),
due through 2002.......................................... 3,000 4,239
-------- ---------
429,388 603,763
Less notes payable and current portion of long-term
obligations............................................... (64,002) (237,276)
-------- ---------
Long-term obligations....................................... $365,386 $ 366,487
======== =========
</TABLE>
F-11
<PAGE> 37
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED)
Notes payable and long-term obligations at December 31, 1999 mature as follows:
<TABLE>
<CAPTION>
(THOUSANDS
YEAR ENDING DECEMBER 31, OF DOLLARS)
------------------------ ------------
<S> <C>
2000........................................................ $ 64,002
2001........................................................ 179
2002........................................................ 150,003
2003........................................................
2004........................................................
Thereafter.................................................. 215,204
--------
$429,388
========
</TABLE>
The Company maintains two unsecured committed credit facilities with a group of
banks from which it may borrow up to an aggregate of $500.0 million. Under these
facilities the Company may borrow at the Prime Rate, the London Inter Bank
Offered Rate, rates borne by certificates of deposit or other rates that are
mutually acceptable to the banks and the Company, plus a respective rate margin,
that varies based on outstanding borrowing levels and the Company's credit
rating. The $400 million credit facility expires in September 2002 and had
outstanding borrowings of $150.0 million at December 31, 1999. The $100 million
credit facility expires in November 2000 and had no outstanding borrowings at
December 31, 1999. At February 11, 2000, $300.0 million of these credit
facilities was available for the Company's general use. In addition, the Company
maintains other uncommitted credit facilities and lines of credit of which $35.4
million was available to the Company at February 11, 2000.
The Company is in compliance with its various debt covenants the most
restrictive of which relate to the Company's incurrence of debt, mergers,
consolidations and sale of assets and which require the Company to satisfy
certain leverage ratios.
In June 1999, a financing subsidiary of UNOVA entered into an agreement to sell
undivided interests in a revolving pool of the Company's trade accounts
receivable to a financial institution which issues its short-term debt backed by
receivables acquired in similar transactions. The financing subsidiary purchased
these receivables, irrevocably and without recourse, from the Company under a
separate agreement. Under the terms of these agreements, UNOVA is entitled to
receive up to $100.0 million of proceeds from the sale of undivided interests in
the receivables. At December 31, 1999, net proceeds from these agreements were
approximately $100.0 million and have been reflected as a reduction of accounts
receivable on the consolidated balance sheet. Costs associated with these
agreements were $2.6 million for the year ended December 31, 1999 and have been
classified as selling, general and administrative expenses.
In March 1998, the Company sold $200.0 million principal amount of senior
unsecured debt in an underwritten offering. The debt comprised $100.0 million of
6.875% seven-year notes, at a price of 99.867 and $100.0 million of 7.00%
ten-year notes, at a price of 99.856. Including underwriting fees, discounts and
effects of forward rate agreements, the effective interest rates on the
seven-year and ten-year notes are 7.125% and 7.175%, respectively. The net
proceeds of approximately $198.0 million were used by the Company to repay
outstanding short-term debt.
Financial instruments on the Company's consolidated balance sheets include
accounts receivable, notes payable, and accounts payable which approximate their
market values due to their short maturity. The $365.4 million of long-term
obligations had an estimated fair market value of $333.3 million as of December
31, 1999, based primarily on quoted market prices. UNOVA also has
off-balance-sheet guarantees and letter-of-credit reimbursement agreements with
respect to liabilities totaling a maximum amount of $381.6 million at December
31, 1999. These agreements primarily relate to the guarantee of performance on
contracts.
F-12
<PAGE> 38
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED)
Net interest expense is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Interest expense........................................ $38,867 $28,182 $20,234
Interest income......................................... (852) (2,467) (3,545)
------- ------- -------
Net interest expense.................................... $38,015 $25,715 $16,689
======= ======= =======
</TABLE>
The Company made interest payments to non-related parties of $39.5 million,
$25.3 million, and $6.6 million in the years ended December 31, 1999, 1998 and
1997, respectively. Capitalized interest costs in each of the periods presented
were not material. Interest expense for the year ended December 31, 1997
includes $12.0 million based on a rate of 7.5% on the allocated portion of WAI
corporate debt.
NOTE D: ACCOUNTS RECEIVABLE AND INVENTORIES
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Trade receivables, net...................................... $224,876 $365,232
Receivables related to long-term contracts
Amounts billed............................................ 104,356 125,920
Unbilled costs and accrued profit on progress completed
and retentions......................................... 267,653 171,733
-------- --------
Accounts receivable, net.................................... $596,885 $662,885
======== ========
</TABLE>
The unbilled costs and retentions at December 31, 1999 are expected to be
entirely billed and collected during 2000.
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Raw materials and work in process........................... $237,822 $232,010
Finished goods.............................................. 44,336 82,434
Inventoried costs related to long-term contracts............ 51,834 56,823
Less progress billings...................................... (23,817) (35,262)
-------- --------
Inventories, net of progress billings....................... $310,175 $336,005
======== ========
</TABLE>
F-13
<PAGE> 39
NOTE E: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Property, plant and equipment, at cost
Land..................................................... $ 20,186 $ 27,313
Buildings and improvements............................... 107,417 120,142
Machinery and equipment.................................. 344,626 316,932
Less accumulated depreciation.............................. (201,330) (178,216)
--------- ---------
Net property, plant and equipment.......................... $ 270,899 $ 286,171
========= =========
</TABLE>
Depreciation expense was $47.9 million, $40.9 million and $27.4 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
The range of estimated useful lives of the major classes of assets are:
<TABLE>
<S> <C>
Buildings................................................... 10-45 years
Building improvements....................................... 2-20 years
Machinery and equipment..................................... 2-15 years
</TABLE>
As of December 31, 1999, the Company deferred $13.3 million of gains related to
sale-leaseback transactions. These deferred gains are being amortized over the
terms of the related leases. Minimum rental commitments (including commitments
to a related party of $8.14 million, see Note J), net of deferred gain
amortization, under noncancellable operating leases were as follows at December
31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING LEASES
----------- ----------------
(THOUSANDS OF DOLLARS)
<S> <C>
2000........................................................ $ 21,406
2001........................................................ 14,914
2002........................................................ 11,036
2003........................................................ 8,413
2004........................................................ 7,283
Thereafter.................................................. 45,001
--------
$108,053
========
</TABLE>
Rental expense for operating leases, including amounts for short-term leases
with nominal, if any, future rental commitments, was $27.1 million, $20.5
million and $17.9 million, for the years ended December 31, 1999, 1998 and 1997,
respectively.
Proceeds totaling approximately $25.5 million were received in 1999 on the
sale-leaseback of an operating facility. In 1998, $71.1 million was received on
the sale of the Company's corporate headquarters building and two other
buildings, and the sale-leaseback of an operating facility.
F-14
<PAGE> 40
NOTE F: SHAREHOLDERS' INVESTMENT
CAPITAL STOCK
At December 31, 1999, there were authorized 250 million shares of common stock,
par value $0.01, and 50 million shares of preferred stock, par value $0.01.
SHAREHOLDER RIGHTS PLAN
In September 1997, the Company's Board of Directors adopted a Share Purchase
Rights Plan (the "Plan") and, in accordance with such Plan, declared a dividend
of one preferred share purchase right (the "Right") for each outstanding share
of Company common stock, payable to shareholders of record on October 31, 1997.
The Plan will cause substantial dilution to a party that attempts to acquire the
Company in a manner or on terms not approved by the Board of Directors. Each
Right entitles the holder to purchase from the Company one one-hundredth of a
share of Series A Preferred Stock at a price of seventy dollars. The Rights
become exercisable if a person other than a person which presently holds more
than 15 percent of the Company's common stock acquires 15 percent or more, or
announces a tender offer for 15 percent or more, of the Company's outstanding
common stock. If a person acquires 15 percent or more of the Company's
outstanding common stock, each right will entitle the holder to purchase the
Company's common stock having a market value of twice the exercise price of the
Right. The Rights, which expire in September 2007, may be redeemed by UNOVA at a
price of one cent per Right at any time prior to a person acquiring 15 percent
or more of the outstanding common stock.
EARNINGS PER SHARE
For the years ended December 31, 1999 and 1998, basic earnings per share is
calculated using the weighted average number of common shares outstanding for
the period while diluted earnings per share is computed on the basis of the
weighted average number of common shares outstanding plus the dilutive effect of
outstanding stock options using the "treasury stock" method. For the year ended
December 31, 1997, basic earnings per share is calculated using the weighted
average of the number of shares outstanding for post-Distribution Date periods
and the outstanding shares of WAI common stock at June 30, 1997 for the period
prior to the Distribution Date, while diluted earnings per share is computed by
adding the dilutive effect of outstanding stock options using the "treasury
stock" method to the basic weighted average balance.
Shares used for basic and diluted earnings per share were computed as follows
for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares -- Basic........ 55,110,655 54,620,208 54,056,243
Dilutive effect of stock options............... 8,863 82,859
---------- ---------- ----------
Weighted average shares -- Diluted............. 55,119,518 54,703,067 54,056,243
========== ========== ==========
</TABLE>
At December 31, 1999 and 1998, Company employees and directors held options to
purchase 5,524,700 and 3,937,750 shares, respectively, of Company common stock
that were antidilutive to the diluted earnings per share computation. These
options could become dilutive in future periods if the average market price of
the Company's common stock exceeds the exercise price of the outstanding
options.
F-15
<PAGE> 41
NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED)
STOCK AWARDS
The UNOVA, Inc. 1999 and 1997 Stock Incentive Plans (the "Stock Incentive
Plans," collectively) provide for the grant of incentive awards to officers and
other key employees. Incentive awards may be granted in the form of stock
options, with or without related stock appreciation rights, or in the form of
restricted stock. Under the Stock Incentive Plans, stock options may not be
granted at a price less than the market value of the Company's common stock on
the date of grant. The Stock Incentive Plans options generally vest in equal
increments over five years. The Director Stock Option and Fee Plan (the
"Director Plan") provides for the grant of stock options to the Company's
non-employee directors. Under the Director Plan, stock options are granted
annually at the market value of the Company's common stock on the date of grant.
The number of options granted annually is fixed by the Director Plan. Such
options become fully exercisable on the first anniversary of their grant. Under
the Stock Incentive Plans and Director Plan, there were 1,570,002 options
exercisable and 2,534,811 options available for grant as of December 31, 1999.
The following table summarizes the activity of the Company's stock option plans:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ----------------
<S> <C> <C>
1997
Granted.................................................. 2,504,500 $18.80
---------
Outstanding at December 31, 1997........................... 2,504,500 18.80
1998
Granted.................................................. 1,706,200 16.97
Canceled................................................. (255,950) 18.37
---------
Outstanding at December 31, 1998........................... 3,954,750 18.04
1999
Granted.................................................. 2,209,000 14.36
Canceled................................................. (190,050) 18.07
---------
Outstanding at December 31, 1999........................... 5,973,700 16.67
=========
</TABLE>
Outstanding stock option data as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
---------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$12.38 to
$16.59........ 3,622,200 9.38 $15.21 423,700 $16.52
17.19 to
22.00........ 2,351,500 7.90 18.92 1,146,302 18.81
--------- ---- ------ --------- ------
5,973,700 8.80 $16.67 1,570,002 $18.20
========= ==== ====== ========= ======
</TABLE>
F-16
<PAGE> 42
NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED)
The weighted-average fair value of stock options granted during 1999, 1998 and
1997 were $6.33, $7.10, and $7.76 per option, respectively. The fair value of
each stock option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.88%, 4.63% and 5.80%; expected life of five years for each
year; and expected volatility of 40.07%, 39.60% and 36.00%. The 1999 and 1998
expected volatility was determined from historical UNOVA stock price
fluctuations, while the 1997 expected volatility was determined from historical
industry stock price fluctuations. There is no assurance that the assumptions
used in determining the fair values of stock options will prove true in the
future. The actual value of the options depends on several factors, including
the actual market price of the common stock on the date of exercise. Changes in
any of these factors as well as fluctuations in the market price of the
Company's common stock will cause the actual value of these options to vary from
the theoretical value indicated above.
In 1999, the Company granted 109,585 shares of restricted stock to an officer
under the provisions of the 1999 Stock Incentive Plan. The fair value at the
grant date of the restricted stock (without regard to restrictions on transfer),
which vests in installments in 2002, 2003, and 2004, was $12.84 per share. The
unearned portion of this grant is being amortized as compensation expense on a
straight-line basis over the vesting period and was not material for the year
ended December 31, 1999.
EMPLOYEE STOCK PURCHASE PLAN
In January 1998, UNOVA adopted an Employee Stock Purchase Plan under which the
Company is authorized to sell up to five million shares of common stock to its
eligible full-time employees. The purchase price of the stock is 85% of the
lower of the market price on the first day or last day of the applicable
offering period, which is normally six months in duration. In 1999 and 1998,
employees purchased 496,450 and 433,506 shares, respectively. The
weighted-average fair value of purchase rights granted in 1999 and 1998 was
$4.42 per share and $5.14 per share, respectively. The fair value of the stock
purchase rights were determined using the following weighted-average assumptions
in 1999 and 1998, respectively; risk-free interest rate of 4.63% for each year;
expected life equal to the applicable offering periods for each year; and
expected volatility of 40.07% in 1999 and 39.60% in 1998. As previously noted,
the actual value of purchase rights may vary from the theoretical value
determined using the Black-Scholes option pricing model.
PRO FORMA COMPENSATION COST DISCLOSURE
The Company accounts for its stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, under which no compensation cost has been recognized at the grant of
stock options. Had compensation cost for these plans been determined consistent
with Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, the Company's pro forma net income (loss) and diluted
earnings (loss) per share for 1999, 1998, and 1997 would have been $22.8 million
and $0.41, $64.6 million and $1.18, and $(173.6) million and $(3.21),
respectively.
F-17
<PAGE> 43
NOTE G: TAXES ON INCOME
Earnings (loss) before taxes on income by geographic area are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
United States....................................... $44,113 $ 90,976 $(113,075)
Other nations....................................... 5,200 25,990 (35,324)
------- -------- ---------
$49,313 $116,966 $(148,399)
======= ======== =========
</TABLE>
Taxes on income consist of the following provisions (benefits):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Currently Payable:
U.S. taxes........................................ $ 4,964 $ 20,416 $ 13,821
International taxes............................... 3,849 12,451 10,124
------- -------- ---------
8,813 32,867 23,945
------- -------- ---------
Deferred:
U.S. taxes........................................ 10,336 13,689 242
International taxes............................... 576 697 (1,219)
------- -------- ---------
10,912 14,386 (977)
------- -------- ---------
$19,725 $ 47,253 $ 22,968
======= ======== =========
</TABLE>
Deferred taxes result from the effect of transactions which are recognized in
different periods for financial and tax reporting purposes. The primary
components of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------- --------------------
ASSET LIABILITY ASSET LIABILITY
-------- --------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Accrued liabilities................................. $ 40,355 $ 56,863
Receivables and inventories......................... 22,232 18,872
Retiree medical benefits............................ 12,680 10,176
Intangibles......................................... 13,473 12,963
Tax credit carryforwards............................ 23,419 6,395
Deferred income..................................... 9,244 2,718
Net operating loss carryforwards.................... 54,830 41,511
Pensions............................................ $28,048 $23,588
Accelerated depreciation............................ 16,729 18,566
Other items......................................... 1,327 1,220
-------- ------- -------- -------
Total before valuation allowance.................... 177,560 44,777 150,718 42,154
Valuation allowance................................. (19,390) (8,945)
-------- ------- -------- -------
$158,170 $44,777 $141,773 $42,154
======== ======= ======== =======
</TABLE>
F-18
<PAGE> 44
NOTE G: TAXES ON INCOME (CONTINUED)
The Company has available at December 31, 1999, a net operating tax loss
carryforward in the United States of approximately $67.8 million. Approximately
$7.7 million and $13.9 million of the net operating tax loss carryforwards will
expire in 2010 and 2011, respectively. Approximately $4.5 million, $25.1 million
and $16.6 million of the remaining net operating tax loss carryforwards will
expire in 2017, 2018 and 2019, respectively.
The Company has foreign tax credit carryforwards of $2.5 million at December 31,
1999 to offset future tax liability in the United States through 2004. The
Company also has general business credit and other tax credits carryforward of
approximately $20.9 million to offset future tax liability in the United States
through 2019.
At December 31, 1999, the Company has foreign net operating tax loss
carryforwards of $76.5 million. Valuation allowances of $19.4 million and $8.9
million, as of December 31, 1999 and 1998, respectively, have been provided for
deferred income tax benefits related to the foreign loss carryforwards that may
not be realized. The valuation allowance for each year includes $4.4 million
related to the acquired German net operating loss carryforwards; any tax
benefits subsequently recognized for the acquired German net operating loss
carryforwards will be allocated to goodwill.
The following is a reconciliation of income taxes at the U.S. statutory rate to
the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
-------- ------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Tax at U.S. statutory rate................................ $ 17,260 $40,938 $(51,940)
Nondeductible acquired in-process research and
development............................................. 71,050
State income taxes net of federal benefit................. 2,998 3,055 1,625
Amortization of nondeductible goodwill.................... 4,852 4,272 4,431
Tax credits and FSC benefit............................... (13,870) (3,276) (1,250)
Foreign earnings (losses) taxed at other than U.S. statutory rate... 6,174 4,240 (223)
Other items............................................... 2,311 (1,976) (725)
-------- ------- --------
$ 19,725 $47,253 $ 22,968
======== ======= ========
</TABLE>
The Company made net tax payments of $13.7 million, $4.5 million and $44.4
million in the years ended December 31, 1999, 1998 and 1997, respectively.
The Company has provided for federal income taxes and foreign withholding taxes
on the undistributed earnings of foreign subsidiaries.
F-19
<PAGE> 45
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company has retirement and pension plans which cover most of its employees.
Most of the Company's U.S. employees are covered by a contributory defined
benefit plan, under which annual contributions are made to the extent such
contributions are actuarially determined to adequately fund the plan. Certain of
the Company's non-U.S. subsidiaries also have retirement plans for employees.
There are also defined contribution voluntary savings programs generally
available for U.S. employees, which are intended to qualify under Sections
401(a) and 401(k) of the Internal Revenue Code. These plans are designed to
enhance the retirement programs of participating employees. Under these plans,
the Company matches up to 50% of a certain portion of participants'
contributions.
U.S. PENSION PLANS
The following table sets forth the change in benefit obligations and plan assets
of the Company's U.S. pension plans and the amounts recognized in the Company's
balance sheets.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation at beginning of year................... $ 181,842 $151,649
Service cost.............................................. 9,948 6,140
Interest cost............................................. 12,989 10,982
Plan participants' contributions.......................... 621 431
Actuarial loss (gain)..................................... (1,604) 22,659
Benefits paid............................................. (10,440) (10,019)
--------- --------
Benefit obligation at end of year......................... 193,356 181,842
--------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............ 316,241 345,347
Actual return on plan assets.............................. 148,407 (11,858)
Plan participants' contributions.......................... 621 431
Benefits paid............................................. (9,975) (9,554)
Spin-off related adjustment............................... (8,125)
--------- --------
Fair value of plan assets at end of year.................. 455,294 316,241
--------- --------
Funded status............................................. 261,938 134,399
Unrecognized net actuarial gain........................... (190,750) (76,901)
Unrecognized prior service cost........................... 3,735 4,201
Unrecognized transition asset............................. (7,468) (9,381)
--------- --------
Prepaid pension cost...................................... $ 67,455 $ 52,318
========= ========
</TABLE>
F-20
<PAGE> 46
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
The preceding table includes prepaid pension cost presented net of pension
liabilities for plans in which accumulated benefits exceed plan assets. As of
December 31, 1999 and 1998, these liabilities amounted to $21.2 million and
$17.1 million, respectively.
Actuarial assumptions for the Company's U.S. defined benefit plans included an
expected long-term rate of return on plan assets of 9.25% for fiscal years 1999
and 1998. The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.50% and 7.00% at
December 31, 1999 and 1998, respectively. The rate of increase in future
compensation levels was 4.50% at December 31, 1999 and 1998.
Plan assets consist primarily of equity securities and U.S. Government
securities. The excess of plan assets over the projected benefit obligation at
August 1, 1986 (when the Company adopted SFAS No. 87) and subsequent
unrecognized gains and losses are fully amortized over the average remaining
service period of active employees expected to receive benefits under the plans,
generally 15 years.
A summary of the components of net periodic pension income for the U.S. defined
benefit plans and defined contribution plans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC PENSION INCOME
Service cost...................................... $ 9,948 $ 6,140 $ 5,988
Interest cost..................................... 12,989 10,982 10,075
Expected return on plan assets.................... (32,179) (25,531) (20,784)
Amortization of prior service cost................ 466 461 406
Recognized net actuarial gain..................... (3,993) (4,313) (3,043)
Amortization of transition asset.................. (2,477) (2,477) (2,477)
-------- -------- --------
(15,246) (14,738) (9,835)
Defined contribution plans........................ 5,808 4,500 4,160
-------- -------- --------
Net periodic pension income....................... $ (9,438) $(10,238) $ (5,675)
======== ======== ========
</TABLE>
NON-U.S. PENSION PLANS
For the principal non-U.S. pension plans located in the United Kingdom and
Germany, the weighted-average discount rate used was approximately 6.49% at
December 31, 1999. The rate of increase in future compensation used was
approximately 3.35%, and the rate of return on assets was 8.50% at December 31,
1999.
Pension costs for non-U.S. pension plans were not material for any of the
periods presented herein. The actuarial present value of projected benefits at
December 31, 1999 was $111.1 million compared with net assets available for
benefits of $128.7 million.
F-21
<PAGE> 47
NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED)
OTHER POSTRETIREMENT BENEFITS
In addition to pension benefits, certain of the Company's U.S. employees are
covered by postretirement health care and life insurance benefit plans provided
by UNOVA. These benefit plans are unfunded. The following table sets forth the
change in benefit obligation of the Company's other postretirement benefits and
amounts recognized in the Company's balance sheets.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CHANGE IN POSTRETIREMENT BENEFIT OBLIGATIONS
Benefit obligation at beginning of year................... $ 40,408 $ 27,789
Service cost.............................................. 928 292
Interest cost............................................. 2,785 2,037
Acquisitions.............................................. 940 11,423
Actuarial (gain) loss..................................... (4,227) 104
Benefits paid............................................. (2,183) (1,237)
-------- --------
Benefits obligation at end of year........................ 38,651 40,408
-------- --------
Funded status............................................. (38,651) (40,408)
Unrecognized net actuarial loss........................... 3,772 8,198
Unrecognized transition obligation........................ 1,475 1,594
-------- --------
Accrued postretirement benefit obligation................. $(33,404) $(30,616)
======== ========
</TABLE>
A summary of the Company's net periodic postretirement benefit cost is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC POSTRETIREMENT BENEFIT COST
Service cost............................................. $ 928 $ 292 $ 586
Interest cost............................................ 2,785 2,037 1,688
Recognized actuarial loss and transition obligation...... 318 328
------ ------ ------
Net periodic postretirement benefit cost................. $4,031 $2,657 $2,274
====== ====== ======
</TABLE>
Actuarial assumptions used to measure the accumulated benefit obligation include
a discount rate of 7.50% and 7.00% at December 31, 1999 and 1998. The assumed
health care cost trend rate for fiscal year 1999 was 11.67% and is projected to
decrease over 17 years to 6.00%, where it is expected to remain thereafter. The
effect of a one-percentage-point increase or decrease in the assumed health care
cost trend rate on the service cost and interest cost components of the net
periodic postretirement benefit cost is not material. A one-percentage-point
increase in the assumed health care cost trend rate on the postretirement
benefit obligation results in an increase of approximately $3.0 million, while a
one-percentage point decrease results in a decrease of $2.7 million.
F-22
<PAGE> 48
NOTE I: LITIGATION, COMMITMENTS AND CONTINGENCIES
The Company is currently, and is from time to time, subject to claims and suits
arising in the ordinary course of its business. In the opinion of the Company's
General Counsel, the ultimate resolution of currently pending proceedings will
not have a material adverse effect on the Company's consolidated and combined
financial statements.
NOTE J: RELATED PARTY TRANSACTIONS
Included in other assets are amounts due from certain Company officers and other
related parties of $2.0 million and $1.9 million at December 31, 1999 and 1998,
respectively.
The Company leases executive offices that are located in a building owned by the
UNOVA Master Trust, an entity which holds the assets of the Company's primary
U.S. pension plans. The ten-year operating lease, which was approved by the
Department of Labor under the provisions of the Employee Retirement Income
Security Act of 1974, commenced on February 1, 1999. The lease provides for
fixed monthly rental payments subject to certain indexed escalation clauses.
Rental expense under the provisions of this lease was $0.7 million for the year
ended December 31, 1999.
Immediately prior to the Distribution in 1997, the Company paid a dividend of
$230.0 million to WAI with funds borrowed under the Company's revolving credit
facility.
Included in general and administrative expenses are allocated charges from WAI
of $13.5 million for the year ended December 31, 1997.
Included in interest expense are allocated charges from WAI of $12.0 million for
the year ended December 31, 1997.
NOTE K: SEGMENT REPORTING
The Company operates in two primary businesses: Automated Data Systems ("ADS")
and Industrial Automation Systems ("IAS"). The IAS businesses are further
disaggregated into two reportable segments based on their respective markets:
Integrated Production Systems and Advanced Manufacturing Equipment. The Company
uses operating profit, which is computed by adding net interest expense to
earnings before taxes on income, to evaluate performance.
Corporate and other amounts include corporate operating costs and currency
transaction gains and losses (see Notes A and J). Assets classified as corporate
and other amounts consist of cash and cash equivalents, retained interest in
securitized trade receivables, and other corporate assets. Activities are
primarily product sales oriented. Export sales are not material. All material
intercompany transactions have been excluded.
F-23
<PAGE> 49
NOTE K: SEGMENT REPORTING (CONTINUED)
OPERATIONS BY BUSINESS SEGMENT
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
INDUSTRIAL AUTOMATION
SYSTEMS
-------------------------- CORPORATE
AUTOMATED INTEGRATED ADVANCED AND
YEAR ENDED DATA PRODUCTION MANUFACTURING OTHER
DECEMBER 31, SYSTEMS SYSTEMS EQUIPMENT AMOUNTS TOTAL
------------ --------- ---------- ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ 1999 $ 877 $ 937 $295 $2,109
1998 830 719 114 1,663
1997 636 790 1,426
Operating profit (loss)............. 1999 26 87 6 $(32) 87
1998 55 73 4 11(B) 143(B)
1997 (202)(A) 95 (25) (132)(A)
Capital expenditures................ 1999 37 14 5 5 61
1998 46 34 4 84
1997 16 14 30
Depreciation and amortization
expense........................... 1999 37 18 10 1 66
1998 38 17 2 57
1997 25 15 1 41
Total assets at year end............ 1999 665 838 253 148 1,904
1998 775 820 308 76 1,979
1997 642 650 64 1,356
</TABLE>
(A) Includes the $211.5 million charges for acquired in-process research and
development.
(B) Includes gain of $35.5 million on sale of UNOVA's corporate headquarters
building.
OPERATIONS BY GEOGRAPHIC AREA
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
CORPORATE
AND
YEAR ENDED UNITED OTHER
DECEMBER 31, STATES EUROPE OTHER AMOUNTS TOTAL
------------ ------ ------ ----- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... 1999 $1,555 $392 $162 $2,109
1998 1,064 442 157 1,663
1997 989 363 74 1,426
Operating profit (loss)...... 1999 107 5 7 $(32) 87
1998 98 28 6 11 143
1997 (78) (35) 6 (25) (132)
Total assets at year end..... 1999 1,399 329 28 148 1,904
1998 1,470 388 45 76 1,979
1997 1,015 261 16 64 1,356
</TABLE>
F-24
<PAGE> 50
UNOVA, INC.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
COMMON
BASIC DILUTED STOCK SALES
GROSS NET EARNINGS EARNINGS PRICE
SALES PROFIT EARNINGS PER SHARE PER SHARE HIGH/LOW
------ ------ -------- --------- --------- ------------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
First Quarter............. $493.4 $134.4 $ 3.5 $0.06 $0.06 $20 11 7/8
Second Quarter............ 494.4 136.6 3.3 0.06 0.06 $18 12 3/4
Third Quarter............. 503.4 140.6 9.4 0.17 0.17 $15 5/8 11 7/8
Fourth Quarter............ 617.5 168.0 13.4 0.24 0.24 $15 1/16 12 1/16
YEAR ENDED DECEMBER 31, 1998
First Quarter............. $333.4 $110.1 $ 7.8 $0.14 $0.14 $20 9/16 13 7/8
Second Quarter............ 345.2 117.8 9.2 0.17 0.17 $24 19 15/16
Third Quarter............. 405.7 133.2 13.3 0.24 0.24 $22 15 1/2
Fourth Quarter............ 578.4 166.2 39.4(1) 0.72 0.72 $18 1/4 12 3/8
</TABLE>
As of January 31, 2000 there were approximately 19,251 holders of record of the
Company's common stock.
(1) In December 1998, the Company recognized a gain of $35.5 million on the sale
of its corporate headquarters building.
F-25
<PAGE> 51
UNOVA, INC.
INDEX TO EXHIBITS
<TABLE>
<C> <S>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------------------------------------------------------------
2.1 Amended and Restated Purchase and Sale Agreement dated
August 20, 1998, between UNOVA, Inc., UNOVA Industrial
Automation Systems, Inc., and UNOVA UK Limited, on the one
hand, and Cincinnati Milacron Inc., on the other hand, filed
on October 2, 1998 as Exhibit 2 to the Company's Current
Report on Form 8-K, and incorporated herein by reference.
3.1 Certificate of Incorporation of UNOVA, Inc., filed on
October 22, 1997 as Exhibit 3A to Amendment No. 2 to the
Company's Registration Statement on Form 10 No. 001-13279,
and incorporated herein by reference.
3.2 By-laws of UNOVA, Inc., as amended on February 5, 1999,
filed as Exhibit 3.2 to the Company's 1998 Annual Report on
Form 10-K, and incorporated herein by reference.
4.1 $400,000,000 Credit Agreement dated September 24, 1997,
among UNOVA, Inc., the Banks listed therein, and Morgan
Guaranty Trust Company of New York, as Agent (the
"$400,000,000 Credit Agreement"), filed on October 1, 1997
as Exhibit 10M to Amendment No. 1 to the Company's
Registration Statement on Form 10 No. 001-13279, and
incorporated herein by reference.
4.2 Amendment No. 1 to the $400,000,000 Credit Agreement, dated
January 15, 1998, filed as Exhibit 4.4 to the Company's 1997
Annual Report on Form 10-K, and incorporated herein by
reference.
4.3 Amendment No. 2 to the $400,000,000 Credit Agreement, dated
May 15, 1998, filed as Exhibit 4.7 to the Company's June 30,
1998 Quarterly Report on Form 10-Q, and incorporated herein
by reference.
4.4 Amendment No. 3 to the $400,000,000 Credit Agreement, dated
September 24, 1998, filed as Exhibit 4.8 to the Company's
September 30, 1998 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
4.5 Amendment No. 4 to the $400,000,000 Credit Agreement, dated
November 24, 1999.*
4.6 Rights Agreement dated September 24, 1997, between UNOVA,
Inc. and The Chase Manhattan Bank, as Rights Agent, to which
is annexed the form of Right Certificate as Exhibit A, filed
on October 22, 1997 as Exhibit 3C to Amendment No. 2 to the
Company's Registration Statement on Form 10 No. 001-13279,
and incorporated herein by reference.
4.7 Indenture dated as of March 11, 1998 between the Company and
The First National Bank of Chicago, Trustee, providing for
the issuance of securities in series, filed as Exhibit 4.5
to the Company's 1997 Annual Report on Form 10-K, and
incorporated herein by reference.
4.8 Form of 6.875% Notes due March 15, 2005 issued by the
Company under such indenture, filed as Exhibit 4.6 to the
Company's 1997 Annual Report on Form 10-K, and incorporated
herein by reference.
4.9 Form of 7.00% Notes due March 15, 2008 issued by the Company
under such indenture, filed as Exhibit 4.7 to the Company's
1997 Annual Report on Form 10-K, and incorporated herein by
reference.
4.10 $100,000,000 Credit Agreement dated January 13, 1999, among
UNOVA, Inc., the Banks listed therein, and Morgan Guaranty
Trust Company of New York, as Agent, filed as Exhibit 4.9 to
the Company's 1998 Annual Report on Form 10-K, and
incorporated herein by reference.
4.11 Amended and Restated Credit Agreement (364 Day Agreement),
among UNOVA, Inc., the banks listed therein, and Morgan
Guaranty Trust Company of New York, as agent, dated December
1, 1999.*
</TABLE>
E-1
<PAGE> 52
UNOVA, INC.
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<C> <S>
Instruments defining the rights of holders of other
long-term debt of the Company are not filed as exhibits
because the amount of debt authorized under any such
instrument does not exceed 10% of the total assets of the
Company and its consolidated subsidiaries. The Company
hereby undertakes to furnish a copy of any such instrument
to the Commission upon request.
4.12 Transfer and Administration Agreement dated June 18, 1999,
among Enterprise Funding Corporation, as Company, KCH
Funding, L.L.C., as Transferor, UNOVA, Inc., Individually
and as Servicer, and Nationsbank, N.A., as Lead Arranger,
Agent and Bank Investor (the "Transfer and Administration
Agreement"), filed as Exhibit 4.10 to the Company's June 30,
1999 Quarterly Report on Form 10-Q, and incorporated herein
by reference.
4.13 Amendment No. 1 to the Transfer and Administration Agreement
dated September 15, 1999.*
4.14 Amendment No. 2 to the Transfer and Administration Agreement
dated December 15, 1999.*
4.15 Receivables Purchase Agreement dated June 18, 1999, between
UNOVA, Inc., as Seller, and KCH Funding, L.L.C., as
Purchaser (the "Receivables Purchase Agreement"), filed as
Exhibit 4.11 to the Company's June 30, 1999 Quarterly Report
on Form 10-Q, and incorporated herein by reference.
4.16 Amendment No. 1 to the Receivable Purchase Agreement dated
December 15, 1999.*
4.17 Originator Receivables Purchase Agreement dated June 18,
1999, among UNOVA Industrial Automation Systems, Inc. and
Intermec Technologies Corporation, as Sellers, and UNOVA,
Inc., as Purchaser, filed as Exhibit 4.12 to the Company's
June 30, 1999 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.1 Distribution and Indemnity Agreement dated October 31, 1997,
between Western Atlas Inc. and UNOVA, Inc, filed as Exhibit
10.1 to the Company's September 30, 1997 Quarterly Report on
Form 10-Q, and incorporated herein by reference.
10.2 Tax Sharing Agreement dated October 31, 1997, between
Western Atlas Inc., and UNOVA, Inc., filed as Exhibit 10.2
to the Company's September 30, 1997 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.3 Employee Benefits Agreement dated October 31, 1997, between
Western Atlas Inc., and UNOVA, Inc., filed as Exhibit 10.3
to the Company's September 30, 1997 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.4 Intellectual Property Agreement dated October 31, 1997,
between Western Atlas Inc., and UNOVA, Inc., filed as
Exhibit 10.4 to the Company's September 30, 1997 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.5 Form of Change of Control Employment Agreements with Alton
J. Brann, Michael E. Keane, Norman, L. Roberts, Larry D.
Brady, Robert G. O'Malley and certain other officers of the
Company, filed as Exhibit 10.5 to the Company's September
30, 1997 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.6 Amendment to the Form of Change of Control Employment
Agreements with Alton J. Brann, Larry D. Brady, Michael E.
Keane, Robert G. O'Malley and certain other officers of the
Company.*
10.7 Form of Change of Control Employment Agreement with Charles
E. Wolfbauer and certain other officers of the Company.*
10.8 Employment Agreement between Intermec Corporation and
Michael Ohanian, dated May 18, 1995, as amended, filed on
August 18, 1997 as exhibit 10J to the Company's Registration
Statement on Form 10 No. 001-13279 and incorporated herein
by reference.
</TABLE>
E-2
<PAGE> 53
UNOVA, INC.
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<C> <S>
10.9 Amendment No. 1 to Employment Agreement between Intermec
Corporation and Michael Ohanian, dated February 28, 1997,
filed as Exhibit 10.18 to the Company's 1997 Annual Report
on Form 10-K, and incorporated herein by reference.
10.10 Amendment No. 2 to Employment Agreement between Intermec
Technologies Corporation and Michael Ohanian, dated February
28, 1998, filed as Exhibit 10.19 to the Company's 1997
Annual Report on Form 10-K, and incorporated herein by
reference.
10.11 Amendment No. 3 to Employment Agreement between Intermec
Technologies Corporation and Michael Ohanian, dated May 20,
1998, filed as Exhibit 10.9 to the Company's 1998 Annual
Report on Form 10-K, and incorporated herein by reference.
10.12 Amendment No. 4 to Employment Agreement between Intermec
Technologies Corporation and Michael Ohanian, dated February
28, 1999, filed as Exhibit 10.10 to the Company's 1998
Annual Report on Form 10-K, and incorporated herein by
reference.
10.13 Amendment No. 5 to Employment Agreement between Intermec
Technologies Corporation and Michael Ohanian, dated May 18,
1999, filed as Exhibit 10.11 to the Company's June 30, 1999
Quarterly Report on Form 10-Q, and incorporated herein by
reference.
10.14 UNOVA, Inc. Director Stock Option and Fee Plan, filed as
Exhibit 10.7 to the Company's September 30, 1997 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
10.15 Amendment No. 1 to the UNOVA, Inc. Director Stock Option and
Fee Plan filed as Exhibit 10.13 to the Company's September
30, 1999 Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.16 UNOVA, Inc. Restoration Plan, filed on August 18, 1997 as
Exhibit 10I to the Company's Registration Statement on Form
10 No. 001-13279 and incorporated herein by reference.
10.17 UNOVA, Inc. Supplemental Executive Retirement Plan, filed on
October 1, 1997 as Exhibit 10H to Amendment No. 1 to the
Company's Registration Statement on Form 10 No. 001-13279
and incorporated herein by reference.
10.18 Amendment No. 1 to UNOVA, Inc. Supplemental Executive
Retirement Plan, dated September 23, 1998, filed as Exhibit
10.22 to the Company's September 30, 1998 Quarterly Report
on Form 10-Q, and incorporated herein by reference.
10.19 Amendment No. 2 to UNOVA, Inc. Supplemental Executive
Retirement Plan, dated March 11, 1999, filed as Exhibit
10.15 to the Company's 1998 Annual Report on Form 10-K, and
incorporated herein by reference.
10.20 Amendment No. 3 to UNOVA, Inc. Supplemental Executive
Retirement Plan, dated March 15, 2000.*
10.21 Supplemental Retirement Agreement between UNOVA, Inc. and
Alton J. Brann, filed on October 1, 1997 as Exhibit 10L to
Amendment No. 1 to the Company's Registration Statement on
Form 10 No. 001-13279 and incorporated herein by reference.
10.22 Amendment No. 1 to Supplemental Retirement Agreement between
UNOVA, Inc. and Alton J. Brann, dated September 23, 1998,
filed as Exhibit 10.21 to the Company's September 30, 1998
Quarterly Report on Form 10-Q, and incorporated herein by
reference.
10.23 Amendment No. 2 to Supplemental Executive Retirement
Agreement between UNOVA, Inc. and Alton J. Brann, dated
March 11, 1999, filed as Exhibit 10.18 to the Company's 1998
Annual Report on Form 10-K, and incorporated herein by
reference .
10.24 Amendment No. 3 to Supplemental Executive Retirement
Agreement between UNOVA, Inc. and Alton J. Brann, dated
March 15, 2000.*
10.25 Supplemental Executive Retirement Agreement between UNOVA,
Inc. and Larry D. Brady, dated March 15, 2000.*
</TABLE>
E-3
<PAGE> 54
UNOVA, INC.
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<C> <S>
10.26 Employment Agreement dated August 1997, between UNOVA, Inc.,
and Clayton A. Williams, filed on October 1, 1997 as Exhibit
10K to Amendment No. 1 to the Company's Registration
Statement on Form 10 No. 001-13279 and incorporated herein
by reference.
10.27 Amendment No. 1 to Employment Agreement between UNOVA, Inc.
and Clayton A. Williams, dated March 24, 1998, filed as
Exhibit 10.20 to the Company's 1997 Annual Report on Form
10-K, and incorporated herein by reference.
10.28 Amendment No. 2 to Employment Agreement between UNOVA, Inc.
and Clayton A. Williams, dated May 18, 1998, filed as
Exhibit 10.21 to the Company's 1998 Annual Report on Form
10-K, and incorporated herein by reference.
10.29 UNOVA, Inc. 1997 Stock Incentive Plan, filed as Exhibit
10.12 to the Company's September 30, 1997 Quarterly Report
on Form 10-Q, and incorporated herein by reference.
10.30 Removed and reserved.
10.31 UNOVA, Inc. Executive Severance Plan (As Amended November
18, 1999).*
10.32 Form of Promissory Notes in favor of the Company given by
certain officers and key employees, filed as Exhibit 10.14
to the Company's September 30, 1997 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.33 Board resolution dated September 24, 1997 establishing the
UNOVA, Inc. Incentive Loan Program, filed as Exhibit 10.15
to the Company's September 30, 1997 Quarterly Report on Form
10-Q, and incorporated herein by reference.
10.34 UNOVA, Inc. Executive Survivor Benefit Plan, filed as
Exhibit 10.17 to the Company's 1997 Annual Report on Form
10-K, and incorporated herein by reference.
10.35 UNOVA, Inc. 1999 Stock Incentive Plan, filed as Annex A to
the Company's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on May 7, 1999
(the "1999 Proxy Statement"), and incorporated herein by
reference.
10.36 UNOVA, Inc. Management Incentive Compensation Plan, filed as
Annex B to the Company's 1999 Proxy Statement, and
incorporated herein by reference.
10.37 UNOVA, Inc. Group Executive Medical Benefit Plan.*
10.38 Letter Offering Employment to Larry D. Brady as President
and Chief Operating Officer of UNOVA, Inc., as accepted by
Mr. Brady on June 16, 1999, filed as Exhibit 10.32 to the
Company's June 30, 1999 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.39 Restricted Stock Agreement between UNOVA, Inc. and Larry D.
Brady, filed as Exhibit 10.34 to the Company's September 30,
1999 Quarterly Report on Form 10-Q, and incorporated herein
by reference.
10.40 Letter of Offering Employment to Robert O'Malley as
President of Intermec Technologies Corporation, as accepted
by Mr. O'Malley on May 26, 1999.*
21 Subsidiaries of the Registrant included herein on page E-6.
23 Independent Auditors' Consent included herein on page E-7.
27 Financial Data Schedule (filed only electronically with the
Securities and Exchange Commission).*
</TABLE>
* Copies of these documents have been included in this Annual Report on Form
10-K filed with the Securities and Exchange Commission.
E-4
<PAGE> 1
EXHIBIT 4.5
AMENDMENT NO. 4 TO CREDIT AGREEMENT
AMENDMENT dated as of November 24, 1999 to the Credit Agreement dated as
of September 24, 1997 (as heretofore amended, the "CREDIT AGREEMENT") among
UNOVA, INC. (the "BORROWER"), the BANKS party thereto (the "BANKS") and MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT").
The parties hereto agree as follows:
SECTION 1. Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Credit Agreement shall, after this Amendment becomes effective,
refer to the Credit Agreement as amended hereby.
SECTION 2. Amendments.
(a) The Pricing Schedule annexed to this Amendment No. 4 is hereby
substituted for the Pricing Schedule annexed to the Existing Agreement.
(b) The following definition is added to Section 1.01 in its alphabetic
position:
"Borrower's 1998 Form 10-K" means the Borrower's annual report on
Form 10-K for 1998, as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
(c) Section 2.07(a) is amended to read as set forth below:
Section 2.07. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from
the date such Loan is made until it becomes due, at a rate per annum
equal to the sum of the Base Rate plus the Base Rate Margin for such
day. Such interest shall be payable for each Interest Period on the last
day thereof. Any overdue principal of or interest on any Base Rate Loan
shall bear interest, payable on
<PAGE> 2
demand, for each day until paid at a rate per annum equal to the sum of
2% plus the rate otherwise applicable to Base Rate Loans for such day.
"Base Rate Margin" means a rate per annum determined in
accordance with the Pricing Schedule.
(d) The reference to December 31, 1996 in Section 4.04(a) is changed to
December 31, 1998, and the reference to the "Borrower's Form 10" is changed to
the "Borrower's 1998 Form 10-K".
(e) The date June 30, 1997 appearing in Sections 4.04(b) and 4.04(c) is
changed to September 30, 1999, and each reference in Section 4.04(b) to "six" is
changed to "nine."
(f) Section 4.13 is added to Article IV, Representations and Warranties,
to read as follows:
Section 4.13. Year 2000 Compliance. The Borrower has (i)
initiated a review and assessment of all areas within the business and
operations of the Borrower and each of its Subsidiaries (including those
areas affected by suppliers and vendors) that could be adversely
affected by the "YEAR 2000 PROBLEM" (that is, the risk that computer
applications used by it or any of its Subsidiaries (or their respective
suppliers and vendors) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis and (iii) to date,
implemented such plan in accordance with such timetable. The Borrower
reasonably believes that all computer applications (including those of
suppliers and vendors) that are material to the business or operations
of the Borrower or any of its Subsidiaries will on a timely basis be
able to perform properly date-sensitive functions for all dates before
and from and after January 1, 2000 (that is, be "YEAR 2000 COMPLIANT"),
except to the extent that a failure to do so could not reasonably be
expected to have a Material Adverse Effect.
(g) Section 5.05 is amended to read in its entirety as set forth below:
Section 5.05. Leverage Ratio. The Leverage Ratio will not exceed,
at any time during any period set forth below, the maximum ratio set
forth below for such period:
2
<PAGE> 3
<TABLE>
<CAPTION>
Period Maximum Ratio
------ -------------
<S> <C>
Effective Date- 3.95 to 1.0
March 30, 2001
March 31, 2001 and 3.5 to 1.0
thereafter
</TABLE>
SECTION 3. Representations of Borrower. The Borrower represents and
warrants, as of the date hereof and after giving effect hereto, that (i) the
representations and warranties of the Borrower set forth in Article 4 of the
Credit Agreement are true and (ii) no Default has occurred and is continuing.
SECTION 4. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 5. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
SECTION 6. Effectiveness. This Amendment shall become effective as of
the date hereof when the Agent shall have received from each of the Borrower and
Banks comprising the Required Banks a counterpart hereof duly signed by such
party or facsimile or other written confirmation (in form satisfactory to the
Agent) that such party has signed a counterpart hereof.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
UNOVA, INC.
By: /s/ Elmer C. Hull, Jr.
----------------------------------------
Title: Vice President and Treasurer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Robert Bottamedi
----------------------------------------
Title: Vice President
BANK OF AMERICA, N.A.
By: /s/ Michelle L. Hilse
----------------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Jennifer S. Ellerman
----------------------------------------
Title: Vice President
<PAGE> 5
THE CHASE MANHATTAN BANK
By: /s/ Lenard Weiner
----------------------------------------
Title: Managing Director
CIBC INC.
By: /s/ Lindsay Gordon
----------------------------------------
Title: Executive Director
BANK ONE, NA
F/K/A THE FIRST NATIONAL
BANK OF CHICAGO
By: /s/ Mark A. Isley
----------------------------------------
Title: First Vice President
CREDIT SUISSE FIRST BOSTON
By: /s/ Thomas G. Muoio
----------------------------------------
Title: Vice President
By: /s/ Jennifer E. Toth
----------------------------------------
Title: Analyst
<PAGE> 6
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN
BRANCHES
By: /s/ A. Richard Morris
----------------------------------------
Title: First Vice President
By: /s/ Ken Hamilton
----------------------------------------
Title: Senior Vice President
MELLON BANK, N.A.
By: /s/ L. C. Ivey
----------------------------------------
Title: Vice President
THE NORTHERN TRUST COMPANY
By: /s/ David J. Mitchell
----------------------------------------
Title: Vice President
<PAGE> 7
PRICING SCHEDULE
The "EURO-DOLLAR MARGIN", "CD MARGIN", "BASE RATE MARGIN" and "FACILITY
FEE RATE" for any day are the respective percentages set forth below in the
applicable row under the column corresponding to the Status that exists on such
day:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Level Level Level Level Level Level
Status I II III IV V VI
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Euro-Dollar Margin
Usage <25% .32% .40% .50% .60% .95% 1.25%
Usage =>25% .42% .525% .625% .725% .95% 1.25%
- ------------------------------------------------------------------------------------------------------
CD Margin
Usage <25% .445% .525% .625% .725% 1.075% 1.375%
Usage =>25% .545% .65% .75% .85% 1.075% 1.375%
- ------------------------------------------------------------------------------------------------------
Base Rate Margin .00% .00% .00% .00% .00% .50%
- ------------------------------------------------------------------------------------------------------
Facility Fee Rate .08% .10% .125% .15% .175% .25%
- ------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"LEVEL I STATUS" exists at any date if, at such date, the Borrower's
long-term debt is rated A/A2 or higher by at least two Rating Agencies.
"LEVEL II STATUS" exists at any date if, at such date, the Borrower's
long-term debt is rated A-/A3 or higher by at least two Rating Agencies and (ii)
Level I Status does not exist at such date.
"LEVEL III STATUS" exists at any date if, at such date, the Borrower's
long-term debt is rated BBB+/Baa1 or higher by at least two Rating Agencies and
(ii) neither Level I Status nor Level II Status exists at such date.
"LEVEL IV STATUS" exists at any date if, at such date, the Borrower's
long-term debt is rated BBB/Baa2 or higher by at least two Ratings Agencies and
(ii) none of Level I Status, Level II Status, Level III Status exists at such
date.
"LEVEL V STATUS" exists at any date if, at such date, the Borrower's
long-term debt is rated BBB-/Baa3 or higher by at least two Rating Agencies and
(ii) none of Level I Status, Level II Status, Level III Status or Level IV
Status exists as such date.
<PAGE> 8
"LEVEL VI STATUS" exists at any date, if at the close of business on
such date, none of Level I Status, Level II Status, Level III Status, Level IV
Status or Level V Status exists.
"PRICING" refers to the determination of which of Level I Pricing, Level
II Pricing, Level III Pricing, Level IV Pricing, Level V Pricing or Level VI
Pricing applies at any date.
"STATUS" refers to the determination of which of Level I Status, Level
II Status, Level III Status, Level IV Status, Level V Status or Level VI Status
exists at any date.
The "USAGE" applicable to any date is the percentage equivalent of a
fraction the numerator of which is the aggregate outstanding principal amount of
the Loans at such date and the denominator of which is the aggregate amount of
the Commitments at such date. If for any reason any Loans remain outstanding
following the termination of the Commitments, Usage will be deemed to be 25% or
more.
The credit ratings to be utilized for purposes of determining a Status
hereunder are those assigned to the senior unsecured debt of the Borrower
without third-party credit enhancement, and any rating assigned to any other
debt of the Borrower shall be disregarded; provided that if at any time the
Borrower's senior unsecured debt is rated by exactly two Rating Agencies and the
ratings assigned to such debt by such two Rating Agencies are more than one full
rating category apart, Status shall be determined based on a rating one category
higher than the lower of such two ratings (e.g., if the S&P rating is A+, the
Moody's rating is Baa1 and there is no D&P rating, then Level II Status shall
exist); provided further that if at any time the Borrower's senior unsecured
debt, without third party credit enhancement, is not rated by at least two
Rating Agencies, then Status shall be Level VI Status. The rating in effect at
any date is that in effect at the close of business on such date.
<PAGE> 1
EXHIBIT 4.11
AMENDED AND RESTATED CREDIT AGREEMENT
(364 Day Agreement)
AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 1, 1999
amending and restating the $100,000,000 364 Day Credit Agreement dated as of
January 13, 1999 among UNOVA, Inc. (the "BORROWER"), the BANKS party thereto
(the "BANKS"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the
"AGENT").
W I T N E S S E T H :
WHEREAS, the parties hereto desire to amend the Existing Agreement as
set forth herein and to restate the Existing Agreement in its entirety to read
as set forth in the Existing Agreement and the amendments set forth below; and
WHEREAS, at the date hereof, there are no Loans outstanding under the
Existing Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each capitalized term used herein which is defined in the
Existing Agreement has the meaning assigned to such term in the Existing
Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and
each other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Existing Agreement shall from and after
the date hereof refer to the Existing Agreement as amended and restated hereby.
The term "Notes" defined in the Agreement shall include from and after the date
hereof the New Notes. The following terms, as used herein, have the following
meanings:
"Agreement" means the Existing Agreement as amended and restated by
this Amendment and Restatement.
"Existing Agreement" means the $100,000,000 364 Day Credit Agreement
dated as of January 13, 1999 among UNOVA, Inc., the Banks listed therein, and
Morgan Guaranty Trust Company of New York, as Agent.
<PAGE> 2
"New Bank" has the meaning set forth in Section 3 of this Amendment and
Restatement.
"New Notes" has the meaning set forth in Section 6 of this Amendment
and Restatement.
"Restatement Effective Date" means the date this Amendment and
Restatement becomes effective in accordance with Section 6 hereof.
SECTION 2. Amendment of the Existing Agreement.
(a) The definitions of "Borrower's 1997 Form 10-K" and "Borrower's Latest
Form 10-Q" are replaced with the following definitions, respectively:
"Borrower's 1998 Form 10-K" means the Borrower's annual report on
Form 10-K for 1998, as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
"Borrower's Latest Form 10-Q" means the Borrower's quarterly
report on Form 10-Q for the quarter ended September 30, 1999, as filed
with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934.
(b) The definition of "Termination Date" is amended to read as follows:
"Termination Date" means November 29, 2000 (or if such day is not a
Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day).
(c) Section 2.07(a) is amended to read as set forth below:
Section 2.07. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from
the date such Loan is made until it becomes due, at a rate per annum
equal to the sum of the Base Rate plus the Base Rate Margin for such
day. Such interest shall be payable for each Interest Period on the last
day thereof. Any overdue principal of or interest on any Base Rate Loan
shall bear interest, payable on demand, for each day until paid at a
rate per annum equal to the sum of 2% plus the rate otherwise applicable
to Base Rate Loans for such day.
"Base Rate Margin" means a rate per annum determined in accordance
with the Pricing Schedule.
2
<PAGE> 3
(d) The reference to December 31, 1997 in Section 4.04(a) is changed
to December 31, 1998.
(e) The date September 30, 1998 appearing in Sections 4.04(b) and 4.04(c)
is changed to September 30, 1999.
(f) Section 5.05, Leverage Ratio, is amended to read as follows:
"The Leverage Ratio will at no time exceed 3.95 to 1.0."
(g) The Pricing Schedule annexed to this Amendment and Restatement is
hereby substituted for the Pricing Schedule annexed to the Existing Agreement.
SECTION 3. Change in Commitments. With effect from and including the
date this Amendment and Restatement becomes effective in accordance with Section
6 hereof, (i) each Person listed on the signature pages hereof which is not a
party to the Existing Agreement (a "NEW BANK") shall become a Bank party to the
Agreement and (ii) the Commitment of each Bank shall be the amount set forth
opposite the name of such Bank on the signature pages hereof. Any Bank whose
Commitment is changed to zero shall upon such effectiveness cease to be a Bank
party to the Agreement, and all accrued fees and other amounts payable under the
Existing Agreement for the account of such Bank shall be due and payable on such
date; provided that the provisions of Sections 8.03, 8.04 and 11.03 of the
Agreement shall continue to inure to the benefit of each such Bank.
SECTION 4. Representations and Warranties. The Borrower hereby
represents and warrants that as of the Restatement Effective Date and after
giving effect thereto:
(a) no Default has occurred and is continuing; and
(b) each representation and warranty of the Borrower set forth in the
Agreement is true and correct as though made on and as of such date.
SECTION 5. Governing Law. This Amendment and Restatement shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION 6. Counterpart; Effectiveness. This Amendment and Restatement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Amendment and Restatement shall become effective, and the
Existing Agreement shall be amended and restated as set forth herein to read as
set
3
<PAGE> 4
forth in the Existing Agreement with the amendments set forth herein, on the
date that each of the following conditions shall have been satisfied:
(i) receipt by the Agent of duly executed counterparts hereof
signed by each of the parties hereto (or, in the case of any party as to
which an executed counterpart shall not have been received, the Agent
shall have received telegraphic, telex or other written confirmation
from such party of execution of a counterpart hereof by such party);
(ii) receipt by the Agent of a duly executed Note for each of the
New Banks (a "NEW NOTE"), dated on or before the date of effectiveness
hereof and otherwise in compliance with Section 2.05 of the Existing
Agreement;
(iii) receipt by the Agent of an opinion of the General Counsel
or the Deputy General Counsel of the Borrower (or such other counsel for
the Borrower as may be acceptable to the Agent), substantially to the
effect of Exhibit E to the Existing Agreement with reference to this
Amendment and Restatement, the Existing Agreement and the New Notes; and
(iv) receipt by the Agent of all documents it may reasonably
request relating to the existence of the Borrower, the corporate
authority for and the validity of the Agreement and any other matters
relevant hereto, all in form and substance satisfactory to the Agent;
provided that this Amendment and Restatement shall not become effective or
binding on any party hereto unless all of the foregoing conditions are satisfied
not later than December 15, 1999. The Agent shall promptly notify the Borrower
and the Banks of the Restatement Effective Date, and such notice shall be
conclusive and binding on all parties hereto.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Restatement to be duly executed by their respective authorized officers as of
the day and year first above written.
UNOVA, Inc.
By: /s/ Elmer C. Hull Jr.
-------------------------------------
Title: Vice President and Treasurer
5
<PAGE> 6
Commitments
$25,000,000 DEUTSCHE BANK AG
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH
By: /s/ Hans-Josef Thiele
----------------------------------------
Title: Director
By: /s/ Oliver Schwarz
----------------------------------------
Title: Assistant Vice President
$20,000,000 ABN AMRO BANK N.V.
By: /s/ John A. Miller
----------------------------------------
Title: Group Vice President
By: /s/ Delia B. Fance
----------------------------------------
Title: Vice President
$20,000,000 CITICORP USA, INC.
By: /s/ George E. Moyer, Jr.
----------------------------------------
Title: Vice President
6
<PAGE> 7
$11,000,000 MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Robert Bottamedi
----------------------------------------
Title: Vice President
$8,000,000 BANK ONE, NA
(FKA THE FIRST NATIONAL BANK OF
CHICAGO)
By: /s/ Kandis A. Jaffrey
----------------------------------------
Title: Vice President
$8,000,000 CREDIT SUISSE FIRST BOSTON
By: /s/ Thomas G. Muoio
----------------------------------------
Title: Vice President
By: /s/ Jennifer E. Toth
----------------------------------------
Title: Analyst
7
<PAGE> 8
$8,000,000 DRESDNER BANK AG,
NEW YORK AND GRAND CAYMAN
BRANCHES
By: /s/ A. Richard Morris
----------------------------------------
Title: First Vice President
By: /s/ Deborah Slusarczyk
----------------------------------------
Title: Vice President
$0 MELLON BANK, N.A.
By: /s/ Lawrence C. Ivey
----------------------------------------
Title: Vice President
- -----------------
Total Commitments
$100,000,000
=================
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent
By: /s/ Robert Bottamedi
----------------------------------------
Title: Vice President
8
<PAGE> 9
EXHIBIT A
PRICING SCHEDULE
The "EURO-DOLLAR MARGIN", "CD MARGIN", "BASE RATE MARGIN" and "FACILITY
FEE RATE" for any day are the respective rates per annum set forth below in the
applicable row under the column corresponding to the Pricing Level that applies
on such day:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Level Level Level Level Level Level
Pricing I II III IV V VI
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Euro-Dollar Margin
Usage <25%
Usage =>25% .34% .42% .525% .625% .975% 1.30%
.44% .545% .65% .75% .975% 1.30%
- -----------------------------------------------------------------------------------------------------
CD Margin
Usage <25% .465% .545% .65% .75% 1.10% 1.425%
Usage =>25% .565% .67% .775% .875% 1.10% 1.425%
- -----------------------------------------------------------------------------------------------------
Base Rate Margin .00% .00% .00% .00% .00% .50%
- -----------------------------------------------------------------------------------------------------
Facility Fee Rate .06% .08% .10% .125% .15% .20%
- -----------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings:
"LEVEL I PRICING" applies at any date if, at such date, the Borrower's
senior unsecured debt is rated A/A2 or higher by at least two Rating Agencies.
"LEVEL II PRICING" applies at any date if, at such date, (i) the
Borrower's senior unsecured debt is rated A-/A3 or higher by at least two Rating
Agencies and (ii) Level I Pricing does not apply at such date.
"LEVEL III PRICING" applies at any date if, at such date, (i) the
Borrower's senior unsecured debt is rated BBB+/Baa1 or higher by at least two
Rating Agencies and (ii) neither Level I Pricing nor Level II Pricing applies at
such date.
"LEVEL IV PRICING" applies at any date if, at such date, (i) the
Borrower's senior unsecured debt is rated BBB/Baa2 or higher by at least two
Rating Agencies and (ii) none of Level I Pricing, Level II Pricing or Level III
Pricing applies at such date.
9
<PAGE> 10
"LEVEL V PRICING" applies at any date if, at such date, (i) the
Borrower's senior unsecured debt is rated BBB-/Baa3 or higher by at least two
Rating Agencies and (ii) none of Level I Pricing, Level II Pricing, Level III
Pricing or Level IV Pricing applies at such date.
"LEVEL VI PRICING" applies at any date, if at the close of business on
such date, none of Level I Pricing, Level II Pricing, Level III Pricing, Level
IV Pricing or Level V Pricing applies.
"PRICING" refers to the determination of which of Level I Pricing, Level
II Pricing, Level III Pricing, Level IV Pricing, Level V Pricing or Level VI
Pricing applies at any date.
The "USAGE" applicable to any date is the percentage equivalent of a
fraction the numerator of which is the aggregate outstanding principal amount of
the Loans at such date and the denominator of which is the aggregate amount of
the Commitments at such date. If for any reason any Loans remain outstanding
following the termination of the Commitments, Usage will be deemed to be 25% or
more.
The credit ratings to be utilized for purposes of determining a Pricing
hereunder are those assigned to the senior unsecured long-term debt of the
Borrower without third-party credit enhancement, and any rating assigned to any
other debt of the Borrower shall be disregarded; provided that if at any time
the Borrower's senior unsecured long-term debt is rated by exactly two Rating
Agencies and the ratings assigned to such debt by such two Rating Agencies are
more than one full rating category apart, Pricing shall be determined based on a
rating one category higher than the lower of such two ratings (e.g., if the S&P
rating is A+, the Moody's rating is Baa1 and there is no D&P rating, then Level
II Pricing shall exist); provided further that if at any time the Borrower's
senior unsecured long-term debt, without third party credit enhancement, is not
rated by at least two Rating Agencies, then Pricing shall be Level VI Pricing.
The rating in effect at any date is that in effect at the close of business on
such date.
10
<PAGE> 1
EXHIBIT 4.13
AMENDMENT NO.1 TO THE
TRANSFER AND ADMINISTRATION AGREEMENT
This AMENDMENT NO.1 dated September 15, 1999 to the TRANSFER AND
ADMINISTRATION AGREEMENT (as amended, supplemented or otherwise modified and in
effect from time to time, this "Agreement"), dated as of June 18, 1999, by and
among KCH FUNDING, L.L.C., a Delaware limited liability company, as transferor
(in such capacity, the "Transferor"), UNOVA, INC., a Delaware corporation, as
the parent of the Transferor (in such capacity, the "Parent") and as servicer
(in such capacity, the "Servicer"), ENTERPRISE FUNDING CORPORATION, a Delaware
corporation (the "Company"), BANK OF AMERICA, N.A., as successor by merger to
NATIONSBANK, N.A., a national banking association ("Bank of America"), as Lead
Arranger, as agent for the Company and the Bank Investors (in such capacity, the
"Agent"), as Administrative Agent and as a Bank Investor.
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto have entered into the Agreement whereby
the Transferor may convey, transfer, and assign from time to time undivided
interests in certain accounts receivable, and the Company may, and the Bank
Investors, if requested, shall accept such conveyance, transfer and assignment
of such undivided percentage interests, subject to the terms and conditions of
the Agreement and
WHEREAS, the parties to the Agreement desire to make certain
amendments to the Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Defined Terms.
As used in this Amendment, all capitalized terms not otherwise defined
herein shall have the meanings assigned such terms in the Agreement
ARTICLE II
THE AMENDMENTS
SECTION 2.1 Amendment to Section 1.1 of the Agreement
Section 1.1 of the Agreement is amended hereby by deleting the
definition for "Loss Percentage" in its entirety and inserting in lieu thereof
the following: "Loss Percentage" means on any day the greatest of (a) 2.5 times
for the period of June 17, 1999 through August 30, 1999, 2.44 times for the
period of August 31, 1999 through September 29, 1999, and 2.5 times from
September 30, 1999 and beyond, the highest Loss-to-Liquidation Ratio as of the
last day of
1
<PAGE> 2
each of the twelve (12) calendar months preceding the then current month, (b) 4
times the highest Concentration Factor of all Designated Obligors (exclusive of
Class 2 Obligors, Class 3 Obligors and Special Concentration Obligors), and (c)
ten percent (10%).
ARTICLE III
MISCELLANEOUS
SECTION 3.1 Representations and Warranties.
The Transferor hereby makes to the Company, on and as of the date
hereof, all of the representations and warranties as set forth in Section 3.1 of
the Agreement.
The Servicer hereby makes to the Company, on and as of the date
hereof, all of the representations and warranties as set forth in Section 3.2 of
the Agreement.
SECTION 3.2 Counterparts.
This Amendment to the Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which when
taken together shall constitute one and the same Agreement.
SECTION 3.3 Ratification.
Except as expressly affected by provisions hereof, the Agreement as
amended by this Amendment shall remain in full force and effect in accordance
with its terms and ratified and confirmed by the parties hereto. On and after
the date hereof, each reference in the Agreement to "this Agreement",
"hereunder", "herein", or words of like import shall mean by reference to the
Agreement as amended by this Amendment.
SECTION 3.4 Captions.
The captions in this Amendment are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment No. 1 to the Transfer and Administration Agreement as of the date
first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /s/ Kevin P. Burns
----------------------------------------
Title: Vice President
KCH FUNDING, L.L.C.,
as Transferor
By: /s/ Elmer C. Hull Jr.
----------------------------------------
Title: VP and Treasurer
UNOVA, INC.,
as Parent and as Servicer
By: /s/ Charles Cusumano
----------------------------------------
Title: Vice President, Finance
BANK OF AMERICA, N.A., as successor by
merger to NationsBank, N.A., as Agent
and a Bank Investor
By: /s/ Elliott T. Lemon
----------------------------------------
Title: Vice President
3
<PAGE> 1
EXHIBIT 4.14
AMENDMENT NO. 2 TO THE
TRANSFER AND ADMINISTRATION AGREEMENT
AMENDMENT NO. 2 (this "Amendment"), dated as of December 15, 1999 to
the TRANSFER AND ADMINISTRATION AGREEMENT (as amended by Amendment No. 1, dated
September 15, 1999, the "Agreement"), dated as of June 18, 1999, by and among
KCH FUNDING, L.L.C., a Delaware limited liability company, as transferor (in
such capacity, the "Transferor"), UNOVA, INC., a Delaware corporation, as the
parent of the Transferor (in such capacity, the "Parent") and as servicer (in
such capacity, the "Servicer"), ENTERPRISE FUNDING CORPORATION, a Delaware
corporation (the "Company"), BANK OF AMERICA N.A., a national banking
association ("Bank of America"), as Lead Arranger, as agent for the Company and
the Bank Investors (in such capacity, the "Agent"), as Administrative Agent and
as a Bank Investor.
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto have entered into the Agreement whereby
the Transferor may convey, transfer, and assign from time to time undivided
interests in certain accounts receivable, and the Company may, and the Bank
Investors, if requested, shall accept such conveyance, transfer and assignment
of such undivided percentage interests, subject to the terms and conditions of
the Agreement; and
WHEREAS, the parties to the Agreement desire to make a certain
amendments to the Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. Except as otherwise stated herein, capitalized terms
not defined herein shall have the respective meanings assigned to them in the
Agreement.
2. Amendments to the Agreement.
(a) Section 1.1 of the Agreement is hereby amended by amending
the definition of "Originator Subsidiaries" to read in its entirety as follows:
"Originator Subsidiaries" means, collectively, (i) the divisions
listed on Annex 2 hereto of IAS, (ii) Intermec, (iii) MM&E and
(iv) such other divisions of IAS or other entities which are
listed on Annex 2 as such annex may from time to time be amended
by the written agreement of the parties hereto.
(b) Section 1.1 of the Agreement is further amended by adding
the following new definition:
<PAGE> 2
"MM&E" means M M & E, Inc., a Nevada corporation.
(c) The first sentence of Section 5.3 of the Agreement is hereby
amended to read in its entirety as follows:
"The Leverage Ratio shall at no time exceed 3.95 to 1.0."
(d) Section 7.1 (l) of the Agreement is hereby amended to read
in its entirety as follows:
"(l) the Dilution Ratio averaged for any period of two (2)
consecutive months exceeds 4.5%; or"
(e) Section 7.1 (n) of the Agreement is hereby amended to read
in its entirety as follows:
"(n) the Delinquency Ratio averaged for any period of three (3)
consecutive months exceeds 25%; or"
(f) Annex 2 to the Agreement is hereby amended to read in its
entirety as set forth in Exhibit A hereto.
3. Representations and Warranties. To induce the Company and the
Bank Investors to enter into this Amendment, each of the Transferor and the
Parent hereby represents and warrants (each as to itself) as of the Effective
Date (as hereinafter defined) that:
(a) it has the power, authority and legal right to make and
deliver this Amendment and to perform its obligations under the Agreement, as
amended by this Amendment, without any notice, consent, approval or
authorization not already obtained, and that it has taken all necessary action
to authorize the same.
(b) the making and delivery of this Amendment and the
performance of the Agreement, as amended by this Amendment, do not violate any
provision of law or any regulation, or its charter or by-laws, or result in the
breach of or constitute a default under or require any consent under any
indenture or other agreement or instrument to which it is a party or by which it
or any of its properties may be bound or affected. The Agreement, as amended by
this Amendment, constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, except as the enforceability thereof
may be limited by any applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors' rights generally.
(c) The representations and warranties made by it contained in
any Transaction Document are true and correct on and as of the date of this
Amendment and after giving effect hereto.
-2-
<PAGE> 3
(d) No Termination Event or Potential Termination Event has
occurred and is continuing under the Agreement as of the date of this Amendment
and after giving effect hereto.
4. Conditions to Closing. On or prior to the date of execution
hereof, the Agent shall have received original copies of this Amendment and each
of the documents set forth in Exhibit B hereto, each in form and substance
satisfactory to the Agent.
5. Effective Date. The effective date of this Amendment (the
"Effective Date") is June 18, 1999; provided, however that Sections 2(c), (d)
and (e) of this Amendment shall be effective as of the date hereof.
6. Reference to and Effect on the Transaction Documents. On and
after the Effective Date (i) each reference in the Agreement to "This
Agreement", "hereunder", "hereof" or words of like import, and each reference in
any other Transaction Document to "the Transfer and Administration Agreement",
"thereunder", "thereof" or words of like import, referring to the Agreement,
shall mean and be a reference to the Agreement as amended hereby.
7. Agreement and all other Transaction Documents in Full Force and
Effect. Except as specifically amended hereby, each Transaction Document and
shall continue to be in full force and effect and is hereby in all respects
ratified and confirmed. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Lender, any Bank Investor or the Agent under
any Transaction Document, nor constitute a waiver of any provision of any
Transaction Document.
8. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original and all of which taken together
shall constitute a single instrument with the same effect as if the signatures
thereto and hereto were upon the same instrument.
9. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
ENTERPRISE FUNDING CORPORATION,
as Company
By: /s/ Andrew L. Stidd
----------------------------------------
Title: President
KCH FUNDING, L.L.C.,
as Transferor
By: /s/ Elmer C. Hull Jr.
----------------------------------------
Title: Treasurer
UNOVA, INC.,
as Parent and as Servicer
By: /s/ Elmer C. Hull Jr.
----------------------------------------
Title: VP & Treasurer
BANK OF AMERICA, N.A., as Agent
and a Bank Investor
By: : /s/ Robert R. Wood
----------------------------------------
Title: Vice President
<PAGE> 5
EXHIBIT A
Annex 2
Originator Subsidiaries and Divisions
A. UNOVA Industrial Automation Systems, Inc.
Divisions
Lamb Technicon Machining Systems
Lamb Technicon Body & Assembly Systems
Cincinnati Machine
B. Intermec Technologies Corporation
C. M M & E, Inc.
<PAGE> 6
EXHIBIT B
CONDITIONS PRECEDENT
TO AMENDMENT NO. 2
1. Amendment No. 1 to the Receivables Purchase Agreement
2. Amended Originator Receivables Purchase Agreement
3. Certificate of Sale
4. Subordinated Note
5. Subservicer Letter Agreement
6. Certificate of the Secretary of MME with the following items attached:
- Articles of Incorporation of MME
- Bylaws of MME
- Resolutions of the Board of Directors of MME
7. Articles of Incorporation of MME, certified by the Secretary of State of
Nevada.
8. Certificate of good standing of MME from the Secretary of State of
Nevada.
9. Certificate of qualification as a foreign corporation of MME in
Michigan.
10. Resolutions of the Transferor.
11. Enforceability and no conflict opinion of counsel to MME.
12. Opinion of in-house counsel to the Seller, the Transferor and MME.
13. UCC-1 Financing Statements by MME in favor of UNOVA, Inc.
14. Search Results for MME covering UCC liens, judgments and tax liens.
<PAGE> 1
EXHIBIT 4.16
AMENDMENT NO. 1 TO THE
RECEIVABLES PURCHASE AGREEMENT
AMENDMENT NO. 1 (this "Amendment"), dated as of December 15, 1999 to
the RECEIVABLES PURCHASE AGREEMENT (as amended, supplemented or otherwise
modified and in effect from time to time, the "Agreement"), dated as of June 18,
1999, between KCH FUNDING, L.L.C., a Delaware limited liability company, as
purchaser (in such capacity, the "Purchaser") and UNOVA, INC., a Delaware
corporation, as the seller (in such capacity, the "Seller").
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto have entered into the Agreement whereby
the Seller shall sell and assign from time to time such certain accounts
receivable to the Purchaser subject to the terms and conditions of the Agreement
and the Purchaser shall purchase from the Seller from time to time such accounts
receivable; and
WHEREAS, the parties to the Agreement desire to make a certain
amendments to the Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. Except as otherwise stated herein, capitalized terms
not defined herein shall have the respective meanings assigned to them in the
Agreement.
2. Amendments to the Agreement.
(a) The first recital to the Agreement is hereby amended to read
in its entirety as follows:
"WHEREAS, the Purchaser desires to purchase from the Seller from
time to time certain accounts receivable owing from Obligors which
are purchased from the divisions listed on Annex 1 hereto of UNOVA
Industrial Automation Systems, Inc., a Delaware corporation ("IAS"),
Intermec Technologies Corporation, a Washington corporation
("Intermec"), M M & E, Inc., a Nevada corporation ("MM&E," together
with such divisions of IAS and Intermec, and other divisions of IAS
or other entities which are listed on Annex 1 as such annex may from
time to time be amended by the written agreement of the parties
hereto, collectively, the "Originator Subsidiaries") and which are
generated in the normal course of the Originator Subsidiaries'
business pursuant to, or evidenced by, purchase orders, invoices or
other written agreements or with invoices on open accounts;"
<PAGE> 2
(b) Exhibit B to the Agreement is hereby amended to read in its
entirety as set forth in Exhibit A hereto.
(c) Exhibit D to the Agreement is hereby amended to read in its
entirety as set forth in Exhibit B hereto.
(d) Annex 1 to the Agreement is hereby amended to read in its
entirety as set forth in Exhibit C hereto.
3. Representations and Warranties. To induce the Purchaser to enter
into this Amendment, the Seller hereby represents and warrants as of the
Effective Date (as hereinafter defined) that:
(a) it has the power, authority and legal right to make and
deliver this Amendment and to perform its obligations under the
Agreement, as amended by this Amendment, without any notice, consent,
approval or authorization not already obtained, and that it has taken
all necessary action to authorize the same.
(b) the making and delivery of this Amendment and the performance
of the Agreement, as amended by this Amendment, do not violate any
provision of law or any regulation, or its charter or by-laws, or result
in the breach of or constitute a default under or require any consent
under any indenture or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound or affected.
The Agreement, as amended by this Amendment, constitutes its legal,
valid and binding obligation, enforceable against it in accordance with
its terms, except as the enforceability thereof may be limited by any
applicable bankruptcy, reorganization, insolvency, moratorium or other
laws affecting creditors' rights generally.
(c) The representations and warranties made by it contained in
any Transaction Document are true and correct on and as of the date of
this Amendment and after giving effect hereto.
(d) No Termination Event or Potential Termination Event has
occurred and is continuing under the Agreement as of the date of this
Amendment and after giving effect hereto.
4. Conditions to Closing. On or prior to the date of execution
hereof, the Agent shall have received original copies of this Amendment and each
of the documents set forth in Exhibit B to Amendment No. 2 to the Transfer
Agreement, each in form and substance satisfactory to the Agent.
5. Effective Date. The effective date of this Amendment (the
"Effective Date") is June 18, 1999.
-2-
<PAGE> 3
6. Reference to and Effect on the Transaction Documents. On and
after the Effective Date (i) each reference in the Agreement to "This
Agreement", "hereunder", "hereof" or words of like import, and each reference in
any other Transaction Document to "the Receivables Purchase Agreement",
"thereunder", "thereof" or words of like import, referring to the Agreement,
shall mean and be a reference to the Agreement as amended hereby.
7. Agreement and all other Transaction Documents in Full Force and
Effect. Except as specifically amended hereby, each Transaction Document and
shall continue to be in full force and effect and is hereby in all respects
ratified and confirmed. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Lender, any Bank Investor or the Agent under
any Transaction Document, nor constitute a waiver of any provision of any
Transaction Document.
8. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original and all of which taken together
shall constitute a single instrument with the same effect as if the signatures
thereto and hereto were upon the same instrument.
9. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
KCH FUNDING, L.L.C.,
as Purchaser
By: /s/ Elmer C. Hull, Jr.
---------------------------------
Title: Treasurer
UNOVA, INC.,
as Seller
By: /s/ Elmer C. Hull, Jr.
---------------------------------
Title: VP & Treasurer
The foregoing Amendment No. 1
to Receivables Purchase Agreement has
been acknowledged and consented to by:
Bank of America, N.A., as successor by
merger to Nationsbank, N.A.
By: /s/ Robert R. Wood
---------------------------------
Title: Vice President
<PAGE> 5
EXHIBIT A
EXHIBIT B
[TO THE RPA]
Principal Places of Business and
Location of Records
1. UNOVA, Inc.
21900 Burbank Blvd.
Woodland Hills, CA 91367-7418
Phone: (818) 992-2880
Fax: (818) 992-2627
Location of Records: California
2. UNOVA Industrial Automation Systems, Inc.
5663 East Nine Mile Road
Warren, MI 48091 USA
Phone: (810) 497-6000
Fax: (870) 497-6082
Location of Records: Warren, MI; Cincinnati, OH
a) Lamb Technicon Machining Systems
5363 E. Nine Mile Road
Warren, MI 48091-2593
b) Lamb Technicon Body and Assembly Systems
29770 Commerce Blvd.
Chesterfield Township, ME 48051
c) Cincinnati Machine
4701 Marburg Avenue
Cincinnati, OH 45209-1025
3. Intermec Technologies Corporation
6001 36th Avenue West
P.O. Box 4280
Everett, WA 98203-9280
Phone; (425) 345-2600
Fax: (425) 385-9551
Location of Records: Everett, WA; Cedar Rapids, IA; Fairfield, OH
In Cedar Rapids, IA
550 Second Street S.E.
Cedar Rapids, IA 52401
In Cincinnati, OH
9290 LeSaint Drive
Fairfield, OH 45014
4. M M & E, Inc.
255 South Fenway Drive
Fenton, Michigan 48430
Phone: (810) 750-7901
Fax: (810) 750-7990
Location of Records: 5363 E. Nine Mile Road, Warren, MI
<PAGE> 6
EXHIBIT B
EXHIBIT D
[TO THE RPA]
Former Names, Mergers
and Trade Names
(in last l8 months)
UNOVA, INC.
FORMER NAME(S)
None
MERGERS
None
TRADE NAMES
None
UNOVA INDUSTRIAL AUTOMATION SYSTEMS, INC.
FORMER NAME(S)
None
TRADE NAMES
for Lamb Technicon Machining Systems
- Lamb Technicon Machining Systems
- Lamb Assembly & Test
for Lamb Technicon Body & Assembly Systems
- Lamb Technicon Body & Assembly Systems
- Modern prototype
for Cincinnati Machine
- Cincinnati Milacron
MERGERS
None
INTERMEC TECHNOLOGIES CORPORATION
FORMER NAME(S)
None
MERGERS
Norand Corporation merged with and into Intermec Technologies Corporation on
December 28, 1997 Intermec/Ultra Print Inc. merged with and into Intermec
Technologies Corporation on January 16, 1998
TRADE NAMES
Intermec Technologies Corporation
Intermec IP Corporation
Norand Corporation (Merged into Intermec)
Norand Technology Corporation (name changed to Intermec IP Corporation) Norand
Mobile Systems Division of Intermec Technologies Corporation Amtech Systems
Division Amtech Systems Corporation Identification Systems Division of Intermec
Technologies Corporation Government Systems Division of Intermec Technologies
Corporation Local Area Systems Division of Intermec Technologies Corporation
United Bar Code Industries
MM&E
FORMER NAME(S)
None
MERGERS
None
TRADE NAMES
Michigan Machine & Engineering
<PAGE> 7
EXHIBIT C
Annex 1
Originator Subsidiaries and Divisions
A. UNOVA Industrial Automation Systems, Inc.
Divisions
Lamb Technicon Machining Systems
Lamb Technicon Body & Assembly Systems
Cincinnati Machine
B. Intermec Technologies Corporation
C. M M & E, Inc.
<PAGE> 1
EXHIBIT 10.6
AMENDMENT
TO
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
WHEREAS, UNOVA, Inc., a Delaware corporation (the "Company"), and [Name of
Executive] (the "Executive") have previously entered into a certain Change of
Control Employment Agreement (the "Agreement") dated as of October 31, 1997; and
WHEREAS, the Company and the Executive desire to amend the Agreement in the
respects set forth herein;
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Section 1(b) of the Agreement is hereby amended so as to delete the
present text thereof (constituting the definition of "Change of Control
Period") and to substitute in its place and stead the following text:
"(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the fourth anniversary of the date
hereof; provided, however, that commencing on the date two years
after the date hereof, and on each second anniversary of such date
(such date and each such second anniversary thereof shall be
hereinafter referred to as the "Renewal Date"), unless previously
terminated, the Change of Control Period shall be automatically
extended so as to terminate four years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall
give notice to the Executive that the Change of Control Period shall
not be so extended."
2. Section 4(b)(ii) of the Agreements is hereby amended so as to delete
the present text thereof and to substitute in its place and stead the
following text:
"(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus in cash at least equal to the higher of (A)
the Executive's highest award or awards for any fiscal year under
the UNOVA, Inc. Management Incentive Compensation Plan (effective
for the 1999 fiscal year and thereafter) or under any predecessor or
successor plan or plans which provide for the grant of annual cash
bonuses or other short-term cash incentive awards during the last
three full fiscal years prior to the Effective Date or (B) the
Target Bonus (as that term is defined in the UNOVA, Inc. Management
Incentive Compensation Plan) applicable to the Executive for the
fiscal year during which the Effective Date occurs, or if the
Management Incentive Compensation Plan is not in effect for such
fiscal year, the target bonus or award which the Executive would
earn for such year under any plan
<PAGE> 2
or arrangement in which the Executive participates or is eligible to
participate assuming the attainment of any performance goals or
similar criteria to the extent necessary for the Executive to
qualify to receive the target award thereunder. The amount which is
the higher of the amounts described in clause (A) and clause (B)
above is hereinafter called the "Annual Bonus."
"Notwithstanding the foregoing, the following additional provisions
shall be applicable to the definition of "award" or "awards" or
"bonus" or "bonuses" as those terms are used in the preceding
paragraph:
"(1) When made under the UNOVA, Inc. Management Incentive
Compensation Plan or any other annual incentive plan which
provides that a portion of an annual award shall be deposited in
a so-called "Bonus Bank" and shall remain "at risk," the award
or bonus, in such case, shall (except as provided in clause (2)
below) comprise ONLY the portion of the annual award which is
paid to the Executive on a current basis and shall NOT include
any amount of the award required to be deposited to a Bonus
Bank. However, the award or bonus shall also include any amount
paid to the Executive as a periodic payment from the Bonus Bank
during the year with respect to which the amount was made (but
shall not include any payment from the Bonus Bank made solely as
a result of termination of employment);
"(2) The award or bonus for any fiscal year or portion thereof
shall include any part of such bonus or award, the payment of
which is deferred to a subsequent fiscal year or years at the
election of the Executive; and
"(3) In the case of any bonus or award made with respect to a
period other than a full fiscal year, the amount of such bonus
shall not be annualized, and the bonus or award, if it related
to more than one fiscal year, shall be prorated so that only the
portion thereof attributable to a particular fiscal year shall
be counted as part of the total award or bonus for that fiscal
year.
"Any Annual Bonus plus unpaid but due amounts from prior awards plus
any amounts payable from a so called Bonus Bank shall be paid in
accordance with the applicable plan but in no event later than the
last day of the Employment Period. In no event shall the Executive
forfeit any balance in a Bonus Bank upon termination of employment
for any reason following a Change of Control."
3. Section 5(c) of the Agreement is hereby amended so as to delete the
final sentence thereof and to substitute in its place and stead the
following two sentences:
-2-
<PAGE> 3
"Anything in this Agreement to the contrary notwithstanding, if (A)
a Change of Control has occurred and (B) in connection with, or as a
result of, such Change of Control, prior to the first anniversary of
the Effective Date, individuals who were members of the Board
immediately prior to such Change of Control cease to constitute a
majority of the Board or a majority of the board of directors of the
corporation resulting from a Business Combination that constituted
such Change of Control, then a termination by the Executive for any
reason during the Window Period (as defined in the following
sentence) shall be deemed to be a termination for Good Reason for
all purposes of this Agreement. The "Window Period" shall mean the
30-day period commencing on the first anniversary of the later of
(1) the Effective Date and (2) the date of the event described in
clause (B) of the preceding sentence."
4. Except as specifically amended by this instrument, each and every
term of the Agreement is hereby ratified and confirmed and shall remain
in full force and effect.
5. This Amendment shall become effective as of the date set forth below
when a counterpart hereof has been signed by the Executive and lodged
with the Secretary of the Company.
6. This Amendment shall be governed by and construed in accordance with
the laws of the State of Delaware, without reference to principles of
conflicts of law.
IN WITNESS WHEREOF, this Amendment has been executed by the Company and the
Executive as of the date hereafter set forth.
DATE:
-------------------------------
UNOVA, INC.
By
--------------------------
-----------------------------
[Name of Executive]
-3-
<PAGE> 1
EXHIBIT 10.7
[UNOVA LOGO]
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between UNOVA, INC., a Delaware corporation (the
"Company"), and NAME, dated as of the (DAY) of (MONTH) (YEAR).
The Board of Directors of the Company (the "Board"), has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section 1(b) on which a Change of Control (as
defined in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the fourth anniversary of the date hereof;
provided, however, that commencing on the date two years after the date hereof,
and on each second anniversary of such date (such date and each such second
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate four years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
<PAGE> 2
(a) An acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30 percent or
more of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
excluding, however, the following acquisitions of Outstanding Company Common
Stock and Outstanding Company Voting Securities: (i) any acquisition directly
from the Company, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself acquired
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any Person pursuant to a transaction which complies with
clauses (i), (ii), and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the effective date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual who becomes a
member of the Board subsequent to such effective date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but provided further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be so considered as a
member of the Incumbent Board; or
(c) The approval by the shareholders of the Company of a
reorganization, merger, or consolidation or sale or other disposition of all or
substantially all of the assets of the Company ("Business Combination") or if
consummation of such Business Combination is subject, at the time of such
approval by shareholders, to the consent of any government or governmental
agency, obtaining of such consent (either explicitly or implicitly by
consummation); excluding, however, such a Business Combination pursuant to which
(i) all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination will beneficially own, directly or indirectly, more than 60 percent
of, respectively, the outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person (other than any
employee benefit plan (or related
-2-
<PAGE> 3
trust) sponsored or maintained by the Company or any corporation controlled by
the Company or such corporation resulting from such Business Combination) will
beneficially own, directly or indirectly, 30 percent or more of, respectively,
the outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the outstanding voting
securities of such corporation entitled to vote generally in the election of
directors except to the extent that such ownership existed prior to the Business
Combination, and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination will have
been members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles, and reporting requirements), authority,
duties, and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised, and assigned at any
time during the 120-day period immediately preceding the Effective Date and (B)
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or location
less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic, or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements, or
teach at educational institutions, and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
-3-
<PAGE> 4
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling, or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus in cash at least equal to the higher of (A) the
Executive's highest award or awards for any fiscal year under the UNOVA, Inc.
Management Incentive Compensation Plan (effective for the 1999 fiscal year and
thereafter) or under any predecessor or successor plan or plans which provide
for the grant of annual cash bonuses or other short-term cash incentive awards
during the last three full fiscal years prior to the Effective Date or (B) the
Target Bonus (as that term is defined in the UNOVA, Inc. Management Incentive
Compensation Plan) applicable to the Executive for the fiscal year during which
the Effective Date occurs, or if the Management Incentive Compensation Plan is
not in effect for such fiscal year, the target bonus or award which the
Executive would earn for such year under any plan or arrangement in which the
Executive participates or is eligible to participate assuming the attainment of
any performance goals or similar criteria to the extent necessary for the
Executive to qualify to receive the target award thereunder. The amount which is
the higher of the amounts described in clause (A) and clause (B) above is
hereinafter called the "Annual Bonus."
Notwithstanding the foregoing, the following additional
provisions shall be applicable to the definition of "award" or "awards" or
"bonus" or "bonuses" as those terms are used in the preceding paragraph:
(1) When made under the UNOVA, Inc. Management Incentive
Compensation Plan or any other annual incentive plan which provides that a
portion of an annual award shall be deposited in a so-called "Bonus Bank" and
shall remain "at risk," the award or bonus, in such case, shall (except as
provided in clause (2) below ) comprise ONLY the portion of the annual award
which is paid to the Executive on a current basis and shall NOT include any
amount of the award required to be deposited to a Bonus Bank. However, the award
or bonus shall also include any amount paid to the Executive as a periodic
payment from the Bonus Bank during the year with respect to which the amount was
made (but shall not include any payment from the Bonus Bank made solely as a
result of termination of employment);
-4-
<PAGE> 5
(2) The award or bonus for any fiscal year or portion
thereof shall include any part of such bonus or award, the payment of which is
deferred to a subsequent fiscal year or years at the election of the Executive;
and
(3) In the case of any bonus or award made with respect to a
period other than a full fiscal year, the amount of such bonus shall not be
annualized, and the bonus or award, if it related to more than one fiscal year,
shall be prorated so that only the portion thereof attributable to a particular
fiscal year shall be counted as part of the total award or bonus for that fiscal
year.
Any Annual Bonus plus unpaid but due amounts from prior awards
plus any amounts payable from a so called Bonus Bank shall be paid in accordance
with the applicable plan but in no event later than the last day of the
Employment Period. In no event shall the Executive forfeit any balance in a
Bonus Bank upon termination of employment for any reason following a Change of
Control.
(iii) Incentive, Savings, and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive (including stock option or similar incentive plans), savings and
retirement plans, practices, policies and programs applicable generally to other
peer executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies, and programs provide the Executive with
incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies, and programs as in effect at any time during
the 120-day period immediately preceding the Effective Date or if more favorable
to the Executive, those provided generally at any time after the Effective Date
to other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies, and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death, and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies, and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies, and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in
-5-
<PAGE> 6
accordance with the most favorable policies, practices, and procedures of the
Company and its affiliated companies in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
if applicable, tax and financial planning services, use of an automobile and
payment of related expenses, in accordance with the most favorable plans,
practices, programs, and policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs, and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
-6-
<PAGE> 7
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial performance
is delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices, titles,
and reporting requirements), authority, duties, or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties, or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial, and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
-7-
<PAGE> 8
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated, and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company Upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
-8-
<PAGE> 9
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (2) the product of
(x) the Annual Bonus, and (y) a fraction, the numerator of which is the number
of days in the current fiscal year through the Date of Termination, and the
denominator of which is 365, and (3) any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon), any awards
under the Performance Award Plan or any comparable or successor plan and any
accrued vacation pay, in each case to the extent not theretofore paid (the sum
of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Annual Bonus, or if
higher, any bonus paid with respect to any fiscal year during the Employment
Period; and
C. utilizing actuarial assumptions no less favorable to the
Executive than those in effect immediately prior to the Effective Date, an
amount equal to the excess of (a) the actuarial equivalent of the benefit under
the Company's qualified defined benefit retirement plan (the "Retirement Plan")
and any excess or supplemental retirement plan in which the Executive
participates (together, the "SERP") which the Executive would receive if the
Executive's employment continued for two years after the Date of Termination
assuming for this purpose that all accrued benefits are fully vested, and,
assuming that the Executive's compensation in each of the three years is that
required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial
equivalent of the Executive's actual benefit (paid or payable), if any, under
the Retirement Plan and the SERP as of the Date of Termination;
(ii) for two years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
practice, policy, or program, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would have
been provided to them in accordance with the plans, programs, practices, and
policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies and their families, provided, however,
that if the Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree benefits pursuant to such
plans, practices, programs, and policies, the Executive shall be considered to
have remained employed until two years after the Date of Termination and to have
retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider of which
shall be selected by the Executive in his or her sole discretion; and
-9-
<PAGE> 10
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy, or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices, and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices, and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period or if the Executive
voluntarily terminates employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(x) his or her Annual Base Salary through the Date of Termination, (y) the
amount of any compensation previously deferred by the Executive, and (z) Other
Benefits, in each case to the extent theretofore unpaid. In such case, all
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
-10-
<PAGE> 11
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, practice,
policy, or program provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice, or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, practice, policy, or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense, or other claim, right, or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as
(the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the
-11-
<PAGE> 12
amount of such Gross-Up Payment and the assumptions to be utilized in arriving
at such determination, shall be made by Deloitte & Touche or such other
certified public accounting firm as may be designated by the Executive (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity, or group effecting the Change
of Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses
-12-
<PAGE> 13
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment of costs
and expenses. Without limitation on the foregoing provisions of this Section
9(c), the Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge, or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge, or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions
-13-
<PAGE> 14
of this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Mr. Charles A. Cusumano
22307 Dunmore Drive
Calabasas, CA 91302
If to the Company: UNOVA, Inc.
Attention: General Counsel
21900 Burbank Boulevard
Woodland Hills, CA 91367-7418
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
-14-
<PAGE> 15
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local, or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
--------------------------------------------
Name
UNOVA, INC.
By
-----------------------------------------
CS/99-10 COC VP
Corp Secy's Office
-15-
<PAGE> 1
EXHIBIT 10.20
AMENDMENT NO. 3 TO UNOVA, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, UNOVA, Inc. (the "Company") has previously adopted the UNOVA,
Inc. Supplemental Executive Retirement Plan as amended by Amendment No. 1
thereto dated September 23, 1998 and Amendment No. 2 thereto dated March 11,
1999 (the "Plan"); and
WHEREAS, the Board of Directors of the Company deems it desirable that
the Plan be further amended in the manner set forth hereinafter;
NOW, THEREFORE, this Amendment No. 3 to the Plan is hereby adopted by
the Company with the following effect:
1. Section 2.3 of the Plan is hereby amended so that the such Section 2.3 shall
read in its entirely as follows:
"Average Earnings" shall mean the average of gross base salary payments
plus Bonuses as defined in Section 2.7 (except, for a Retired
Participant receiving a Retirement Benefit as of the Distribution Date,
Bonuses shall mean gross cash payments of Bonuses) from the Company to
the Participant in the three twelve consecutive month periods (with no
overlap), in which such Participant's gross base salary payments plus
gross Bonuses are the highest, in the Participant's final 120 months of
employment. For all purposes of calculating "Average Earnings" under
this Supplemental Plan "gross base salary" shall include (i) any amounts
deferred pursuant to Section 401(k) or Section 125 of the Code, (ii) any
amounts deferred at the election of the Participant pursuant to any plan
of the Company which permits such deferral, and (iii) cash payments,
during the relevant period, of commissions payable to a Participant as a
regular part of the Participant's compensation, e.g. to a person engaged
in sales or marketing; however, commissions not payable as a regular
part of a Participant's compensation shall not be included in the
calculation of Average Earnings. Commissions or portions thereof
otherwise included in the calculation of Average Earnings pursuant to
the preceding sentence which are deferred (other than at the election of
a Participant) shall be included in the calculation of Average Earnings
in the relevant period in which cash payments are made. For purposes of
calculating Average Earnings under this Supplemental Plan salary
(including relevant commission payments and bonuses) paid in a non-U.S.
currency shall be converted to U.S. dollar equivalents using the
quarterly UNOVA, Inc. official rates of exchange, as determined by the
Chief Financial Officer and as utilized generally for corporate
purposes.
<PAGE> 2
(a). Average Earnings for purposes of calculating a Disability or
Death Benefit for or with respect to a Disabled Participant shall be
calculated using the 120 months that include and precede the month that
his or her Disability commenced. If a formerly Disabled Participant who
has returned to active employment with the Company does not have a
minimum of 36 consecutive calendar months of employment with the Company
after such return to active employment, then Average Earnings shall be
calculated by the Committee in accordance with subparagraph (e).
(b). Average Earnings in the case of an Active Participant who
dies prior to attaining age 65 shall be calculated using the 120 months
that include and precede the month of the Participant's death (or
Disability, in the case of a Disabled Participant who dies). For
purposes of calculating a lump sum payment pursuant to Section 4.1(d) in
the event of a Change of Control, with respect to a person (other than a
Disabled or deceased Participant) who is an Active Participant as of the
date of such calculation, Average Earnings shall be calculated as if the
person's employment with the Company ended on such date.
(c). For purposes of calculating Average Earnings, the
Participant's gross base salary plus gross Bonuses received while
employed by Western Atlas (beginning on or after March 17, 1994) or
Litton (prior to such date), if and to the extent such Western Atlas or
Litton employment is included within the period of 120 months to be used
in such calculation, shall be taken into account, provided that the
Participant's benefits under the Western Atlas retirement plans were
transferred to the Company pursuant to the Employee Benefits Agreement
between Western Atlas and UNOVA, Inc.
(the "Employee Benefits Agreement").
(d). If a Participant is eligible to receive payments under the
Supplemental Plan but does not have 36 consecutive months of employment
with Western Atlas and the Company, then Average Earnings shall be
calculated by the Committee in accordance with subparagraph (e).
(e). Notwithstanding the foregoing, the Committee may determine
Average Earnings for the purposes of this Section by another methodology
which it determines to be more appropriate under the facts and
circumstances; provided, however, that, following a Change of Control,
the authority of the Committee under this subparagraph (e) shall be
limited to matters referred to in the last sentence of subparagraph (a)
above and the matters referred to in subparagraph (d) above unless the
2
<PAGE> 3
methodology for determining Average Earnings selected by the Committee
is more advantageous to the Participant.
2. Except as specifically provided in this Amendment No. 3, each and every
provision of the Plan is hereby ratified, approved, and confirmed.
3. This Amendment No. 3 shall be deemed effective for all purposes on and as of
the date hereof, except that this Amendment No. 3 shall not be effective with
respect to any Participant who retired from the Company subsequent to the
Distribution Date and commenced receiving a Retirement Benefit under the Plan
prior to the date hereof.
4. This Amendment No. 3 shall be governed by the laws of Delaware except to the
extent preempted by ERISA.
5. Capitalized terms used in this Amendment No. 3 and not defined herein shall
have the meaning assigned to such terms in the Plan.
IN WITNESS HEREOF, the Company has caused this Amendment No. 3 to be
executed by its duly authorized officers this 15th day of March, 2000.
UNOVA, Inc.
WITNESS: /s/ Virginia S. Young By: /s/ Michael E. Keane
----------------------------- ------------------------------------
Michael E. Keane
WITNESS: /s/ Christine McVeigh By: /s/ Charles A. Cusumano
----------------------------- ------------------------------------
Charles A. Cusumano
3
<PAGE> 1
EXHIBIT 10.24
AMENDMENT NO. 3 TO
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
This Amendment No. 3 to Supplemental Executive Retirement Agreement
(this "Amendment"), made and entered into as of this 15th day of March, 2000, by
and between UNOVA, Inc., a Delaware corporation (the "Company"), and Alton J.
Brann, its Chairman and Chief Executive Officer (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive have previously entered into a
certain Supplemental Executive Retirement Agreement dated as of October 31,
1997, as amended by Amendment No. 1 thereto dated September 23, 1998, and
Amendment No. 2 thereto dated March 11, 1999 (as so amended, the "Retirement
Agreement"); and
WHEREAS, the Company and the Executive deem it desirable that the
Retirement Agreement be further amended as hereinafter set forth;
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Section 2.3 of the Retirement Agreement is hereby further amended so
that said Section 2.3 shall read in its entirety as follows:
Section 2.3 "Average Earnings" shall mean the average of gross base
salary payments plus Bonuses as defined in Section 2.6 from the Company
(as used in this Section 2.3 and hereinafter the term "Company" shall
have the meaning specified in Section 2.12) to the Executive in any
three twelve consecutive month periods (with no overlap), in which such
Executive's gross base salary payments plus gross Bonuses are the
highest, in the Executive's final 120 months of employment. For all
purposes of calculating "Average Earnings" under this Supplemental Plan
"gross base salary" shall include all payments credited to Executive
related to base compensation before subtracting any amounts deferred
pursuant to Section 401(k) or 125 of the Code or deferred at the
election of the Executive pursuant to any plan of the Company which
permits such deferral, but does not include any amounts credited as
compensation to Executive as a result of the grant or exercise of any
award under any Company stock-based plan.
(a). Average Earnings for purposes of calculating Disability or
Death Benefit for or with respect to Executive shall be calculated using
the 120 months that include and precede the month that his Disability
commenced. If Executive has returned to active employment with the
Company after a period of Disability but does not have a minimum of 36
consecutive calendar months of employment with the Company after such
return to active employment, then Average Earnings shall be calculated
by the Committee in accordance with subparagraph (e).
<PAGE> 2
(b). Average Earnings in the case Executive dies while employed by
the Company and prior to attaining age 62 shall be calculated using the
120 months that include and precede the month of Executive's death (or
Disability, in the case Executive dies while Disabled).
(c). For purposes of calculating a lump sum payment pursuant to
Section 3.1(c) in the event of a Change of Control, with respect to
Executive (other than while Disabled or when deceased) and who is an
Active Participant as of the date of such calculation, Average Earnings
shall be calculated as if Executive's employment with the Company ended
on such date or the date as revised pursuant to the terms of any Change
of Control Agreement existing between the Company and the Executive
("Change of Control Agreement" shall mean any agreement between the
Company and the Executive which provides for the employment of Executive
and/or the payment of compensation to Executive upon or following a
Change of Control).
(d). For purposes of calculating Average Earnings, Executive's
gross base salary plus gross Bonuses received while employed by Western
Atlas or Litton, if and to the extent such Western Atlas or Litton
employment is included within the period of 120 months to be used in
such calculation, shall be taken into account to the extent Executive's
benefits under the Western Atlas retirement plans were transferred to
the Company pursuant to the Employee Benefits Agreement between Western
Atlas and UNOVA, Inc. (the "Employee Benefits Agreement").
(e). Notwithstanding the foregoing, the Committee may determine
Average Earnings for the purposes of this Section by another
methodology, if that method is more advantageous to Executive.
2. Clause (1) of subsection (a) of Section 3.1 of the Retirement
Agreement is hereby amended to read in its entirety as follows:
"(1) attained age 60";
3. Subsection (b) of Section 3.1 of the Retirement Agreement is hereby
amended to delete the reference to the number "62" in the title and in the text
of such subsection and to substitute in lieu thereof the number "60."
4. The first sentence of Section 3.2 of the Retirement Agreement is
hereby amended so as to read in its entirety as follows:
"Executive's annual Retirement Benefit shall be the amount resulting
from (A) multiplying Average Earnings by the Percentage Factor set forth
in Exhibit A attached hereto and made a part hereof corresponding to the
age of Executive at the earlier of the date of Executive's retirement or
the age of Executive upon Executive's termination of employment for any
reason other than a Change of Control or the age of Executive while an
Active Participant as of the date of a Change of Control except as such
Retirement Benefit is adjusted pursuant to Section 3.1(c) and Section
3.6(c) and (B) subtracting from the product so obtained
-2-
<PAGE> 3
the Offset Amount; provided however, that if payment of the Retirement
Benefit commences prior to the Executive's 62nd birthday, and no Change
of Control has occurred, the amount computed pursuant to this Section
3.2 shall be reduced by _ of 1% for each month by which the commencement
of payment of the Executive's Retirement Benefit precedes the
Executive's 62nd birthday."
5. Section 3.3 of the Retirement Agreement is hereby amended to delete
both references to the number "62" and to substitute in lieu thereof the number
"60."
6. Subsection (b) of Section 3.4 of the Retirement Agreement is hereby
deleted in its entirety."
7. The final sentence of subsection (b) of Section 3.5 is hereby amended
to read in its entirety as follows:
"If Executive, who has satisfied the conditions of Section 3.1(a)(3)
(including consideration of Years of Service accrued for Disabled or
deceased Participants pursuant to Section 2.1), dies prior to the
commencement of the payment of Retirement Benefits, and was married at
the date of death, the spouse Beneficiary of Executive shall have the
right to a survivor Retirement Benefit, commencing at the date Executive
would have attained age 62, except for the fact that the Participant
died prior to attaining age 62, or at the election of the spouse
Beneficiary of Executive, a date on which Executive would have attained
an age between 60 and 62 (subject to the reduction factor specified in
Section 3.2), or commencing on the first day of the month following the
month in which the Executive died, if the Executive continued in
continuous employment with the Company after attaining age 62 and until
the date of Executive's death, calculated under Section 3.2 as if the
Executive had survived to such entitlement date and begun receiving
payment of the Retirement Benefit at such entitlement date as a joint
and 100% survivor annuity and then died on the following date."
8. Section 4.3 of the Retirement Agreement is hereby amended to read in
its entirety as follows:
"Section 4.3 Spouse Retirement Benefit. To the extent that a spouse
Beneficiary is receiving a Death Benefit on the date the Executive would
have attained age 62, or such earlier age elected by the spouse
Beneficiary of Executive under Section 3.5, the spouse Beneficiary
thereafter shall receive a Retirement Benefit pursuant to Article III,
if eligible, in the amount calculated pursuant to Article III, and no
further Death Benefit payments shall be payable to the spouse
Beneficiary or to any Dependent Children Beneficiaries or otherwise."
9. Section 6.2 of the Retirement Agreement is hereby amended to delete
the four references therein to the number "62" and to substitute in lieu thereof
the number "60."
10. Except as specifically amended hereby, each and every term of the
Retirement Agreement is hereby ratified, approved, and confirmed.
-3-
<PAGE> 4
11. This Amendment shall be deemed effective for all purposes on and as
of the date hereof.
12. This Amendment shall be governed by the laws of Delaware.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
UNOVA, INC.
By: /s/ Virginia S. Young
-------------------------------------
Title: VP & Secretary
----------------------------------
/s/ Alton J. Brann
----------------------------------------
Alton J. Brann
-4-
<PAGE> 1
EXHIBIT 10.25
SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS AGREEMENT CONTAINS ARBITRATION CLAUSES
This Supplemental Executive Retirement Agreement ("Agreement") made and
entered into as of this 15th day of March, 2000, by and between UNOVA, Inc., a
Delaware corporation (the "Company"), and Larry D. Brady ("Executive").
WHEREAS, the Executive is presently employed by the Company as its
President and Chief Operating Officer; and
WHEREAS, the Executive was previously employed by FMC Corporation and
earned certain vested retirement benefits while in the employ of such
corporation; and
WHEREAS, as an inducement of the Executive to accept employment with the
Company, the Company agreed to provide the Executive with the supplemental
retirement benefits provided in this Agreement and, in addition, the Company
desires to provide the Executive with the disability and death benefits provided
for herein;
NOW, THEREFORE, the Company and the Executive covenant, agree,
represent, warrant and understand as follows:
ARTICLE I -- PURPOSE
The purpose of this Agreement is to provide for supplemental retirement,
disability, and death benefits to Executive and thereby fulfilling an
undertaking made in connection with the Company's employment of the Executive,
and to encourage Executive to continue providing services to the Company. This
Agreement is intended to provide benefits solely for a management or highly
compensated employee within the meaning of Sections 201(2), 301(a)(3), and
401(a)(1) of Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). Payments under this Agreement shall be made either from
general assets of the Company or from the assets of a trust which may, in the
sole discretion of the Company, be established hereunder. It is intended that
this Agreement remain at all times an unfunded plan for purposes of ERISA and
that the trust, if established, shall constitute a grantor trust under Sections
671 through 679 of the Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE II -- DEFINITIONS
Section 2.1 "Active Participant" shall mean Executive so long as he
remains employed by the Company continuously from the date hereof, except as
provided for below as to Disability or death. Other than during a period of
Disability, Executive shall be treated as having terminated from employment
during any period of Leave of Absence, unless the Committee, in its sole and
absolute discretion, and subject to such terms and conditions as the Committee
may specify, decides otherwise. However, Executive, while Disabled or if
Executive dies while an Active Participant, shall continue to be treated as an
Active Participant and, thus, continue to accrue additional Years of Service
until the earlier of the date that the Executive attains (or, if deceased, would
have attained) age 62, or the date that Executive is no longer Disabled. If
Executive returns to active employment with the Company when Disability ends, he
shall thereafter be an Active Participant, so long as such employment continues,
without further
<PAGE> 2
action. If Executive terminates employment with the Company (other than for
Disability) and is subsequently re-employed with the Company he shall not be
treated as an Active Participant unless the Committee determines otherwise.
Section 2.2 "Actuarial Equivalent" shall mean the adjustment of an
amount or amounts using actuarial methods and factors identical with those
actuarial methods and factors then being used, at the time such calculations are
to be made hereunder, under the UNOVA Retirement Plan adopted by UNOVA, Inc. and
intended to be qualified under Section 401(a) of the Code, as such Plan may be
amended from time to time and any retirement plan intended to replace such Plan
(the "Qualified Plan").
Section 2.3 "Average Earnings" shall mean one-fifth of the sum of the
Executive's gross base salary payments made to the Executive as an Active
Participant plus Bonuses as defined in Section 2.6 awarded to the Executive from
the Company (as used in this Section 2.3 and hereinafter the term "Company"
shall have the meaning specified in Section 2.12) for the 60 consecutive
calendar months which produce the highest sum (not taking into account months in
which the Executive received no base salary payments) out of the past 120
calendar months or, if the Executive has been employed by the Company for less
than 120 calendar months as of the date of any calculation (retirement,
disability or death benefits) which utilizes the concept of Average Earnings,
then Average Earnings shall also include a sufficient amount of the Executive's
highest "Earnings" from the Final Average Yearly Earnings figures on page 3 of
the Worksheet and, in the case of 1999, the sum of: 1.) the gross base salary
payments plus gross Bonuses received from the Company during 1999 including for
this purpose the signing bonus paid by UNOVA to the Executive and 2.)
Compensation and Excess Compensation, as defined in the FMC Corporation
Non-Qualified Retirement and Thrift Plan, received from FMC during 1999, in
order to bring the total period covered in such calculation to 120 calendar
months. For all purposes of calculating "Average Earnings" from the Company
under this Supplemental Plan "gross base salary" shall include all payments
credited to Executive related to base compensation before subtracting any
amounts deferred pursuant to Section 401(k) or 125 of the Code or deferred at
the election of the Executive pursuant to any deferred compensation plan of the
Company and does not include any amounts credited as compensation to Executive
relating to the exercise or award under Company Stock-based option or award
plans.
(a). Average Earnings for purposes of calculating a Disability Benefit
for or with respect to Executive shall be calculated using the 120 months or
such shorter period of time described in Section 2.3 above, that include and
precede the month that his Disability commenced. If Executive has returned to
active employment with the Company after a period of Disability but does not
have a minimum of 60 consecutive calendar months of employment with the Company
after such return to active employment, then Average Earnings shall be
calculated by the Committee in accordance with subparagraph (d).
(b). Average Earnings in the case Executive dies while employed by the
Company and prior to attaining age 62 shall be calculated using the 120 months
or such shorter period of time described in Section 2.3 above, that include and
precede the month of Executive's death (or Disability, in the case Executive
dies while Disabled).
(c). For purposes of calculating a lump sum payment pursuant to Section
3.1() (b) in the event of a Change of Control, with respect to Executive (other
than while Disabled or when deceased) and who is an Active Participant as of the
date of such calculation, Average Earnings shall be calculated as if Executive's
employment with the Company ended on such date or the date as revised pursuant
to the terms of any Change of Control Agreement existing between the
2
<PAGE> 3
Company and the Executive ("Change of Control Agreement" shall mean any
agreement between the Company and the Executive which provides for the
employment of Executive and/or the payment of compensation to Executive upon or
following a Change of Control).
(d). Notwithstanding the foregoing, the Committee may determine Average
Earnings for the purposes of subparagraphs (a) or (b) of this Section by another
methodology, if that method is more advantageous to Executive, including without
limitations inclusion of "Earnings" with which the Executive was credited under
the FMC Plan.
Section 2.4 "Beneficiary" or "Beneficiaries" shall mean those who are
designated under this Agreement to receive payment of a benefit on account of
Executive's death. If and to the extent the spouse of Executive is living at the
time of Executive's death, only the spouse may be the Beneficiary. Upon the
death of the spouse after the death of Executive but prior to commencement of
Retirement Benefit payments, the Dependent Children of the Participant may be
Beneficiaries, but only of the Death Benefit.
Section 2.5 "Board" shall mean the Board of Directors of UNOVA, Inc. or
of its Successor, as of the time in question, the succession of which did not
result from or constitute or follow a Change of Control ("Successor" or
"Successors").
Section 2.6 "Bonus" or "Bonuses" shall mean the full amount of the bonus
or similar cash incentive determined and awarded to the Executive by the
Committee (or any other body or individual having authority to award such Bonus)
with respect to any given fiscal year or portion thereof and shall be deemed,
for purposes of the calculation of Average Earnings, to have been paid by the
Company to the Executive in equal monthly installments during the fiscal year or
portion thereof with respect to which the Bonus was awarded under
Company-sponsored, formal or informal, incentive compensation or bonus plans,
excluding, however, any payments under stock-based option or award plans;
provided, however, that, for purposes of calculating Average Earnings, any
portion of a Bonus, the payment of which is deferred at the election of the
Executive, shall be treated as having been paid in equal monthly installments
during the fiscal year or portion thereof with respect to which the Bonus was
awarded, notwithstanding such elected deferral, and payment of the deferred
portion shall be disregarded for purposes of calculating Average Earnings.
"Bonus or Bonuses" shall not include any bonus, commission or fee paid to the
Executive for the accomplishment of a particular non-ordinary achievement,
transaction, or circumstance as determined by the Committee prior to or at the
time of the award thereof.
Notwithstanding the foregoing, the following additional provisions shall
be applicable to the definition of "Bonus" or "Bonuses" in the case of an award
or awards made under the UNOVA, Inc. Management Incentive Compensation Plan or
any other annual incentive plan which provides that a portion of an annual award
shall be deposited in a so-called "Bonus Bank" and shall remain "at risk." The
Bonus, in such case, shall comprise only the portion of the annual award which
is paid to the Executive on a current basis and shall not include any amount of
the award required to be deposited to a Bonus Bank; however, the Bonus shall
also include any amount paid to the Executive as a periodic payment from the
Bonus Bank during the year with respect to which the amount was made (but shall
not include any payment from the Bonus Bank made solely as a result of
termination of employment).
Section 2.7 "Business Combination" shall have the meaning specified in
Section 2.8(c).
3
<PAGE> 4
Section 2.8 "Change of Control" shall mean:
(a). The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended [the "Exchange Act"] (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent
(30%) or more of either (1) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (2) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of Directors (the "Outstanding Company Voting
Securities"); excluding, however, the following acquisitions of Outstanding
Company Common Stock and Outstanding Company Voting Securities: (A) any
acquisition directly from the Company other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being so converted was
itself acquired directly from the Company; (B) any acquisition by the Company;
(C) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company; or (D)
any acquisition by any Person pursuant to a transaction which complies with
clauses (1), (2), and (3) of paragraph (c) below of this Section 2.8; or
(b). Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual who becomes a member of the Board
subsequent to such effective date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the Directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
provided further that any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as such
terms are used in Regulation 14a-11 of Regulation 14A promulgated under The
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board shall not be so considered as a
member of the Incumbent Board; or
(c). The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination"), or,
if such consummation of such Business Combination is subject, at the time of
such approval by shareholders to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation), excluding, however, such Business Combination pursuant to which
(1) all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination will beneficially own, directly or indirectly, more than sixty
percent (60%) of, respectively, the outstanding shares of common stock and the
combined voting power of the outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be; (2) no
Person (other than any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or such
corporation resulting from such Business Combination) will beneficially own,
directly or indirectly, thirty percent (30%) or more of, respectively, the
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of
4
<PAGE> 5
the outstanding voting securities of such corporation entitled to vote generally
in the election of directors except to the extent that such ownership existed
with respect to the Company prior to the Business Combination; and (3) at least
a majority of the members of the board of directors of the corporation resulting
from such Business Combination will have been members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(d). Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
Section 2.9 "Chief Executive Officer" shall mean the chief executive
officer of UNOVA, Inc. or of its Successor.
Section 2.10 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
Section 2.11 "Committee" shall mean:
(a). The Compensation Committee of the UNOVA, Inc. Board of Directors.
(b). Notwithstanding Section 2.11(a), upon a Change of Control, the
Committee shall mean exclusively the "Special Administrators." The "Special
Administrators" shall be the individuals who constituted the Company's
Compensation Committee of the Board immediately prior to the Change of Control.
The "Special Administrators" shall constitute the Committee until the earlier of
the termination of this Agreement or the last day of the 18-month period
following the month in which the Change of Control occurred. The "Special
Administrators" shall have all rights and authority reserved to the Committee
under this Agreement, including, but not limited to, the rights specified in
Section 10.2.
(c). If a "Special Administrator" dies, becomes disabled, or resigns as
"Special Administrator" during the period that the "Special Administrators"
constitute the Committee, the remaining "Special Administrator(s)" shall
continue to serve as the Committee without interruption, and successor "Special
Administrator(s)" shall be designated, by the remaining "Special
Administrators". If at any time there are no remaining "Special Administrators,"
the presiding Judge of the Superior Court of the State of California for Los
Angeles County shall designate three "Special Administrators".
Section 2.12 "Company" shall mean UNOVA, Inc., a Delaware corporation,
and its Successors, and their respective subsidiaries. Any reference to stock or
securities of the Company shall mean only the stock or securities of UNOVA, Inc.
or of its Successor.
Section 2.13 "Death Benefit" shall mean the benefit payable pursuant to
Article IV to the Executive's Beneficiary or Beneficiaries, if any.
Section 2.14 "Dependent Children" shall mean a natural or legally
adopted son or daughter who either: (a) has not attained age 19; or (b) has
attained age 19 but has not attained age 23 and is a full-time student at an
accredited educational institution:
Section 2.15 "Director" shall mean a member of the Board of Directors of
UNOVA, Inc. or of its Successor.
5
<PAGE> 6
Section 2.16 "Disability" or "Disabled" shall mean the condition of the
Executive, or the Executive, when it has been determined by the Committee that
the Executive is unable to perform the material and substantive duties of the
Executive's position or profession, to an extent which prevents the Executive
from engaging in the Executive's regular position or profession, due to injury
or sickness for which the person is receiving medical care from, or with respect
to which a current certification of disability is received by the Committee
from, a professional person appropriate for such injury or sickness.
Section 2.17 "Disability Benefit" shall mean the benefit payable
pursuant to Article V to the Executive because of Disability.
Section 2.18 "ERISA" shall have the meaning specified in Article I.
Section 2.19 "Exchange Act" shall have the meaning specified in Section
2.8(a).
Section 2.20 "Leave of Absence," with respect to Executive, shall mean
and refer to a discontinuance of regular, full-time services by the Executive
for the Company resulting in the discontinuance, in whole or in part, of base
salary payments by the Company to Executive during such discontinuance of
service, provided, however, that, to the extent federal or state so-called
"Family Leave Acts" or "Maternity or Pregnancy Leave Acts" may make unlawful the
treatment of an absence or a portion of an absence as a termination for purposes
of this Agreement, such absence or portion shall not constitute a Leave of
Absence.
Section 2.21 "Normal Form" shall mean the form of Retirement Benefit
payable under Section 3.7 to a Retired Participant.
Section 2.22 "Normal Retirement Date" shall mean the Executive's 65th
birthday.
Section 2.23 "Offset Amount" shall mean the sum of the annual "FMC
Pension Benefit" and the annual "Company-provided pension."
(a). The "FMC Pension Benefit" shall mean the annualized retirement plan
benefit specified on line 24 of the Worksheet actuarially adjusted by the "early
retirement reduction factor" described in Section 3.3 to reflect the
commencement of benefit payments under this Agreement.
(b). The "Company-provided pension" shall mean the annual amount that is
payable to the Executive under any defined benefit or defined contribution plan
sponsored by the Company, which is either intended to qualify under Section
401(a) of the Code or is intended to restore benefits under such plan (excluding
only this Agreement and Parts II and III of the UNOVA FSSP and of the
Restoration Plan). Any non-United States defined benefit or defined contribution
plan of the Company which is not subject to the Code but which is comparable in
purpose to plans which would qualify under Section 401(a) of the Code shall be
included within the meaning of "Company-provided pension." The amount of the
"Company-provided pension" shall be calculated under the terms that were in
effect during the Executive's actual participation, except that a subsequent,
retroactive amendment to any of such plans shall be taken into account only to
the extent that it actually would have increased the Executive's benefit under
that plan. The "Company-provided pension" shall be computed as if the Executive
actually received the plan benefits under such "Company-provided pension" as a
single life annuity beginning on the date that Retirement Benefits commence
under this Agreement and actuarially adjusted by the early retirement reduction
factors used under each of the plans.
6
<PAGE> 7
Section 2.24 "Outstanding Company Common Stock" and "Outstanding Company
Voting Securities" shall have the meanings specified for those items in Section
2.8(a).
Section 2.25 "Person" shall have the meaning specified in Section
2.8(a).
Section 2.26 "Qualified Plan" shall have the meaning specified in
Section 2.2.
Section 2.27 "Retirement Benefit" shall mean the benefits payable to
Executive and, if applicable, the Beneficiary of Executive, as provided in
Article III.
Section 2.28 "Social Security Covered Compensation Base" means the
average of the compensation and benefit bases in effect under Section 230 of the
Social Security Act for each year in the 35-year period ending with the year in
which the participant attains Social Security retirement age as defined in
Section 415(b)(8) of the Code.
Section 2.29 "Special Administrators" shall have the meaning specified
in Section 2.11(b).
Section 2.30 "Successor" or "Successors" shall have the meaning
specified in Section 2.5.
Section 2.31 "Trust" shall mean a grantor trust under Section 671
through 679 of the Code, if and when established. The decision to establish a
Trust shall be in the sole and absolute discretion of the Company.
Section 2.32 "Trustee" shall mean the trustee of the Trust.
Section 2.33 "Trust Agreement" shall mean the terms of the agreement,
entered into between UNOVA, Inc. or its Successor and the Trustee, that
establishes the Trust.
Section 2.34 "Worksheet" shall mean the three page document marked
Exhibit A, attached to this Agreement, entitled "Salaried Employees' Retirement
Plan Calculation Worksheet", calculated on 7/15/99, for Larry Brady.
Section 2.35 "Years of Service" shall mean the number resulting from:
(a). The division of twelve into the number of consecutive and
continuous calendar months of employment with the FMC Corporation and the
Company that elapse from and include the month that Executive commenced
employment with FMC Corporation and which ends: (1) upon the Executive's death;
or (2) upon termination of Executive's employment with the Company other than by
death, until and including the earlier of the month of such death or
termination; provided, however, that for an Executive who dies or becomes
Disabled while an Active Participant, Executive shall continue to accrue Years
of Service from the date of such death or Disability until the earlier of the
calendar month (x) in which Executive attains or, if deceased, would have
attained age 62, or (y) in which Executive is no longer Disabled.
(b). In its discretion, the Committee may credit Executive with Years of
Service in addition to the Years of Service accrued while actually employed with
FMC or the Company.
7
<PAGE> 8
(c). For purposes of calculating a lump sum payment pursuant to Section
3.1(b) in the event of a Change of Control, with respect to Executive while an
Active Participant, Years of Service shall be determined as if the Executive's
employment with the Company ended on such date or, if that date is adjusted
pursuant to the terms of any Change of Control Agreement between the Company and
the Executive, then that later date.
ARTICLE III -- RETIREMENT BENEFITS
Section 3.1 Eligibility for Retirement Benefit.
(a). General. Executive shall be eligible to begin receiving a
Retirement Benefit if Executive has (1) attained age 55 (subject to the "early
retirement reduction factor" specified in Section 3.3); (2) filed an election to
receive payments under Article VI; (3) terminated employment with the Company;
and, (4) except when Executive's employment with the Company is terminated in
connection with a Change of Control, the Executive agrees that for a period of
five years after commencement of receipt of Retirement Benefits under this
Agreement, not to engage in any activity which interferes with the economic or
business interests, or contractual relationships of UNOVA, Inc. or its
Successors or of any of its subsidiaries or affiliates with third parties in
connection with which the Participant worked for UNOVA, Inc. or its subsidiaries
or affiliates or to perform services for any entity in competition with a
business of UNOVA, Inc. or of its subsidiaries or affiliates for which the
Executive worked and with respect to which the Executive possesses trade secrets
or business confidential information of UNOVA, Inc. or of its subsidiaries or
affiliates. In the event that any provision of the covenant provided for in (4)
immediately above shall be held invalid or unenforceable by reason of the
geographic or business matter scope, or the duration thereof, such invalidity or
unenforceability shall attach only to such provisions and shall not affect or
render invalid or unenforceable any other provision of this Agreement, and this
Agreement shall be construed as if the geographic or subject matter scope, or
the duration thereof, had been more narrowly drafted so as not to be invalid or
unenforceable.
(b). Change of Control. Except as otherwise provided in any Change of
Control Agreement between the Company and the Executive, notwithstanding
anything herein to the contrary, upon a Change of Control, if Executive is an
Active Participant or if Executive has satisfied the conditions of Section
3.1(a)(3), Executive shall be entitled to a lump sum payment equal to the
Actuarial Equivalent, at the age of such Participant at the date of the Change
of Control, of the Retirement Benefit which would be payable to such Participant
at the Executive's Normal Retirement Date, assuming, for such purposes, that the
Retirement Benefit is payable in the form of a single life annuity. In addition,
there shall be waived any condition concerning eligibility for payment of a
Retirement Benefit that requires: (1) the filing of any election; (2) an
agreement not to engage in competitive activities with the Company; (3) the
application of the early retirement reduction factor described in Section 3.3;
and (4) as to the Executive, termination of employment with the Company, in
order to begin receiving Retirement Benefits.
Section 3.2 Retirement Benefit Formula. Subject to the provisions of
Section 3.3, the Executive's Retirement Benefit shall be equal to: the product
of (a) multiplied by (b) below minus (c).
(a) one-twelfth (1/12) of the sum of (i) and (ii) below:
(i). the sum of (A) one percent (1%) of the Executive's Average
Earnings up to the Social Security Covered Compensation Base and (B)
one and one-half percent
8
<PAGE> 9
(1 1/2%) of the Executive's Average Earnings in excess of the Social
Security Covered Compensation Base multiplied by the Executive's
Years of Service at age 65 up to 35 Years of Service; and
(ii). One and one-half percent (1 1/2%) of the Executive's Average
Earnings multiplied by the Executive's expected Years of Service at
age 65 in excess of 35 Years of Service.
(b). The ratio of actual Years of Service to expected Years of Service
at age 65.
(c). One-twelfth (1/12) of the Offset Amount.
Section 3.3 Early Retirement Benefits. If the Executive retires prior to
the age of 65, the Executive shall be entitled to receive a Retirement Benefit,
subject to the "early retirement reduction factor," commencing as of the first
of the month after the Executive retires or, if the Executive elects, as of the
first day of any subsequent month. Any such election of a deferred commencement
date may be revoked at any time prior to such date by the Executive, and a new
date may be elected by giving 60 days written notice to the Committee or its
designee for purposes of administering this Agreement. The "early retirement
reduction factor" provides that the Retirement Benefit computed under section
3.2 shall be reduced by 1/3 of 1% for each month by which the commencement of
the payment of the Retirement Benefits precedes the Executive's 62nd birthday.
Section 3.4 Retirement After Age 65. If the Executive retires after his
Normal Retirement Date, he shall be entitled to receive a Retirement Benefit
determined under Section 3.2 commencing as of the first day of the month
coinciding with or next following the date the Executive actually retires, and
the Executive shall accrue additional benefits hereunder after the Executive's
Normal Retirement Date.
Section 3.5 Vested Retirement Benefit. Executive has a vested right to a
Retirement Benefit under this Agreement as of the date hereof.
Section 3.6 Retirement Benefit Forms. Unless Executive had made an
election to receive payment of Retirement Benefits in an available alternative
form, Executive shall be deemed to have elected the Normal Form.
Section 3.7 Normal Form of Retirement Benefit.
(a). Single Life Annuity. The Normal Form of payment of a Retirement
Benefit for Executive who is living at the time payment commences and who is
unmarried on such date shall be a single life annuity. All payments shall cease
upon Executive's death.
(b). Joint and Survivor Annuity. If Executive is married at the time
that payment of the Retirement Benefit commences, the Normal Form of Retirement
Benefit shall be a 100% joint and survivor annuity (which shall be the Actuarial
Equivalent of a single life annuity) for the benefit of the Executive's spouse
as of the date that payment of the Retirement Benefit commences. Under the
Normal Form of a joint and survivor annuity, Executive shall receive a monthly
benefit for life and, upon the Executive's death, the spouse, if living, shall
receive a monthly benefit for life equal to 100% of the monthly benefit that was
payable to the Executive. If Executive dies prior to the commencement of the
payment of Retirement Benefits, and was married at the date of death, the spouse
Beneficiary of Executive shall have the right to a
9
<PAGE> 10
survivor Retirement Benefit, commencing at the date Executive would have
attained age 62, except for the fact that the Participant died prior to
attaining age 62, or commencing on the first day of the month following the
month in which the Executive died, if the Executive continued in continuous
employment with the Company after attaining age 62 and until the date of
Executive's Participant's death, calculated under Section 3.2 as if the
Executive had survived to such age and begun receiving payment of the Retirement
Benefit at such age as a joint and 100% survivor annuity and then died on the
following date.
Section 3.8 Alternative Forms of Benefit.
(a). Election of Forms of Benefit. Prior to the commencement of payment
of a Retirement Benefit, Executive may file an election designating a payment
form other than the Normal Form of Retirement Benefit; provided, however, that
any such alternate payment form is a payment form available under the Qualified
Plan and, if Executive is entitled to a benefit under such Qualified Plan, is
the same as the payment form elected under such Qualified Plan. The amount of
payment under such alternative payment form shall be the Actuarial Equivalent of
a single life annuity. If Executive is married, an election to receive a
Retirement Benefit in a form other than the Normal Form shall be valid only if
such election includes the written consent of the Executive's spouse in the form
and manner specified by the Committee. However, a joint and survivor annuity
shall not be available under this Agreement with respect to any Beneficiary
other than the spouse of the Executive as of the date that the Retirement
Benefit commences.
(b). Additional Forms of Benefit. From time to time, the Committee may,
in its sole discretion, make other forms of payment of Retirement Benefits
available; provided, however, that once Executive or Executive's Beneficiary
begins receiving Retirement Benefit payments, no change may be made in the form
of payment except as provided for in Section 3.8(c) below.
(c). Form of Benefit on Change of Control. Notwithstanding the other
provisions of this Section, upon a Change of Control, all Retirement Benefits
including, without limitation, benefits payable to Active Participants who
remain employed by the Company, shall be paid in a single sum payment that is
the Actuarial Equivalent at the age of the Executive as of the date of Change of
Control of a single life annuity payable at the later of age 62 or, if the
Executive had remained in continuous employment with the Company after attaining
age 62, the age of the Executive at the date of Change of Control.
ARTICLE IV -- BENEFITS UPON EXECUTIVE'S DEATH
Section 4.1 Eligibility for Death Benefit. The Beneficiary or
Beneficiaries of Executive in the event Executive dies while an Active
Participant or while Disabled and prior to attaining age 62 and prior to the
time Retirement Benefits to Executive commence, shall be eligible to begin
receiving a Death Benefit if the Beneficiary or Beneficiaries have filed a claim
under Article VI. The Beneficiary or Beneficiaries of Executive shall not be
eligible for a Death Benefit, if the Executive's employment with the Company
terminated prior to Executive's death other than by reason of Disability. If
there are no Beneficiaries at the date of the Executive's death, no Death
Benefit shall be payable. The class of individuals who are eligible to be
Beneficiaries of the Death Benefit is limited to the Executive's spouse, as of
the date of the Executive's death, and the Executive's Dependent Children as of
the date of Executive's death; provided, however, that such term also shall
include any natural children of Executive born after Executive's death and any
child who is in the process of being adopted by the Executive at the date of
Executive's death and the adoption of whom is completed by the spouse of
Executive after the date of Executive's death. If there is both a living spouse
and Dependent Children as
10
<PAGE> 11
of the date of Executive's death, the Beneficiary shall be the spouse. The
Dependent Children shall become the Beneficiaries of the Death Benefit, but only
upon the death of Executive's spouse prior to the earlier of the date the
Executive would have attained age 62, or the date the Participant's spouse
commences to receive a Retirement Benefit.
Section 4.2 Death Benefit.
(a). Spousal Benefit. The Death Benefit for the surviving spouse of
Executive shall be an annual amount equal to 40% of Executive's Average
Earnings. The spouse Beneficiary shall receive the Death Benefit as a monthly
benefit equal to 1/12 of the Death Benefit. The Death Benefit for the spouse
Beneficiary shall cease on the earlier of: (1) the death of the spouse
Beneficiary; or (2) the date at which the Executive would have attained age 62.
(b). Dependent Children Benefit. If there is no spouse Beneficiary or a
spouse Beneficiary of Executive dies prior to the death of Executive and the
Executive dies prior to attaining age 62 while an Active Participant or while
Disabled, then a Death Benefit shall be paid to any then Dependent Children for
so long as any such remain Dependent Children. The aggregate amount of any Death
Benefit payable to Dependent Children for each month is the amount equal to the
monthly Death Benefit that would be payable to a spouse Beneficiary multiplied
by a fraction (not greater than one), the numerator of which is the number of
Dependent Children at the time of each monthly payment and the denominator of
which is three. If there are no remaining living Dependent Children
Beneficiaries, no further Death Benefit shall be paid.
(c). Vesting in Death Benefit. While an Active Participant or Disabled,
Executive shall at all times be vested in his right to a Death Benefit.
Section 4.3 Spouse Retirement Benefit. To the extent that a spouse
Beneficiary is receiving a Death Benefit on the date the Executive would have
attained age 62, the spouse Beneficiary thereafter shall receive a Retirement
Benefit pursuant to Article III, if eligible, in the amount calculated pursuant
to Article III, and no further Death Benefit payments shall be payable to the
spouse Beneficiary or to any Dependent Children Beneficiaries or otherwise.
Section 4.4 Change of Control. Upon a Change of Control, after the
Executive's death while an Active Participant or after the Executive's death
while Disabled but in either case prior to the date the Executive would have
attained age 62, the Executive's spouse, if then living, shall receive a single
sum payment that is the Actuarial Equivalent, the date of such lump payment, of
the Death Benefit, calculated through the date that Executive would have
attained age 62. The spouse Beneficiary, if then living, shall also be entitled
to the lump sum payment of the Retirement Benefit, if any, pursuant to Section
4.3. Upon a Change of Control occurring after commencement of the payment of
Death Benefits to the Dependent Children Beneficiaries pursuant to Section
4.2(b), the Dependent Children shall receive a single sum payment that is the
Actuarial Equivalent, based upon the ages of the Dependent Children, of the
Death Benefit calculated without regard to the date the Executive would have
attained age 62.
ARTICLE V -- BENEFITS OF DISABLED EXECUTIVE
Section 5.1 Eligibility for Disability Benefit. If while an Active
Participant, Executive becomes Disabled prior to attaining age 62, Executive
shall be eligible to begin receiving a Disability Benefit. The Disability
Benefit shall cease on the earlier of: (1) the first day of the calendar month
following the Executive's attainment of age 62; (at which time a Retirement
11
<PAGE> 12
Benefit may be payable under Article III), (2) the date on which the Committee
determines that the Executive is no longer Disabled; or (3) the date of the
Executive's death (in which case a Death Benefit may be payable under Article
IV).
Section 5.2 Disability Formula. A Disability Benefit shall be a monthly
amount equal to 1/12 of 40% of the Executive's Average Earnings, offset by the
sum of: (a) any other payment to the Executive that would be made by or on
behalf of the Company on account of the Disability (including, without
limitation, a Company-sponsored disability insurance plan or any other benefit
plan of the Company, any amounts payable as sick pay, and any amounts payable
under so-called Workers Compensation Acts or similar laws of foreign governments
other than lump sum amounts for the loss of an organ or other body member and
other than amounts paid for medical expenses), calculated as if the Executive
participated to the fullest extent possible in such disability programs; and (b)
the Social Security disability benefits received by the Executive. For purposes
of determining any offset under the preceding sentence, any payments that are
not made on a monthly basis shall be converted to monthly payments under a
methodology approved by the Committee.
Section 5.3 Vesting Disability Benefit. Executive, while an Active
Participant shall at all times be vested in his right to a Disability Benefit.
Section 5.4 Disabled Executive's Retirement Benefit. If Executive
attains age 62 while Disabled, then he may be eligible to receive a Retirement
Benefit subject to the rules of Article III, as if Executive continued his or
her employment until age 62 with Average Earnings calculated as provided for in
Section 2.3(a).
ARTICLE VI -- ELECTIONS, CLAIMS, COMMENCEMENT OF
PAYMENT AND BENEFICIARY DESIGNATIONS
Section 6.1 General. All elections to receive benefits under this
Agreement must be made in writing to the Committee in the form specified by the
Committee and include the information or documentation that the Committee deems
necessary. The Committee, in its discretion, may request additional information
or reasonable documentation from time to time in order to determine whether
Executive receiving a Disability Benefit continues to be Disabled, and in order
to determine whether any Beneficiary who is receiving a Death Benefit is
entitled hereunder to continue receiving a Death Benefit or the amount thereof.
Section 6.2 Commencement of Payments. Payments of benefits under this
Agreement shall begin as soon as administratively feasible after the Executive
(or Beneficiary, if applicable) has provided a claim for benefits in writing to
the Committee, including any supporting documentation required by the Committee,
and the Committee has determined that the Executive (or Beneficiary, if
applicable) satisfies the requirements for payment. Disability and Death
Benefits shall be payable from the first day of the month following the month in
which the Executive becomes disabled or dies, as the case may be. In the event
of any administrative delay in actual payments, payments shall be made
retroactively to the first day of the month following the month in which the
event which is the basis for the payment occurs but without any payment of
interest or other compensation for such delay in payment. Notwithstanding any
provision of this Agreement, upon a Change of Control the Committee may, in its
sole discretion, determine to postpone the lump sum payment of Retirement, Death
and Disability Benefits payable upon a Change of Control, in which case such
Benefit payments shall be made as otherwise provided in this Agreement, without
regard to the Change of Control, provided however, that if Executive is party to
a Change of Control Agreement, such Benefit
12
<PAGE> 13
payments shall be calculated using the age of Executive as adjusted pursuant to
the Change of Control Agreement. In the event the Committee later determines, in
its sole discretion, to effect such a lump sum payment of the remainder of such
Benefits, it shall have the power and authority to do so.
Section 6.3 Form of Benefit Elections. An election to receive payment of
Retirement Benefits in a form other than the Normal Form must be submitted to
the Committee in writing at any time prior to the commencement of payments. An
election must be made in the form specified by the Committee and include the
information or documentation that the Committee deems necessary, including
written consent of the spouse in the case Executive is married and elects a
Retirement Benefit in a form other than the Normal Form. The filing of an
election as to the form of Retirement Benefits shall revoke any pre-existing
election, except that a revocation of an election by Executive while married
shall be valid only if accompanied by the spouse's written consent to the
subsequent election (other than a subsequent election to receive payments in the
Normal Form), and except that once Retirement Benefits have commenced under this
Agreement, the form of the Retirement Benefit payable is irrevocable.
Section 6.4 Beneficiaries. If the Committee makes available alternative
benefit forms that provide for payments after an Executive's death, the
Executive shall designate the Beneficiary under such payment form in accordance
with the procedures set forth by the Committee.
Section 6.5 Failure to Claim. If Executive upon termination of
employment with the Company, fails to claim payment of Retirement Benefits until
a date after such termination of employment, the Retirement Benefits payable to
or with respect to Executive shall, nevertheless, be the monthly amount which
would have been payable to Executive upon termination of employment with the
Company, and Executive shall be entitled to receive Retirement Benefit payments
retroactive to the month such payments would have first accrued following
termination of employment, but without interest or other payment on account of
such deferred payment.
ARTICLE VII -- ADMINISTRATION
The Committee shall administer the Agreement in accordance with its
terms and purposes. The Committee shall have full authority and discretion to
interpret the Agreement, to determine benefits pursuant to the terms of the
Agreement, to establish rules and procedures necessary to carry out the terms of
the Agreement, and to waive or modify any requirements or conditions on the
receipt or calculation of benefits under the Agreement where the Committee
determines that such a waiver or modification is appropriate. In the event
Executive is or was also a participant in a similar supplemental retirement plan
for highly-compensated employees within the meaning of Sections 201(2), 301(a),
and 401(a)(I) of Title I of ERISA and maintained by UNOVA, Inc. or one of its
subsidiaries or affiliates (a "Subsidiary Plan"), the Committee shall have the
power and authority to modify and integrate the benefits payable under this
Agreement with the benefits payable under the Subsidiary Plan. All decisions by
the Committee shall be final and binding on all parties. The Committee may
appoint one or more officers or employees of the Company to act on the
Committee's behalf with respect to administrative matters related to the
Agreement.
ARTICLE VIII -- SOURCE OF PAYMENTS
Section 8.1 General Assets of Company. Benefits payable under this
Agreement shall be paid directly to the Executive, or to the Executive's
Beneficiary, as applicable, from the
13
<PAGE> 14
general assets of the Company, including the assets of the grantor Trust to the
extent that such a trust is created and so provides. If any person acquires a
right to receive payments from the Company under this Agreement, such right
shall be no greater than the right of any unsecured general creditor of the
Company notwithstanding the fact that the Company may establish an advance
accrual reserve on its books against its future liability under this Agreement.
ARTICLE IX -- CLAIMS AND ENFORCEMENT
Section 9.1 Administrative Procedures.
(a). Notice of Denial. If the Committee determines that any person who
has submitted a claim for payment of benefits under this Agreement is not
eligible for payment of benefits or, if applicable, is not eligible for payment
of benefits in the form or amount requested, then the Committee shall, within a
reasonable period of time, but no later than 90 days after receipt of the
written claim, notify the claimant of the denial of the claim. Such notice of
denial: (1) shall be in writing; (2) shall be written in a manner calculated to
be understood by the claimant; and (3) shall contain: (A) the specific reason or
reasons for denial of the claim; (B) a specific reference to the pertinent
Agreement provisions or administrative rules and regulations upon which the
denial is based; (C) a description of any additional material or information
necessary for the claimant to perfect the claim; and (D) an explanation of the
Agreement's appeal procedures.
(b). Reconsideration Procedures. Within 90 days of the receipt by the
claimant of the written notice of denial of the claim, the claimant may file a
written request with the Committee that it conduct a full and fair review of the
denial of the claimant's claim for benefits. The claimant's written request must
include a statement of the grounds on which the claimant appeals the original
claim denial. The Committee shall deliver to the claimant a written decision on
the claim promptly, but not later than 60 days after the receipt of the
claimant's request for review, except that if there are special circumstances
that require an extension of time for processing, the 60-day period shall be
extended to 120 days, in which case written notice of the extension shall be
furnished to the claimant prior to the end of the 60-day period.
Section 9.2 Enforcement.
(a). Right to Enforce. Within 90 days after exhaustion of the review and
appeal procedures provided for in Section 9.1 or, if the Committee fails to
grant or deny the claim within 120 days after the claimant's original claim or
fails to provide the written decision of the Committee on any written request
for reconsideration within the time period in Section 9.1(b), within 90 days
after such failure, the Company's obligations under the Agreement may be
enforced only through binding arbitration as provided for hereinafter, initiated
by Executive or, upon the death of Executive, by Executive's surviving spouse,
Dependent Child, or personal representative (as the case may be, the
"Claimant").
(b). Attorneys' Fees and Costs. If, prior to a Change of Control, any
Claimant is denied a claim, in whole or in part, for benefits under this
Agreement and the Claimant requests reconsideration under the procedures
described in Section 9.1(b), or initiates any other legal proceeding (other than
binding arbitration pursuant to the following provisions of this Article IX)
with respect to such alleged claim, the Company shall have no obligation to pay
or reimburse the Claimant for attorneys' fees and costs. If, on or after a
Change of Control, any Claimant is denied a claim for benefits under this
Agreement and the Claimant has requested reconsideration under the procedures
described in Section 9.1(b), or initiates binding arbitration
14
<PAGE> 15
or both reconsideration and binding arbitration, to enforce any obligation of
the Company under this Agreement the basis of which is alleged failure of the
Committee to administer this Agreement in accordance with its terms or, if
following a Change of Control, the Company fails to make payment of Benefits as
determined by the Committee, the Company shall pay such Claimant's attorneys'
fees and costs incurred in connection with the review and binding arbitration
proceedings, provided that the arbitrator determines that the claim is not
frivolous. All attorneys' fees and costs payable under this Section 9.2(b) shall
be paid by the Company as they are incurred by the Claimant, but no later than
30 days from the date that the Claimant submits a bill or other statement to the
Company.
(c) Interest. If any Claimant prevails in a reconsideration procedure
described in Section 9.1(b), or if a Claimant prevails in the binding
arbitration proceeding pursuant to Section 9.3(a) to enforce the payment of
benefits under this Agreement, the Company shall pay interest to the Claimant on
any unpaid benefits accruing from the date that benefit payments should have
commenced and continuing until the date that such owed and unpaid benefits are
paid to the Claimant in full. For purposes of the preceding sentence; interest
shall accrue at an annual rate equal to one percent, plus the prime rate
reported by The Wall Street Journal as in effect from time to time, each change
in the prime rate to be effective for purposes of any interest computation on
the date of publication of such changed prime rate in The Wall Street Journal.
Section 9.3 Arbitration. The rights of Executive hereunder are
conditional upon the acceptance by Executive, on the Executive's behalf and on
behalf of the Claimants, of all of the terms and conditions of this Agreement
including specifically and without limitation this Article IX. Any controversy
or claim arising out of or under the Agreement which is not resolved by the
reconsideration referred to in Section 9.1(b) shall be settled by arbitration in
accordance with the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association ("AAA") or the Employment Arbitration Rules
of the Judicial Arbitration and Mediation Services/Endispute ("JAMS"), subject
to the further provisions of this Section 9.3. Hereinafter the term "Rules"
means and refers to the aforesaid AAA Rules or the JAMS Rules, as the case may
be. Judgment upon the award rendered by the arbitrator may be rendered in any
court having jurisdiction. The Rules are modified or supplemented as follows:
(a). There shall be one arbitrator, unless the parties agree to more
than one arbitrator;
(b). The arbitrator shall be a retired judge or attorney with
professional experience and expertise in designing or administering corporate
retirement benefits and plans, and resident in the Southern California area,
unless the parties agree otherwise;
(c). The arbitration shall be conducted within Los Angeles County,
California, unless the parties agree otherwise;
(d). The party desiring to initiate the arbitration shall advise the
other party in writing of such desire;
(e). Within 10 days of receipt of a notice pursuant to subparagraph (d)
above the party receiving the notice shall designate either the AAA or JAMS as
the arbitration agency, but in the event such party fails to designate within
such period the initiating party shall have the right to designate the AAA or
JAMS.
15
<PAGE> 16
(f). All claims arising under this Agreement known or which should be
known to the party initiating the arbitration shall be included in the issues
presented to the AAA or JAMS, as the case may be, for arbitration and any which
are not included shall be effectively waived;
(g). The expedited procedures of the AAA or JAMS, as the case may be,
shall be applied in any case where no disclosed claim or counterclaim exceeds
the amount then established by the AAA or JAMS for use of expedited procedures,
exclusive of interest and arbitration costs;
(h). The decision of the arbitrator shall be rendered within 60 days
after the close of hearings;
(i). The Company and the Claimant shall furnish to the other, 30 days
prior to the first hearing, a list and identification of all witnesses, and
copies of all exhibits intended to be submitted by that party. Ten days prior to
the first hearing, each party shall have the right to supplement their intended
list of witnesses and provide additional exhibits. Only such witnesses and such
exhibits identified by one party or the other may be offered in the arbitration
hearings; and
(j). Any documents, affidavits or other evidence requested by the
arbitrator must be submitted within ten days after conclusion of the arbitration
hearings, unless the arbitrator grants additional time;
ARTICLE X -- MISCELLANEOUS
Section 10.1 Employment Rights. Nothing contained in this Agreement
shall be construed as a contract of employment between the Company and the
Executive, or as a right to continued employment with the Company, or as a
limitation of the right of the Company to discharge Executive, with or without
cause.
Section 10.2 Rights of the Committee. To the extent permitted by law,
the Company shall indemnify the Committee (including any officers and employees
of the Company appointed to act on behalf of the Committee) and hold such
individuals harmless from and against any damages, losses, costs, and expenses
incurred (including, without limitation, expenses of investigation and the fees
and expenses of counsel) in the course of administering this Agreement. The
Company shall bear all expenses of the Committee incurred in the course of
administering this Agreement.
Section 10.3 Assignment. The benefits payable under this Agreement may
not be assigned or alienated.
Section 10.4 Applicable Law. This Agreement shall be governed by the
laws of the state of California and applicable United States Federal law.
Section 10.5 Entire Agreement. This writing is the final expression of
this Agreement and a complete and exclusive statement of its terms, except that
to the extent that this Agreement refers to the Trust, the terms of the Trust
Agreement, as of the date immediately preceding a Change of Control, shall be
deemed to be incorporated herein.
Section 10.6 Terms. Except as required otherwise by the context,
capitalized terms that are used in this Agreement shall have the meaning
assigned to them in Article II or
16
<PAGE> 17
elsewhere in this Agreement. Feminine or neuter pronouns shall be substituted
for those of the masculine form and the plural shall be substituted for the
singular, in any place or places herein where the context may require such
substitution or substitutions. The title and headings of the Sections of this
Agreement are for convenience only, and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
Section 10.7 Waiver. Any waiver of or failure to enforce any provision
of this Agreement in any instance shall not be deemed a waiver of such provision
as to any other or subsequent instance.
In Witness Whereof, intending to be legally bound, the parties hereto
have executed this Agreement or caused this Agreement to be executed on their
respective behalfs on and as of the day and year first appearing in this
Agreement.
UNOVA, INC.
By: /s/ Virginia S. Young
--------------------------------------
Virginia S. Young
Vice President and Secretary
EXECUTIVE
/s/ Larry D. Brady
-----------------------------------------
Larry D. Brady
17
<PAGE> 1
EXHIBIT 10.31
[UNOVA LOGO]
UNOVA, INC.
EXECUTIVE SEVERANCE PLAN
(AS AMENDED NOVEMBER 18, 1999)
The Board of Directors of UNOVA, Inc. (the "Company") recognizes that, as is the
case with many publicly held companies, there exists the possibility of a Change
of Control of the Company. This possibility and the uncertainty it creates may
result in the loss or distraction of employees of the Company and its
Subsidiaries to the detriment of the Company and its shareholders.
The Board considers the avoidance of such loss and distraction to be essential
to protecting and enhancing the best interests of the Company and its
shareholders. The Board also believes that when a Change of Control is perceived
as imminent, or is occurring, the Board should be able to receive and rely on
disinterested service from its executives and other key employees regarding the
best interests of the Company and its shareholders without concern that such
employees might be distracted or concerned by the personal uncertainties and
risks created by the perception of an imminent or occurring Change of Control.
In addition, the Board believes that it is consistent with the Company's
employment practices and policies and in the best interests of the Company and
its shareholders to treat fairly its employees whose employment terminates in
connection with or following a Change of Control.
Accordingly, the Board has determined that appropriate steps should be taken to
assure the Company of the continued employment, attention and dedication to duty
of its executives and other key employees and to seek to ensure the availability
of their continued service, notwithstanding the possibility, threat or
occurrence of a Change of Control.
Therefore, in order to fulfill the above purposes, the following plan has been
developed and is hereby adopted.
ARTICLE I. ESTABLISHMENT OF PLAN
As of the Effective Date, the Company hereby establishes a severance
compensation plan known as the UNOVA, Inc. Executive Severance Plan as set forth
in this document.
ARTICLE II. DEFINITIONS
As used herein the following words and phrases shall have the following
respective meanings unless the context clearly indicates otherwise:
<PAGE> 2
(a) Annual Bonus. The annual cash bonus that a Participant may earn
pursuant to the terms of any short-term incentive compensation plan or
arrangement, whether or not set forth in a written document, of UNOVA, Inc., or
by any of its Subsidiaries pursuant to which annual cash bonuses or cash
incentive awards may be made, as such plans or arrangements may be in effect
from time to time.
(b) Annual Bonus Award. The highest amount a Participant received or was
awarded as an Annual Bonus in any of the three 12-month periods (including
service with Western Atlas) prior to a termination of employment entitling the
Participant to a Separation Benefit.
(c) Annual Compensation. The sum of a Participant's Annual Salary and
Annual Bonus.
(d) Annual Salary. The Participant's regular annual base salary
immediately prior to his or her termination of employment, including
compensation converted to other benefits under a flexible pay arrangement
maintained by the Company or deferred pursuant to a written plan or agreement
with the Company, but excluding special allowances, premium pay, compensation
paid or payable under any Company long-term or short-term incentive plan or any
similar payment.
(e) Board. The Board of Directors of UNOVA, Inc.
(f) Cause. With respect to any Participant: (i) the willful and
continued failure of the Participant to perform substantially the Participant's
duties with the Company or one of its affiliates (other than any such failure
resulting from incapacity due to physical or mental illness), after a written
demand for substantial performance is delivered to the Participant by the Board
or the Chief Executive Officer of the Company which specifically identifies the
manner in which the Board or Chief Executive Officer believes that the
Participant has not substantially performed the Participant's duties, or (ii)
the willful engaging by the Participant in illegal conduct or gross misconduct
which is materially and demonstrably injurious to the Company. For purposes of
this definition, no act or failure to act on the part of the Participant shall
be considered "willful" unless it is done, or omitted to be done, by the
Participant in bad faith or without reasonable belief that the Participant's
action or omission was in the best interests of the Company. Any act or failure
to act based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Chief Executive Officer or an executive
officer of the Company or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Participant
in good faith and in the best interests of the Company.
(g) Change of Control. The occurrence of any of the following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30 percent or
more of either (x) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock"); excluding, however, the following
acquisitions of Outstanding Company Common Stock or (y) the combined voting
power of the then outstanding voting securities of the
-2-
<PAGE> 3
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the following
acquisitions of Outstanding Company Common Stock and Outstanding Company Voting
Securities: (A) any acquisition directly from the Company, other than an
acquisition by virtue of the exercise of a conversion privilege unless the
security being so converted was itself acquired directly from the Company, (B)
any acquisition by the Company, (C) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (D) any acquisition by any Person pursuant to a
transaction which complies with clauses (A), (B) and (C) of paragraph (iii)
below; or
(ii) Individuals who, as of the effective date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual who becomes a
member of the Board subsequent to such effective date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board;
but, provided further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of the
Incumbent Board; or
(iii) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company ("Business Combination") or if
consummation of such Business Combination is subject, at the time of such
approval by shareholders, to the consent of any government or governmental
agency, obtaining of such consent (either explicitly or implicitly, by
consummation); excluding, however, such a Business Combination pursuant to which
(A) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination will beneficially own, directly or indirectly, more than 60 percent
of, respectively, the outstanding shares of common stock and the combined voting
power of the outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (B) no Person (other than any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or such corporation resulting from
such Business Combination) will beneficially own, directly or indirectly, 30
percent or more of, respectively, the outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the outstanding voting securities of such corporation entitled to vote
generally in the election of directors except to the extent that such ownership
existed with respect to the Company prior to the Business Combination and (C) at
least a majority of the members of the board of directors of the corporation
resulting from such Business Combination will have been members of the
-3-
<PAGE> 4
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(iv) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(h) Code. The Internal Revenue Code of 1986, as amended from time to
time.
(i) Committee. The Compensation Committee of the Board.
(j) Company. UNOVA, Inc. and any successor thereto.
(k) Date of the Change of Control. The date on which a Change of Control
occurs.
(l) Date of Termination. The date on which a Participant ceases to be an
Employee.
(m) Disability. A termination of a Participant's employment for
Disability shall have occurred if the termination occurs because illness or
injury has prevented the Participant from performing his or her duties (as they
existed immediately prior to the illness or injury) on a full time basis for 180
consecutive days.
(n) Effective Date. The date specified in the resolutions of the Board
adopting this Plan.
(o) Employee. Any full-time, regular-benefit, non-bargaining employee of
an Employer.
(p) Employer. The Company or a Subsidiary which has adopted the Plan
pursuant to Article V hereof.
(q) ERISA. The Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
(r) Good Reason. With respect to any Participant, (i) the assignment to
the Participant of any duties inconsistent in any respect with the Participant's
position (including status, offices, titles and reporting requirements),
authority, duties or responsibilities immediately before the Change of Control,
or any other action by the Company which results in a significant diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Participant; (ii) any material reduction in the Participant's Annual
Salary, opportunity to earn Annual Bonuses, or other compensation or employee
benefits, other than as a result of an isolated and inadvertent action not taken
in bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Participant; (iii) the Company's requiring the
Participant to relocate his or her principal place of employment to a location
which is more than 35 miles from his or her previous principal place of
employment ; (iv) any purported termination of the Plan otherwise than as
expressly permitted by the Plan; or (v)
-4-
<PAGE> 5
any failure by the Company to comply with and satisfy Article IV of the Plan.
For purposes of the Plan, any good faith determination of "Good Reason" made by
the Participant shall be conclusive.
(s) Multiple. With respect to any Participant, the number set forth
opposite the Participant's name under the heading "Benefit Level" on Schedule 1
hereto.
(t) Participant. An Employee designated as such pursuant to Section 3.1.
(u) Plan. The UNOVA, Inc. Executive Severance Plan.
(v) Retirement. A termination by Retirement shall have occurred where a
Participant's termination is due to his or her late, normal or early retirement
under a pension plan sponsored by the Company or any of its affiliates, as
defined in such plan.
(w) Separation Benefits. The benefits described in Section 4.2 that are
provided to qualifying Participants under the Plan.
(x) Separation Period. The period beginning on a Participant's Date of
Termination and ending upon the termination of a number of years equal to the
Multiple for such Participant.
(y) Subsidiary. Any corporation in which the Company, directly or
indirectly, holds a majority of the voting power of such corporation's
outstanding shares of capital stock.
(z) Target Annual Bonus. The Maximum Potential Award that the
Participant would have received for the year in which his or her Date of
Termination occurs, if the performance goals applicable to such Participant
under any UNOVA, Inc. incentive compensation plan (or any successor plan) had
been achieved to the extent necessary to enable the Participant to receive 100%
of his or her Maximum Potential Award for that year.
(aa) Western Atlas Inc. Means Western Atlas Inc., a Delaware corporation
which was the parent corporation of UNOVA, Inc., prior to the spin-off of UNOVA,
Inc. in accordance with Section 355 of the Internal Revenue Code.
ARTICLE III. ELIGIBILITY
3.1 Participation. Each of the individuals named on Schedule 1 hereto
shall be a Participant in the Plan. Prior to a Change of Control, Schedule 1 may
be amended from time to time by the Board or the Compensation Committee of the
Board to add or delete individuals as Participants in this Plan.
3.2 Duration of Participation. A Participant shall only cease to be a
Participant in the Plan as a result of an amendment or termination of the Plan
complying with Article VII of the Plan, or when prior to a Change of Control the
Board removes a Participant from participation in this Plan, or when he or she
ceases to be an Employee of any Employer, unless, at the time he or she ceases
to be an Employee, such Participant is entitled to
-5-
<PAGE> 6
payment of a Separation Benefit as provided in the Plan or there has been an
event or occurrence constituting Good Reason that would enable the Participant
to terminate his or her employment and receive a Separation Benefit. A
Participant entitled to payment of a Separation Benefit or any other amounts
under the Plan shall remain a Participant in the Plan until the full amount of
the Separation Benefit and any other amounts payable under the Plan have been
paid to the Participant.
ARTICLE IV. SEPARATION BENEFITS
4.1 Terminations of Employment Which Give Rise to Separation Benefits
Under This Plan. A Participant shall be entitled to Separation Benefits as set
forth in Section 4.2 below if, at any time before the number of years (and
months, if any) equal to the Multiple has elapsed following the Date of the
Change of Control, the Participant's Employment is terminated (i) by the Company
for any reason other than Cause, death, Disability or Retirement or (ii) by the
Participant within 90 days after the occurrence of Good Reason.
4.2 Separation Benefits.
(a) If a Participant's employment is terminated in circumstances
entitling him or her to a Separation Benefit as provided in Section 4.1, the
Participant's Employer shall pay such Participant, within ten days of the Date
of Termination, a cash lump sum as set forth in subsection (b) below and the
continued benefits set forth in subsection (c) below. For purposes of
determining the benefits set forth in subsections (b) and (c), if the
termination of the Participant's employment is for Good Reason based upon a
reduction of the Participant's Annual Salary, opportunity to earn Annual
Bonuses, or other compensation or employee benefits, such reduction shall be
ignored.
(b) The cash lump sum referred to in Section 4.2(a) is the aggregate
of the following amounts:
(i) the sum of (1) the Participant's Annual Salary through the
Date of Termination to the extent not theretofore paid, (2) the product of (x)
the Target Annual Bonus and (y) a fraction, the numerator of which is the number
of days in the such year through the Date of Termination, and the denominator of
which is 365, and (3) any compensation previously deferred by the Participant
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid and in full
satisfaction of the rights of the Participant thereto;
(ii) an amount equal to the product of (1) the Participant's
Multiple times (2) the sum of (x) the Participant's Annual Salary and (y) the
higher of the Participant's Target Annual Bonus or Annual Bonus Award; and
(iii) any unpaid installments of any Annual Bonus previously
awarded to the Participant.
(c) The continued benefits referred to above are as follows:
-6-
<PAGE> 7
(i) during the Separation Period, the Participant and his or her
family shall be provided with medical, dental and life insurance benefits as if
the Participant's employment had not been terminated; provided, however, that if
the Participant becomes re-employed with another employer and is eligible to
receive medical or other welfare benefits under another employer-provided plan,
the medical and other welfare benefits described herein shall be secondary to
those provided under such other plan during such applicable period of
eligibility. For purposes of determining eligibility (but not the time of
commencement of benefits) of the Participant for retiree medical, dental and
life insurance benefits under the Company's plans, practices, programs and
policies, the Participant shall be considered to have remained employed during
the Separation Period and to have retired on the last day of such period; and
(ii) the Company shall, at its sole expense as incurred, provide
the Participant with outplacement services the scope and provider of which shall
be selected by the Participant in his or her sole discretion (but at a cost to
the Company of not more than $30,000) or, at the Participant's option, the use
of office space, office supplies and equipment and secretarial services for a
period not to exceed one year.
To the extent any benefits described in this Section 4.2(c) cannot be provided
pursuant to the appropriate plan or program maintained for Employees, the
Employer shall provide such benefits outside such plan or program at no
additional cost (including without limitation tax cost) to the Participant.
4.3 Other Benefits Payable. The cash lump sum and continuing benefits
described in Section 4.2 above shall be payable in addition to, and not in lieu
of, all other accrued or vested or earned but deferred compensation, rights,
options or other benefits which may be owed to a Participant upon or following
termination, including but not limited to accrued vacation or sick pay, amounts
or benefits payable under any bonus or other compensation plans, stock option
plan, stock ownership plan, stock purchase plan, life insurance plan, health
plan, disability plan or similar or successor plan, but excluding any severance
pay or pay in lieu of notice required to be paid to such Participant under
applicable law or under any other severance plan or policy of the Company or any
Subsidiary. Without limiting the generality of the foregoing, nothing in the
Plan shall be deemed to override or deprive any Participant of the full benefit
of any provision in any stock incentive plan, supplemental retirement plan, or
other benefit plan which provides for acceleration of benefits upon a change of
control of the Company, whether or not the term "Change of Control" has a
definition identical to that set forth in Article II of this Plan.
4.4 Certain Reduction of Payments by the Company.
(a) For purposes of this Section 4.4, (i) a Payment shall mean any
payment or distribution in the nature of compensation to or for the benefit of a
Participant, whether paid or payable pursuant to this Plan or otherwise; (ii)
Separation Payment shall mean a Payment paid or payable pursuant to this Plan
(disregarding this Section); (iii) Net After Tax Receipt shall mean the Present
Value of a Payment net of all taxes imposed on a Participant with respect
thereto under Sections 1 and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), determined by applying the highest marginal rate under
Section 1 of the Code and any applicable state income tax law which is expected
to apply to the Participant's taxable income for the year(s) when the Payments
are received; (iv)
-7-
<PAGE> 8
"Present Value" shall mean such value determined in accordance with Section
280G(d) (4) of the Code; and (v) "Reduced Amount" shall mean the greatest
aggregate amount of Separation Payments which (a) is less than the sum of all
Separation Payments and (b) results in aggregate Net After Tax Receipts which
are equal to or greater than the Net After Tax Receipts which would result if
the Participant were paid the sum of all Separation Payments.
(b) Anything in this Plan to the contrary notwithstanding, in the
event Deloitte & Touche LLP or such other certified public accounting firm
designated by the Participant (the "Accounting Firm") shall determine that
receipt of all Payments would subject the Participant to tax under Section 4999
of the Code, it shall determine whether some amount of Separation Payments would
meet the definition of a "Reduced Amount." If the Accounting Firm determines
that there is a Reduced Amount, the aggregate Separation Payments shall be
reduced to such Reduced Amount. All fees payable to the Accounting Firm shall be
paid solely by the Company.
(c) If Accounting Firm determines that aggregate Separation Payments
should be reduced to the Reduced Amount, the Company shall promptly give the
Participant notice to that effect and a copy of the detailed calculation
thereof, and the Participant may then elect, in his or her sole discretion,
which and how much of the Separation Payments shall be eliminated or reduced (as
long as after such election the Present Value of the aggregate Separation
Payments equals the Reduced Amount), and shall advise the Company in writing of
his or her election within ten days of his or her receipt of notice. If no such
election is made by the Participant within such ten-day period, the Company may
elect which of such Separation Payments shall be eliminated or reduced (as long
as after such election the Present Value of the aggregate Separation Payments
equals the Reduced Amount) and shall notify the Participant promptly of such
election. All determinations made by Accounting Firm under this Section shall be
binding upon the Company and the Participant and shall be made within 60 days of
a termination of employment of the Participant. As promptly as practicable
following such determination, the Company shall pay to or distribute for the
benefit of the Participant such Separation Payments as are then due to the
Participant under this Plan and shall promptly pay to or distribute for the
benefit of the Participant in the future such Separation Payments as become due
to the Participant under this Plan.
(d) While it is the intention of the Company to reduce the amounts
payable or distributable to the Participants hereunder only if the aggregate Net
After Tax Receipts to a Participant would thereby be increased, as a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by Accounting Firm hereunder, it is possible that
amounts will have been paid or distributed by the Company to or for the benefit
of a Participant pursuant to this Plan which should not have been so paid or
distributed ("Overpayment") or that additional amounts which will have not been
paid or distributed by the Company to or for the benefit of a Participant
pursuant to this Plan could have been so paid or distributed ("Underpayment"),
in each case, consistent with the calculation of the Reduced Amount hereunder.
In the event that Accounting Firm, based upon the assertion of a deficiency by
the Internal Revenue Service against either the Company or the Participant which
Accounting Firm believes has a high probability of success determines that an
Overpayment has been made, any such Overpayment paid or distributed by the
Company to or for the benefit of a Participant shall be treated for all
-8-
<PAGE> 9
purposes as a loan to the Participant which the Participant shall repay to the
Company together with interest at the applicable federal rate provided for in
Section 7872(f) (2) of the Code; provided however, that no such loan shall be
deemed to have been made and no amount shall be payable by a Participant to the
Company if and to the extent such deemed loan and payment would not either
reduce the amount on which the Participant is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. In the event that
Accounting Firm, based upon controlling precedent or substantial authority,
determines that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Participant together
with interest at the applicable federal rate provided for in Section 7872(f) (2)
of the Code.
4.5 Payment Obligations Absolute. Subject to Section 4.4, the
obligations of the Company and the Employers to pay the Separation Benefits
described in Section 4.2 shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company or any of its
Subsidiaries may have against any Participant. In no event shall a Participant
be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to a Participant under any of the provisions
of this Plan, nor shall the amount of any payment hereunder be reduced by any
compensation earned by a Participant as a result of employment by another
employer, except as specifically provided in Section 4.2(c) (i).
ARTICLE V. PARTICIPATING EMPLOYERS
This Plan may be adopted by any Subsidiary of the Company. Upon such adoption,
the Subsidiary shall become an Employer hereunder and the provisions of the Plan
shall be fully applicable to the Employees of that Subsidiary who are
Participants pursuant to Section 3.1.
ARTICLE VI. SUCCESSOR TO THE COMPANY
This Plan shall bind any successor of the Company, its assets or its
businesses (whether direct or indirect, by purchase, merger, consolidation or
otherwise), in the same manner and to the same extent that the Company would be
obligated under this Plan if no succession had taken place.
In the case of any transaction in which a successor would not by the
foregoing provision or by operation of law be bound by this Plan, the Company
shall require such successor expressly and unconditionally to assume and agree
to perform the Company's obligations under this Plan, in the same manner and to
the same extent that the Company would be required to perform if no such
succession had taken place. The term "Company," as used in this Plan, shall mean
the Company as herein before defined and any successor or assignee to the
business or assets which by reason hereof becomes bound by this Plan.
ARTICLE VII. DURATION, AMENDMENT, AND TERMINATION
-9-
<PAGE> 10
7.1 Duration. If a Change of Control has not occurred, this Plan shall
remain in effect until terminated as provided in Sections 7.2 and 7.3. If a
Change of Control occurs while this Plan is in effect, this Plan shall continue
in full force and effect and shall not terminate or expire until after all
Participants who become entitled to any payments hereunder shall have received
such payments in full and all adjustments required to be made pursuant to
Sections 4.2 and 4.3 have been made.
7.2 Amendment or Termination. The Board may amend or terminate this Plan
at any time; provided, that this Plan may not be terminated or amended in any
manner that could adversely affect the rights of any Participant (i) after a
Change of Control has occurred, (ii) at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control, or (iii)
otherwise in connection with or in anticipation of a Change of Control.
7.3 Procedure for Extension, Amendment or Termination. Any extension,
amendment or termination of this Plan by the Board in accordance with the
foregoing shall be made by action of the Board in accordance with the Company's
Certificate of Incorporation and by-laws and applicable law, and shall be
evidenced by a written instrument signed by a duly authorized officer of the
Company, certifying that the Board has taken such action.
ARTICLE VIII. MISCELLANEOUS
8.1 Indemnification. If a Participant institutes any legal action in
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by this Plan, the
Company or the Employer will pay for all actual legal fees and expenses incurred
(as incurred) by such Participant, if such Participant prevails in such legal
action, regardless of whether such action is between the Company or the Employer
and the Participant or between either of them and any third party.
8.2 Employment Status. This Plan does not constitute a contract of
employment or impose on the Participant or the Participant's Employer any
obligation for the Participant to remain an Employee or change the status of the
Participant's employment or the policies of the Company and its affiliates
regarding termination of employment.
8.3 Named Fiduciary, Administration. UNOVA, Inc. is the named fiduciary
of the Plan, with full authority to control and manage the operation and
administration of the Plan, acting through the Compensation Committee of its
Board.
8.4 Claim Procedure. If an Employee or former Employee makes a written
request alleging a right to receive benefits under this Plan or alleging a right
to receive an adjustment in benefits being paid under the Plan, the Company
shall treat it as a claim for benefit. All claims for benefit under the Plan
shall be sent to the Human Resources Department of the Company and must be
received within 30 days after the Date of Termination. If the Company determines
that any individual who has claimed a right to receive benefits, or different
benefits, under the Plan is not entitled to receive all or any part of the
benefits claimed, it will inform the claimant in writing of its determination
and the reasons therefor in terms calculated to be understood by the claimant.
The notice will be
-10-
<PAGE> 11
sent within 90 days of the claim unless the Company determines additional time,
not exceeding 90 days, is needed. The notice shall make specific reference to
the pertinent Plan provisions on which the denial is based, and describe any
additional material or information as necessary. Such notice shall, in addition,
inform the claimant what procedure the claimant should follow to take advantage
of the review procedures set forth below in the event the claimant desires to
contest the denial of the claim. The claimant may within 90 days thereafter
submit in writing to the Company a notice that the claimant contests the denial
of his or her claim by the Company and desires a further review. The Company
shall within 60 days thereafter review the claim and authorize the claimant to
appear personally and review pertinent documents and submit issues and comments
relating to the claim to the persons responsible for making the determination on
behalf of the Company. The Company will render its final decision with specific
reasons therefor in writing and will transmit it to the claimant within 60 days
of the written request for review, unless the Company determines additional
time, not exceeding 60 days, is needed, and so notifies the Participant. If the
Company fails to respond to a claim filed in accordance with the foregoing
within 60 days or any such extended period, the Company shall be deemed to have
denied the claim.
8.5 Unfunded Plan Status. This Plan is intended to be an unfunded plan
maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees, within the meaning
of Section 401 of ERISA. All payments pursuant to the Plan shall be made from
the general funds of the Company and no special or separate fund shall be
established or other segregation of assets made to assure payment. No
Participant or other person shall have under any circumstances any interest in
any particular property or assets of the Company as a result of participating in
the Plan. Notwithstanding the foregoing, the Company may (but shall not be
obligated to) create one or more grantor trusts, the assets of which are subject
to the claims of the Company's creditors, to assist it in accumulating funds to
pay its obligations under the Plan.
8.6 Validity and Severability. The invalidity or unenforceability of any
provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
8.7 Governing Law. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of
California, without reference to principles of conflict of law, except to the
extent pre-empted by federal law.
* * *
-11-
<PAGE> 12
CS/E/UNOVA Executive Severance Plan.doc
Corp Secy's Office
(Rev. 2/29/00)
-12-
<PAGE> 13
SCHEDULE 1
- --------------------------------------------------------------------------------
NAME OF PARTICIPANT BENEFIT LEVEL (MULTIPLE)
- --------------------------------------------------------------------------------
<<NAME>> <<MULTIPle>>
- --------------------------------------------------------------------------------
CS/E/UNOVA Exec Severance Plan
Corp Secy's Office
(Rev. 2/29/00)
<PAGE> 1
EXHIBIT 10.37
LOGO HERE
GEM Plan
Summary Plan Description
Group Executive Medical
January 1999
<PAGE> 2
GENERAL AMERICAN
LIFE INSURANCE COMPANY
ST. LOUIS, MISSOURI 63101
CERTIFICATE OF GROUP INSURANCE
This Certificate contains a description of the Benefits Your Employer
provides for Covered Persons under the Group Policy identified below. The
Benefits described are subject to all of the terms and conditions of the Plan.
The Group Policy under which this Certificate is issued may at any time
be amended or ended in accordance with its terms without the consent of the
employee or any other person who claims rights or Benefits under the Group
Policy.
This certifies that General American Life Insurance Company has issued a
Group Insurance Policy numbered MCP-6901 to:
UNOVA, INC.
Policyholder
This Certificate describes the Benefits in effect under the Plan as of
January 1, 1999.
The coverage afforded by the Group Policy is not in place of nor does it
affect any requirements for coverage by Worker's Compensation Insurance nor does
it pay in addition to Worker's Compensation.
GENERAL AMERICAN LIFE INSURANCE COMPANY
President
<PAGE> 3
COMPLAINT NOTICE
If You have a question about Your Policy or if You need assistance with
a problem, You should first contact Your plan representative. After Your plan
representative's contact with Us, should You feel You are not being treated
fairly with respect to a claim, You may contact the California Department of
Insurance.
To contact the Department, write or call:
Department of Insurance
Consumer Service Division
300 S. Spring Street
Los Angeles, California 90013
213-897-8921
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
Introduction ......................................................................................1
Eligibility .......................................................................................2
When Coverage Begins ..............................................................................4
When Coverage Ends ................................................................................6
Continuation of Coverage in the Event of a Labor Dispute ..........................................7
Special California Continuation for Surviving Spouses, Divorced or Legally Separated Spouses ......8
Special California Continuation of Medical or Health Coverage for Employees Age 60 and Over
and Their Spouses ...............................................................................9
Medicare .........................................................................................10
Plan Replacement .................................................................................11
Health Care Benefits .............................................................................12
Medical Conversion Privilege .....................................................................15
Coordination of Benefits .........................................................................16
Claims and Other General Provisions ..............................................................18
General Definitions ..............................................................................20
ERISA Information ................................................................................28
</TABLE>
i
<PAGE> 5
INTRODUCTION
Your Employer has chosen the Benefits described in this
Booklet/Certificate for many reasons. The most important of these are to protect
its most valuable assets -- its healthy and productive employees -- and to
provide You (and Your family) with significant financial protection against the
physical, emotional and economic strain Illness or Injury can bring.
Please read this document carefully to familiarize Yourself with the
Benefits it describes and the procedures for filing claims. If You have any
questions about Your coverage, please contact the plan representative.
When used in the Plan, unless otherwise stated, the terms are as defined
in:
1. the General Definitions section, or
2. the specific benefits sections.
1
<PAGE> 6
ELIGIBILITY
ELIGIBLE EMPLOYEES
Employees who are classified by the Employer as a) an active Key
Executive employee, b) a retired Key Executive employee, or c) a consultant who
has been designated as a participant by the Employer, or their wholly-owned
subsidiaries, and who is compensated for his/her services by or is under
agreement with the Employer or their wholly-owned subsidiaries.
ELIGIBLE DEPENDENTS
To be eligible for Dependent Coverage under the Plan, Your dependent(s)
must be eligible.
Your Eligible Dependents are:
1. Your lawful spouse;
2. Your unmarried dependent Child:
a. less than age 19; and
b. age 19 to 23 if a full-time student in an accredited school and
dependent on You for main support and care;
3. Your Child with a mental or physical handicap who is over the age limit,
if a) the Child becomes and remains Disabled while covered under the
Plan, or b) was covered under the Prior Plan that this Plan replaces
and, in either case, all of the following conditions are met:
a. the Child has not been married;
b. cannot hold a self-supporting job due to the handicap; and
C. depends on You for main support and care.
First proof of incapacity must be given to Us (at Your expense) within
31 days of the Child's limiting birthday. After two years following the
attainment of the limiting age, subsequent proof may be requested annually.
"Child" means: Your natural Child; Your stepchild; an adopted Child; a
Child who has been Placed For Adoption with You; a Child for whom You have been
appointed legal guardian; a Child who is recognized under a qualified medical
child support order as having a right to enrollment under the Plan (hereafter
"QMCSO-child"); or a Foster Child. With respect to an adopted or placed Child,
dependent coverage will include necessary care and treatment of medical
conditions existing prior to the date of placement. In all cases the Child must
depend upon You for his/her main support and care. However, when a court
recognizes a Child as a QMCSO-child, the Child will be considered Your Eligible
Dependent regardless of whether the Child is living with You or receiving
his/her main support and care from You.
No person may be covered as a dependent of more than one employee. An
employee may not be covered as a dependent.
2
<PAGE> 7
ELIGIBILITY - CONTINUED
COVERAGE FOR NEWBORNS - WELL BABY CARE
A newborn Child will become covered from moment of birth provided You
enroll the newborn Child for coverage within 31 days from the date of birth.
Such newborn Child will be eligible for the following Covered Expenses. (a)
Hospital room and board (or nursery) charges; (b) routine Doctor visits while
Hospital confined; and (c) circumcision while Hospital confined.
This coverage will end on the earlier of:
1. the date the newborn Child is discharged or
2. the date the newborn Child is 7 days old.
COVERAGE FOR NEWBORNS - SICK BABY CARE
A newborn Child is eligible from the moment of birth for Covered
Expenses due directly to:
1. Injury;
2. premature birth; or
3. a condition which exists at birth.
If You do not have Dependent Coverage in force, this coverage (including
any Extended Benefits) will end 31 days after the date Your Child is born. If
You Enroll the Child within this 31 day period.
3
<PAGE> 8
WHEN COVERAGE BEGINS
FOR ELIGIBLE EMPLOYEES:
Your coverage will be made effective on:
1. Your Eligibility Date if You Enroll on or before that date; or
2. the date You Enroll if You do so within 31 days after Your Eligibility
Date.
If You do not Enroll within 31 days after You are eligible, please refer
to the provision on Late Enrollees within this section.
FOR ELIGIBLE DEPENDENTS:
Dependent Coverage cannot become effective prior to the date Your
coverage is effective. Dependent Coverage will be effective with respect to each
Eligible Dependent You then have on:
1. the date You are eligible for coverage if You Enroll Your dependents
within 31 days; or
2. the date Your dependents are eligible if You Enroll them within 31 days.
If You do not Enroll Your dependents for coverage within 31 days after
they are eligible for coverage, please refer to the provision on Late Enrollees
below.
LATE ENROLLEES
If You do not Enroll within 31 days after You are eligible for Health
Care coverage, You may be a Late Enrollee. If:
1. You do not enroll Your dependents within 31 days after You are eligible
for such coverage or Your dependent was not enrolled within 31 days
after he/she became eligible; or
2. You wish to restore Dependent Health Care coverage which ended because
You did not make required Contributions, Your dependent may be
considered a Late Enrollee. (Please refer to the General Definitions
section.)
- Late Enrollee may Enroll only during the open enrollment period.
- Late Enrollee's coverage will be made effective on the first day of the
calendar month following the open enrollment period.
OTHER ENROLLMENT PERIODS
You or Your Eligible Dependent may only request enrollment under the
Health Care coverage
1. during the initial enrollment period or subsequent open enrollment
periods;
2. during the Special Enrollment Periods;
3. during any state prescribed enrollment periods.
4
<PAGE> 9
WHEN COVERAGE BEGINS - CONTINUED
You or an Eligible Dependent may Enroll for coverage during Special
Enrollment Periods without being considered a Late Enrollee under the following
circumstances:
The Special Enrollment Periods exist under the following circumstances:
1. Loss of Other Coverage. If You or an Eligible Dependent
a. was/were covered under another group health plan (including
COBRA continuation) or under no share-of-cost Medi-Cal coverage
or had other medical insurance coverage at the time enrollment
was declined; and
b. stated, in writing, that coverage under another health plan or
under a no share-of-cost Medi-Cal coverage was the reason for
declining enrollment and were provided with a notice of this
requirement and the consequences of such a requirement; and the
Employer can provide Us with a written statement confirming
these facts and
c. have/has lost or will lose coverage under the other plan as a
result of loss of eligibility (due to such reasons as
termination of employment, change of employment status, death of
a spouse, divorce, legal separation) or cessation of the
employer's contributions to such coverage (even if the other
plan is continued) or loss of no share-of-cost Medi-Cal coverage
or have exhausted COBRA continuation coverage, You or an
Eligible Dependent may Enroll within 31 days after loss of
coverage. Coverage will be effective on the first day of the
month following enrollment.
2. Acquisition of Dependents. If You did not Enroll when first eligible and
acquire a dependent through marriage, birth, adoption or Placement For
Adoption, You and the newly acquired dependent(s) may Enroll within 31
days of the date of marriage, birth, adoption or Placement For Adoption.
In the case of the birth, adoption or placement of a Child, Your spouse
may also be enrolled as Your dependent if otherwise eligible for
coverage. Coverage will be effective on the date of birth, adoption or
Placement For Adoption. In the case of marriage, coverage will be made
effective on the first day of the month following enrollment.
3. During any state prescribed enrollment period.
5
<PAGE> 10
WHEN COVERAGE ENDS
FOR EMPLOYEES:
Your coverage will end on the date of the first of these events:
1. The end of the month in which You stop Active Work on a Full-Time Basis
in an Eligible Class, except that:
a. if You stop Active Work due to Injury, Illness or Qualified
Leave of Absence for personal Injury or Illness, Your Employer
will continue Your Health coverage subject to payment of
Contributions. Such coverage will continue only while You are
unable to return to work because of the Injury, Illness or
Qualified Leave of Absence. This coverage continuance will be on
a basis precluding individual selection;
b. if You stop Active Work to take a qualified military leave of
absence (pursuant to the Uniformed Services Employment and
Reemployment Rights Act of 1994), You may elect to continue Your
Health coverage subject to payment of premium. Such coverage
will continue only while You are unable to return to work
because of the qualified military leave of absence. Such
continuance will be on a basis precluding individual selection;
c. if You stop Active Work to take a Qualified Leave of Absence
(pursuant to the Family and Medical Leave Act of 1993 or other
applicable state's leave law, if any such law applies to Your
Employer), for reasons other than personal Illness or Injury,
Your Employer will continue coverage subject to payment of
Contributions. Such coverage will continue only while You are
unable to return to work because of the Qualified Leave of
Absence. Such continuance will be on a basis precluding
individual selection;
d. Upon retirement from UNOVA, Inc., coverage for the retired
executive and their dependents will continue until the executive
attains age 72. If the retired executive dies before attainment
of age 72, the surviving dependents will be covered until the
retired executive would have attained age 72.
2. As to any one coverage or class, the date the Plan is amended or changed
to exclude that coverage or class.
3. Your Employer ceases to be an Associated Company of the Policyholder.
4. Your Employer ceases to be a member of the trust to which We issued the
Policy.
5. The Plan ends.
FOR DEPENDENTS:
A dependent's coverage will end on the earlier of:
1. the date Your coverage ends; or
2. the end of the month in which the dependent ceases to be eligible as
defined by the Plan.
Please read the Special California Continuation of Medical or Health
Coverage provisions to determine if Your coverage may extend beyond the time
allowed above.
6
<PAGE> 11
CONTINUANCE OF COVERAGE IN THE EVENT
OF A LABOR DISPUTE
Your and Your dependent's coverage under the Group Policy will continue
and Your employment will be considered to continue after the day it would
otherwise end under the Group Policy because You ceased work as a result of a
labor dispute, subject to the following conditions:
1. You are a member of a collective bargaining unit which participates in
the cessation of work resulting from the labor dispute.
2. Your union agrees to collect and remit to Us the required monthly
premium, and Your union agrees that it will:
a. keep required monthly premium collection records in connection
with this continuance of coverage;
b. furnish Us with needed information to administer this
continuance of coverage when We require that information; and
C. permit Us, at any reasonable time, to inspect the union records
which relate to this continuance of coverage.
3. You must remit the required monthly premium to Your union on the date
You stopped work. The union, if it agrees, will remit to Us all such
monthly premium payments. Your required monthly payment will be at the
premium rate applicable to Your and Your dependent's Benefit Class as We
required on the date You stopped work.
We will not discontinue Your coverage if any of Your required premium
which was unpaid on the date You stopped work and was due prior to the
date You stopped work, if paid prior to the date the next premium is due
under the terms of the Plan.
You must remit to Your union subsequent required monthly premium
payments not later then 20 days after the due date for the premium for
that month.
The grace period for payment of premiums will not apply to premiums due
to Us for any coverage continued under this provision. Premiums must be
paid to Us by Your union within 31 days after the due date.
4. In addition to Our right under the Plan to change premium rates, We have
the right to increase the rate charged to You for Your and your
dependent's coverage on the date You stopped work. We may increase this
premium rate by up to twenty percent (20%), or a higher percent if
approved by the Insurance Commissioner of the state of California. An
increase in premium rates will automatically increase Your required
monthly premium.
5. Neither We nor the Policyholder has the right to terminate the Plan with
respect to coverage being continued under this provision.
6. Your continuance of coverage provided by this provision will terminate
on the earliest of the following:
a. the last day of the period for which (a) You paid the required
premium, or (b) Your union last remitted to Us the required
monthly premium for Your coverage;
b. the premium due date on which the number of employees continuing
coverage under this provision is less than 75% of the number of
employees who are entitled to continue their coverage;
c. the day You take full-time employment with another employer;
d. the end of the continuous six-month period beginning on the day
You stopped work as a result of the labor dispute;
e. the end of the labor dispute which resulted in the cessation of
work;
f. as to any one Eligible Dependent, the date he/she no longer
qualifies as an Eligible Dependent as defined in the Plan.
7
<PAGE> 12
SPECIAL CALIFORNIA CONTINUATION FOR SURVIVING
SPOUSES, DIVORCED OR LEGALLY SEPARATED SPOUSES
If Your spouse and any dependent Child(ren) lose coverage under Your
Health Care coverage due to Your death, dissolution of marriage or legal
separation or if Your entitlement to Medicare causes loss of Dependent Coverage,
Your spouse may elect to continue the coverage under California's benefit
instead of Federal Continuation Coverage (COBRA) under certain circumstances.
The continued coverage applies to Medical Care, and any Dental Care, Vision Care
and Prescription Drug coverage You may have under this Plan.
The Plan Administrator must be notified within 15 days of Your spouse's
eligibility due to divorce or legal separation and supplied with the spouse's
mailing address. The spouse will be notified within 15 days and provided with
election forms. If the Plan Administrator is not notified within the time
provided, the right to such coverage will be terminated.
In case of Your death, Your Employer will notify the Plan Administrator.
Coverage will not be terminated for up to 31 days after notice and forms
are provided. If the premium for continued coverage is not paid within 31 days
after notice is provided, coverage will be deemed terminated in accordance with
the "When Coverage Ends" provision.
Continuation of coverage for the Covered Person will terminate on the
date:
1. the Covered Person ceases to reside in the State of California;
2. the Covered Person marries or remarries',
3. the Covered Person becomes eligible for a comparable state, federal or
private group medical or health plan", or
4. the Covered Person becomes eligible for medical care coverage under
another employer's group plan, even though such plan may be less
substantial.
The ineligibility of a dependent Child will not invalidate the continuation
provision for any other family member.
The continued coverage of all dependents , will end on the earliest of:
1. 90 days from when coverage would have ended under the "When Coverage
Ends" provision;
2. the date the spouse ceases to reside in the State of California;
3. the date the spouse remarries;
4. the date the spouse becomes eligible for any comparable state, federal
or private group medical plans;
5. the date the spouse becomes eligible for medical coverage under
another's employer's group plan, even though such plan may be less
substantial;
6. the date the Medical Care coverage under the Plan is terminated;
7. the date the Employer through which coverage was obtained ceases to
participate in the Medical Care coverage; or
8. the date the premium is not paid within the time allowed.
8
<PAGE> 13
SPECIAL CALIFORNIA CONTINUATION OF MEDICAL OR
HEALTH COVERAGE FOR EMPLOYEES AGE 60 AND OVER
AND THEIR SPOUSES
If You are age 60 years or older, You and Your covered spouse may elect
to continue coverage beyond the expiration of Your Federal Continuation Coverage
under the Consolidated Omnibus Budget Reconciliation Act (COBRA) under certain
circumstances. This extended continuation applies if You have been employed for
at least 5 years prior to termination of employment and You or Your spouse is
not entitled to Medicare when Your COBRA coverage expires. Continuation follows
the same terms and conditions in force under Your COBRA election.
If You meet the qualifications above, You must make an election for this
special continuation at least 30 days prior to the date Your COBRA coverage is
scheduled to terminate. The election is separate from Your COBRA election;
however, You must elect COBRA in order for the special continuation election to
be valid. You may terminate this coverage at any time. A former spouse of an
employer may also elect to continue coverage beyond the expiration of COBRA by
making an election in this same manner.
Continued coverage, effective after COBRA coverage expires, will
automatically terminate whenever any of the following occurs:
1. Failure to pay the premium when due under the Plan;
2. The employer ceases to provide a group health plan to its employees;
3. Becoming covered under another group health plan;
4. Becoming entitled to Medicare;
5. Attainment of the age of 65; or
6. For Your spouse or former spouse only, five years from the date COBRA
coverage ends.
9
<PAGE> 14
MEDICARE
This section applies to a Covered Person who is eligible for Medicare
coverage. It provides rules for determining the order of benefit payments
between coverage under this Plan and those of Medicare. The intent of this
section is to conform the Plan to the requirements of the federal Medicare
Secondary Payer law. Accordingly, the section and its stated rules will be
adjusted, if We deem necessary, so that the Plan's liability for Benefit payment
is neither greater nor less than those required under the law.
1. If, pursuant to the rules:
a. this Plan is determined to be secondary to Medicare, it will pay
secondary to and coordinate its Benefits with Medicare;
b. this Plan is determined to be primary to Medicare, it will pay
Benefits without regard to Medicare benefits.
2. The order of benefit payments rules are outlined below.
a. Rules applicable to a person covered under the Plan by virtue of
that person's "Current Employment Status" with an Employer or as
a dependent of such person:
<TABLE>
<CAPTION>
BASIS OF MEDICARE ELIGIBILITY: THIS PLAN WILL:
<S> <C>
- Old-Age (attaining age 65)* Be primary.
- Disability (other than ESRD) Be primary.
- End Stage Renal Disease (ESRD) Be primary for the first 30 months of ESRD Medicare
coverage; be secondary thereafter.
- Old-Age or Disability, preceding or beginning
concurrently with ESRD Continue to be primary until the end of the first 30 months of
ESRD Medicare coverage; be secondary thereafter.
</TABLE>
*If a Covered Person elects to have Medicare as primary coverage, such
person's Health Care coverage under this Plan will terminate. If the
employee's Health Care coverage terminates in accordance with this
provision, coverage on the employee's covered dependents will cease on
the same date.
b. Rules applicable to a person covered under the Plan as a Retired
Employee, a dependent of such employee, or on any basis other
than those stated in 2.a. above:
<TABLE>
<CAPTION>
BASIS OF MEDICARE ELIGIBILITY: THIS PLAN WILL:
<S> <C>
- Old-Age (attaining age 65) Be secondary.
- Disability (other than ESRD) Be secondary.
- End Stage Renal Disease (ESRD) Be primary for the first 30 months of ESRD Medicare
coverage; be secondary thereafter.
- Old-Age or Disability, preceding ESRD Continue to be secondary.
</TABLE>
For purposes of this section, "Current Employment Status": a person is
considered to have Current Employment Status with an Employer if the person is
an employee, is the Employer (including self-employed person), or is associated
with the Employer in a business relationship.
REMEMBER: The Medicare section outlined above applies from the date a Covered
Person is first ELIGIBLE for Medicare (either part A or part B), whether or not
the Covered Person is enrolled and is receiving Medicare benefits.
10
<PAGE> 15
PLAN REPLACEMENT
If Medical Care coverage under this Plan replaces a group medical plan
(the "Prior Plan") within 60 days after a) the date the Prior Plan ended, or b)
the date the coverage under a plan for an entire employer unit ended, the
following will apply:
1. If You and Your dependents were covered under the "Prior Plan" on the
date such plan ended, You and Your dependents will be covered under this
Plan, if You and Your dependents meet the Eligibility requirements for
coverage under the terms of this Plan.
2. All former employees entitled to "California Special Continuation for
Employees Age 60 and Over and Their Spouses" will be eligible under this
Plan.
3. If You or Your dependent is totally disabled (as defined by the Prior
Plan) and entitled to an extension of benefits under the Prior Plan, this
Plan will not provide coverage for any Expenses Incurred due to any
conditions causing the disability.
a. Any Benefit payable under this Plan will not be lower than the
benefit that would have been provided under the Prior Plan.
b. Any Benefit payable will be reduced by the amount of benefits
payable under the Prior Plan's extension of benefits provision.
4. Your or Your dependent's coverage will continue until the earlier of:
a. the date coverage would terminate in accordance with this Plan's
Termination of Coverage provision; or
b. for a person Disabled on the date the Prior Plan ended, the end
of the extension of benefits period of the Prior Plan. If the
Prior Plan was not required to provide an extension of benefits,
coverage will end not less than 12 months from the date the
person became Disabled.
11
<PAGE> 16
HEALTH CARE BENEFITS
The Calendar Year Maximum Benefit for all Covered Expenses is $100,000
per Family Unit.
COVERED EXPENSES
The Plan Will Pay Benefits for Covered Expenses Incurred for medical,
dental and vision care expenses as defined under the Internal Revenue Code
(Section 213(d) as amended and Internal Revenue Service Income Tax Regulation
1.213-1 as amended) except as specifically listed under the Exclusion in this
Benefit. Covered Expenses include services for the diagnosis, care, and
treatment of a physical or mental defect, Illness or Injury and for the
prevention of disease. Covered services include but are not limited to:
1. Acupuncture.
2. Anesthesia and the professional charge for its administration.
3. Hearing tests, hearing aids and their fittings and batteries.
4. Infertility treatment including reversal of an elective sterilization
procedure.
5. Inpatient Hospital charges including residential alcohol treatment
centers, residential drug addiction treatment centers, psychiatric
residential treatment centers, Hospice facilities.
6. Laboratory and x-ray charges by a Hospital, Doctor's office, laboratory
or imaging center and the professional interpretation fee.
7. Medical equipment including:
a. wheelchairs, hospital beds and the attachments thereto;
b. oxygen and equipment to administer oxygen, breathing aids;
c. needles and syringes to administer insulin, allergens and
prescription drugs;
d. dialysis equipment, supplies, upkeep and training on the use of
such equipment;
e. ostomy bags and supplies;
f. glucometers, dextrometers, destrostix;
g. infusion pumps;
h. nerve stimulators.
8. Nursing services provided by a registered nurse (R.N.), licensed
practical nurse (L.P.N.), or licensed vocational nurse (L.V.N.), in or
out of a Hospital, pertaining to the actual care of an Illness or
Injury.
9. Orthopedic and prosthetic devices including:
a. artificial limbs, eyes and teeth and the replacement thereof;
b. casts, splints and crutches;
c. supports and orthotics;
d. post-mastectomy breast prostheses and holding bras.
10. Outpatient Hospital charges including outpatient treatment centers,
non-residential treatment centers for alcoholism and/or substance abuse,
community mental health centers, ambulatory surgical centers, Birthing
Centers.
11. Physiotherapy services by a physiotherapist.
12. Pre-natal and post natal care.
13. Complications of Pregnancy.
14. Prescription drugs including:
a. birth control pills;
b. insulin.
15. Preventive care including:
a. newborn care;
b. child health supervision services;
c. immunizations and vaccines;
d. screening tests for cancer;
e. annual routine physicals.
12
<PAGE> 17
HEALTH CARE BENEFITS - CONTINUED
16. Preventive and restorative dental treatment including orthodontia and
dentures and their replacement.
17. Professional charges of a Physician, chiropractor, podiatrist, Dentist,
Christian Science practitioner, psychologist, speech/language therapist,
speech pathologist, audiologist, optometrist, ophthalmologist, nurse
practitioner, licensed midwife, operating within the scope of their
respective licenses.
18. Professional counseling for a mental health condition by a state
licensed counselor.
19. Psychoanalysis, psychotherapy, psychological testing and group therapy.
20. Skilled Nursing Facilities if confined for medical care.
21. Special schools and tutoring for a Child with a learning disability upon
the recommendation of a Physician.
22. Special schools for a mental impaired or physically Disabled person if
its main purpose is teaching to alleviate the disability, for example:
a. teaches Braille to a visually impaired person;
b. teaches lip reading to a hearing impaired person;
c. gives remedial language training to correct a condition caused
by a birth defect.
23. Specialized equipment for the physically Disabled including:
a. modifications to Your home to accommodate the Disabled person
(prior Company approval required);
b. modifications to a car to enable a Disabled person to drive it;
c. Braille books and magazines for the visually impaired;
d. support dogs or other animals trained to assist the Disabled
person;
e. special telephone equipment for the hearing impaired;
f. special equipment to adapt television for the hearing impaired.
24. Surgery including sterilization, spontaneous abortion, an abortion
necessary to prevent the death of the mother, elective abortion,
improvement of a deformity related to a congenital abnormality, Injury
or disfiguring disease.
25. Transportation for medical care defined as:
a. professional ambulance to and from a Hospital;
b. train or commercial airline to a Hospital for specialized care;
and
c. emergency transportation to a Hospital by helicopter.
26. Vision care including:
a. routine eye examinations;
b. surgery, eyeglasses and contact lenses to improve vision;
c. eye exercises.
EXCLUSIONS
The Policyholder has chosen to provide many Benefits. There are some
things, however, that will not be covered as health expenses. Excluded items
include but are not limited to:
1. Expenses solely for cosmetic reasons including face lifts, hair
transplants, liposuction.
2. Items ordinarily used for personal, living or family purposes, even if
recommended by a Doctor, including:
a. household help;
b. a vacation;
c. smoking cessation program;
d. weight loss program;
e. health club;
f. maternity clothes;
g. nursing services for a normal healthy baby;
h. over-the-counter drugs and medicines.
13
<PAGE> 18
HEALTH CARE BENEFITS - CONTINUED
3. Care or supplies for which:
a. no charge is made;
b. You or Your dependent would not have to pay if You did not have
this coverage.
4. Any care or supplies received prior to the Effective Date or after the
Termination Date of the Covered Person's coverage (unless coverage is
continued according to some Plan provision).
5. Injury or Illness arising out of employment, whether or not You or Your
dependent is covered by Worker's Compensation or similar laws.
6. Any service or treatment covered under another plan of Your Employer.
7. Any charge for a service not listed as a Covered Expense.
14
<PAGE> 19
MEDICAL CONVERSION PRIVILEGE
If Your coverage with the Plan ends due to:
1. any reason except failure to pay the required premium; or
2. the Plan ending and not being replaced within 60 days by similar
coverage,
You may purchase personal coverage ("Conversion Coverage") for Yourself and each
of Your covered dependents, provided:
1. You (and Your dependents) were covered by this Plan (and under any group
plan providing similar Benefits which it replaces) for at least three
months prior to the date Your employment ends; and
2. You (and Your dependents) are not eligible for Medicare,
You have 31 days from the date Your coverage ends to submit a written
application and the first premium for Conversion Coverage. You are solely
responsible for contacting Us to obtain this coverage. Premium will be based on
the type of coverage and the sex, age and state of residence of the person
purchasing the coverage. Coverages will become effective on the date group
coverage ends.
If purchase of Conversion Coverage will result in over-insurance
according to Our standards, We reserve the right to deny such coverage.
Pregnancy Benefits are included in a conversion policy if they were
provided under the group Plan which the Conversion Policy replaces.
This privilege is also available to a) covered dependents if You die; or
b) to a dependent Child who reaches the limiting age; or c) to Your ex-spouse on
the date a valid decree of divorce is issued (including any Children whose
coverage also ends at the same time), if exercised within 31 days of the date
coverage ends.
THE CONVERSION COVERAGE WILL MEET THE MINIMUM REQUIREMENTS OF THE STATE
IN WHICH IT IS ISSUED. THE BENEFITS PROVIDED BY THE CONVERSION POLICY WILL NOT
DUPLICATE THE BENEFITS PROVIDED UNDER THIS PLAN.
If Your or Your dependents' coverage with the Plan has been continued
according to federally mandated standards, You or they may still be able to
exercise this conversion right. The full term of the available Federal
Continuation Coverage (COBRA) must have been exhausted to receive this
Conversion Privilege.
15
<PAGE> 20
COORDINATION OF BENEFITS
If this is not Your only plan coverage, the Benefits payable under this
Plan, and any other group plan for the Allowable Expenses Incurred during any
Benefit Determination Period will be coordinated so that the combined Benefits
paid or provided by all plans will not exceed 100% of such Allowable Expenses.
You must inform Us if You have other coverage (for example, through Your
spouse's employer); and give Your consent to the release of information so that
We may use this provision. You should first file Your claim with the primary
plan (as determined below). When the claim is paid, send a copy of the charges
and a copy of the Explanation of Benefits Statement from the first plan to the
secondary plan (as determined below). This will accelerate the processing of
Your claim.
One of Your Plans will be determined to be primary (using the rules
below). The primary plan pays its full benefits first. The plan paying second
takes the benefits of the primary plan into account when it determines its
benefits.
A plan is primary when:
1. the plan does not have a COB provision;
2. the plan designates itself as an "excess" or "always secondary" plan; or
3. if both plans have a COB provision, under the rules it is determined to
be primary.
When both plans have a COB provision, the order in which the plans
provide benefits is determined using the first of the following rules which
applies:
1. Employee/dependent. The plan which covers the person as an active
employee is primary. If You or Your dependent is also covered by
Medicare, the plan covering the person as an active employee is primary,
the plan covering the person as a dependent of an active employee is
secondary, and then Medicare.
2. Dependent children.
a. If the parents are not separated or divorced, the plan which
covers the parent whose birthday (month and day) falls earlier
in the calendar year is primary. If both parents have the same
birthday (month and day), the plan which covered the parent
longer is primary. If the other plan does not have the "birthday
rule", the rule in the other plan will determine the primary
plan.
b. If the parents are separated or divorced, the plan which covers
the natural parent with custody is primary; followed by the plan
which covers the step-parent who has married the natural parent
with custody; and finally, the plan which covers the natural
parent without custody.
However, if the court decrees one of the parents responsible for
health care expenses, the plan which covers that parent is
primary.
If the decree names the parent other than the natural parent
with custody, We must be notified and have actual knowledge of
those terms. Any Benefits paid prior to actual knowledge will
not be affected. The plan of the other parent and the plan of
the spouse of the parent with custody will be secondary and
third, respectively.
If joint custody is granted by the court, the rules pertaining
to parents who are not separated or divorced apply.
3. Active/inactive employee. The plan covering the employee who is neither
laid off or retired is primary. If the other plan does not have this
rule, this rule is ignored.
16
<PAGE> 21
COORDINATION OF BENEFITS - CONTINUED
4. Continuation coverage. Continuation coverage provided under either
federal or state law is secondary. If the other plan does not have this
rule, this rule is ignored.
5. Length of coverage. If the primary plan cannot be determined using any
of the rules above, the plan which has covered the person for the
longest period of time will be considered primary.
If this Plan is determined to be secondary, We will reduce Benefits
payable so that the total benefits provided by all plans during a claim
determination period are not more than the total Allowable Expenses for the
Covered Person.
The actual Benefit amounts available are determined by each plan's
benefit provisions. Benefits payable under this Plan will never exceed the
amount which would have been paid if there were no other plans involved. If
Benefit payments under this Plan are reduced by COB, only the reduced amounts
will be charged against Your Plan maximums.
If during Coordination of Benefits, payments are made in error, the
plans will have the right to adjust payments among themselves. Such payments
satisfy Our liability. If We overpay a claim, We will have the right to recover
such overpayments from any person for, to whom, or with respect to whom such
payments were made, any other insurance company, or any other organization.
DEFINITIONS
An "Allowable Expense" is the Reasonable and Customary cost for any
necessary medical or dental service which is covered (at least in part) by one
of the plans. If a health plan provides services (rather than cash payments) a
dollar value will be assigned in order to use this provision.
When the primary plan penalizes You for not complying with plan
provisions, such as failing to pre-certify, the amount of the reduction is not
considered an Allowable Expense.
A "Benefit Determination Period" means from January 1 of one year to
December 31 of the same year.
A "plan" as used in this provision, is any of the following which
provides health benefits or services:
1. a group, blanket or franchise plan on an insured basis;
2. other plans which cover people as a group;
3. a self-insured or non-insured plan or other plan which is arranged
through an employer, trustee or union;
4. a pre-payment plan which provides medical or dental service;
5. government plans, except Medicaid;
6. group auto insurance, but only to the extent medical benefits are
payable under group auto insurance;
7. no-fault auto insurance on an individual basis, except where not allowed
by the state in which this Plan is issued;
8. single or family subscribed plans issued under a group or blanket type
plan;
but the definition of plan shall not include:
1. hospital indemnity type plans;
2. school accident-type coverage;
3. traditional auto insurance.
17
<PAGE> 22
CLAIMS AND OTHER GENERAL PROVISIONS
NOTICE AND PROOF OF CLAIM
You must give Us a written notice of claim for a medical or health claim
(including vision and dental claims, if any), within 12 months after a Covered
Expense is incurred.
Within 15 days after We receive the notice of claim, We will send claim
forms (if required) to You for giving proof of claim. If You do not receive
these forms, You will satisfy the proof of claim requirement by giving Us a
written statement of the nature and extent of the loss within the time limit
provided below.
You must give positive proof of claim to Us or Our authorized claim
office for a medical or health claim (including vision and dental claims, if
any) within 15 months after a Covered Expense is Incurred.
You must give Us proper written notice and proof of loss before We will
be liable for any loss. If You send Us proof as soon as reasonably possible, We
will not reduce or deny claims merely because You cannot reasonably give notice
and proof in writing within the time required. However, such proof must be
furnished within one year from the time proof is otherwise required except in
the absence of legal capacity.
We may, as required by law, accept claims submitted by a third-party
custodial parent or a provider (with the custodial parent's approval) for
Covered Expenses Incurred by a covered dependent Child who is also eligible for
a state medical assistance program (i.e., Medicaid).
PAYMENT OF CLAIMS
1. With the receipt of a claim for medical transportation services, any
Benefits due will be paid directly to the provider if the provider has
not received payment for those services from any other source. Except as
provided below, all other Benefits, other than for loss of life, due and
not validly assigned will be paid to You as soon as practical, but no
later than 30 working days after We receive Due Proof. Due Proof is all
information necessary to determine Our liability for the claim and to
determine if services are Medically Necessary. If We have not paid or
denied a claim containing Due Proof within the time allotted, The Plan
Will Pay interest at the rate of 10% per annum beginning the day after
the allotted time period.
2. The Plan may, to the extent required by law, pay Benefits for claims
incurred by a covered dependent Child directly to a custodial parent, a
state agency or a provider.
3. Benefit payments pursuant to a qualified medical child support order
(QMCSO) in reimbursement for expenses paid by a QMCSO-child or his/her
legal representative (custodial parent or legal guardian) will be made
to the QMCSO child or his/her legal representative.
4. If You use a Participating Provider, The Plan Will Pay Benefits, if any,
to the provider of service.
5. The Plan may pay Benefits to the person or institution who gave You
care.
6. Any payments We make under the above, except under 1. will discharge Our
liability to the extent of Our payment. We are not responsible for how
the Benefits We pay are used.
LEGAL ACTIONS
You may not sue Us for Benefits under this Plan:
1. before 60 days following the date You send Us proof of claim;
2. after 3 years following the end of the period required for giving proof
of claim.
18
<PAGE> 23
CLAIMS AND OTHER GENERAL PROVISIONS - CONTINUED
ASSIGNMENT OF BENEFITS
You may assign Medical or Health Care Benefits directly to the Doctor,
Hospital or an appropriate state agency. You can either sign the necessary forms
given to You by the provider of services or sign the designated assignment on
Your claim form. Otherwise, Benefits will be paid according to the Payment of
Claims provision. If You use a Participating Provider, The Plan Will Pay
Benefits, if any, to the provider of service. We will not be responsible for the
validity of any assignment. Nor will We be liable for any action, payment or
other settlement made before We receive such assignment.
To the extent permitted by law, neither the Benefits nor payments under
this Plan will be subject to the claim of creditors or to any legal process.
PHYSICAL EXAMINATIONS
We may have a Doctor of Our choice examine You, at Our expense, as often
as is reasonably necessary while Your claim is pending. We may also have an
autopsy performed, at Our expense, except if prohibited by law.
INCONTESTABILITY AND MISSTATEMENT
We cannot contest the Group Policy after it has been in force for two
years unless premiums are not paid. We cannot contest Your or Your dependent's
insurability after the Policy has been in force for two years during Your or
Your dependent's lifetime unless required Contributions are not paid. However,
no provision of this Policy shall make the coverage of an ineligible person
valid.
Any statement about Your health or age made in writing and signed by You
may be used to contest Your coverage.
If You misstate Your age, The Plan Will only Pay Benefits based on Your
correct age. The Plan will a) adjust premium, b) validate, or c) void coverage
as necessary.
REFUND TO US FOR OVERPAYMENT OF BENEFITS
If You or Your dependent recovers money for medical, Hospital, dental,
prescription drug or vision Expenses Incurred due to an Illness or Injury for
which a Benefit has been paid under the Plan, We will have the right to a refund
from You or Your dependent. The amount refunded to Us will be the lesser of:
1. the amount You or Your dependent recovers;
2. the amount of Benefits We have paid.
You or Your dependent (or a parent or legal guardian, if required) will
help Us do whatever else may be reasonably needed to obtain this refund.
19
<PAGE> 24
GENERAL DEFINITIONS
When these terms are used in the Plan, they will have the following
meanings unless otherwise noted:
1. ACTIVE WORK / ACTIVELY AT WORK: means You work for Your Employer at
his/her place of business (or such other places as required by Your
Employer) in accordance with his/her established employment practices.
2. ASSOCIATED COMPANY: means those under common control through stock
ownership, contract or otherwise with Your Employer as named in this
Plan.
3. AVERAGE SEMIPRIVATE ROOM CHARGE: means a) the standard charge by the
Hospital for semiprivate room and board accommodations, or the average
of such charges where the Hospital has more than one level of such
charges, or b) 80% of the Hospital's lowest charge for single bed room
and board accommodations when the Hospital does not provide any
semiprivate accommodations.
4. BENEFIT(s): means the amount The Plan Will Pay for Covered Expenses
after You or Your covered dependents have met the Deductible, if any.
5. BIRTHING CENTER: means a licensed place with the primary purpose of
providing a place for live births operating within the scope of its
license.
6. CLOSE RELATIVE: means You, Your spouse, and Your or Your spouse's
brother, sister, parent, or Child.
7. COMMUNITY RESIDENTIAL TREATMENT SERVICES: are community-based mental
health programs designed and staffed to deliver a range of treatment and
rehabilitative services which provide an appropriate and cost-effective
alternative to institutional care. Program elements range from crisis
residential to socialization services and are focused upon helping
clients achieve emotional stability and develop skills necessary to move
toward independent living.
8. COMPLICATIONS OF PREGNANCY: means a disease, disorder or condition which
is diagnosed as distinct from normal pregnancy but adversely affected by
or caused by pregnancy. This includes'.
a. inter-abdominal surgery, including caesarean section;
b. pernicious vomiting (hyperemesis gravidarum);
c. toxemia with convulsions (eclampsia);
d. extra-uterine pregnancy (ectopic);
e. postpartum hemorrhage;
f. rupture or prolapse of the uterus;
g. spontaneous termination of pregnancy during a period of
gestation in which a viable birth is not possible;
h. similar medical and surgical conditions of comparable severity.
Complications of Pregnancy will not include:
a. elective abortion;
b. false labor;
c. occasional spotting;
d. Physician prescribed rest;
e. morning sickness;
f. similar conditions associated with the management of a difficult
pregnancy.
Services and supplies rendered at the termination of pregnancy will not
be considered treatment of Complications of Pregnancy.
20
<PAGE> 25
GENERAL DEFINITIONS - CONTINUED
9. CONTRIBUTIONS: mean the amount You are required to pay for the coverage
provided under the Plan.
10. COVERED EXPENSE: means a listed Covered Expense under a Benefit
description which will be paid under the Plan if it is:
a. prescribed by a Doctor for the therapeutic treatment of Injury,
Illness or pregnancy;
b. Medically Necessary;
c. not more than what We determine as Reasonable and Customary; and
d. not excluded under any exceptions of the Plan.
If You use a Participating Provider, Covered Expense means the agreed
upon rate set between Us and such provider for services which meet all
of the above standards.
11. COVERED PERSON: means an Enrolled person meeting the eligibility
requirements of the Plan.
12. CREDITABLE COVERAGE: means any of the following coverages a Covered
Person had prior to enrollment under the Plan:
a. a group health plan;
b. health insurance coverage, individual and group, including
coverage through a Health Maintenance Organization (HIVIO);
c. Medicare;
d. Medicaid; or any other publicly sponsored program, provided in
California or elsewhere, of medical care;
e. military health care;
f. a medical care program of the Indian Health Service or of a
tribal organization;
g. a state health risk pool;
h. a health plan offered under the Federal Employee Health Benefits
Program;
i. a public health plan established or maintained by a political
subdivision of a state to provide insurance coverage;
j. a health benefit plan established by the Peace Corps Act.
The term includes continuation and conversion coverage, but does not
include:
a. coverages designated to supplement other private or governmental
plans such as supplements to Medicare or liability insurance;
b. accident only plans;
c. credit plans;
d. coverage for onsite medical clinics;
e. disability income plans;
f. long term care insurance;
g. dental plans;
h. vision plans;
i. insurance arising out of a workers' compensation or similar law;
j. automobile medical payment insurance; or
k. no fault insurance.
21
<PAGE> 26
GENERAL DEFINITIONS - CONTINUED
13. CUSTODIAL CARE: means services, provided by a licensed, skilled nurse or
a non-skilled person, for:
a. a person with a chronic medical condition; or
b. a convalescent person.
This care basically provides assistance to a person in daily living; it
does not require technical skills or qualifications. This care is not
reasonably expected to improve the underlying medical condition of a
person even though it may relieve symptoms or pain.
Custodial Care includes, but is not limited to:
a. help in grooming, bathing, dressing, walking;
b. help in getting in and out of bed;
c. help in housekeeping, preparing meals, and eating;
d. giving or helping to use or apply medications, creams and
ointments;
e. administering medical gasses after a therapy program has been
set up;
f. changing dressings, diapers and protective sheets;
g. periodic turning and positioning in bed;
h. routine care of casts, braces and other like devices;
i. routine care of colostomy and ileostomy bags;
j. routine tracheostomy care;
k. routine care of catheters and other like equipment; and
l. supervising exercise programs that do not need the skills of a
therapist.
Care that does require the technical skills of a licensed medical
professional, who is acting within the scope of his/her license, is not
considered to be Custodial Care.
14. DISABLED: means that due to Illness or Injury You cannot perform work
for pay or profit or Your covered dependent cannot perform normal
activities of a person of the same sex and age who is in good health;
except as provided elsewhere in the Plan.
15. DOCTOR: means a medical practitioner licensed to perform surgery and
administer drugs acting in the scope of that license. It will also
include any other licensed practitioner of the healing arts required to
be recognized by law, when that person is acting within the scope of
his/her license and is performing a service for which Benefits are
provided under the Plan.
16. EMERGENCY CARE: means covered services rendered after the sudden onset
of a medical condition manifested by acute symptoms of sufficient
severity, including severe pain, such that the absence of immediate
medical attention could reasonably be expected to result in:
a. placing the patient's health in serious jeopardy;
b. serious impairment of bodily functions; or
c. serious dysfunction of any bodily organ or part.
17. EMPLOYER: means the entity to which the Plan is issued and includes any
affiliated entities or subsidiaries or Associated Companies shown in the
Eligible Class or Classes section of the Group Policy.
22
<PAGE> 27
GENERAL DEFINITIONS - CONTINUED
18. ENROLL: means completion of all forms required for coverage under the
Plan and agreement to make any required Contribution.
19. ENROLLMENT DATE: means the first day of coverage or, if there is a
Waiting Period, the first day of the Waiting Period.
20. EXPENSE INCURRED: means each expense is considered to be incurred on the
date the care, service or supply is received.
21. EXPERIMENTAL, INVESTIGATIONAL OR UNPROVEN: means care and treatment for
which We determine that one or more of the following is true:
a. The service or supply is under study or in a clinical trial to
evaluate its toxicity, safety or efficacy for a particular
diagnosis or set of indicators. Clinical trials include but are
not limited to phase 1, 11 and III clinical trials.
b. The prevailing opinion within the appropriate specialty of the
United States medical profession is that the service or supply
needs further evaluation for the particular diagnosis or set of
indications before it is used outside clinical trials or other
research settings. We determine if this item b. is true based
on:
i. published reports in authoritative medical literature;
and
ii. regulations, reports, publications and evaluations
issued by government agencies such as the Agency for
Health Care Policy and Research, the National Institutes
of Health, the federal Food and Drug Administration
(FDA), the Health Care Financing Administration (HCFA),
or any other appropriate technological assessment body.
C. In the case of a drug, a device or other supply that is subject
to FDA approval:
i. it does not have FDA approval; or
ii. it has FDA approval only under its Treatment
Investigational New Drug regulation or a similar
regulation; or
iii. it has FDA approval, but it is being used for an
indication or at a dosage that is not an Accepted Off-
Label Use. An "Accepted Off-Label Use" is a use that is:
a) included and favorably recognized for treatment
of the indication in one or more of the
following medical compendia: The American
Medical Association Drug Evaluations, the
American Hospital Formulary Service Drug
Information, and The United States Pharmacopoeia
Information; or
b) established based on supportive clinical
evidence in peer-reviewed medical publications.
d. The providers institutional review board acknowledges that the
use of the service or supply is Experimental, Investigational,
or Unproven and subject to that board's approval.
e. Research protocols indicate that the service or supply is
Experimental, Investigational, or Unproven. This item e. applies
for protocols used by the Covered Person's provider as well as
for protocols used by other providers studying substantially the
same service or supply.]
22. FAMILY UNIT: means You and all of Your dependents who are covered under
the Plan.
23. FOSTER CHILD: means a Child for whom You have assumed a legal obligation
when all the following are met:
a. You are raising the Child as Your own and have assumed full
parental responsibility for the Child;
b. the Child lives in Your home and depends on You for primary
support;
C. You may legally claim the Child as a federal income tax
deduction.
23
<PAGE> 28
GENERAL DEFINITIONS - CONTINUED
A Foster Child is not a Child:
a. temporarily living in Your home;
b. placed with You in Your home by a social service agency which
retains control of the Child; or
c. whose natural parent may exercise or share parental
responsibility and control.
24. GROUP POLICY: means the Policy contract as shown and numbered on the
cover Page of this Certificate.
25. HEALTH BENEFIT PLAN: means any group or individual policy or contract
that provides medical, Hospital and surgical Benefits. It does not mean
coverage under the following types of insurance:
a. accident only;
b. credit;
c. disability income;
d. Medicare services pursuant to contracts with the U.S.
government;
e. Medicare supplement;
f. long-term care;
g. dental;
h. vision;
i. supplemental liability;
j. Workers' Compensation or similar law;
k. automobile medical payment, or;
l. no-fault liability or equivalent self-insurance.
26. HIRED: means the first day You are scheduled to work for Your Employer.
27. HOSPICE: means an agency that provides counseling and incidental medical
services and may provide room and board to a terminally ill person and
meets all of the following tests:
a. it has obtained any required governmental Certificate of Need
approval;
b. it provides service for a period of 24 hours per day on every
day of the week;
c. it is operated under the direct supervision of a duly qualified
Doctor;
d. it has a nurse coordinator who is a registered graduate nurse
with four years of full-time clinical experience, at least two
of which involved caring for terminally ill patients;
e. it has a social service coordinator who is licensed in the
jurisdiction in which it is located;
f. it is an agency that has as its primary purpose the provision of
Hospice services;
g. it has a full-time administrator;
h. it maintains written records of services provided;
i. its employees are bonded, and it provides malpractice and
malplacement insurance;
j. it is established and operated in accordance with the applicable
laws in the jurisdiction in which it is located and, where
licensing is required, has been licensed and approved by the
regulatory authority having responsibility for licensing under
the law.
28. HOSPITAL: means a place which meets all of the standards below:
a. has permanent and full-time care for bed patients;
b. has a Doctor in regular attendance;
c. has an R.N. on duty or call 24 hours a day;
24
<PAGE> 29
GENERAL DEFINITIONS - CONTINUED
d. is mainly engaged in giving medical care and services for
Injuries or Illness but not including:
i. rest homes;
ii. nursing homes;
iii. convalescent homes;
iv. homes for the aged;
e. has surgical facilities except that this standard does not apply
to such place operated mainly for treatment of the chronically
ill;
f. is operated lawfully in its area.
"Hospital" also means such place which is mainly engaged in treating
alcoholism, drug addiction or abuse if it meets the standards below:
a. has permanent and full-time care for at least 15 bed patients;
b. has a Doctor in regular attendance;
c. provides 24 hour per day care by R.N.s;
d. has a full-time psychiatrist or psychologist on the staff.
Hospital also means and will include an "Ambulatory Surgical Center"
which meets all of the standards below:
a. is a licensed public or private place;
b. has an organized medical staff of Doctors;
c. has permanent facilities that are equipped and operated mainly
for doing surgery and giving skilled nursing care;
d. has R.N. services when a patient is in the facility; and
e. does not provide services or beds for patients to stay
overnight.
A "Psychiatric Health Facility" is an acute 24-hour, nonhospital
facility which serves as an alternative to acute Hospital psychiatric
services. As such, it provides short term psychiatric, psychological and
nursing services to patients with major acute mental illness.
29. ILLNESS: means sickness, a covered bodily or mental infirmity or
pregnancy.
30. INJURY: means a covered accidental bodily Injury.
31. INPATIENT HOSPITAL CONFINEMENT: means a confinement in a Hospital as a
bedpatient for which room and board charges are made by the Hospital to
the Covered Person.
32. LATE ENROLLEE: means an Eligible Employee or Dependent who requests
Enrollment in the Employer's Health Benefit Plan other than during the
initial enrollment period, during an open enrollment period or during
the Special Enrollment Periods provided under the terms of the Plan,
unless any of the following apply:
a. The person is employed by an Employer who offers multiple Health
Benefit Plans and the person elects a different Health Benefit
Plan during an open enrollment period.
b. A court has ordered coverage to be provided for a spouse or
minor Child and a request for enrollment is made within 31 days
after issuance of the court order.
33. L.P.N.: means a licensed practical nurse acting in the scope of his/her
license.
34. L.V.N.: means a licensed vocational nurse acting in the scope of his/her
license.
25
<PAGE> 30
GENERAL DEFINITIONS - CONTINUED
35. MANAGED CARE: means the determination of availability of coverage
through the use of clinical standards to determine the Medical Necessity
of an admission or treatment, and the level and type of treatment, and
Appropriate setting for treatment, with required authorization on a
prospective, concurrent or retrospective basis, sometimes involving case
management.
36. MEDICALLY NECESSARY: means that We determine that the care and treatment
given meets all of the following conditions:
a. it is Appropriate care and consistent with the diagnosis and
symptoms. "Appropriate" means the type, level and length of
service and setting are needed to provide safe and adequate care
and treatment and are provided by the Appropriate provider
acting within the scope of his/her license;
b. it is generally accepted medical practice and meets
professionally recognized standards;
c. it is not deemed to be Experimental, Investigational or Unproven
as defined herein;
d. it is not furnished in connection with medical or other
research;
e. it is specifically allowed by the licensing statutes which apply
to the provider who renders the service; and
f. it is at least as medically effective as any standard care and
treatment.
We will use Our programs, or one established by Our authorized
representative to determine whether care is needed and Appropriate. The
program may include but is not limited to:
a. Pre-Admission Review;
b. Concurrent Review; Continued stay review;
c. Retrospective review; and
d. Pre-Surgery Review and Second Surgical Opinion review.
37. Medicare: means the plan of benefits provided by Title XVIII of the U.S.
Social Security Act of 1965 as amended from time to time.
38. PARTICIPATING PROVIDER: means a Doctor or a Hospital that agrees with Us
to provide Medically Necessary care and treatment at set rates.
39. PHYSICIAN: means a person licensed to practice medicine.
40. PLACED FOR ADOPTION: means the assumption and retention of a legal
obligation for the total or partial support of a child in anticipation
of the adoption of such child. The child's placement with You is
considered terminated upon the termination of such legal obligation.
41. Plan: means the Benefits described in this Certificate as provided by
the Group Policy including all endorsements and amendments.
42. QUALIFIED LEAVE OF ABSENCE: means leave of absence period approved by
the Employer pursuant to the Family and Medical Leave Act of 1993 or
other applicable state's leave law that applies to the Employer. With
Our prior approval, the term also includes the Employer's approved leave
of absence period taken to substantially perform political, public or
civic functions.
43. R.N.: means a licensed registered nurse acting in the scope of his/her
license.
26
<PAGE> 31
GENERAL DEFINITIONS - CONTINUED
44. REGULAR EMPLOYEE: means You work Your full number of hours for Your full
rate of pay as required by Your Employer. The amount of required work
time per week may never be less than 20 hours.
45. SKILLED NURSING FACILITY: means a place other than a Hospital that:
a. can provide permanent full-time care for 10 or more resident
patients;
b. has a Doctor available at all times;
c. has an R.N. or Doctor on full-time duty in charge of patient
care;
d. has one or more R.N.s, L.P.N.s or L.V.N.s on duty at all times;
e. keeps a daily medical record for each patient;
f. is not mainly a rest home or a home for Custodial Care of the
aged;
g. is not mainly engaged in treatment of drug addicts or
alcoholics;
h. is operating lawfully as a nursing home.
46. THE PLAN WILL PAY: means that when You send Us proof of claim, We will
determine the Benefits payable and make payment, if any, according to
the Payment of Claims provision.
47. WE, US AND OUR: means General American Life Insurance Company.
48. YOU AND YOUR: means an employee covered under the Plan.
27
<PAGE> 32
YOUR RIGHTS UNDER ERISA
As a participant in the Plan, You are entitled to certain rights and
protections under the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA provides that all plan participants shall be entitled to:
Examine, without charge, at the Plan Administrator's office and upon
written request at other specified locations, such as work establishments, all
plan documents, including insurance contracts and copies of all documents filed
by the plan with the U.S. Department of Labor, such as detailed annual reports
and plan descriptions.
Obtain copies of all plan documents and other Plan information upon
written request to the Plan Administrator. The administrator may make a
reasonable charge for the copies.
Receive a summary of the Plan's annual financial report. The Plan
Administrator is required by law to furnish each participant with a copy of this
summary annual report.
In addition to creating rights for plan participants, ERISA imposes
duties upon the people who are responsible for the operation of the employee
benefit plan. The people who operate Your Plan, called "Fiduciaries" of the
plan, have a duty to do so prudently and in the interest of You and other plan
participants and beneficiaries. No one, including Your Employer, or any other
person, may fire You or otherwise discriminate against You in any way to prevent
You from obtaining a welfare benefit or exercising Your rights under ERISA.
If Your claim is denied in whole or in part, You must receive a written
explanation of the reason for the denial. You have the right to have the Plan
review and reconsider Your claim. Under ERISA, there are steps You can take to
enforce the above rights. For instance, if You request materials from the Plan
and do not receive them within 30 days, You may file suit in a federal court. In
such a case, the court may require the Plan Administrator to provide the
materials and pay You up to $110 a day until You receive the materials, unless
the materials were not sent because of reasons beyond the control of the Plan
Administrator. If You have a claim for Benefits which is denied or ignored, in
whole or in part, You may file suit in a state or federal court. If it should
happen that plan Fiduciaries misuse the Plan's money, or if You are
discriminated against for asserting Your rights, You may seek assistance from
the U.S. Department of Labor, or You may file suit in a federal court. The court
will decide who should pay court costs and legal fees. If You are successful,
the court may order the person You have sued to pay these costs and fees. If You
lose, the court may order You to pay these costs and fees for example, if it
finds Your claim is frivolous.
If You have any questions about Your Plan, You should contact the Plan
Administrator. If You have any questions about this statement or about Your
rights under ERISA, You should contact the nearest office of the Pension and
Welfare Benefits Administration, U. S. Department of Labor, listed in Your
telephone directory or the Division of Technical Assistance and Inquiries,
Pension and Welfare Benefits Administration, U. S. Department of Labor, 200
Constitution Avenue N. W., Washington, D. C. 20210.
28
<PAGE> 33
YOUR RIGHTS UNDER ERISA - CONTINUED
SUPPLEMENTAL ERISA INFORMATION
PLAN NAME:
UNOVA, Inc. Employees' Welfare Benefits Plan
PLAN SPONSOR:
UNOVA, Inc. Employees' Welfare Benefits Plan
21900 Burbank Blvd.
Woodland Hills, CA 91367-7418
EMPLOYER IDENTIFICATION: 95-4647021
PN: 506
TYPE OF PLAN:
Welfare Benefit Plan providing Health Care Benefits for employees and
dependents.
TYPE OF ADMINISTRATION:
The Benefits for Health Care coverage for employees and dependents are
guaranteed under a group insurance policy issued by General American Life
Insurance Company, 13045 Tesson Ferry Road, St. Louis, MO 63128.
PLAN ADMINISTRATOR:
Director of Benefits and Risk Management
LINOVA, Inc.
21900 Burbank Blvd.
Woodland Hills, CA 91367-7418
AGENT FOR LEGAL SERVICES:
UNOVA, Inc.
21900 Burbank Blvd.
Woodland Hills, CA 91367-7418
Service of legal process may also be made on the Trustee.
PLAN YEAR ENDS: December 31
CONTRIBUTIONS: Your Employer pays all costs of the Plan.
29
<PAGE> 34
YOUR RIGHTS UNDER ERISA - CONTINUED
TERMINATION OR AMENDMENT OF PLAN
The Plan Sponsor intends that this Plan will continue indefinitely, but
reserves the right to amend, modify, revoke or terminate the Plan, in whole or
in part, at any time.
CLAIM DENIAL
In the event a claim is denied You will be notified in writing within 90
days after We receive the claim (unless special circumstances require a longer
time). You will be advised of the following:
1. the reason for denial;
2. specific reference to the Plan provisions on which the denial was based;
3. any additional material or information needed for further review of the
claim;
4. an explanation of the Plan's review procedure.
If Your claim is denied, You may appeal the denial by making a written
request for review to Us within 60 days of the time You received the notice of
denial. In connection with review, You have the right to 1) see the Plan and
other papers affecting the claim, 2) argue against the denial in writing, 3)
have a representative act on Your behalf in the appeal.
The decision on the review shall be in writing, and shall be made within
60 days of the day We receive the request for review. It shall include specific
reasons for the denial, written in a manner understandable to You and contain
specific reference to the pertinent Plan provisions on which the decision was
based.
INSURER'S DISCRETIONARY AUTHORITY
General American Life Insurance Company, being the claims administrator
for the Health Care Benefits shall have the discretionary authority to determine
eligibility for insurance Benefits, construe the terms of the insurance plan and
resolve any disputes which may arise with regard to the rights of any persons
under the terms of the insurance plan, including, but not limited to,
eligibility for participation and claims for Benefits.
30
<PAGE> 35
YOUR RIGHTS UNDER ERISA - CONTINUED
FEDERAL CONTINUATION COVERAGE
(also known as COBRA)
In some circumstances, federal law requires that persons who lose group
health plan coverage be given the chance to continue that coverage for a period
of time.
RIGHT TO COBRA CONTINUATION COVERAGE
1. You have a right to choose COBRA continuation coverage if You lose group
health plan coverage because of:
a. a reduction in Your hours of employment; or
b. the voluntary or involuntary termination of Your employment (for
any reason except Your gross misconduct).
2. Your spouse has the right to choose COBRA continuation coverage if
he/she loses group health plan coverage for any of the following
reasons:
a. Your death;
b. the termination of Your employment (except as a result of Your
gross misconduct) or Your reduction in hours;
c. Your divorce or legal separation;
d. Your becoming entitled to Medicare.
3. Your dependent Child has the right to continuation coverage if he/she
loses his/her group health plan coverage due to one of the four reasons
described in 2. above or if he/she ceases to be an Eligible Dependent
under the terms of the Plan's Health Care coverage.
A dependent child born to or placed for adoption with You during Your
COBRA continuation coverage period has the right to COBRA continuation
coverage if You notify the plan administrator of the child's birth or
placement for adoption within the time frame as prescribed by law.
LENGTH OF COBRA CONTINUATION COVERAGE
1. Generally
a. If, as a result of termination of Your employment or reduction
in Your hours, You, Your spouse and/or Your dependents lose the
Plan's Health Care coverage, those who do lose coverage may
elect continuation coverage for up TO 18 MONTHS after the date
Your employment terminates or hours reduce.
b. If Your spouse or dependents lose the Plan's Health Care
coverage due to any of the other events described in 2. or 3.
above (other than Your employment termination or hours
reduction), they may elect continuation coverage for up to 36
MONTHS from the date they experience such event.
c. If Your spouse or dependents become entitled to continuation
coverage because of termination of Your employment or reduction
in Your hours and Your spouse or dependent then experiences
another of the events which would entitle such person to
continued coverage, he/she may extend the 18 month continuation
period to 36 MONTHS from the date of the event that first made
him/her eligible for continuation coverage.
31
<PAGE> 36
YOUR RIGHTS UNDER ERISA - CONTINUED
2. Extensions of COBRA Continuation Coverage
a. Disability Extension
If You, Your spouse or Your dependents lose coverage because of
termination of Your employment or reduction of hours and any of
You are determined under Title 11 or XVI of the Social Security
Act to have been Disabled at any time during the first 60 days
of COBRA continuation coverage, then the Disabled person and
such person's family members who are entitled to COBRA
continuation coverage may extend the continuation coverage
period for 11 ADDITIONAL MONTHS, provided:
A notice of a Social Security determination is given to the plan
administrator before the end of the initial 18month period and
within 60 days after the date of such determination.
An Employer may require payments of up to 150 percent of the
applicable group rate for the cost of coverage for these 11
additional months.
b. Employee's Medicare Entitlement Prior to COBRA Event
If You become entitled to Medicare within 18 months prior to
Your employment termination (or work hours reduction), Your
spouse and dependents who are entitled to COBRA continuation
coverage will become eligible for a continuation period of not
shorter than 36 months from the date You become entitled to
Medicare. This continuation period is measured from the time You
are entitled to Medicare. The maximum continuation period for
Your spouse or dependents will not exceed 36 months.
However, unless You are entitled to an extended continuation
period as described in 2.a. above, You yourself will only be
eligible for a continuation period of up to 18 months from the
date of Your employment termination (or work hours reduction).
3. If, after the occurrence of any event described in Right to COBRA
Continuation Coverage above, You, Your spouse and/or Your dependents are
allowed to continue Health Care coverage under the Plan (whether or not
premium payment(s) are required) beyond the Plan's Termination of
Coverage provision for any reason other than to comply with the federal
law (i.e., state laws mandating continuation coverage, or the Plan's
special provisions), such continuation period(s) will be used to reduce
the maximum length of COBRA continuation coverage period otherwise
available to such person under this section.
NOTIFICATION REQUIREMENTS
1. If Your spouse or dependent becomes eligible for continuation coverage
due to divorce, legal separation or the end of dependency status, the
Plan Administrator must be notified within 60 days after Your spouse or
dependent becomes eligible. That person will distribute necessary forms
and explain this continuation in more detail.
If the Plan Administrator is not notified within 60 days of the event
that makes Your spouse or dependent eligible for continuation coverage,
Your spouse or dependent will lose the right to such coverage.
In order for a child born to or placed for adoption with You during Your
COBRA continuation coverage to have the right to COBRA continuation
coverage, You must notify the plan administrator of the child's birth or
placement for adoption within the time frame as prescribed by law.
32
<PAGE> 37
YOUR RIGHTS UNDER ERISA - CONTINUED
2. In order for a Disabled person and such person's family members
continuing under the 18-month continuation coverage to be entitled to an
extended continuation period of 11 additional months, such person must
meet the notice requirements and all other conditions described under
Extensions of Continuation Coverage in 2.a. above.
A person continuing under the 11 -month extended continuation coverage
must notify the Plan Administrator within 30 days if the Social Security
Administration determines that the disability ceases to exist.
TERMINATION OF COBRA CONTINUATION COVERAGE
Your Employer may require You, Your spouse and Your dependents to pay
for the cost of the continuation coverage. If these amounts are not paid
within the time allowed, the continuation coverage will end.
Four other reasons that this continuation coverage may terminate before
the full maximum continuation period runs out are:
1. the continued person first becomes, after the date of COBRA continuation
coverage election, entitled to Medicare benefits;
2. the Employer stops providing any group health plan benefits program for
employees;
3. the continued person first becomes, after the date of COBRA continuation
coverage election, covered under another group health plan, and any
preexisting conditions exclusions or limitations of that plan do not
apply to or are satisfied by such person;
4. with respect to any person continuing under the 11-month extended
continuation coverage (as described under Extensions of Continuation
Coverage in 2.a. above), when the Social Security Administration
determines that the disability ceases to exist (the termination becomes
effective as of the first day of the month which is at least 31 days
after the Social Security determination).
CONVERSION PRIVILEGE
Persons who have exhausted their maximum continuation coverage period
will be eligible for the Conversion Privilege described in the group health
plan.
GENERAL INFORMATION
This Federal Continuation Coverage section does not amend or change the
Plan's Termination of Coverage provision. It simply provides a continuation of
coverage right Your Employer is required to offer by law. If We, the
Policyholder or Your Employer terminates this Plan before or during a
continuation period, continuation coverage, if any, will not be under this Plan
and may not be through Us.
33
<PAGE> 1
EXHIBIT 10.40
Robert G. O'Malley
6211 East Huntress Drive
Paradise Valley, AZ 85253
Dear Bob:
The purpose of this letter is to outline our offer being made to you for the
position of President of Intermec Technologies Corporation, and Group Executive
of the Automatic Data Systems Group. It is also anticipated that you will be
elected to the position of Senior Vice President of UNOVA, Inc., reporting to
the President and Chief Operating Officer of UNOVA. This Offer of Employment is
comprised of the following elements:
SALARY: Your annual base salary will be $400,000.00, payable every two weeks at
Intermec. Annual salaries of all Corporate Officers are reviewed each year on
July 1st.
HIRING BONUS: As a fixed sum Hiring Bonus you will receive the sum of
$400,000.00 less any bonus you receive from your current employer for your
service in 1999. This bonus shall be payable within thirty (30) days after your
start date at UNOVA, Inc. If for any reason you leave the employment of UNOVA
within one year after your start date, you will pay back to the Company a
prorated portion of this Bonus based on the number of months of service
remaining at the time of your leaving. Prior to the Company making this payment,
you will provide the Company data which shows the amount, if any, of the bonus
you have received or will receive from your current employer for service in
1999. Starting with calendar year 2000 and thereafter all bonus payments shall
be in accordance with the UNOVA Management Incentive Compensation Plan.
UNOVA COMMON STOCK OPTIONS: In accordance with the UNOVA 1999 Stock Incentive
Plan you shall receive 200,000 Common Stock Options, awarded at market price as
such price is determined on the start date of your UNOVA employment.
RETIREMENT: You shall be eligible to participate in the UNOVA Financial Security
and Savings Program (FSSP) and the UNOVA Supplemental Executive Retirement Plan
(SERP). Copies of these Plan documents are enclosed as Enclosure 1.
CHANGE OF CONTROL AGREEMENT: You shall be covered by a Change of Control
Agreement between you and UNOVA in the form set forth in Enclosure 2.
STANDARD BENEFIT PROGRAMS: You are eligible for the standard benefit plans
applicable to officers and employees of Intermec Technologies Corporation. These
are described in the document entitled "Benefits-At-A-Glance" which is attached
as Enclosure 3. You will also be entitled to participate in the "Intermec
Executive Flex
<PAGE> 2
Benefits Program" in the annual amount of $10,000.00 . This amount is designed
to provide you reimbursement for certain miscellaneous expenses including
financial planning, supplemental life insurance, personal computing equipment
and peripherals, and cellular phones.
SPECIAL CORPORATE OFFICER BENEFITS: You shall also be eligible to receive the
following additional benefits:
1. Company Paid Executive Life Insurance equal to four times your
base salary.
2. Use of a Company Car.
3. Participation in the Company Incentive Loan Program that permits
Company loans to you of amounts up to your annual base salary at
an interest rate of 4% (with imputed income to you of the
difference between the "federal rate" and 4%).
4. Participation in the UNOVA Foundation matching gifts program for
donations you choose to make to colleges and universities up to a
maximum of $25,000.00 per year.
RELOCATION ASSISTANCE: You shall be eligible to receive relocation assistance in
accordance with the Standard Relocation Assistance Provisions of Intermec
Technologies Corporation, a copy of which is enclosed as Enclosure 4. In
addition, you shall be paid a fixed sum of $25,000.00 to cover all expenses not
specifically reimbursed by the Standard Relocation Assistance Provisions or
otherwise in this Offer. Please be advised that is our understanding that all
amounts which you receive for Relocation Assistance may be considered as taxable
income by the Internal Revenue Service. Such sums are the personal
responsibility of each employee.
ADDITIONAL COMPANY POLICIES: Except as specifically modified by this letter,
this Offer of Employment is subject to all other standard Company Policies and
Procedures in effect as to the date hereof. Copies are available for your
review.
MUTUAL AGREEMENT TO ARBITRATE CLAIMS: Any dispute which may arise from or
concerning this Offer of Employment or your employment with the Company shall be
resolved in accordance with the UNOVA Mutual Agreement to Arbitrate Claims,
which is attached as Enclosure 5.
<PAGE> 3
EMPLOYMENT AT WILL: We both must understand that the employment contemplated by
this Offer is at the will of either of us. Your employment is not for a
specified term and may be terminated at the will of either you or the Company.
Bob, if this Offer of Employment is satisfactory, please return a signed copy of
this letter to me within the next thirty (30) days from the date of this letter.
If you have any questions regarding any of the above, please feel free to call
me at your convenience.
Sincerely,
/s/ Alton J. Brann
- ------------------
Alton J. Brann
Enclosures: As stated.
- --------------------------------------------------------------------------------
ACKNOWLEDGMENT
I hereby accept the above Offer of Employment.
/s/ Robert G. O'Malley 5/26/99
----------------------- --------------------
Robert G. O'Malley Date
<PAGE> 1
EXHIBIT 21
UNOVA, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE
OF OF
NAME OF SUBSIDIARY INCORPORATION OWNERSHIP
------------------ ------------- ----------
<S> <C> <C>
Intermec Technologies Corporation........................... Washington 100
UNOVA Industrial Automation Systems, Inc.................... Delaware 100
</TABLE>
The Registrant has additional operating subsidiaries which, considered in the
aggregate as a single subsidiary, do not constitute a significant subsidiary.
All above-listed subsidiaries have been consolidated in the Registrant's
financial statements.
E-5
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 1 to registration
statement No. 333-42839 of UNOVA, Inc. on Form S-3 and registration statements
Nos. 333-39003, 333-39005, 333-39007 and 333-79557 of UNOVA, Inc. each filed on
Form S-8, of our report dated February 11, 2000, appearing in this Annual Report
on Form 10-K of UNOVA, Inc. for the year ended December 31, 1999.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
March 27, 2000
E-6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 25,239
<SECURITIES> 0
<RECEIVABLES> 596,885
<ALLOWANCES> 0
<INVENTORY> 310,175
<CURRENT-ASSETS> 1,110,342
<PP&E> 472,229
<DEPRECIATION> 201,330
<TOTAL-ASSETS> 1,903,539
<CURRENT-LIABILITIES> 662,499
<BONDS> 429,388
0
0
<COMMON> 556
<OTHER-SE> 730,744
<TOTAL-LIABILITY-AND-EQUITY> 1,903,539
<SALES> 2,108,749
<TOTAL-REVENUES> 2,108,749
<CGS> 1,500,974
<TOTAL-COSTS> 1,500,974
<OTHER-EXPENSES> 520,447
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,867
<INCOME-PRETAX> 49,313
<INCOME-TAX> 19,725
<INCOME-CONTINUING> 29,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,588
<EPS-BASIC> .54
<EPS-DILUTED> .54
</TABLE>
