<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
GENERAL SIGNAL NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 06-0962862
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
13000 MIDLANTIC DRIVE
MOUNT LAUREL, NEW JERSEY 08054
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 609-234-7900
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
<S> <C>
NONE
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
PREFERRED SHARE PURCHASE RIGHTS
(TITLE OF CLASS)
================================================================================
<PAGE> 2
PRELIMINARY COPY
FILED MAY 13, 1998
INFORMATION STATEMENT
RELATING TO THE SPINOFF OF
GENERAL SIGNAL NETWORKS, INC.
BY
GENERAL SIGNAL CORPORATION
THROUGH A COMMON STOCK DISTRIBUTION
This Information Statement describes the proposed spinoff of General Signal
Networks, Inc. ("Networks") from its parent company, General Signal Corporation.
In the spinoff, you will receive a dividend of two shares of Networks for every
five shares of General Signal that you hold on , 1998. This document
also describes the business and financial position of Networks. You should read
this entire document carefully, and you should pay particular attention to the
section entitled "Risk Factors," which begins on page 7.
The spinoff will separate Networks' data networking and telecommunications
business from General Signal's industrial businesses so that the managements of
General Signal and Networks can focus more effectively on their respective core
businesses and to improve Networks' ability to attract and retain high-
technology employees.
The spinoff will occur only if certain conditions are met. These conditions
include General Signal's obtaining a ruling from the Internal Revenue Service to
the effect that the spinoff will be tax-free to General Signal, to Networks and
to you for U.S. federal income tax purposes.
You will receive a statement indicating your ownership of Networks shares
automatically without your taking any further action.
Networks intends to apply to have the Networks stock listed on the Nasdaq
National Market under the symbol [ ].
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE NETWORKS COMMON STOCK TO BE ISSUED OR DETERMINED IF
THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
This Information Statement is being first mailed to General Signal
stockholders on , 1998.
<PAGE> 3
QUESTIONS AND ANSWERS ABOUT THE SPINOFF
Q: WHAT IS NETWORKS?
A: Networks operates as a business unit of General Signal that develops,
manufactures, markets and services data networking and switching equipment for
large, mission-critical data centers and test and monitoring equipment for data
and telecommunications applications in both private and public networks.
Q: WHY IS GENERAL SIGNAL SPINNING NETWORKS OFF?
A: In contrast to General Signal's industrial businesses, Networks operates in a
technologically innovative environment that is undergoing rapid transformation.
As a result, Networks has significantly different needs than do the industrial
businesses, particularly in the areas of management expertise, research and
development, and employee retention and motivation. General Signal's Board of
Directors believes that separating Networks' data networking and
telecommunications business from General Signal's industrial businesses will
allow the management of each company to focus more directly on their respective
core businesses, thereby improving the ability to manage each business
efficiently. In addition, separating the businesses will allow Networks to adopt
compensation and incentive programs more appropriate for the motivation and
retention of high-technology employees, including the granting of stock options
to substantially all of its employees.
Q: WHEN WILL THE SPINOFF OCCUR?
A: We plan to complete the spinoff as soon as possible after the conditions to
the spinoff are met. Currently, we anticipate completing the spinoff by
[ ] 1998.
Q: WHAT WILL I RECEIVE IN THE SPINOFF?
A: In the spinoff, you will receive a dividend of two shares of Networks common
stock for every five shares of General Signal's common stock you own on the
record date for the spinoff. The new shares represent a continuing interest in
Networks.
The shares of Networks common stock, including any fractional shares, will be
distributed by book entry. This means that instead of physical stock
certificates, you will receive a statement of your book entry account for the
Networks shares distributed to you in the spinoff. If you wish, following the
spinoff, you may also request physical stock certificates, in which case you
will receive cash for any fractional share interest. Instructions for making
that request will be furnished with your account statement.
Associated with every share of Networks' common stock will be a preferred share
purchase right. These rights are similar to rights associated with your existing
shares of General Signal's common stock and may have similar antitakeover
effects.
Q: WHAT WILL HAPPEN TO MY DIVIDENDS?
A: Networks currently expects that, initially after the spinoff, it will not pay
any cash dividends. General Signal expects that it will continue to pay cash
dividends at the current annual rate of $1.08 per share. Each company's dividend
policy will be established by its respective board of directors, and will depend
on each company's operating results, financial requirements and other factors as
they develop over time.
Q: DO I HAVE TO PAY TAXES ON THE RECEIPT OF NETWORKS COMMON STOCK?
A: General Signal has applied to the Internal Revenue Service for a ruling that
the spinoff will be tax free to you, General Signal and Networks for U.S.
federal income tax purposes, except for any tax payable because of any cash
stockholders may receive instead of fractional shares. As a result of the
book-entry procedure you will receive cash instead of fractional shares only if
you request physical stock certificates. General Signal does not intend to
proceed with the spinoff in the absence of such a ruling.
Q: WHERE WILL MY NETWORKS STOCK BE TRADED?
A: Networks intends to apply to list the Networks common stock on the Nasdaq
National Market under the trading symbol [ ].
i
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers About the Spinoff..................... i
Summary..................................................... 1
Summary Selected Historical and Pro Forma Financial Data.... 3
Risk Factors................................................ 7
The Spinoff................................................. 10
Relationship Between General Signal and Networks After the
Spinoff................................................... 13
Networks Selected Historical Financial Data................. 16
Networks Unaudited Pro Forma Combined Financial
Statements................................................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business and Properties of Networks After the Spinoff....... 26
Management of Networks After the Spinoff.................... 39
Security Ownership of Certain Beneficial Owners of Networks
Common Stock.............................................. 49
Description of Networks Capital Stock....................... 52
Certain Antitakeover Effects of Certain Charter and By-Law
Provisions and the Networks Rights........................ 55
Liability and Indemnification of Officers and Directors of
Networks.................................................. 65
Where You Can Find More Information......................... 67
Index of Defined Terms...................................... 68
Index to Combined Financial Statements...................... F-1
</TABLE>
------------------------
The following trademarks referenced in this Information Statement are all
U.S. registered trademarks owned by Networks: 7-VIEW(R), DATA SWITCH(R),
IMATS(R), INTERVIEW(R), Mega-Matrix(R), Spectron(R), tau-tron(R), TELENEX(R) and
Variswitch(R). In addition, Networks has made application to register the
following trademarks referenced in this Information Statement: CD/9000(TM),
Intelligent Fiber System(TM), LINK/9000(TM), ngRTH(TM), and OC/9000(TM).
ii
<PAGE> 5
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
spinoff fully and for a more complete description of the business and financial
position of Networks, you should read this entire document carefully, as well as
those additional documents referred to in this summary and elsewhere. See "Where
You Can Find More Information."
WHAT YOU WILL RECEIVE IN THE SPINOFF
(See page 10)
In the spinoff, you will receive a dividend of two shares of Networks
common stock for every five shares of General Signal's common stock that you own
on the record date for the spinoff. The new shares represent a continuing
interest in Networks.
General Signal intends to use a book-entry system to distribute shares in
the spinoff. In a book-entry system, ownership of stock is recorded in the
records maintained by Networks' transfer agent, but physical certificates are
not issued to you unless you request a physical certificate. Following the
spinoff, each stockholder of record on the spinoff record date will receive a
statement of the Networks shares, including fractional shares, credited to the
stockholder's account. Stockholders may request physical certificates instead of
participating in the book-entry system. In that case, certificates will be
issued only for whole numbers of shares, and you will receive cash in place of
any remaining fractional shares of Networks' common stock that you would
otherwise receive.
Associated with every share of Networks' common stock will be a preferred
share purchase right. These rights are similar to rights associated with your
existing shares of General Signal's common stock and may have similar
antitakeover effects.
BUSINESSES OF GENERAL SIGNAL AND NETWORKS AFTER
THE SPINOFF (See page 26)
Following the spinoff, General Signal will continue to operate its
industrial businesses, which manufacture equipment for the process controls,
electrical controls and industrial technology industries.
Networks will continue to develop, manufacture, market and service data
networking and switching equipment for large, mission-critical data centers and
test and monitoring equipment for data and telecommunications applications in
both private and public networks. Networks' primary data networking and
switching customers are businesses that handle high-volume on-line transaction
processing, such as commercial banks, credit card processors, public lotteries,
airline reservation systems, the military and governmental agencies. For these
customers, Networks provides technologically advanced, scalable networking and
switching products that provide the connections between the computers and
peripherals that make up data centers for high-volume, on-line transaction
processing and between such data centers and the outside world. Networks'
principal data center products are its 2700 series high-speed matrix switch and
its CD/9000 director. Networks also focuses its efforts on providing superior
customer service and total connectivity solutions for its customers, including
system design, implementation and management where needed.
Networks also manufactures for major telecommunications companies
performance monitoring equipment that enables its customers to test transmission
quality and reliability over their far-flung telecommunications networks.
NETWORKS' STRATEGY AFTER THE SPINOFF (See page 33)
Networks' goal is to leverage its strengths to generate sustainable,
long-term revenue and earnings growth. Networks' strategy to reach that goal
consists of the following components:
- Leveraging its technological leadership and expertise;
- Maintaining strong customer relationships;
- Expanding product lines;
- Expanding international sales; and
- Increasing revenues from advisory, implementation and network management
services.
CONDITIONS TO THE SPINOFF (See page 13)
The spinoff will not occur unless a number of conditions are met, including
the following: (1) receipt by General Signal of an Internal Revenue
1
<PAGE> 6
Service ruling that the spinoff generally will not be
taxable to you, General Signal or Networks for U.S. federal income tax purposes,
and (2) approval of Networks' common stock for listing on the Nasdaq National
Market.
General Signal's board of directors does not intend to waive any of these
conditions. It also has the right to cancel or defer the spinoff even if the
conditions described here are met.
NO APPRAISAL RIGHTS
Under New York law that governs General Signal and the spinoff, General
Signal stockholders have no right to an appraisal of the value of their shares
in connection with the spinoff.
ACCOUNTING TREATMENT (See page 13)
Prior to the spinoff, General Signal will restate its consolidated
financial statements to reflect Networks as a discontinued operation.
MANAGEMENT OF NETWORKS AFTER THE SPINOFF
(See page 39)
Networks will be managed after the spinoff by the same management team that
has overseen the Networks business unit for General Signal. Robert Coackley, who
has been President of Telenex since 1991 and of the networking businesses since
1995, will be Chairman and Chief Executive Officer of Networks.
Networks' board will consist of six independent directors and Mr. Coackley.
After the spinoff, none of the directors of Networks will be officers or
directors of General Signal.
LISTING OF NETWORKS' COMMON STOCK
(See page 12)
The shares of Networks' common stock to be issued in the spinoff are
expected to be listed on the Nasdaq National Market. However, there is currently
no public trading market for these shares.
2
<PAGE> 7
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
NETWORKS SELECTED HISTORICAL FINANCIAL DATA
The following table summarizes certain selected historical financial
information of Networks. The information at December 31, 1997 and 1996 and for
each of the years ended December 31, 1997, 1996 and 1995 is derived from
Networks audited combined financial statements. The information at December 31,
1995, 1994 and 1993 and for each of the years ended December 31, 1994 and 1993
is derived from Networks' internal combined financial statements which have been
prepared on the same basis as the audited combined financial statements referred
to above and, in the opinion of management, includes all adjustments necessary
for a fair presentation.
The historical financial information does not necessarily reflect what the
financial position and results of operations of Networks would have been had
Networks operated as a separate, stand-alone entity during the periods presented
nor is it necessarily indicative of future performance. Per share data has not
been presented for historical information because Networks was not a publicly
held company during the periods presented below. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Networks audited combined
financial statements and related notes thereto included elsewhere in this
Information Statement.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Net sales......................... $218,971 $214,433 $202,686 $200,541 $209,754
Gross profit...................... 114,962 109,330 103,482 102,268 100,035
Research, development and
engineering..................... 25,757 23,125 21,454 28,604(a) 25,126
Selling, general and
administrative.................. 57,641 53,128 54,030 56,665 57,545
Merger and restructuring costs.... -- 731(b) 12,671(b) -- 2,652(c)
Operating income.................. 31,564 32,346 15,327 16,999 14,712
Net income........................ 17,857 18,352 6,153 8,326 6,580
OTHER STATISTICS:
Working capital................... 21,142 31,893 7,131(d) 31,383 38,113
Total assets...................... 105,452 118,281 111,403 109,809 119,367
Long-term debt, including current
portion......................... 16,285 12,694 35,117 29,533 33,951
Stockholder's investment.......... 50,246 65,006 36,921 45,177 51,641
Cash provided by operations....... 40,221 29,222 11,446 32,949 13,621
Capital expenditures.............. 5,565 4,062 6,077 7,295 5,791
</TABLE>
- ---------------
(a) Includes a $4,862 charge to write off certain capitalized software costs
management determined would not be recoverable from sales of the related
products.
(b) Reflects merger and restructuring costs related to the acquisition of Data
Switch Corporation, which was accounted for as a pooling of interest under
Accounting Principles Board Opinion No. 16. The financial information for
the years 1994 and 1993 have been restated to include the financial position
and results of operations of Data Switch Corporation.
(c) Represents restructuring charges to close one of Networks' facilities ($872)
and incurred by Data Switch Corporation ($1,780).
(d) Includes $19,014 of current portion of long-term debt paid in 1996.
3
<PAGE> 8
NETWORKS UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined statement of income for the year
ended December 31, 1997 and the unaudited pro forma combined balance sheet as of
December 31, 1997 present the pro forma effect of the spinoff on the results of
operations and combined financial position of Networks. The pro forma combined
statement of income for the year ended December 31, 1997 present the results of
operations as if the spinoff occurred on January 1, 1997. The pro forma combined
balance sheet at December 31, 1997 gives pro forma effect to the spinoff as if
such transaction occurred on that date. The pro forma information is based on
the historical financial statements of Networks giving effect to the assumptions
and adjustments set forth in the notes appearing on page 20. In the opinion of
management, they include all material adjustments necessary to reflect, on a pro
forma basis, the impact of transactions contemplated by the spinoff on Networks
historical financial information.
The unaudited pro forma combined financial information has been prepared by
Networks' management and is not necessarily indicative of what Networks'
financial position and results of operations would have been had the spinoff
actually been consummated at the assumed dates, nor is it necessarily indicative
of financial position or results of operations for any future period. The
unaudited pro forma combined financial information should be read in conjunction
with the Notes to the Pro Forma Combined Financial Statements on page 20,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Networks audited combined financial statements and related
notes thereto included elsewhere in this Information Statement.
4
<PAGE> 9
NETWORKS
PRO FORMA COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS(a) PRO FORMA
---------- -------------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales............................................... $218,971 $218,971
Cost of sales........................................... 104,009 104,009
-------- --------
Gross profit............................................ 114,962 114,962
Operating expenses:
Research, development and engineering................. 25,757 25,757
Selling, general and administrative................... 57,641 $ 520 58,161
-------- ----- --------
Operating expenses...................................... 83,398 520 83,918
Operating income........................................ 31,564 (520) 31,044
Interest and other expenses, net........................ 1,509 120 1,629
-------- ----- --------
Income before provision for income taxes................ 30,055 (640) 29,415
Provision for income taxes.............................. 12,198 (256) 11,942
-------- ----- --------
Net income.............................................. $ 17,857 $(384) $ 17,473
======== ===== ========
Pro forma net income per common share(a)................ $ 1.00
</TABLE>
- ---------------
(a) For a description of the pro forma adjustments and pro forma per share data,
see the notes accompanying "Networks Unaudited Pro Forma Combined Financial
Statements."
5
<PAGE> 10
NETWORKS
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS(a) PRO FORMA
---------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ -- $ --
Accounts receivable, net.............................. 38,466 38,466
Inventories........................................... 17,223 17,223
Prepaid expenses and other............................ 1,673 1,673
Deferred income taxes................................. 6,950 6,950
-------- ------- --------
Total current assets.................................... 64,312 64,312
Property, plant, and equipment, net..................... 18,271 18,271
Intangible assets....................................... 9,846 9,846
Other assets, net....................................... 13,023 13,023
-------- ------- --------
Total assets............................................ $105,452 $105,452
======== ======= ========
LIABILITIES AND STOCKHOLDER'S INVESTMENT/EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term
debt............................................... $ 7,341 $ 1,715 $ 9,056
Accounts payable...................................... 14,665 14,665
Accrued expenses...................................... 21,164 21,164
-------- ------- --------
Total current liabilities............................... 43,170 1,715 44,885
Long-term debt.......................................... 8,944 8,944
Deferred taxes.......................................... 3,511 (1,600) 1,911
-------- ------- --------
Total liabilities.................................. 55,625 115 55,740
Stockholder's investment/equity:
Preferred stock: par value $.01, 10,000,000
authorized, none issued (pro forma)................ --
Common stock, $0.01 par value, 85,000,000 shares
authorized, 17,400,000 issued and outstanding (pro
forma)............................................. 174 174
Additional paid-in capital............................ 49,957 49,957
Stockholder's investment; retained earnings (pro
forma)............................................. 50,246 (50,246) --
Cumulative translation adjustments.................... (419) (419)
-------- ------- --------
Total stockholder's investment/equity................... 49,827 $ (115) 49,712
-------- ------- --------
Total liabilities and stockholder's investment/equity... $105,452 $105,452
======== ======= ========
</TABLE>
- ---------------
(a) For a description of the pro forma adjustments, see the notes accompanying
"Networks Unaudited Pro Forma Combined Financial Statements."
6
<PAGE> 11
RISK FACTORS
Stockholders of General Signal Corporation ("General Signal") should
consider the following factors, as well as the other information set forth in
this Information Statement, in connection with the distribution by General
Signal to its stockholders (the "Spinoff") of the common stock of General Signal
Networks, Inc. General Signal Networks, Inc., together with the other data
networking and telecommunications assets, liabilities and businesses of General
Signal that will be contributed to it prior to the Spinoff, is referred to in
this Information Statement as "Networks."
This Information Statement includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), including statements regarding Networks' expected
future financial position, results of operations, cash flows, dividends,
financing plans, business strategy, budgets, projected costs and capital
expenditures, competitive positions, growth opportunities for existing products,
benefits from new technology, plans and objectives of management for future
operations, and markets for stock. Although Networks believes the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, no assurance can be given that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the those reflected in such forward-looking statements herein
include those set forth below in this Risk Factors section, as well as: adverse
changes in general economic, business and market conditions; failure of
customers to accept new products; significant delays or failures in the
development of new technology; competition in the markets Networks serves;
adverse changes in U.S. and non-U.S. laws and regulations; higher than expected
costs or difficulties relating to the establishment of Networks as an
independent entity and increased competitive and/or customer pressure;
additional factors and risks as may be disclosed from time to time in the
filings of Networks with the Securities and Exchange Commission (the
"Commission").
LACK OF OPERATING HISTORY AS A SEPARATE ENTITY
After the Spinoff, Networks will own and operate General Signal's data
networking and telecommunications businesses. Networks has not operated as a
public company and, following the Spinoff, will incur additional costs and
expenses associated with the management of a public company. General Signal is
not required to provide assistance or services to Networks except as described
in the Distribution Agreement and Transitional Services Agreement (as such terms
are defined herein) and the other agreements entered into between the companies.
See "Relationship Between General Signal and Networks After the Spinoff."
After the Spinoff, Networks will be a smaller and less diversified company
than General Signal was prior to the Spinoff. In addition, the Spinoff may
result in some temporary dislocation and inefficiencies to the business
operations, as well as the organization and personnel structure, of Networks.
Finally, Networks will not have the right to use the General Signal name
except during a transitional period. The Networks business has previously had
the benefit of the General Signal name and reputation in the marketing of its
products and in dealings with customers and government officials. One of the
challenges facing Networks will be to develop an identity for itself independent
of the General Signal name. Networks may have to make additional advertising and
promotion expenditures to position its new name in its markets and cannot
predict with certainty the extent to which the substitution of a new name may
adversely affect its retention and acquisition of customers or its financial
performance.
RAPID TECHNOLOGICAL DEVELOPMENT; NEW PRODUCTS
The market for Networks' products is generally characterized by rapid
innovation, evolving industry standards and frequent new product introductions
that can render existing products obsolete or unmarketable. Networks' ability to
anticipate changes in technology, industry standards, customer requirements and
product offerings and to develop and introduce new products and enhancements for
its existing products will be significant factors in Networks' ability to
compete in its field.
7
<PAGE> 12
The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation, as well as accurate
anticipation of technological and market trends. In addition, the introduction
and marketing of new or enhanced products requires Networks to manage the
transition from existing products in order to minimize disruption in customer
purchasing and service patterns. There can be no assurance that Networks will be
successful in developing and marketing, on a timely basis, new products or
product enhancements, that its new products will adequately address the changing
needs of the marketplace, or that it will successfully manage the transition
from existing products.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
Networks' ability to compete successfully will depend, in part, on its
ability to protect the proprietary technology contained in its products.
Networks currently relies upon a combination of trade secret, copyright, patent
and trademark laws, as well as upon contractual restrictions, to establish and
protect its proprietary rights. Networks also seeks to enter into
non-competition and proprietary information agreements with certain of its
suppliers, distributors and customers that are designed to limit access to and
disclosure of its proprietary information. There can be no assurance that these
statutory and contractual arrangements can effectively deter misappropriation of
Networks' technology or independent third-party development of competing
technologies.
DEPENDENCE ON DEMAND FOR HIGH-VOLUME TRANSACTION PROCESSING SERVICES
Demand for Networks' data networking products depends in large part on
overall demand for data networking equipment and for the high-volume transaction
processing services performed by Networks' customers. Demand for these products
and services in the future may fluctuate significantly based on numerous
factors, including adoption of alternative technologies and capital spending
levels.
DEPENDENCE ON MAJOR CUSTOMER
Although Networks sells its products and services to a large number of
customers in various industries and geographical areas, sales of its
telecommunications products to AT&T Corp. accounted for 23% of Networks' sales
in 1997. Networks' telecommunications products segment contributed over half of
Networks' operating income in 1997. While Networks' management believes its
relationship with this customer is good, management believes AT&T Corp.'s demand
for Networks' telecommunications products will decline in the future. The loss
of this business or a greater-than-expected decline in such customer's
purchasing requirements could have a material adverse effect on Networks'
business, results of operations and financial condition.
COMPETITION
The markets for data networking and telecommunications products in which
Networks does business are highly competitive and subject to rapid technological
change. Due to the rapidly evolving markets in which Networks competes,
additional competitors may enter those markets, thereby further intensifying
competition. Increased competition could result in price reductions and loss of
market share which would materially adversely affect Networks' business,
financial condition and results of operations.
Many of Networks' current and potential competitors have significantly
greater resources than does Networks. Moreover, Networks' competitors may also
foresee the course of market developments more accurately than Networks and in
certain circumstances may have the power to influence technical developments in
a manner that could adversely affect Networks' business. Although Networks
believes it has certain technological and other advantages over its competitors,
realizing and maintaining such advantages will require a continued high level of
investment by Networks in research and product development, marketing and
customer service and support. There can be no assurance that Networks will be
able to make the technological advances necessary to compete successfully with
its existing competitors or with new competitors.
8
<PAGE> 13
RELIANCE ON SOLE SOURCE SUPPLIER
Networks is contractually obligated to purchase its custom Applications
Specific Integrated Circuits ("ASICs"), which are state-of-the-art devices used
in Networks' CD/9000 director, from a single supplier. Loss of this source of
supply of ASICs or failure by this supplier to provide products that meet
Networks' quality standards could have a material adverse effect on Networks'
results of operations due to delays associated with securing an alternative
source of supply.
NO CURRENT PUBLIC MARKET FOR NETWORKS COMMON STOCK
There is currently no public market for the common stock, par value $.01
per share, of Networks (the "Networks Common Stock") to be distributed in the
Spinoff, and there can be no assurance as to the prices at which trading in
Networks Common Stock will occur after the Spinoff. Until Networks Common Stock
is fully distributed and an orderly market develops, the prices at which trading
in such Networks Common Stock occurs may fluctuate significantly. Networks
intends to apply to list the Networks Common Stock and the associated Networks
preferred share purchase rights (the "Networks Rights") on The Nasdaq Stock
Market, Inc.'s National Market ("Nasdaq"). See "The Spinoff -- Listing and
Trading of Networks Common Stock."
CERTAIN TAX RISKS OF THE SPINOFF
The Spinoff is conditioned upon General Signal's receipt of a ruling from
the Internal Revenue Service (the "IRS") to the effect, among other things, that
the Spinoff will qualify as a tax-free reorganization under Sections 355 and 368
of the Internal Revenue Code of 1986, as amended (the "Code"). See "The
Spinoff -- Material Federal Income Tax Consequences of the Spinoff." Such a
ruling, while generally binding upon the IRS, is subject to certain factual
representations and assumptions provided by General Signal. If these factual
representations and assumptions were incorrect in a material respect, the ruling
would be jeopardized. General Signal is not aware of any facts or circumstances
which would cause such representations and assumptions to be untrue. In
addition, Networks will agree to certain restrictions on its future actions to
provide further assurances that the Spinoff will qualify as a tax-free
reorganization. If Networks fails to abide by such restrictions and, as a
result, the Spinoff fails to qualify as a taxfree reorganization, then Networks
will be obligated to indemnify General Signal for any resulting tax liability.
However, such tax liability would be substantial, and there is no assurance that
Networks would be able to satisfy its indemnification obligation. See
"Relationship Between General Signal and Networks After the Spinoff -- Tax
Sharing Agreement."
If the Spinoff were not to qualify as a reorganization under Sections 355
and 368 of the Code, then, in general, a corporate tax would be payable by the
consolidated group of which General Signal is the common parent based upon the
difference between (1) the aggregate fair market value of Networks Common Stock
distributed in the Spinoff and (2) the adjusted basis of such Networks Common
Stock. The corporate level tax would be payable by General Signal. However,
under certain limited circumstances, Networks has agreed to indemnify General
Signal for such tax liabilities. See "Relationship Between General Signal and
Networks After the Spinoff -- Tax Sharing Agreement." In addition, under the
consolidated return regulations, each member of the consolidated group
(including Networks) is severally liable for such tax liability.
Furthermore, if the Spinoff were not to qualify as a reorganization under
Sections 355 and 368 of the Code, then each holder of common stock, par value
$6.67 per share issued through 1969, par value $1.00 per share issued subsequent
to 1969, of General Signal ("General Signal Common Stock") who receives shares
of Networks Common Stock in the Spinoff would be treated as if such stockholder
received a taxable distribution in an amount equal to the fair market value of
Networks Common Stock received, which would result in a dividend to the extent
paid out of General Signal's current and accumulated earnings and profits.
An acquisition of General Signal or Networks after the Spinoff could give
rise to the corporate-level taxes described above. Such an acquisition, if
taxable, could also cause the Spinoff to fail to qualify as a reorganization
and, if so, would give rise to the corporate-level and stockholder-level taxes
described above.
9
<PAGE> 14
ABSENCE OF DIVIDENDS
It is currently expected that, following the Spinoff, Networks will not pay
any cash dividends initially. Networks' dividend policy will be established by
the Board of Directors of Networks (the "Networks Board") and will depend on the
operating results, financial requirements and other factors affecting Networks
as they develop over time.
POSSIBLE ANTITAKEOVER EFFECTS OF NETWORKS' CHARTER AND BY-LAWS
The certificate of incorporation of Networks (the "Networks Certificate")
and the by-laws of Networks (the "Networks By-Laws") include provisions that may
make difficult an acquisition of control of Networks without the approval of the
Networks Board. See "Certain Antitakeover Effects of Certain Charter and By-Law
Provisions and the Networks Rights."
THE SPINOFF
BACKGROUND AND REASONS FOR THE SPINOFF
General Signal and its affiliates conduct 13 industrial businesses which
manufacture equipment for the process controls, electrical controls and
industrial technology industries (the "Industrial Businesses") and the Networks
business, which consists of its Telenex and Data Switch data networking
businesses and its Tautron telecommunications business. General Signal acquired
Telenex, Data Switch and Tautron between 1982 and 1995 and combined them under
the leadership of Robert Coackley in 1995. Together, these businesses develop,
manufacture, market and service data networking and switching equipment for
large data centers and test monitoring equipment for data and telecommunications
applications in public and private networks. The Spinoff is designed to separate
Networks from the Industrial Businesses because of the significant differences
in its markets, products, and plans for growth. In contrast to the Industrial
Businesses, Networks operates in a technologically innovative environment that
is undergoing rapid transformation. As a result, Networks has significantly
different needs than do the Industrial Businesses, particularly in the areas of
management expertise, research and development, and employee retention and
motivation. General Signal's Board of Directors believes that separating
Networks from General Signal's Industrial Businesses will allow the management
of each company to focus more directly on their respective core businesses,
thereby improving the ability to manage each business efficiently. In addition,
separating the businesses will allow Networks to adopt compensation and
incentive programs more appropriate for the motivation and retention of high-
technology employees, including the granting of stock options to substantially
all of its employees.
MANNER OF EFFECTING THE SPINOFF
General Signal intends to distribute shares of Networks Common Stock to
holders of General Signal Common Stock as soon as practical after all of the
conditions to the Spinoff set forth in the Distribution Agreement are satisfied
(see " -- Conditions; Termination"). The date on which the Spinoff occurs is
referred to herein as the "Distribution Date," and it is expected to occur on or
before [ ], 1998. The distribution will be made on a pro rata basis to
persons who are holders of record of issued and outstanding General Signal
Common Stock on a date selected by the General Signal Board (the "Distribution
Record Date"). Holders of record of General Signal Common Stock as of the
Distribution Record Date will receive a dividend of shares of Networks Common
Stock (and associated Networks Rights) on the basis of the distribution ratio of
two shares of Networks Common Stock for every five shares of General Signal
Common Stock held on the Distribution Record Date (the "Distribution Ratio").
A direct registration system will be used to implement the distribution of
shares of Networks Common Stock in the Spinoff. On the Distribution Date, a
certificate representing all issued and outstanding shares of Networks Common
Stock will be delivered by General Signal to [ ], as the distribution
agent (the "Distribution Agent"). As soon as practicable thereafter, an account
statement will be mailed to each stockholder stating the number of shares of
Networks Common Stock, including fractional shares, received by such stockholder
in the Spinoff. Following the Spinoff, stockholders may request physical
certificates for their
10
<PAGE> 15
shares of Networks Common Stock. No certificates or scrip representing
fractional interests in a share of Networks Common Stock will be issued
regardless of whether a stockholder participates in the direct registration
system or requests physical certificates. Instead, with respect to shares for
which physical certificates are requested, the Distribution Agent will, as soon
as practicable after the Distribution Date, aggregate and sell such fractional
interests at then prevailing prices and distribute the net cash proceeds to
stockholders entitled thereto pro rata based on their fractional interests in a
share of Networks Common Stock. See " -- Material Federal Income Tax
Consequences of the Spinoff." All shares issued will be fully paid and
nonassessable and the holders thereof will not be entitled to preemptive rights.
See "Description of Networks Capital Stock." Certificates evidencing shares of
Networks Common Stock will represent the same number of Networks Rights. See
"Description of Networks Capital Stock -- Networks Rights."
No holder of General Signal Common Stock will be required to pay any cash
or other consideration for shares of Networks Common Stock received in the
Spinoff or to surrender or exchange shares of General Signal Common Stock in
order to receive shares of Networks Common Stock.
Certificates representing outstanding shares of General Signal Common Stock
will continue to represent rights (the "General Signal Rights") to purchase
additional shares of General Signal Common Stock pursuant to General Signal's
Rights Agreement, dated as of February 1, 1996, by and between General Signal
and First Chicago Trust Company of New York, as Rights Agent (the "General
Signal Rights Agreement").
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SPINOFF
The following discussion summarizes the U.S. federal income tax
consequences resulting from the Spinoff that materially affect General Signal
and its stockholders. This discussion is based on current provisions of the
Code, existing and proposed Treasury Regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
On February 11, 1998, General Signal filed with the IRS an application for
a ruling to the effect that the Spinoff would qualify as tax free to General
Signal and its stockholders under Sections 355 and 368 of the Code. Under
Sections 355 and 368 of the Code, in general:
(1) Holders of shares of General Signal Common Stock will not
recognize any income, gain or loss as a result of the Spinoff, except as
described below with respect to any cash such holders may receive in lieu
of fractional shares.
(2) Holders of General Signal Common Stock will apportion the tax
basis of their General Signal Common Stock among such shares of General
Signal Common Stock and any shares of Networks Common Stock (including
fractional interests in shares of Networks Common Stock) received or deemed
received by such holder in the Spinoff in proportion to the relative fair
market values of such stock on the Distribution Date. Such allocation must
be calculated separately for each share of General Signal Common Stock with
respect to which Networks Common Stock is received.
(3) The holding period for the Networks Common Stock received in the
Spinoff by a holder of General Signal Common Stock will include the period
during which such holder held the General Signal Common Stock with respect
to which the Networks Common Stock was distributed, provided that such
General Signal Common Stock is held as a capital asset by such holder on
the Distribution Date.
(4) Where cash is received by a holder of General Signal Common Stock
as a result of the sale of fractional shares by the Distribution Agent on
behalf of such stockholder, it will be treated as if such fractional shares
had been received by such stockholder as part of the Spinoff and then sold
by such stockholder. Accordingly, such stockholder will recognize gain or
loss equal to the difference between the cash received and the amount of
tax basis allocable (as described above) to such fractional shares. Such
gain or loss would be capital gain or loss if such fractional shares would
have been held by such stockholder as a capital asset.
(5) No gain or loss will be recognized by General Signal upon the
Spinoff.
11
<PAGE> 16
(6) No gain or loss will be recognized by General Signal or Networks
as a result of the transfer of assets of the Networks Business to Networks
in exchange for stock of Networks prior to the Spinoff.
The receipt of a ruling from the IRS confirming these conclusions is a
condition to the Spinoff. Such a ruling, while generally binding upon the IRS,
is subject to certain factual representations and assumptions. If such factual
representations and assumptions were incorrect in a material respect, such
ruling could become invalid. General Signal is not aware of any facts or
circumstances which would cause such representations and assumptions to be
untrue. In addition, Networks has agreed to certain restrictions on its future
actions to provide further assurances that Sections 355 and 368 of the Code will
apply to the Spinoff. If Networks fails to abide by such restrictions, and, as a
result, the Spinoff fails to qualify as a tax-free reorganization, then Networks
will be obligated to indemnify General Signal for any resulting tax liability.
However, such tax liability would be substantial, and there is no assurance that
Networks would be able to satisfy its indemnification obligation. See
"Relationship Between General Signal and Networks after the Spinoff -- Tax
Sharing Agreement."
If the Spinoff were not to qualify as a tax-free reorganization under
Sections 355 and 368 of the Code, the fair market value of the shares of
Networks Common Stock received by General Signal's stockholders would be taxable
as a dividend to the extent paid out of General Signal's current and accumulated
earnings and profits. In that event, the tax basis of the shares of General
Signal Common Stock held by General Signal's stockholders after the Spinoff
would not change and the tax basis of the shares of Networks Common Stock would
be equal to their fair market value on the Distribution Date. In addition,
General Signal would recognize a capital gain equal to the difference between
the fair market value of the shares of Networks Common Stock and General
Signal's basis in such shares.
Current Treasury Regulations require each holder of General Signal Common
Stock who receives Networks Common Stock pursuant to the Spinoff to attach to
his or her U.S. federal income tax return for the year in which the Spinoff
occurs a detailed statement setting forth such data as may be appropriate in
order to show the applicability of Section 355 to the Spinoff. General Signal
will provide the appropriate information to each holder of record of General
Signal Common Stock as of the Distribution Record Date.
The summary of U.S. federal income tax consequences set forth above is for
general information only and may not be applicable to stockholders who received
their shares of General Signal Common Stock through the exercise of an employee
stock option or otherwise as compensation or who are not citizens or residents
of the United States or who are otherwise subject to special treatment under the
Code. All stockholders should consult their own tax advisors as to the
particular tax consequences of the Spinoff to them, including the applicability
and effect of state, local and foreign tax laws.
For a description of the tax sharing agreement which General Signal and
Networks will enter into prior to the Spinoff (the "Tax Sharing Agreement") and
pursuant to which General Signal and Networks will provide for various tax
matters, see "Relationship Between General Signal and Networks After the
Spinoff -- Tax Sharing Agreement." For a description of certain additional tax
considerations, see "Risk Factors -- Certain Tax Risks of the Spinoff."
LISTING AND TRADING OF NETWORKS COMMON STOCK
It is expected that Networks Common Stock will trade on Nasdaq after the
Spinoff. There is not currently a public market for Networks Common Stock.
Prices at which Networks Common Stock may trade prior to the Spinoff on a
"when-issued" basis, or after the Spinoff in regular trading cannot be
predicted. Until the Networks Common Stock is fully distributed and an orderly
market develops, the prices at which trading in Networks Common Stock occurs may
fluctuate significantly. The prices at which Networks Common Stock trades will
be determined by the marketplace and may be influenced by many factors,
including, among others, the depth and liquidity of the market for Networks
Common Stock, investor perception of Networks and the data networking industry,
Networks' dividend policy and general economic and market conditions. See "Risk
Factors -- Absence of Dividends."
12
<PAGE> 17
Networks intends to apply to list Networks Common Stock (and the associated
Networks Rights) on Nasdaq. Networks initially will have approximately
[ ] stockholders of record based upon the number of stockholders of
record of General Signal as of [ ], 1998. For certain information
regarding options to purchase Networks Common Stock ("Networks Options") that
will be outstanding after the Spinoff, see "Relationship Between General Signal
and Networks After the Spinoff -- Employee Benefits Allocation Agreement."
Shares of Networks Common Stock distributed to General Signal's
stockholders in the Spinoff will be freely transferable, except for securities
received by persons who may be deemed to be "affiliates" of Networks pursuant to
the Securities Act. Persons who may be deemed to be "affiliates" of Networks
after the Spinoff generally include individuals or entities that control, are
controlled by, or are under common control with, Networks, and may include
certain officers and directors of Networks as well as principal stockholders of
Networks, if any. Persons who are affiliates of Networks will be permitted to
sell their shares of Networks Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act.
REGULATORY APPROVALS
General Signal does not believe that any material U.S. federal or state or
foreign regulatory approvals will be required by law in connection with the
Spinoff.
ACCOUNTING TREATMENT
Prior to the Spinoff, General Signal will restate its consolidated
financial statements to reflect Networks as a discontinued operation. In the
separate financial statements of Networks, the assets and liabilities
contributed to Networks will be recorded at General Signal's historical basis.
CONDITIONS; TERMINATION
The Spinoff is conditioned upon the satisfaction of certain conditions,
including: (1) Networks Common Stock having been approved for listing on Nasdaq,
subject to official notice of issuance; (2) no preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a government, regulatory or administrative agency or
commission, and no statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, being in effect preventing the
consummation of the Spinoff; and (3) receipt by General Signal of the requested
ruling from the IRS that, among other things, the Spinoff will generally be tax
free to Networks, General Signal and stockholders of General Signal for U.S.
federal income tax purposes.
The Board of Directors of General Signal (the "General Signal Board") does
not intend to waive any of the foregoing conditions. Even if all the above
conditions are satisfied, the General Signal Board has reserved the right to
cancel or defer the Spinoff and the related transactions described in this
Information Statement at any time prior to the Distribution Date.
RELATIONSHIP BETWEEN GENERAL SIGNAL AND
NETWORKS AFTER THE SPINOFF
For the purpose of governing certain of the ongoing relationships between
General Signal and Networks after the Spinoff and to provide mechanisms for an
orderly transition, General Signal and Networks or their respective
subsidiaries, as applicable, will enter into the various agreements described in
this section prior to the Distribution Date. Certain of the agreements
summarized in this section are included as exhibits to the Registration
Statement (as defined below), and the following summaries are qualified in their
entirety by reference to such agreements as filed.
DISTRIBUTION AGREEMENT
Prior to the Distribution Date, General Signal and Networks will enter into
a separation and distribution agreement (the "Distribution Agreement") which
will provide for, among other things, the principal corporate transactions
required to effect the Spinoff, the conditions to the Spinoff and certain other
matters governing the relationship between Networks and General Signal with
respect to or in consequence of the Spinoff. In particular, the Distribution
Agreement contains provisions designed principally to place within General
Signal
13
<PAGE> 18
Networks, Inc. the assets and properties currently used in the Networks business
and financial responsibility for known and contingent or unknown liabilities of
the Networks business. The Distribution Agreement will also include
cross-indemnification provisions pursuant to which Networks and General Signal
will indemnify each other for damages that may arise out of a breach of their
respective obligations under the agreement, which include, subject to certain
exceptions, all liabilities and obligations arising out of the conduct or
operation of their respective businesses before, on, or after the Spinoff.
The Distribution Agreement provides that Networks will have $18 million of
total indebtedness (including short-term borrowings and long-term debt) at the
time of the Spinoff. To the extent Networks' total indebtedness at the time of
the Spinoff would otherwise be less than $18 million, Network is required under
the Distribution Agreement to borrow an amount equal to the difference under the
New Credit Facility and to dividend the cash received from such borrowings to
General Signal. As of December 31, 1997, Networks had total indebtedness of
$16.3 million, including short-term borrowings under the credit facilities of
its foreign operations. The Distribution Agreement further provides that, except
as described below, General Signal will retain all of Networks' operating cash
flow for periods prior to the Distribution Date, and that Networks will be
required to pay to General Signal the shortfall, if any, between the actual
amount of such cash flow and the amount of cash flow budgeted for such period,
less $1 million. It is expected that Networks would fund any such shortfall from
cash from operations or borrowings under the New Credit Facility. To the extent
actual cash flow exceeds the budgeted amount by more than $1 million, the
Distribution Agreement provides that Networks is entitled to such excess.
Under the Distribution Agreement, Networks will be entitled to the benefit
of liability insurance coverage under certain General Signal policies, to the
extent such coverage existed and coverage limits are not exhausted, for claims
incurred prior to the Distribution Date with respect to liabilities for which it
is assuming responsibility. Such insurance coverage generally will be shared
with General Signal for other liabilities existing prior to the Distribution
Date that General Signal is retaining, on an as available basis. General Signal
will retain the obligation to pay the retention amount of certain insured claims
relating to pre-Spinoff periods up to a maximum aggregate of $1 million. Subject
to the foregoing, Networks shall be responsible for any retrospectively rated
premiums, deductibles, retentions, costs, losses paid, attorneys' fees or other
charges paid by or on behalf of General Signal arising in connection with
Networks insurance claims under General Signal policies. In the event of the
exhaustion of coverage, General Signal and Networks shall allocate insurance
proceeds equitably, based upon the claims of General Signal and Networks,
respectively.
Pursuant to the Distribution Agreement, the Spinoff is subject to a number
of conditions which are described under "The Spinoff -- Conditions;
Termination." The Distribution Agreement may be amended or terminated, and the
Spinoff may be canceled, or certain conditions to the Spinoff may be waived, at
any time prior to the Distribution Date, in the sole discretion of the General
Signal Board.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
Prior to the Distribution Date, General Signal and Networks will enter into
an employee benefits and compensation allocation agreement (the "Employee
Benefits Allocation Agreement") to set forth the manner in which assets and
liabilities under employee benefit plans and other liabilities relating to
compensation and benefits will be divided between them, and to ensure a smooth
transition for employees' benefits in the Spinoff. Pursuant to the Employee
Benefits Agreement, General Signal and Networks will be responsible for
compensation and benefits of their own employees following the Spinoff. General
Signal will remain responsible for the benefits of Networks employees and former
Networks employees accrued through the Distribution Date under the Corporate
Retirement Plan of General Signal Corporation, the General Signal Corporation
Benefit Equalization Plan and the Pension Plan for Salaried Employees of General
Signal Limited in Canada (the "Canadian Pension Plan") Networks will reimburse
General Signal for the amount of certain enhanced benefits that it will be
required by law to provide to Networks employees under the Canadian Pension
Plan. Networks will establish a qualified defined contribution plan to which the
accounts of Networks employees and former Networks employees under the General
Signal Savings and Stock Ownership Plan will be transferred. Networks will also
assume all liabilities for benefits accrued through the Distribution Date by
Networks employees under the General Signal Deferred Compensation Plan, which is
an unfunded,
14
<PAGE> 19
nonqualified plan. In general, options to acquire General Signal stock held by
Networks employees (other than Mr. Mortimer) will be converted into options to
acquire Networks Common Stock, using a formula designed to preserve the same
value immediately before and after the Spinoff. Networks employees who
participate in the General Signal Long-Term Incentive Plan and Incentive
Compensation Plan will receive a pro-rata payout for the performance periods
that are in progress at the time of the Spinoff, based upon performance through
the Distribution Date. Networks will be responsible for making this payout as
soon as practicable after the Distribution Date. Restricted stock held by
Networks employees will be cashed out by General Signal at the time of the
Spinoff.
TAX SHARING AGREEMENT
Prior to the Distribution Date, Networks and General Signal will enter into
the Tax Sharing Agreement, which will set forth each party's rights and
obligations with respect to payments and refunds, if any, of income taxes and
related matters such as the filing of income tax returns and the conduct of
audits or other proceedings involving claims made by taxing authorities.
The Tax Sharing Agreement will provide, in general, that (i) all U.S.
federal, state and local and certain foreign income tax liability of General
Signal, Networks or any of their respective subsidiaries for any pre-Spinoff
period, or portion thereof, will be borne by General Signal (and General Signal
will be entitled to any refunds of taxes relating thereto) and (ii) all U.S.
federal, state and local and foreign income tax liability of Networks or any of
its subsidiaries for a post-Spinoff period, or portion thereof, will be borne by
Networks (and Networks will be entitled to any refunds of taxes relating
thereto).
The Tax Sharing Agreement further provides for cooperation with respect to
certain tax matters, the exchange of information and the retention of records
which may affect the income tax liability of either party.
To protect the tax-free treatment of the Spinoff under the U.S. federal
income tax laws, Networks will agree pursuant to the Tax Sharing Agreement to
refrain from engaging in certain transactions for four years following the
Spinoff unless (i) General Signal or Networks obtains a ruling from the IRS, or
in the case of a transaction occurring at least two years after the Spinoff,
Networks obtains an opinion of tax counsel, that the proposed transaction will
not adversely affect the tax-free status of the Spinoff, or (ii) General Signal
otherwise determines that it could not reasonably be expected that the proposed
transaction would have such effect. Transactions subject to these restrictions
will include, among other things, certain repurchases or issuances of Networks
equity securities by Networks or its affiliates, solicitation or support of any
tender offers or other acquisitions of a greater than 50 percent interest in
Networks, mergers, dispositions of over 60 percent of Networks' assets,
liquidations and the discontinuance of certain businesses.
Though valid as between the parties thereto, the Tax Sharing Agreement is
not binding on the IRS and does not affect the several liability of General
Signal, Networks and their respective subsidiaries to the IRS for all U.S.
federal income taxes of the consolidated group relating to periods prior to the
Distribution Date.
TRANSITIONAL SERVICES AGREEMENT
On or prior to the Distribution Date, General Signal and Networks will
enter into a transitional services agreement (the "Transitional Services
Agreement"), pursuant to which General Signal or an affiliate will provide
Networks with transitional support with respect to information services (the
"Transitional Services") for a period of time not to exceed 12 months from the
Distribution Date. The Transitional Services Agreement will provide that, in
consideration for the performance of a Transitional Service, Networks will pay
General Signal an amount intended to reflect the fair value of such services.
The Transitional Services Agreement will provide that General Signal has
the right to terminate the provision of certain Transitional Services under
certain circumstances, and also will contain provisions whereby Networks will
generally agree to indemnify General Signal for all claims, losses, damages,
liabilities and other costs incurred by Networks to a third party which arise in
connection with the provision of a Transitional Service, other than those costs
resulting from General Signal's own willful misconduct or fraud. In general,
Networks can terminate a Transitional Service after an agreed notice period.
15
<PAGE> 20
NETWORKS SELECTED HISTORICAL FINANCIAL DATA
The following table summarizes certain selected historical financial
information of Networks. The information at December 31, 1997 and 1996 and for
each of the years ended December 31, 1997, 1996 and 1995 is derived from
Networks audited combined financial statements. The information at December 31,
1995, 1994 and 1993 and for each of the years ended December 31, 1994 and 1993
is derived from the Networks' internal combined financial statements which have
been prepared on the same basis as the audited combined financial statements
referred to above, and in the opinion of Networks' management, includes all
adjustments necessary for a fair presentation.
The historical financial information does not necessarily reflect what the
financial position and results of operations of Networks would have been had
Networks operated as a separate, stand-alone entity during the periods presented
nor is it necessarily indicative of future performance. Per share data has not
been presented for historical information because Networks was not a publicly
held company during the periods presented below. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Networks audited combined
financial statements and related notes thereto included elsewhere in this
Information Statement.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------------- ----------- -----------
(IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Net sales........................ $218,971 $214,433 $202,686 $200,541 $209,754
Gross profit..................... 114,962 109,330 103,482 102,268 100,035
Research, development and
engineering.................... 25,757 23,125 21,454 28,604(a) 25,126
Selling, general and
administrative................. 57,641 53,128 54,030 56,665 57,545
Merger and restructuring costs... -- 731(b) 12,671(b) -- 2,652(c)
Operating income................. 31,564 32,346 15,327 16,999 14,712
Net income....................... 17,857 18,352 6,153 8,326 6,580
OTHER STATISTICS:
Working capital.................. 21,142 31,893 7,131(d) 31,383 38,113
Total assets..................... 105,452 118,281 111,403 109,809 119,367
Long-term debt, including current
portion........................ 16,285 12,694 35,117 29,533 33,951
Stockholder's investment......... 50,246 65,006 36,921 45,177 51,641
Cash provided by operations...... 40,221 29,222 11,446 32,949 13,621
Capital expenditures............. 5,565 4,062 6,077 7,295 5,791
</TABLE>
- ---------------
(a) Includes a $4,862 charge to write off certain capitalized software costs
management determined would not be recoverable from sales of the related
products.
(b) Reflects merger and restructuring costs related to the acquisition of Data
Switch Corporation ("Data Switch"), which was accounted for as a pooling of
interest under Accounting Principles Board Opinion No. 16. The financial
information for the years 1994 and 1993 have been restated to include the
financial position and results of operations of Data Switch.
(c) Represents restructuring charges to close one of Networks' facilities ($872)
and incurred by Data Switch ($1,780).
(d) Includes $19,014 of current portion of long-term debt paid in 1996.
16
<PAGE> 21
NETWORKS UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma combined statement of income for the year
ended December 31, 1997 and the unaudited pro forma combined balance sheet as of
December 31, 1997 present the pro forma effect of the Spinoff on the results of
operations and combined financial position of Networks. The pro forma combined
statement of income for the year ended December 31, 1997 presents the results of
operations as if the Spinoff occurred on January 1, 1997. The pro forma combined
balance sheet at December 31, 1997 gives pro forma effect to the Spinoff as if
such transaction occurred on that date. The pro forma information is based on
the historical financial statements of Networks giving effect to the assumptions
and adjustments set forth in the accompanying notes. In the opinion of
management, they include all material adjustments necessary to reflect, on a pro
forma basis, the impact of transactions contemplated by the Spinoff on Networks
historical financial information. The adjustments are described in the Notes to
the Pro Forma Combined Financial Information and are set forth in the "Pro Forma
Adjustments" columns.
The unaudited pro forma combined financial information has been prepared by
Networks management and is not necessarily indicative of what Networks'
financial position and results of operations would have been had the Spinoff
actually been consummated at the assumed dates, nor is it necessarily indicative
of financial position or results of operations for any future period. The
unaudited pro forma combined financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Networks audited combined financial statements and related
notes thereto included elsewhere in this Information Statement.
17
<PAGE> 22
NETWORKS
PRO FORMA COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................. $218,971 $218,971
Cost of sales............................................. 104,009 104,009
-------- ----- --------
Gross profit.............................................. 114,962 114,962
Operating expenses:
Research, development and engineering................... 25,757 25,757
Selling, general and administrative..................... 57,641 $ 520(a) 58,161
-------- ----- --------
Operating expenses........................................ 83,398 520(a) 83,918
Operating income.......................................... 31,564 (520) 31,044
Interest and other expenses, net.......................... 1,509 120(b) 1,629
-------- ----- --------
Income before provision for income taxes.................. 30,055 (640) 29,415
Provision for income taxes................................ 12,198 (256)(c) 11,942
-------- ----- --------
Net income................................................ $ 17,857 $(384) $ 17,473
======== ===== ========
Pro forma net income per common share(d).................. $ 1.00
</TABLE>
See accompanying notes to the pro forma combined financial statements.
18
<PAGE> 23
NETWORKS
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ --
Accounts receivable, net................................ 38,466 38,466
Inventories............................................. 17,223 17,223
Prepaid expenses and other.............................. 1,673 1,673
Deferred income taxes................................... 6,950 6,950
-------- --------- --------
Total current assets...................................... 64,312 64,312
Property, plant, and equipment, net....................... 18,271 18,271
Intangible assets......................................... 9,846 9,846
Other assets, net......................................... 13,023 13,023
-------- --------- --------
Total assets.............................................. $105,452 $105,452
======== ========= ========
LIABILITIES AND STOCKHOLDER'S INVESTMENT/EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term
debt................................................. $ 7,341 $ 1,715(e) $ 9,056
Accounts payable........................................ 14,665 14,665
Accrued expenses........................................ 21,164 21,164
-------- --------- --------
Total current liabilities................................. 43,170 1,715(e) 44,885
Long-term debt............................................ 8,944 8,944
Deferred taxes............................................ 3,511 (1,600)(f) 1,911
-------- --------- --------
Total Liabilities............................... 55,625 115(e) 55,740
Stockholder's investment/equity:
Preferred Stock: par value $.01, 10,000,000 authorized,
none issued (pro forma).............................. --
Common stock, $0.01 par value, 85,000,000 shares
authorized, 17,400,000 issued and outstanding (pro
forma)............................................... 174 174
Additional paid-in capital.............................. 49,957(g) 49,957
Stockholder's investment; retained earnings (pro
forma)............................................... 50,246 (50,246)(g) --
Cumulative translation adjustments...................... (419) (419)
-------- --------- --------
Total stockholder's investment/equity..................... 49,827 $ (115)(e) 49,712
-------- --------- --------
Total liabilities and stockholder's investment/equity..... $105,452 $105,452
======== ========= ========
</TABLE>
See accompanying notes to the pro forma combined financial statements.
19
<PAGE> 24
NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) General Signal has allocated general corporate expenses and actual costs
directly attributable to Networks business, which include: systems
information support; legal and patent matters; insurance and medical; and
pension and other employee benefits. The allocated costs are based on an
estimate of the proportion of corporate expenses related to the Networks
business for the periods presented and, in the opinion of management, the
allocated and direct costs have been made on a reasonable basis and
approximate the incremental costs for such services that would have been
incurred had Networks been operating on a stand-alone basis. However,
Networks expects to incur approximately $520 of additional expenses as a
separate publicly owned company for insurance, Director fees and certain
accounting functions related to public reporting.
(b) Represents interest expenses on an estimated additional borrowing of $1,715
that Networks is expected to incur upon the Spinoff, at an assumed annual
interest rate of 7%.
(c) Represents the estimated income tax benefit on the pro forma adjustments (a)
and (b) above.
(d) Net income per share information is presented to conform with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" issued
by the Financial Accounting Standards Board (the "FASB"). The assumed number
of weighted average common shares (17,400,000) is based on the actual number
of shares of General Signal Common Stock expected to be outstanding as of
the record date for the Spinoff and the issuance of two shares of Networks
Common Stock for every five shares of General Signal Common Stock in the
Spinoff. The dilutive effect of Networks' stock options expected to be
issued to replace General Signal stock options held by Networks' employees
is not expected to be material. In addition, because the exercise price of
the stock options to be issued to Networks' employees upon the Spinoff under
the Networks 1998 Stock Incentive Plan to purchase approximately 1.64
million shares of Networks Common Stock will be based on the fair market
value of the underlying stock upon the date of grant, such options are
assumed to have nominal impact. The actual number of common shares used to
compute earnings per share after the Spinoff will depend upon the number of
shares of Networks Common Stock that are outstanding at such time as well as
the number and exercise price of options issued to acquire Networks Common
Stock. Also, the pro forma financial information does not include the impact
of 41,500 shares of restricted Networks Common Stock expected to be issued
to Networks' executive officers upon the Spinoff, the aggregate market value
of which will be charged to compensation expense over the related vesting
period.
(e) Represents estimated additional borrowings of $1,715 that Networks is
expected to incur upon the Spinoff.
(f) Represents deferred tax benefit resulting from the purchase by Networks of
the assets of a German subsidiary of General Signal upon the Spinoff.
(g) Reflects the reclassification of net investments to common stock par value
and additional paid-in capital which will occur upon the issuance of
Networks Common Stock in connection with the Spinoff. General Signal will
declare a dividend payable to holders of record of General Signal Common
Stock of two shares of Networks for every five shares of General Signal
Common Stock. The actual number of shares of Networks Common Stock to be
distributed may differ based on actual shares of General Signal Common Stock
outstanding on the record date for the Spinoff. As a result of the
distribution, 100% of the currently outstanding shares of Networks Common
Stock will be distributed to General Signal stockholders.
20
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The combined financial statements described in this section have been
prepared on the historical cost basis as if Networks had operated as a
stand-alone entity for all periods presented, and present Networks' financial
position, results of operations, and cash flows as derived from General Signal's
historical financial statements. The financial statements reflect an allocation
of general corporate expenses and actual costs incurred by General Signal
directly attributable to Networks' business which include: systems information
support; legal and patent matters; insurance and medical; and pension and other
employee benefits. In the opinion of Networks' management, the allocated and
direct costs have been made on a reasonable basis and approximate the
incremental costs that would have been incurred had Networks been operating on a
stand-alone basis.
Advances and other intercompany accounts between Networks and General
Signal are recorded as a component of stockholder's investment. All intercompany
transactions between entities included in the combined financial statements have
been eliminated.
The financial information included herein does not necessarily reflect what
the financial position and results of operations of Networks would have been had
it operated as a stand-alone entity during the periods covered, and may not be
indicative of future operations or financial position.
The following discussion should be read in conjunction with the "Networks
Selected Historical Financial Data," "Networks Unaudited Pro Forma Combined
Financial Statements" and the Networks audited combined financial statements and
related notes thereto included elsewhere in the Information Statement.
RESULTS OF OPERATIONS
Networks has two operating segments: data networking and
telecommunications. The reportable segments are each managed separately.
Networks evaluates performances and allocates resources separately for each
division. Intersegment sales and transfers are recorded at Networks' cost; there
is no intercompany profit or loss on intersegment sales and transfers. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies contained in the notes to the
Networks Unaudited Pro Forma Combined Financial Statements set forth elsewhere
in this Information Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................. $218,971 $214,433 $202,686
Cost of sales.............................................. 104,009 105,103 99,204
-------- -------- --------
Gross profit.......................................... 114,962 109,330 103,482
-------- -------- --------
Research, development & engineering........................ 25,757 23,125 21,454
Selling, general & administrative.......................... 57,641 53,128 54,030
Merger and restructuring costs............................. -- 731 12,671
-------- -------- --------
Operating expenses.................................... 83,398 76,984 88,155
-------- -------- --------
Operating income........................................... 31,564 32,346 15,327
Interest and other expenses, net........................... 1,509 497 1,966
Income before provision for income taxes................... 30,055 31,849 13,361
Provision for income taxes................................. 12,198 13,497 7,208
-------- -------- --------
Net income............................................ $ 17,857 $ 18,352 $ 6,153
======== ======== ========
</TABLE>
21
<PAGE> 26
The following table sets forth selected operating data as percentage of net
sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0%
Gross profit............................................. 52.5% 51.0% 51.1%
Research, development & engineering........................ 11.8% 10.8% 10.6%
Selling, general & administrative.......................... 26.3% 24.8% 26.7%
Operating income........................................... 14.4% 15.1% 7.6%
Provision for income taxes................................. 5.6% 6.3% 3.6%
Net income............................................... 8.2% 8.6% 3.0%
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Net sales grew 2.2% to $219.0 million in 1997 from $214.4 million in 1996.
The increase was attributable to the introduction of new products and increased
unit sales of certain existing products. These increases were partially offset
by declines in older technology data networking products. Domestic net sales
were $170.1 million in 1997, up 0.5% from $169.2 million in 1996, while combined
foreign and export sales grew 7.7% to $48.8 million in 1997, up from $45.3
million in 1996. European sales grew 10.7% year over year, while net sales in
the Asian, Pacific and Latin American markets had a 3.3% increase. Total sales
to international customers increased to 22.3% of total net sales in 1997 from
21.1% of total net sales in 1996.
Net sales of data networking products declined 1.7% to $162.1 million in
1997 from $165.0 million in 1996 as declining sales of older technology products
offset increased sales of the new CD/9000 director. The CD/9000 director was
introduced in late 1996, and generated sales of $6.6 million in 1996 and $37.9
million in 1997. CD/9000 director sales slowed during part of 1997 due to
technical problems, some of which were vendor related, but a vigorous
engineering program resolved the problems and sales rebounded in the second half
of the year. Offsetting the $31.3 million increase in new product sales from the
CD/9000 director were a decline in sales of matrix switching products to the
U.S. government and a $28 million decline in the sales of certain older
technology products, including an $11.6 million decline in sales of the OEM
director product, which was discontinued and replaced by the CD/9000 director.
Net sales of telecommunications products increased 15.0% to $56.8 million
in 1997 from $49.4 million in 1996. The increase reflected unusually large
orders for NCOE products placed during the fourth quarter of 1996 and shipped in
the first quarter of 1997. Management believes that demand for NCOE products
through 1998 will be lower than for 1997 and 1996 and will continue to decline
in the future.
Gross profit increased to 52.5% of net sales in 1997 from 51.0% of net
sales in 1996. The increase was attributable to the introduction of the CD/9000
director, and the corresponding phase out of the OEM director, which carried
significantly lower margins than the CD/9000 director. Also contributing to the
increase in margins were manufacturing efficiencies on telecommunications
products, allowing for a lower manufacturing cost per unit, and overall
reductions in material costs that resulted from sourcing initiatives. Pricing
pressures on other data networking products offset some of the margin increase
from the additional volume in the telecommunications products and the
introduction of the CD/9000 director.
Research, development and engineering expenses for 1997 were $25.8 million
or 11.8% of net sales, up from $23.1 million or 10.8% of net sales in 1996. The
increase reflects Networks' ongoing commitment to new product development in a
wide variety of areas, as well as an engineering effort in support of ongoing
hardware and software maintenance efforts.
Selling, general and administrative expenses were $57.6 million in 1997, or
26.3% of net sales, as compared to $53.1 million or 24.8% of net sales in 1996.
The increase resulted from expenses required for product demonstration in
support of the CD/9000 director introduction and for expenses incurred in hiring
key senior management personnel in anticipation of the Spinoff. In addition, the
sales, technical support and marketing organizations have been expanded both
domestically and internationally in order to support new product introductions
and to expand market share.
22
<PAGE> 27
Operating income was $31.6 million in 1997, a decline of 2.4% from $32.3
million in 1996. Data networking operating income was $12.5 million in 1997, as
compared to $20.0 million in 1996. The decline in data networking operating
income was attributable to increased research and development expense for new
product development, and increased selling, general and administrative expense
in support of the introduction of the CD/9000 director. Telecommunications
operating income increased to $19.1 million in 1997, versus $13.6 million in
1996, as a result of increased sales and higher gross margins achieved through
manufacturing efficiencies.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Net sales grew to $214.4 million in 1996 from $202.7 million in 1995. The
5.8% increase was attributable primarily to increased sales of
telecommunications products to Networks' largest customer and to increases in
sales of the 2700 Series matrix switch. These increases were partially offset by
declines in older technology data networking products. Domestic sales were
$169.2 million in 1996 as compared to $161.8 million in 1995, a 4.5% increase,
while combined foreign and export sales grew to $45.3 million in 1996 from $40.9
million in 1995, a 10.8% increase. The increase in foreign sales was primarily
in Asian, Pacific and Latin American markets, which had a 33.7% increase, and
was attributable to increased investment in distributors in those areas. Sales
to international customers accounted for 21.1% of total sales in 1996, as
compared to 20.2% of sales in 1995.
Net sales of data networking products increased 3.1% to $165.0 million in
1996, up from $160.0 million in 1995. The increase reflected growth in the 2700
Series matrix switch as a result of sales and marketing initiatives to penetrate
the federal government sector, where Networks previously had little sales
activity. Declining sales of certain older technology products offset some of
the gains of the 2700 Series.
Net sales of telecommunications products grew to $49.4 million in 1996 from
$42.6 million in 1995, a 16.1% increase, reflecting the strong fourth quarter
demand for NCOE products.
Gross profit was $109.3 million in 1996, or 51.0% of net sales, as compared
to $103.5 million in 1995, or 51.1% of net sales. Pricing pressure on the OEM
director and increased government sales of the 2700 Series matrix switch led to
declines in gross margin percentage for these products. Such declines offset
profit gains on telecommunications products, which increased in 1996 as a result
of increased volume.
Research, development and engineering expenses for 1996 were $23.1 million
or 10.8% of net sales, as compared to $21.5 million or 10.6% of net sales in
1995. This 7.4% increase was primarily due to expenses related to the
development and testing of the CD/9000 director, various telecommunications
products, and timing of capitalization and amortization of software projects. In
addition, the amortization of two software programs was accelerated in 1996 to
bring the amortization balance in line with future expected sales. In 1996
Networks capitalized $1.4 million of software development for products formerly
developed by Data Switch. Without this change, the actual growth rate in
engineering expense would have been 14.3%. A large portion of the increase in
research, development and engineering expense for the CD/9000 director and the
telecommunications product was for purchased contract labor, outside testing
fees, and materials and components.
Selling, general and administrative for 1996 were $53.1 million or 24.8% of
net sales, as compared to $54.0 million in 1995, or 26.7% of net sales. This
reduction in expense was primarily related to the acquisition of Data Switch in
1995. As a result of the acquisition, approximately $1.7 million in savings were
realized from the elimination of corporate overhead personnel and functions, as
well as from policy revisions implemented for remaining Data Switch personnel.
In 1995 Data Switch consolidated its manufacturing and engineering facilities
resulting in a $0.4 million savings in 1996. As part of this consolidation, Data
Switch incurred a non-recurring relocation charge in 1995 of $0.7 million. These
declines were offset in part by additional staffing in the sales and sales
support areas, both domestically and internationally.
Merger costs in 1996 and 1995 were $0.7 million and $12.7 million,
respectively, and represent charges associated with the acquisition of Data
Switch.
23
<PAGE> 28
Operating income was $32.3 million in 1996, as compared to $15.3 million in
1995. The merger costs associated with the acquisition of Data Switch in 1995
reduced operating income by $12.7 million. Excluding this charge, operating
income would have been $28.0 million in 1995. Data networking operating income
was $19.5 million in 1996, as compared to $18.3 million in 1995. The increase
was due to selling, general and administrative expense savings as a result of
the Data Switch acquisition. Telecommunications operating income was $13.6
million in 1996, as compared to $9.7 million in 1995, and was a result of
increased sales and higher gross margins achieved through manufacturing
efficiencies and a favorable mix of higher margin products.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities amounted to $40.2 million in 1997 and
$29.2 million in 1996. The increase in 1997 was primarily related to large 1996
year end shipments that were collected in early 1997. Capital expenditures were
$5.6 million in 1997 and $4.1 million in 1996, primarily representing
investments in manufacturing and test equipment. Networks presently anticipates
making approximately $8.4 million in capital expenditures in 1998.
Networks' domestic operations historically have generated substantial
amounts of cash, most of which were transferred to General Signal. Networks'
foreign operations typically have not generated positive operating cash flow and
have borrowed funds from local financial institutions for their growing working
capital and business expansion needs. As a result, the Networks historical
balance sheets do not show any cash and contain varying amounts of short-term
debt.
Networks' credit facilities at December 31, 1997 consisted of $8.6 million
lines of credit in the United Kingdom and Germany that were guaranteed by
General Signal. Approximately $6.3 million of those facilities were drawn down
as of December 31, 1997 and are included in short-term borrowings. Networks is
presently arranging a new credit facility with a number of domestic banks (the
"New Credit Facility") and anticipates that it will have committed revolving
credit agreements in place as a public company of approximately $30 to $50
million.
YEAR 2000 COMPLIANCE
Year 2000 problems arise from computer programs being written to use two
digits rather than four to record a year. Any of Networks' computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities. In addition, Networks sells computer systems
that include time sensitive software that could cause similar disruption to
customers' operations.
Networks has conducted a recent assessment of its products and internal
systems for Year 2000 compliance. All currently marketed products are Year 2000
compliant, with four exceptions. These exceptions, representing less than 1% of
total sales, are planned to be resolved by the end of the third quarter of 1998.
All major internal informational systems have been identified, and are planned
to be fully compliant by 1999. Other less critical internal systems will become
compliant via the use of standard maintenance contracts and normal PC
expenditures through Networks' third party vendors. The total cost to become
Year 2000 compliant is not expected to be material to Networks.
Networks has started to communicate with its significant suppliers to
determine the extent to which Networks' interface systems or products are
vulnerable to such third parties' failures to remediate their own Year 2000
issues. However, there can be no guarantee that the systems of other companies
on which Networks' systems rely will be timely converted and would not have an
adverse impact on Networks' systems. Networks is also exploring whether it has
any exposure to contingencies related to the Year 2000 issue for products which
it has previously sold.
24
<PAGE> 29
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains, and losses) in a full set
of general-purpose financial statements. Networks has adopted the disclosure
requirements of SFAS No. 130.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information" which changes the way public companies
report information about public segments. SFAS 131 establishes requirements to
report selected segment information quarterly and to report entity-wide
disclosures about products and services, major customers, and the material
countries in which the entity holds assets and reports revenue. Networks has
adopted the provisions of SFAS 131.
25
<PAGE> 30
BUSINESS AND PROPERTIES OF NETWORKS AFTER THE SPINOFF
INTRODUCTION
Networks develops, manufactures, markets and services data networking and
switching equipment for large, mission-critical data centers and test and
monitoring equipment for data and telecommunications applications in both
private and public networks.
Networks' primary data networking and switching customers are businesses
that handle high-volume on-line transaction processing, such as commercial
banks, credit card processors, public lotteries, airline reservation systems,
the military and governmental agencies. For these customers, Networks provides
technologically advanced, scalable networking and switching products that
provide the connections between the computers and peripherals that make up the
data center and between the data center and the outside world. Networks'
principal data networking products are its high-speed 2700 Series matrix switch
and its CD/9000 director. Networks also focuses its efforts on providing
superior customer service and total connectivity solutions for its customers,
including system design, implementation and management where needed.
Networks' telecommunications products, which are sold under the tau-tron
brand, include network channel office equipment ("NCOE") and commercial
performance monitoring equipment ("CPM") that enables its customers to test
transmission quality and reliability over their far-flung telecommunications
networks. Networks also manufactures a surveillance system known as "7-VIEW."
This product is used to monitor modern signaling systems in telecommunication
networks to provide early warning of network congestion, for fraud detection and
for inter network billing verification applications. Customers of Networks'
telecommunications test and monitoring products include AT&T and other major
telecommunication companies.
General Signal acquired its Tautron telecommunications business in 1982 and
its Telenex data networking business in 1986. In January 1995 General Signal
combined the operations of Telenex and Tautron and subsequently acquired Data
Switch Corporation in November 1995.
MARKETS AND PRODUCTS
Data Networking Market
Market Overview. Data centers provide the processing and database
management power necessary to support high volume transactions-processing
applications, including in the areas of financial services, transportation,
healthcare and government services. Advanced data centers today are generally
composed of one or more "mainframe" computers, several servers, and many
peripherals such as disk drives and magnetic tapes. Unlike the mainframes of the
past, today's data centers must communicate not only with "dumb," dedicated
terminals, but with users connecting through sophisticated local area networks
("LANs") and wide area networks ("WANs"), including the Internet.
The market for Networks' data networking products is driven by two distinct
market factors: (1) the number of mainframes and servers and the complexity of
networks in data centers and (2) overall demand for high-speed, high-volume
transaction processing. The installed base for mainframes continues to grow and
now there is wide recognition that many mainframe applications -- such as
high-speed, high-volume transaction processing and massive database
storage -- cannot be supported simply or efficiently in a distributed
environment. Development of new processors and supporting technologies have also
given the mainframe market an important boost. At the same time, sales of
servers, which operate as integrated computing elements in large data centers,
are growing dramatically. In addition, businesses have been consolidating their
data center operations, either for strategic reasons or as the result of mergers
and acquisition activity. The resulting data centers, while utilizing fewer
mainframes, generally are significantly larger and more complex than their
predecessors, with many more internal interconnections and many more outside
users attempting to make connections to the data center.
26
<PAGE> 31
The second factor -- overall demand for transactions and services that
require the information processing or storage power of large data centers -- is
even more important to Networks, and is being driven by the tremendous increase
in Internet usage as well as on-line transaction processing (e.g., credit card
processing, automated teller machine transactions, just-in-time inventory
delivery systems), and data warehousing. As the demand for such services grows,
the data centers themselves grow in complexity, speed and capacity, fueling
demand for connectivity and networking products that provide ever increasing
speed, scalability, reliability and availability. In addition, as new computing
and networking technologies are introduced into the data center, demand grows
for connectivity systems that are able to provide connections between newer
technologies and older "legacy" systems and between systems manufactured by
different vendors.
Data networking is divided into two areas:
<TABLE>
<S> <C>
"Networking within the -- the connections among mainframes, servers and the
Data Center" peripherals which serve them within the data center; and
"Data Communications" -- the connections between the data center, work stations or
terminals and the outside world.
</TABLE>
The diagram below shows how Networks' CD/9000 and 2700 Series products sit
at the heart of today's large data centers:
[FLOW CHART]
CONNECTIVITY -- FROM THE DATA CENTER TO THE DATA
Networking within the Data Center -- Channel Directors. The new data
center demands fast, highly reliable, always available, scalable connections
between the high-performance mainframes, servers and peripherals that populate
it. As technology progresses, demand increases for connections that can accommo-
27
<PAGE> 32
date both the new and old transport technologies, and for connections that can
connect computers manufactured by different vendors. Network architectures must
embrace old and new seamlessly and in a cost effective manner.
For connecting mainframe computers to peripherals, the leading technology
for many years has been a parallel interface known as "Bus & Tag" that transfers
data at a rate of 4 Mbps. In 1991, a new technology was introduced, known as
"ESCON" (for Enterprise Systems CONnection)*, that utilizes fiber optic cables
to make possible high-speed (up to 17 Mbps) computer-to-computer communication,
as well as extremely rapid access to data stored on disk or on magnetic media,
and allow for significantly longer distances between devices than when using
conventional cable connections. In large, complex systems, switching devices,
known as "directors," are used to route ESCON messages to specified peripherals.
IBM** developed the first such director and now sole sources its directors from
a third party. In 1996, Networks introduced its innovative 256-port, fault
tolerant CD/9000 director, and in its first full year of sales was able to
capture a market share of approximately 6%. The CD/9000 offers greater port
capacity than any other director and has unique capabilities including a fault
tolerant architecture and a feature which enables the CD/9000 to emulate several
smaller directors within a single product. The estimated worldwide market for
ESCON directors grew from approximately $450 million in 1996 to approximately
$600 million in 1997, and Networks expects that it will continue to grow.
For connecting server computers to peripherals, the leading technology has
been a short distance serial interface known as "SCSI" (for Small Computer
System Interface). This popular standard is low cost but suffers from severe
distance limitations and requires conversion to ESCON to communicate with
computers utilizing the more advanced interface technology. The Networks product
family handles both SCSI and ESCON traffic and converts between the two
standards seamlessly, transparently, and without degradation of connect speeds.
A new, optical fiber-based server interface technology, known as "Fibre
Channel," has begun to replace SCSI. Beginning in 1999, Networks products are
expected to accommodate this new technology as well.
Networking within the Data Center -- Open Systems. Data centers often have
computers and servers provided by multiple vendors that require interface and
protocol converters to allow them to communicate with one another. Networks'
Link/9000 and OC/9000 facilitate open networking by providing high-speed,
seamless protocol conversions among IBM, Sun Microsystems, Inc. ("Sun"),
Hewlett-Packard Company ("Hewlett-Packard"), Tandem Computers Incorporated
("Tandem") and Microsoft Corporation's Windows NT***. Support for open systems
is a strategic thrust for Networks and provides significant differentiation from
product strategies adopted by IBM. Networks is currently developing further
capabilities for its open networking products.
Networking within the Data Center -- Channel Extenders. An important trend
in data center design and management has been the physical separation of major
data storage facilities and back-up facilities from the data centers they serve.
This physical separation prevents catastrophic loss of data due to acts of
nature, criminals and terrorists. Networks' 9800 series of channel extenders
enable the high-speed, high-reliability ESCON signals between these storage
facilities and data centers to be transmitted over T1 or T3 digital telephone
lines. This product line is key in remote disk mirroring applications.
Networking within the Data Center -- Intelligent Fiber Management
Systems. Networks also manufactures and services the optical fiber wiring and
connectors that link computers and peripherals in a single physical location.
Networks has developed a patented fiber patch system called the Intelligent
Fiber Management System that uses associated sensors and a personal computer to
assist technicians when reconfiguring optical connections. Networks also
designs, plans and installs fiber based networks.
- ---------------
* ESCON is a registered trademark of International Business Machines
Corporation ("IBM").
** IBM is a registered trademark of International Business Machines
Corporation.
*** Windows NT is a registered trademark of Microsoft Corporation.
28
<PAGE> 33
Data Communications -- Switching. The new data center must be able to
communicate with outside users and data sources using a wide variety of
differing interface protocols and technologies, including dedicated terminals,
LANs and WANs (including the Internet), and it must be able to do so in a fast,
flexible, reliable, always available and scalable manner. Originally, mainframes
connected to end users only over dedicated lines using a popular protocol known
as "SNA" (for Systems Networking Architecture). Using SNA, large numbers of
terminals and personal computers were typically connected to a mainframe's
front-end processor through switches so that they could be switched to an
alternative processor in the event of a processor failure. The same switches
provided access to circuits for testing as and when problems occurred. The most
advanced of these switches are known as matrix switches, and they are usually
scaleable from a few connections to several thousand ports.
In recent years the proliferation of personal computers ("PCs") and
distributed computing architectures has led to tremendous growth in local area
networking among personal computers, while the declining costs of high-speed,
high-capacity telecommunications connections using T1 (1.5 Mbps) and T3 (45
Mbps) lines has made possible tremendous growth of networking among remotely
located computers and among LANs. As LAN and WAN usage has grown, so too has the
demand for connectivity from remote computers to major data centers. Where
before the number of users of a mainframe was limited by the number of dedicated
SNA lines that could be connected to the mainframe, LAN and WAN connections
expand the number of potential users and data sources exponentially.
The desire and need to connect to users and data sources using a variety of
connecting technologies has created demand for increasingly complex and
sophisticated switches that can accommodate all of these technologies
seamlessly. Networks' 2700 Series matrix switch allows the mixing of these
various networking technologies in a single environment. The 2700 can be
configured to accommodate up to 4,000 WAN circuits, 3,000 Ethernet LAN stations
or 2,000 Token Ring LAN stations. Networks also supplies the largest matrix data
switch in the world, the "Mega-Matrix," which has a port capacity of up to
24,000 ports.
LAN topology is governed by either the Ethernet or Token ring standard and
the 2700 Series accommodates both. The emerging WAN connectivity standard is a
high-speed, low cost data transmission protocol known as "Frame Relay," which
the 2700 Series accommodates. A more advanced emerging WAN protocol, known as
"ATM" (for Asynchronous Transfer Mode), provides for high-speed transmissions of
voice, video, graphics and data over optical fiber networks and is expected to
be widely used for many high-speed applications. Accommodating ATM protocol is a
major challenge for switch manufacturers, including Networks. Networks expects
to introduce a new ATM switching technology, known as "Broadband," into its 2700
Series matrix switch in 1999.
Networks is the market leader in matrix switching with an estimated 65%
share of a worldwide market that is estimated to be approximately $70 million in
1997. The 2700 Series matrix switch was able to capture the leading market share
mainly because it meets the user demand for high speed lines through the switch.
Customers who have purchased this system and continue to rely on its
capabilities include a number of major telecommunications carriers and financial
services companies. Networks believes that introduction of its Broadband
technology will extend its market leadership into the next generation of
switches.
Telecommunications Testing and Monitoring Equipment Market
Public and private telecommunications networks that once primarily carried
voice traffic over copper wires using analog signals now carry more data than
voice, and typically do so using digital signals transmitted over fiber optic
cables. Along with this technological change, the last ten years has seen
tremendous growth in data traffic over these networks, driven by trends in
computer networking, the unprecedented rise of the Internet and continued growth
in demand for on-line transaction processing services. The migration from
primarily-voice to primarily-data, and from analog to digital, has increased the
complexity of the networks and dramatically increased the need for optimal
efficiency, performance and reliability -- attributes that can only be assured
and maintained by vigilant and reliable test and monitoring systems that do not
by their very operation alter the performance characteristics of the systems
they monitor.
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<PAGE> 34
The performance of digital transmission systems such as T1 and T3 are
typically determined by inserting devices called Bit Error Rate Test Sets
("BERT") at each end of the line. Typical BERTs function by sending pre-set test
messages along the line to the BERT at the other end. The recipient BERT then
compares the message it receives to what it "knows" it ought to have received
and from this determines the error rate. The problem with this process is that
it is intrusive and requires that the system under test be taken out of service.
NCOE and CPM Products. Networks' Tautron unit manufactures and designs
monitor and test products that are non-intrusive and that determine system
performance -- known as the quality of service ("QoS") measurement -- by testing
real traffic rather than sending their own test messages, and therefore do not
require that the system under test be taken out of service. Networks
manufactures both Network Channel Office Equipment, which are the probes without
the associated "Net Manager" probe-monitoring systems, as well as Commercial
Performance Monitoring systems, which are complete test/monitoring packages
including probes and the associated Net Manager systems. Networks' Primary CPM
product is its Integrated Monitor and Test System ("IMATS").
Remote Test Head and SS-7. Testing Equipment. Networks has also developed
a next generation of remote test head equipment ("ngRTH") used to test and
monitor the performance of advanced digital loop carrier ("DLC") systems. So
called "next generation" DLC ("ngDLC") systems provide high speed fiber optic
connections between the central office of the telecommunications provider and
the copper co-axial wire that reaches the customer's home or office. Networks
plans to use its experience in this field to facilitate entry into the market
for Remote Access equipment using technologies known as "xDSL" to markedly
increase data transmission speeds over copper wires. Demand for these
capabilities is being driven by the need for greater Internet speeds to small
office and home office users.
In 1992, Networks began marketing its 7-VIEW product to test and monitor
SS-7 signaling networks ("SS-7") now being utilized to maximize the efficiency
of public telecommunication networks. Monitoring equipment such as 7-VIEW is
essential to the success of SS-7 systems, which are susceptible to failures and
collapse when traffic exceeds system capacity. The 7-VIEW system may also be
used to aid in fraud detection and for verification of billing between telephone
companies.
Products
Major Products. Six products, all introduced or significantly updated and
re-released since 1995, accounted for 68% of Networks total 1997 net sales.
These products, and their year of introduction or update, are as follows:
<TABLE>
<CAPTION>
PRODUCT YEAR OF GENERAL AVAILABILITY
------- ----------------------------
<S> <C>
2700 Series matrix switch 1997 (Version 13)
CD/9000 director 1996
Intelligent Fiber Management System 1995
9800 Channel Extender 1995
NCOE 1997 (Version 0.10)
IMATS (CPM) 1995 (Version 3.2)
</TABLE>
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<PAGE> 35
Product Descriptions. Following is a description of selected Networks
products:
DATA NETWORKING PRODUCTS
<TABLE>
<CAPTION>
PRODUCT MODEL DESCRIPTION APPLICATION ADVANCED FEATURES
------------- ----------- ----------- -----------------
<S> <C> <C> <C>
2700 Series matrix Versatile matrix Data center Scalable LAN/WAN
switch switch communications switch up to 4000 WAN
management for ports, 3000 10Mbps
disaster recovery and Ethernet or 2000
test access 16Mbps Token Ring.
Remote control from
multiple stations.
Mega-Matrix matrix Versatile high Disaster recovery Scalable switch of up
switch capacity matrix switch to 24,000 ports.
CD/9000 director ESCON switching Networking between 256 ports, fault
mainframes and tolerant. GUI with
peripherals over fiber traffic statistics and
links alarms
Open Channel Converter Multi-vendor Server, data Channel technology for
OC/9000 networking at high warehouse, and tape high speed
speed backup applications
Intelligent Fiber Intelligent fiber Management of complex Unique design with
Management System patch and a range of optical fiber networks software driven
fiber infrastructure control of patched
services connections
Channel Extender 9095 Host Channel extension Extending distance Networked Channel
over one or more extension
(networked) links
Channel Extender 9800 Host Channel extension High speed dual path T3 capability and dual
extension path remote mirroring
applications
Spectron Patch, NTS, Changeover switches; Low cost Scalability.
Vari-Switch patch; test access communications Multi-level switching;
products management and test Remote control wide
access bandwidth. Qualified
for shipborne use.
</TABLE>
TELECOMMUNICATIONS PRODUCTS
<TABLE>
<CAPTION>
PRODUCT MODEL DESCRIPTION APPLICATION ADVANCED FEATURES
------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Network Channel Office Network Probe for In line performance Format conversion
Equipment (NCOE) network quality monitoring for QoS Alarm monitoring.
assurance measurement Measurement of error
free seconds and local
data memory.
Integrated Monitor and Network Management Bridged performance Alarm monitoring.
Test System (CPM) System for network monitoring for QoS Performance
quality assurance measurement monitoring. T1/E1;
T3/E3; OC3/SDH.
7-VIEW Surveillance Monitoring of Early warning of Remote monitoring of
System telephone signaling network outages. Call 32 ports per unit and
sysems (SS-7) for trace and fraud up to 10,000 links in
wireline or mobile detection. Billing a system. Local
systems verification. storage of recorded
data.
</TABLE>
31
<PAGE> 36
NETWORKS BUSINESS STRENGTHS
Networks believes it has substantial experience and technological expertise
in designing, implementing and servicing the connectivity infrastructure served
by its products. These strengths allow Networks to provide the systems expertise
its customers demand and to produce products that can accommodate the most
advanced interface protocols and work reliably with the higher-complexity,
higher-performance components its customers are incorporating into their data
centers. Networks has 178 research and development professionals working in its
three facilities to enhance its existing products and to develop new products
and systems.
Networks benefits from providing high quality products and services. For
example, in 1997, Networks achieved a 97.6% renewal rate on its expiring service
contracts. Networks' manufacturing sites are all also certified under the ISO
9001 program, and Networks emphasizes a comprehensive company-wide quality
program, with senior managers responsible for quality. Networks' quality
training program emphasizes continuous improvement, data driven decisions and
close collaboration among Networks' employees, customers and suppliers. Networks
believes that it is also a very cost effective producer, having invested in a
range of manufacturing processes that also allow response to customer needs.
Networks produces and tests its own electronic assemblies using a range of
technologies and has demonstrated its skills in managing cost effective vertical
manufacturing.
Networks also believes it has particular expertise in the following
technologies which distinguish its products from those of its competitors:
- Reliable Systems with no Single Point of Failure. Networks' 2700 Series
matrix switches and CD/9000 director products are designed for high
reliability and have no single point of failure beyond the connecting
port level. These features make these products extremely attractive for
systems in which 100% availability is critical.
- Scalable Systems. Networks' 2700 Series matrix switches and CD/9000
director products are designed so that capacity can be added from time to
time on an as-needed basis. This feature allows customers to commit to
Networks' products without fear of outgrowing their investment in
circumstances where growth in demand is difficult to predict.
- Flexible, Interoperable Systems. In modern data centers, old, slower
"legacy" technologies continue to work side-by-side with higher
performance new technologies. Networks' 2700 Series matrix switching and
other products accommodate old and new technologies, thereby protecting
and preserving the customer's investment in legacy technologies and
maximizing overall flexibility and usefulness of the data center.
Similarly, the growth of server-based data center architectures means
that virtually all data centers require the ability to interconnect
computer systems provided by multiple vendors. Networks' OC/9000 product
responds to this trend with high-speed inter-vendor connectivity
features.
- LAN/WAN Facilities in a Single Switch Environment. Data centers may be
connected to outside users and data sources by simple low-speed
interfaces, such as the RS-232 and V.35 standards, by connection to Local
Area Networks using the Ethernet or Token Ring standard, or to Wide Area
Networks using the Frame Relay standard. Networks' 2700 Series matrix
switch technology allows the mixing of these various networking protocols
in a single environment where the topology is defined by software and
requires no wiring changes when the topology is changed. LAN and WAN
circuits can be mixed at will with a total capacity of up to 4000 WAN
circuits; 3000 Ethernet stations; or 2000 Token Ring stations in a single
switch.
- Channel Extension Products. Networks has developed a range of products
that provide distance extension or conversion between differing
networking technologies. Channel extenders provide distance extension
through optical fiber links or over long distance telephone lines using
digital telecommunications from T1 to T3 rates. Networks' 9800 product
also allows dual path feeds for load sharing and for high reliability
when being used with high-speed remote disk drives.
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<PAGE> 37
- Open Systems Products. Networks has developed a leading product line to
interconnect systems from multiple manufacturers with its OC/9000 and
Link/9000 products. These products provide conversion for interconnection
between systems from IBM and other suppliers such as Sun Microsystems,
Tandem and Hewlett-Packard. These products can also be deployed in
storage management to provide major throughput improvements for tape
back-up applications.
- Intelligent Fiber Systems. Networks' Intelligent Fiber Management System
uses sophisticated sensors and a personal computer to assist technicians
when reconfiguring optical connections between computers and peripherals
in a single location. Networks also designs, plans and installs fiber
based networks.
- Test and Monitoring Equipment for High-Speed, High-Capacity
Lines. Networks specializes in telecommunications test and monitoring
systems that are non-intrusive and that measure system performance by
testing real traffic rather than sending their own test messages. Such
systems are better suited and more efficient for use on high speed
transmission lines (T-1 and above) than the "intrusive" systems they
compete against. Networks supplies its 7-VIEW system for use in SS-7
applications and can provide complete systems that can monitor up to
10,000 SS-7 links.
NETWORKS GROWTH STRATEGY
Networks' goal is to leverage its strengths to generate sustainable,
long-term revenue and earnings growth. Networks' strategy to reach that goal
consists of the following components:
Leverage Technological Leadership and Expertise. Networks intends to
maintain its traditional focus on high-end, technically complex products that
typically command higher margins. Historically Networks has consistently
invested in research and development with spending in the range of 9% to 12% of
sales and intends to step up this level of investment through internal
development and acquisition of technology. Networks believes this focus will
drive superior financial performance, create opportunities for providing
customers with high value added services, such as system design and management,
and position Networks to provide products and services based on new technologies
and protocols as they develop.
Networks has established an active research and development program that is
focused on the development of new and enhanced systems and products that can
accommodate emerging data transmission protocols and standards such as Fibre
Channel, ATM and xDSL while continuing to accommodate current and legacy
technologies such as Channel (Bus & Tag), ESCON, SNA, Frame Relay and
Time-Division Multiplex. Networks has developed core competencies in the design
of complex, high speed, scalable switching systems as well as in transport and
conversion products. Networks also has invested in tools and training for its
technical staff that have enabled Networks to design complex ASICs which provide
performance and cost advantages when compared with products offered by
competitors.
Important development projects include:
- for incorporation into the CD/9000 product line: switching and transport
products that will accommodate the emerging Fibre Channel standard that
allows for very high speed server connections;
- for incorporation into the OC/9000 product line: products that support
so-called "open systems" by providing efficient, high speed connections
between computing and storage systems in data centers in which no single
protocol or equipment manufacturer governs; and
- for incorporation into the 2700 Series matrix switch product
line: matrix switching components that can accommodate Broadband ATM
standards.
Other research and development programs are in place for products that will
enhance storage management in large enterprise information systems and products
that will facilitate remote access to data centers and Internet service
providers.
Networks seeks to tailor its development efforts closely to the needs of
its customers. Networks actively solicits product development ideas from data
center managers and from telecommunication service providers
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<PAGE> 38
and develops additional ideas through participation in industry organizations
and associations. Networks works closely with consulting organizations such as
Gartner Group, META Group and International Data Corporation, and meets with key
customers regularly through Customer Advisory Councils for the United States and
Canada and for foreign markets.
Maintain Strong Customer Relationships. Networks believes that total
dedication to customer satisfaction is the key to success in its businesses and
is a key factor that differentiates it from the broad market suppliers with
which it competes. Strong customer relationships generally lead to future
selling opportunities (particularly of additional capacity of Networks' scalable
products) as well as opportunities to provide high value added services. For
example, new customers of the CD/9000 director product frequently become
customers of Networks' Intelligent Fiber Management Systems -- the "under the
floor" wiring that connects computers and components in a single physical
location.
Networks has made responsiveness to customer needs a top priority. Prior to
any sale, Networks' engineering, marketing and management personnel collaborate
with customer counterparts to determine customer needs and specifications,
particularly with respect to integrating the customer's old-technology legacy
systems efficiently and seamlessly. For example, Networks' largest matrix switch
(the Mega-Matrix) was developed in cooperation with a major customer to address
the customer's need for large scale switching in a disaster recovery center.
Similarly, the first version of OC/9000 was developed in close cooperation with
a major customer to allow networking of the customer's computer systems with
those from IBM.
Networks seeks to offer its customers total solutions -- packages of
products and services that take into account the customer's needs, existing
technology and internal management expertise. Networks will design, implement
and manage new systems, where desired by the customer.
Expand Product Lines. Networks is committed to broadening its product
offerings in order to capitalize on the desire of many data center customers to
deal with a smaller number of vendors and to enhance Networks' ability to offer
total connectivity solutions for its customers. Networks expects to develop new
products both internally as well as from time to time through strategic
alliances and acquisitions.
Expand International Sales. Networks has sales offices in Germany, the
United Kingdom and Italy, and sells to customers in over 40 countries. It also
has a support center in Singapore as well as a distribution relationship with
Hitachi Data Systems Australia Pty Ltd to assist in international selling.
International sales represent approximately 22% of total sales, and Networks
plans to expand international sales even further, particularly as new sales
centers are opened to focus on particular countries. Geographic areas for
further investment include Europe and Asia. While margins on foreign sales are
slightly lower than for domestic sales (due primarily to higher selling costs),
increased volume enhances the overall profitability of specific products and
provides a larger installed base for the sale of services and future products.
Increase Revenues from Advisory, Implementation and Network Management
Services. Separate from its product sales, Networks sells full service network
design and management services to data center operators who find it inefficient
to maintain such capabilities in-house. Networks believes that, because the
demand for connectivity and switching expertise far exceeds the availability of
skilled personnel, and the costs of maintaining internal expertise are high,
there is tremendous opportunity for Networks to grow its service-related
revenues and earnings by leveraging its expertise.
COMPETITION
Networks' conducts its business primarily in niche markets within the
broader data center and telecommunications markets that, to date, many potential
competitors have declined to enter. Within its niches, Networks generally offers
its customers a broader range of products and services than do its competitors.
For matrix switches, where Networks has the leading market share, competition is
primarily from a number of smaller entities. For the CD/9000 director product
line, the only competitor is IBM. For channel extenders and for open
systems-connectivity products (such as Networks' OC/9000), Networks' primary
competitor is Computer Network Technologies ("CNT").
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<PAGE> 39
Networks knows of no other manufacturer of NCOE products. Certain
manufacturers of network equipment are incorporating monitoring functions in
their equipment which may be used instead of NCOE products.
A number of entities produce testing systems that are competitive with
Networks' CPM equipment, including Applied Digital Access and Hekimian.
Networks' market share in these markets is currently very small.
Networks expects that certain of its competitors, as well as other
networking and computer systems entities may, in the future, announce plans to
compete with future Networks' products, particularly those designed to
facilitate so-called open systems, and those intended to accommodate the Fibre
Channel and ATM (broadband) protocols.
Networks does not compete solely on the basis of price. Instead, it
competes by seeking to offer superior features, performance, scalability,
reliability and flexibility together with superior support, at competitive
prices. Because equipment price is only one element in the overall cost of
ownership and maintenance of Networks' products and the data centers they serve,
Networks' strategy has proven to be effective in the past, including as a
strategy for growing market share of newly introduced products. Networks'
smaller competitors can and do seek to compete on the basis of price. In
response to this, Networks continuously seeks cost improvement measures.
RESEARCH AND DEVELOPMENT
During 1996 and 1997, Networks' total research and development expenditures
were $23.1 million and $25.8 million, respectively. In the second half of 1998
and subsequent years, Networks plans to increase its expenditures in research
and development to accelerate the introduction of new products. As of March 31,
1998, 178 employees were engaged in research and development programs, including
hardware and software development, test and engineering support personnel.
Networks performs its research and product development at each of its three
major manufacturing facilities, located in Mt. Laurel, New Jersey, Shelton,
Connecticut and Westford, Massachusetts. Of Networks' research and development
employees, over one-third hold masters or higher degrees.
Networks believes that recruiting and retaining qualified engineering
personnel with be essential to its continuing success. The following
table -- showing that products introduced or significantly updated and re-
released within the last three years accounted for approximately 75% of 1997
product sales -- demonstrates the importance of new product development to
Networks' business.
<TABLE>
<CAPTION>
CONTRIBUTION TO
YEAR OF GENERAL AVAILABILITY TOTAL 1997
(INTRODUCTION OR UPDATE & RE-RELEASE) PRODUCT SALES
- ------------------------------------------------------------ ---------------
<S> <C>
Last Three Years............................................ 75%
1997 Products............................................. 49%
1996 Products............................................. 20%
1995 Products............................................. 6%
Pre-1995 Products........................................... 25%
</TABLE>
PROPRIETARY RIGHTS AND INTELLECTUAL PROPERTY
Networks believes that its success and ability to compete depends in part
upon its ability to develop and protect proprietary technology contained in its
products. To protect its proprietary rights, Networks relies upon a combination
of patents, trademarks, copyrights, contractual rights, trade secrets, know-how
and understanding of the market. Proprietary information disclosed by Networks
in the course of discussions with suppliers, distributors and customers is
generally protected by non-disclosure agreements.
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<PAGE> 40
Networks holds 15 U.S. patents, has received three notices of allowance
from the U.S. Patent and Trademark Office, and has pending applications for two
additional patents. Networks also holds 6 foreign patents. Networks' portfolio
includes patents covering:
- matrix switching configurations
- switch controls and displays
- internal switch architecture
- switch cabling systems
- host channel monitoring and extension
- intelligent fiber management
- telecommunications monitoring and test systems
In addition to patents granted or applied for, Networks has licensed
various patents from IBM relating to operating codes, protocols and procedures
associated with Networks' CD/9000 director. The license has a five year term
with continuation available, although certain financial and other terms must be
renegotiated for the period after May 31, 2001.
Networks has been granted registration protection for a number of
trademarks and has filed additional applications for its newer product names.
Networks' practice is to require its employees and consultants to execute
confidentiality and proprietary rights agreements upon commencement of
employment or consulting arrangements with Networks. These agreements
acknowledge Networks' exclusive ownership of all intellectual property developed
by the individual during the course of his or her employment or assignment with
Networks and require that all proprietary information disclosed to the
individual will remain confidential.
Networks intends to enforce vigorously its proprietary rights if
infringement or misappropriation occurs; however, there can be no assurance that
Networks' proprietary rights will prevent competitors from developing products
that are functionally or technologically similar to those of Networks. From time
to time, third parties have asserted claims that certain equipment manufactured
for Networks and resold by Networks infringes patent rights of such third party.
None of such assertions relate or have related to any of Networks' key products,
and Networks believes that the resolution of such claims will not be material.
SALES AND MARKETING
Most of Networks' products are sold through direct sales methods. In the
United States, Canada, Germany, Italy and the United Kingdom, Networks has
developed a direct sales organization with a total of 136 professionals as of
March 31, 1998. In the United States, the sales organization is organized into
three main geographic areas with sales offices in Los Angeles, California; San
Mateo, California; Orlando, Florida; Atlanta, Georgia; Chicago, Illinois; Mt.
Laurel, New Jersey; New York, New York; Vienna, Virginia; and Dallas, Texas.
Networks continues to expand its direct sales force to ensure direct
contact with its customers. Direct contact has proven to be very effective when
dealing with customers who are managing or designing complex networks. In
addition to account executives, who are the primary contact for customers,
Networks employs specialist technical staff in the field to provide detailed
technical support. This structure is also used internationally where technical
support staff support distributors.
PRODUCT SUPPORT
Networks provides comprehensive world-wide support for all of its product
lines. In the United States and Canada, as of March 31, 1998, Networks has 116
service professionals who provide assistance in network design, site surveys,
installation, preventive maintenance, repair, training and a variety of other
advanced services designed to enhance the performance and reliability of a
customer's data network. Networks also
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<PAGE> 41
offers a similar range of services in Germany, Italy and the United Kingdom,
with a total of 24 service professionals located in Europe as of March 31, 1998.
Networks also operates a support center in Singapore. A network of distributors
provides product support in countries where Networks does not have its own
support staff. These distributors rely on Networks support centers for second
level support.
Purchasers of Networks' equipment usually enter into related service
contracts with Networks that, among other things, typically include a guaranteed
service response time. The typical guaranteed response time offered in the
United States is four hours. For additional fees, Networks will provide 24-hour
a day, 7-day a week help desk facilities as well as support from design
engineers for extraordinary problems. Beginning in 1998, Networks is also
offering support for selected third-party products in large data networks and is
developing teaming arrangements with other outsourcing providers. In 1997,
Networks achieved a 97.6% renewal rate on its expiring service contracts.
MANUFACTURING AND SUPPLIERS
Networks has three manufacturing locations: Mt. Laurel, New Jersey;
Shelton, Connecticut; and Westford, Massachusetts. In general, the products
manufactured in each of these facilities are those developed by the product
teams in the same location; however, Networks has successfully transferred
products between sites to meet capacity constraints. Manufacturing operations
include the assembly of printed circuit boards using both "plated through hole"
and "surface mount" technologies. Fabrication of blank printed circuit boards,
including backplanes, and mechanical parts such as chassis parts, are provided
by a range of subcontractors. Networks also tests all electronic subassemblies
and carries out full system testing prior to shipping products to customers.
Networks has invested in automatic insertion equipment and flow soldering
equipment at all three sites and has also invested in automatic surface mount
equipment that is capable of "double sided" assembly at both its Mt. Laurel and
Westford plants to provide geographic diversity. Each of the three manufacturing
locations are registered ISO 9001 facilities and produce products of high
quality.
Networks sources materials for its manufacturing operations world-wide,
with an emphasis on quality, supply continuity, and cost. For most components,
there are alternative sources of supply. Seiko Epson (through its affiliate,
S-MOS Systems Inc.) is Networks' sole source supplier of custom ASICs. These
devices are "state-of-the-art" technology and are used in Networks' CD/9000
director. Networks' reliance on Seiko Epson could limit its flexibility and
responsiveness to change. Another single sourced item is field programmable gate
arrays, which are manufactured by Xylinx, Inc. Certain other components that
currently are readily available could become difficult to obtain in the future.
See "Risk Factors -- Reliance on Sole Source Supplier."
EMPLOYEES
As of March 31, 1998, Networks employed 942 persons, including 390 in
marketing, sales and service, 178 in research and product development, 278 in
operations, and 96 in finance and administration. None of Networks' employees is
represented by a labor union. Networks has experienced no work stoppages and
believes that its relationship with employees is good.
Competition for qualified personnel in the computer networking and
communications industry is intense. Networks has an active college relations
program with key universities for developing and attracting talented technical
personnel. There can be no assurance that Networks will be successful in
retaining its key employees or that it can attract the additional skilled
personnel required for Network's future growth.
FACILITIES
Networks' corporate offices are located in Mt. Laurel, New Jersey, where it
leases 55,000 square feet of office space to accommodate its headquarters staff
and the marketing and research and development staff for its Mt. Laurel
division. Research and development utilizes 32,000 square feet of this office
space. Manufacturing for the Mt. Laurel division is performed in a 66,000 square
feet leased space in the same office park, with 11,000 square feet of this space
allocated to sales and service staff. Networks' lease for the manufacturing
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<PAGE> 42
space will expire in 2002, and the current lease for the office space expires in
September 1999. Networks is currently negotiating to extend its lease for the
office space.
Networks operates from two other major locations of approximately 100,000
square feet each, both of which accommodate manufacturing, sales, marketing and
research and development in addition to finance and administration staffs. One
of these facilities is located in Shelton, Connecticut (41,000 square feet for
manufacturing, 17,000 square feet for research and development), and the other
is in Westford, Massachusetts (60,000 square feet for manufacturing, 24,000
square feet for research and development). Networks owns both of these
facilities. The Westford facility is the subject of an Industrial Revenue Bond
and the Shelton facility was purchased using a loan from the Connecticut
Development Authority.
BACKLOG
Total backlog at December 31, 1997 was $29.9 million as compared to $35.6
million at December 31, 1996. The backlog at the end of 1996 was higher than
expected due to unusually high NCOE orders from AT&T Corp. received in the
fourth quarter, most of which were shipped in the first quarter of 1997.
Networks' backlog consists of product and service orders for which a customer
purchase order has been received and which are scheduled for shipment in the
next 12 months for products, or 24 months for service maintenance agreements.
Virtually all of Networks' backlog is scheduled for shipment within six months.
Orders are subject to cancellation or rescheduling by the customer, generally
with a cancellation charge. Because of possible changes in product delivery
schedules and because Networks' sales will often reflect orders shipped in the
same quarter that they are received, Networks' backlog at any particular date is
not necessarily indicative of actual sales for any succeeding period.
38
<PAGE> 43
MANAGEMENT OF NETWORKS AFTER THE SPINOFF
EXECUTIVE OFFICERS OF NETWORKS
Set forth below are the names, ages, current or future titles with
Networks, and present and past positions of the individuals who are expected to
serve as executive officers of Networks immediately following the Spinoff. Each
such individual will be elected to the indicated office with Networks in
anticipation of the Spinoff and will serve at the pleasure of Networks Board.
Those individuals named below who are currently officers or employees of General
Signal will resign from their positions with General Signal by the Distribution
Date.
The executive officers of Networks are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION AND PROFESSIONAL EXPERIENCE
---- --- ------------------------------------
<S> <C> <C>
Robert Coackley................ 62 President (1995-Present), General Signal Networks, Inc.;
President (1991-1995), Telenex Corporation, a unit of
General Signal Corporation; President (1987-1991), LP Com,
a subsidiary of Tektronics; Manager -- Corporate
Telecommunications (1986-1987), Hewlett-Packard Company;
Managing Director -- Telspec (U.K.) (1984-1985); various
management positions (1970-1984), Hewlett-Packard Company
Anthony J. Fusarelli........... 51 Executive Vice President -- Sales and Service (January
1997-Present), General Signal Networks, Inc.; Vice
President & General Manager -- Data Switch operations
(1996-1997), General Signal Networks Inc.; Vice
President -- Sales & Service (1992-1995), Data Switch
Corporation; Vice President -- North American Sales
(1989-1992), Data Switch Corporation
Terry J. Mortimer.............. 53 Vice President & Chief Financial Officer (January
1998-Present), General Signal Networks, Inc.; Vice
President & Treasurer (March 1997- January 1998), General
Signal Corporation; Vice President & Controller (May
1990-March 1997), General Signal Corporation
Jayne A. Fitzgerald............ 44 Vice President & General Manager -- Telenex operations
(August 1997- Present), General Signal Networks, Inc.;
Vice President -- Global Operations (1994-1997), AT&T
Corporation, Product Line Director, High Speed Data
Services (1992-1994), AT&T Corporation; Program Director,
Worldwide Intelligent Network Management (1989-1991), AT&T
Corporation
Evanthia C. Aretakis........... 39 Vice President & General Manager -- Tautron operations
(July 1997-Present), a unit of General Signal Corporation;
Vice President, EWSD Business Unit (1995-1997), Siemens
Stromberg-Carlson; Vice President -- Product Line
Development (1992-1995), Siemens Stromberg-Carlson
Robert J. Connolly............. 52 Vice President & General Manager -- Data Switch operations
(January 1997-Present), General Signal Networks, Inc.;
Vice President -- Engineering, Data Switch operations
(1996-1997), General Signal Networks Inc.; Vice
President -- Operations (1993-1996), Data Switch
Corporation; Vice President -- Customer Service
(1984-1993), Data Switch Corporation
Michael A. Ruggieri............ 47 Vice President-Strategic Planning (1996-Present), General
Signal Networks, Inc.; Vice President -- Strategic
Marketing (1994-1995), Data Switch Corporation; Vice
President -- Customer Service, Shelton (1993-1994), Data
Switch Corporation; Director -- Technical Sales
(1989-1993), Data Switch Corporation
William H. von Reichbauer...... 50 Vice President -- Human Resources (February 1997-Present),
General Signal Networks, Inc.; Director -- Business
Operations (1994-1996), Northern Telecom, Inc.;
Director -- Corporate Security (1991-1994), Northern
Telecom, Inc.; Director -- Human Resources (1985-1991),
Northern Telecom, Inc.
</TABLE>
39
<PAGE> 44
DIRECTORS OF NETWORKS
Prior to the Distribution Date, General Signal, as sole stockholder of
Networks, plans to elect the individuals named in the table below to the
Networks Board. The Networks Board will be divided into three classes. Directors
for each class will be elected at the annual meeting of stockholders held in the
year in which the term for such class expires and will serve thereafter for
three years. Under the Networks By-Laws, no person may be elected, appointed or
designated to the Networks Board after such person's 72nd birthday.
Information with respect to the individuals who are expected to serve as
directors of Networks is set forth below. Networks may add additional directors
before the Distribution Date. None of the individuals set forth below will be a
director, officer or employee of General Signal after the Spinoff.
<TABLE>
<CAPTION>
TERM
NAME AGE PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE YEARS EXPIRES
---- --- ------------------------------------------------------ -------
<S> <C> <C> <C>
Robert Coackley................ 62 President, General Signal Networks, Inc. 2001
(1995-Present); President, Telenex, a unit of General
Signal Corporation (1991-1995); President, LP Com, a
subsidiary of Tektronics (1987-1991); Manager --
Corporate Telecommunications, Hewlett-Packard Company
(1986-1987); Managing Director -- Telspec (U.K.)
(1984-1985); various management positions within
Hewlett-Packard Company (1970-1984)
Peter D. Behrendt.............. 59 Chairman, Exabyte Corporation (1997-Present); Chairman 2001
and Chief Executive Officer, Exabyte Corporation
(1992-1997); Chief Executive Officer, Exabyte
Corporation (1990-1992); President and Board Member,
Exabyte Corporation (1987-1990); various management
positions within IBM (1961-1987); also a director of
Western Digital Corporation, Wild Oats Markets, Inc.
and In Focus Systems, Inc.
James G. Hascall............... 59 Chairman and Chief Executive Officer, Primex 2001
Technologies, Inc. (1997-Present); Executive Vice
President, Olin Corporation (1995-1997); President,
Olin Brass Division, Olin Corporation (1985-1995)
Robert J. Kamerschen........... 62 Chairman and Chief Executive Officer, ADVO, Inc. 2000
(1988-Present); President and Chief Executive Officer,
RKO/Six Flags Entertainment, Inc. (1987-1988);
President and Chief Operating Officer, Marketing
Corporation of America (1984-1987); also a director of
Micrografx, Inc., Cognizant Corporation and Domain,
Inc.
Ryal R. Poppa.................. 64 Private investor; Chairman, President and Chief 2000
Executive Officer, Storage Technology Corporation
(1985-1996); Chairman, President and Chief Executive
Officer, BMC Industries, Inc. (1982-1984); Chairman
and Chief Executive Officer, Pertec Computer
Corporation (pre-1982); also a director of Metrocall,
Inc., Redcape Policy Software Inc. and Carrier Access
Corporation
Vivian M. Stephenson........... 61 Senior Vice President & Chief Information Officer, 1999
Dayton Hudson Corporation (1995-Present); Senior Vice
President-Management Information Systems, Mervyn's
(1989-1995); various systems development and computer
services management positions within Tenneco Gas
Pipeline (1983-1989); also a director of National
Retail Federation Information Technology Council,
California Chamber of Commerce and MobiNetix Systems,
Inc.
</TABLE>
40
<PAGE> 45
<TABLE>
<CAPTION>
TERM
NAME AGE PRINCIPAL OCCUPATION OR EMPLOYMENT FOR PAST FIVE YEARS EXPIRES
---- --- ------------------------------------------------------ -------
<S> <C> <C> <C>
LeRoy A. Vander Putten......... 63 Retired; Chairman and Chief Executive Officer, 1999
Executive Risk Inc. (1994-1997); Chairman and Chief
Executive Officer, Executive Re Inc. (1988-1993); Vice
President/Deputy Treasurer, Aetna Life and Casualty
(1962-1988); also a director of The Conference Board,
The Ultimate Software Group, Soccer Sports Inc., The
Insurance Centers, Inc. and Standfast Holdings Ltd.
(London).
</TABLE>
COMMITTEES OF THE NETWORKS BOARD
The Networks Board is expected to establish an Audit Committee and a Human
Resources Committee. The membership of these committees will be established at
the initial meeting of the Networks Board. A description of each committee
follows:
Audit Committee -- The Audit Committee will discuss and review audit and
financial reporting matters with both management and Networks' independent
auditors. Its duties will include reviewing Networks' accounting and financial
systems, reviewing Networks' internal controls and procedures to assure
adherence to proper standards of business conduct and evaluating and appointing
the independent auditors.
Human Resources Committee -- The Human Resources Committee will review the
performance of the Chief Executive Officer and approve the compensation of the
Chief Executive Officer and the officers reporting to him. This committee will
oversee Networks' executive succession plans, and administer the stock incentive
plans and the incentive compensation plans applicable to key executives. It will
also review employee benefit plans introductions and amendments that require
Board approval and the discharging of management's fiduciary duties for the
administration of employee benefit plans.
COMPENSATION OF DIRECTORS
Directors who are employees of Networks will receive no fees or
compensation for services as members of the Board of Directors. Directors who
are not employees will receive fees consisting of an annual retainer of $15,000
for Board service and an annual retainer of $2,000 for each Board Committee of
which the director is Chairman. In addition, each non-employee director will
receive an attendance fee of $1,000 for each Board meeting attended and $1,000
for each Board Committee meeting attended, as well as reimbursement for expenses
incurred in connection with such meetings. In addition, at the time of the
Spinoff, and then annually, each non-employee director who has been elected,
re-elected or is continuing as a member of the Board of Directors will be
granted 1,650 non-qualified options to purchase Networks Common Stock having an
exercise price equal to the fair market value of Networks Common Stock on the
date of grant.
EXECUTIVE COMPENSATION
The following disclosure and discussion of executive compensation is based
on General Signal's historical executive compensation programs and is intended
to provide stockholders with an understanding of the executive compensation
programs that have applied to certain of Networks' executive officers, including
its Chief Executive Officer. Included are:
- the Summary Compensation Table;
- the Options Grants Table;
- the Option Exercises and Year-End Value Table.
Summary Compensation Table
The following table shows compensation information for the Chief Executive
Officer of Networks and those individuals who will be executive officers of
Networks as of the Distribution Date and were, based on the compensation they
received from General Signal in the fiscal year ended December 31, 1997, the
other four
41
<PAGE> 46
most highly compensated such employees (the "Networks Named Executive
Officers"). The principal positions listed in the table are those which will be
held by the Networks Named Executive Officers as of the Distribution Date.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------------- ------------------------------
OTHER ANNUAL OPTION
NAME & POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($)(2) STOCK AWARDS($)(3) GRANTS(#)
--------------- ---- --------- ----------- ------------------ ------------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Robert Coackley........ 1997 $216,000 $ 90,800 $ 15,047 $ 6,723 6,000
Chairman & Chief
Executive Officer
Terry J. Mortimer...... 1997 205,935 65,100 9,889 21,464 12,000
Vice President &
Chief Financial
Officer
Anthony J. Fusarelli... 1997 169,583 73,423 -- 79,397 1,950
Executive Vice
President -- Sales &
Service
Michael A. Ruggieri.... 1997 160,000 66,400 -- 72,583 1,200
Vice President --
Strategic Planning
Evanthia C. Aretakis... 1997 84,135 113,943 158,293 -- 2,200
Vice President &
General Manager --
Westford(4)
</TABLE>
- ---------------
(1) Bonuses represent the amount paid for services rendered during the specified
calendar year under General Signal and local management incentive programs.
Such payments are made in the first quarter of the calendar year following
the year in which the compensation was earned. Amounts include sales
commissions paid to Mr. Fusarelli who, by virtue of his sales management
role, does not participate in the General Signal Corporation Incentive Plan.
(2) For Mr. Coackley and Mr. Mortimer, represents General Signal matching
contributions under the Corporation's Deferred Compensation Plan. For Ms.
Aretakis, represents paid expenses associated with moving and relocation.
(3) For Mr. Coackley and Mr. Mortimer, represents release of restricted stock
awards for 167 and 534 shares, respectively. For Mr. Fusarelli and Mr.
Ruggieri, represents gain upon exercise of non-qualified stock options on
4,088 and 3,856 shares, respectively.
(4) Ms. Aretakis first became an executive officer of Networks in July 1997.
42
<PAGE> 47
Option Grant Table
The following table shows the individual grants of options to purchase
General Signal Common Stock pursuant to the General Signal Long Term Incentive
Plan ("General Signal Options") that were made in 1997 to each of the Networks
Named Executive Officers and the potential value at stock price appreciation
rates of 0%, 5% and 10% over the term of the options. The 5% and 10% rates of
appreciation are required to be disclosed by the Securities and Exchange
Commission and are not intended to forecast possible future actual appreciation,
if any, in the trading price of General Signal Common Stock. As a result of the
Spinoff, each General Signal Option granted to the Networks Named Executive
Officers listed below will be replaced with a Networks Option pursuant to
adjustments provided in the Employee Benefits Allocation Agreement (other than
General Signal Options held by Mr. Mortimer, which will remain outstanding
subject to certain adjustments in connection with the Spinoff). See
"Relationship Between General Signal and Networks After the Spinoff -- Employee
Benefits Allocation Agreement."
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL
SECURITIES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION TERM
GRANTED IN 1997 PRICE EXPIRATION --------------------
NAME (#)(1) (%) (S/SH) DATE 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert Coackley................... 6,000 1.2% $45.75 6-19-07 $172,632 $437,482
Terry J. Mortimer................. 12,000 2.4% 45.75 6-19-07 345,263 874,965
Anthony J. Fusarelli.............. 1,950 0.4% 45.75 6-19-07 56,105 142,182
Michael A. Ruggieri............... 1,200 0.2% 45.75 6-19-07 34,526 87,496
Evanthia C. Aretakis.............. 1,200 0.2% 48.94 7-08-07 36,936 93,600
1,000 0.2% 41.50 9-18-07 26,100 66,140
</TABLE>
- ---------------
(1) Options are exercisable at prices equal to 100% of the fair market value on
the date of grant. The options granted in 1997 may be exercised during a
period that begins one year after the date of grant and ends ten years after
the date of grant and are subject to a four-year vesting schedule.
Option Exercise and Year-end Value Table
The following table summarizes 1997 information relating to exercised and
unexercised General Signal Options for each of the Networks Named Executive
Officers. As a result of the Spinoff, each General Signal Option granted to the
Networks Named Executive Officers listed below will be replaced with a Networks
Option pursuant to adjustments provided in the Employee Benefits Allocation
Agreement (other than General Signal Options held by Mr. Mortimer, which will
remain outstanding subject to certain adjustments in connection with the
Spinoff). See "Relationship Between General Signal and Networks After the
Spinoff -- Employee Benefits Allocation Agreement."
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-MONEY
NUMBER OF SECURITIES UNDERLYING OPTIONS AT DECEMBER 31, 1997
UNEXERCISED OPTIONS HELD AT ($) BASED ON $42.1875 CLOSING
DECEMBER 31, 1997 PER SHARE STOCK PRICE(1)
---------------------------------- ----------------------------------
NAME EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Robert Coackley................. 6,500 12,500 $ 52,649 $51,649
Terry J. Mortimer............... 37,500 28,250 350,485 51,318
Anthony J. Fusarelli............ 0 1,950 0 0
Michael A. Ruggieri............. 0 1,200 0 0
Evanthia C. Aretakis............ 0 2,200 0 688
</TABLE>
- ---------------
(1) Market value of shares of General Signal Common Stock at December 31, 1997
minus the exercise price.
43
<PAGE> 48
Treatment of Outstanding General Signal Stock Awards
In general, pursuant to the Employee Benefits Allocation Agreement, at the
time of the Spinoff, General Signal Options granted to Networks employees will
be converted into Networks Options with adjustments to preserve their value.
These adjustments will be based upon the pre-Spinoff trading value of General
Signal Common Stock and the post-Spinoff trading value of the Networks Common
Stock. Networks will be responsible for delivering shares of Networks Common
Stock upon exercise of Networks Options. See "Relationship Between General
Signal and Networks After the Spinoff -- Employee Benefits Allocation
Agreement."
CHANGE OF CONTROL SEVERANCE AGREEMENTS
Networks expects to enter into change of control employment agreements with
each of the Named Executives and with three other key executives. The change of
control employment agreements, which will become effective immediately after the
Spinoff, will have three-year terms, which terms will be automatically extended
for one year upon each anniversary unless a notice not to extend is given by the
Company. If a Change of Control (as defined in the agreements) occurs during the
term of an agreement, then the agreement will become operative for a fixed
three-year period. The agreements will provide generally that the executive's
terms and conditions of employment (including position, location, compensation
and benefits) will not be adversely changed during the three-year period after a
Change of Control of the Company. If the Company terminates the executive's
employment (other than for cause, death or disability), the executive terminates
for good reason during such three-year period, or the executive terminates
employment for any reason during the 30-day period following the first
anniversary of the Change of Control, and upon certain terminations prior to a
Change of Control or in connection with or in anticipation of a Change of
Control, the executive will generally be entitled to receive (i) three times (a)
the executive's annual base salary plus (b) the executive's annual bonus (as
determined in the agreements), (ii) accrued but unpaid compensation; (iii)
welfare benefits for three years; and (iv) a lump sum payment having an
actuarial present value equal to the additional defined contribution plan
benefits (i.e. 401(k)) the executive would have received if he or she had
continued to be employed by the Company for an additional three years. In
addition, the agreements will provide that the executive will be entitled to
receive a payment in an amount sufficient to make the executive whole for any
excise tax on excess parachute payments imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended.
NETWORKS INCENTIVE PLANS
In connection with the Spinoff, General Signal stock options held by
Networks employees will be converted into options to acquire Networks Common
Stock using a formula designed to preserve the same value immediately before and
after the Spinoff. In addition, in connection with the Spinoff, Networks intends
to adopt the Networks 1998 Stock Incentive Plan (the "1998 Plan"), pursuant to
which 3,000,000 shares of Networks Common Stock will be reserved for issuance in
connection with the granting of stock options, restricted stock and other
stock-based incentive awards to Networks employees and directors. Under the 1998
Plan, Networks will grant options to purchase a total of approximately 1.64
million shares of Networks Common Stock to employees and directors of Networks,
including approximately 800,000 to executive officers and directors of Networks
with an exercise price equal to the fair market value of Networks Common Stock
at the time of the Spinoff. Networks also plans to issue 41,500 shares of
Networks Common Stock to its executive officers at the time of the Spinoff which
are subject to certain restrictions, including a vesting period of one year for
50% of such shares and of two years for the remainder of such shares.
The 1998 Plan will be adopted by the Board of Directors and approved by
General Signal as the sole stockholder prior to the Spinoff. The 1998 Plan will
be administered by the Human Resources Committee (or a subcommittee thereof),
which will consist of two or more directors of Networks who are "outside
directors" as the term is used in Section 162(m) and "non-employee directors"
for the purpose of Rule 16b-3 of the Securities Exchange Act of 1934, as
amended. Under the 1998 Plan, the Human Resources Committee may grant stock
options, stock appreciation rights ("SARs"), performance units and/or restricted
stock (collectively, "Awards"). The Human Resources Committee has the authority,
in its sole discretion, to select
44
<PAGE> 49
participants from among the employees, officers and directors of Networks and
its affiliates, to make such awards in such form and amount it desires, and to
impose limitations, restrictions and conditions on the award granted and the
exercise thereof not otherwise inconsistent with the terms of the 1998 Plan.
The terms of the 1998 Plan permit the Human Resources Committee to make
stock option grants which may be "incentive stock options" within the meaning of
Section 422 of the Code ("ISOs") or other forms of nonqualified stock options,
as the Human Resources Committee may determine. The exercise price of all
options granted must be at not less than 100 percent of the fair market value of
shares of Networks Common Stock on the date of grant. The term of each option is
set by the Human Resources Committee and, in the case of ISOs, may not be more
than 10 years. The exercise price for options may be paid in cash, Networks
Common Stock with fair market value on the date of exercise equal to the
aggregate exercise price, a combination of cash and Networks Common Stock, or by
instruction to the Human Resources Committee to withhold a number of shares of
Common Stock for which such option would otherwise have been exercisable having
a fair market value on the date of exercise equal to the aggregate exercise
price. During the 60-day period following a Change in Control (as defined in the
1998 Plan), each holder of an option has the right to have such option cashed
out for an amount per share equal to the difference between the Change in
Control Price (as defined in the 1998 Plan) and the per-share exercise price of
such option (except that in pooling-of-interests transactions, payment may be
made in stock rather than cash).
The 1998 Plan permits the Human Resources Committee to grant SARs in
conjunction with all or part of any stock option granted under the 1998 Plan, on
terms and conditions not inconsistent with the terms of the 1998 Plan. The
amount payable by Networks upon the exercise of an SAR may be paid to the holder
in cash, Networks Common Stock valued at the fair market value on the date of
exercise, or a combination of both.
The 1998 Plan permits the Human Resources Committee to issue restricted
stock on such terms and conditions as the Human Resources Committee may
determine not inconsistent with the terms of the 1998 Plan. Restricted stock
awarded under the 1998 Plan may be qualified performance-based awards for
purposes of Section 162(m) of the Code, or other non-qualified forms of
restricted stock as the Human Resources Committee may determine. In the Human
Resources Committee's discretion, the lapsing of the restrictions on any shares
of restricted stock may be conditioned upon the attainment of performance goals
determined by the Human Resources Committee in accordance with the 1998 Plan.
The 1998 Plan permits the Human Resources Committee to issue performance
units on such terms and conditions as the Human Resources Committee may
determine not inconsistent with the terms of the 1998 Plan. Performance Units
may be settled in shares of Networks Common Stock or in cash equal to the fair
market value on the date of settlement of the number of shares of Networks
Common Stock covered by such performance unit. Performance units awarded under
the 1998 Plan may be qualified performance-based awards for purposes of Section
162(m) of the Code, or other non-qualified forms of performance units as the
Human Resources Committee may determine. The settlement of performance units
designated as qualified performance-based awards for purposes of Section 162(m)
of the Code must be conditioned upon the attainment of certain performance goals
determined by the Human Resources Committee in accordance with the 1998 Plan,
and non-qualified performance units also may, in the Human Resources Committee's
discretion, be so conditioned.
Pursuant to the 1998 Plan, upon a Change in Control of Networks, all
then-outstanding stock options and SARs which are not then exercisable and
vested shall become fully exercisable and vested, all restrictions applicable to
any then-outstanding shares of restricted stock shall lapse, and all
then-outstanding performance units shall be deemed earned and payable in full
and all performance goals attained.
The maximum number of shares of Networks Common Stock with respect to which
awards may be granted under the 1998 Plan during any calendar year to a single
plan participant may not exceed [ ],000 shares.
All awards made by the Human Resources Committee shall be made by written
agreement which shall contain such terms and conditions that are consistent with
Sections 162(m) and 422 of the Code in respect to the award of incentive stock
options. No award made under the 1998 Plan shall be transferable by a
45
<PAGE> 50
participant except pursuant to the terms of a designation of beneficiary and the
laws of dissent and distribution or pursuant to a qualified domestic relations
order as defined by the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
Awards are subject to adjustment to reflect any changes in the outstanding
Networks Common Stock or other changes affecting shares, including adjustments
in the number of shares available for issuance, shares covered by an outstanding
Award, or adjustments in price that become necessary to prevent a dilution or
enlargement of benefits or potential benefits under the 1998 Plan.
The Human Resources Committee shall have such other administrative powers
conferred upon such committee by the 1998 Plan including plan interpretation and
establishment of rules and procedures of plan administration.
The Human Resources Committee has the power to withhold taxes or require
participants to remit to Networks such amounts as required to satisfy tax
withholding obligations either in cash or Networks Common Stock or a combination
of both.
The 1998 Plan will terminate on the tenth anniversary of the completion of
the Spinoff. The Board of Directors or Human Resources Committee may amend or
terminate the 1998 Plan, provided, however, that such amendment or termination
shall be subject to stockholder approval to the extent required by law or the
rules of any stock exchanges on which the Networks Common Stock is listed.
U.S. Federal Income Tax Consequences of the 1998 Plan.
The following discussion is limited to certain principal U.S. federal
income tax laws and does not discuss income tax laws of any state or other
jurisdiction. There is no assurance that such U.S. federal income tax laws will
not change. This discussion is not intended as tax advice, and participants in
the 1998 Plan should consult their own tax advisors about the tax consequences
of the 1998 Plan to them, in light of their individual situations. The 1998 Plan
is not a qualified plan under Section 401(a) of the Code and is not subject to
the provisions of ERISA.
Nonqualified Options. Generally, a participant will not recognize any
taxable income, and Networks will not be allowed a tax deduction, upon the
granting of a nonqualified option. Upon the exercise of a nonqualified option,
the participant realizes ordinary income in an amount equal to the excess, if
any, of the fair market value of the shares acquired at the time the option is
exercised over the exercise price for such shares. At that time, Networks will
be allowed a tax deduction equal to the amount of ordinary taxable income
recognized by the participant, subject to the limitations described below.
When a participant exercises a nonqualified option by paying the exercise
price solely in cash, the basis in the shares acquired is equal to the fair
market value of the shares on the date ordinary income is recognized, and the
holding period for such shares begins on the day after the shares are received.
When a participant exercises a nonqualified option by exchanging previously
acquired shares of Networks Common Stock held as capital assets in partial or
full payment of the exercise price, shares of Networks Common Stock received by
the participant equal in number to the previously acquired shares exchanged
therefor will be received free of tax and will have the same basis and holding
period as such previously acquired shares. The participant will recognize
ordinary taxable income equal to the fair market value of any additional shares
received by the participant, less the amount of any cash paid by the
participant. The participant will have a basis in such additional shares equal
to their fair market value on the date ordinary income is recognized and the
holding period of such shares will commence on the day after they are
transferred to the participant.
Upon subsequent disposition of shares acquired upon exercise of a
nonqualified option, the difference between the amount realized on the sale and
the basis in the shares is treated as capital gain or loss. The subsequent
disposition of shares acquired by exercise of a nonqualified option will not
result in any additional tax consequences to Networks.
Incentive Stock Options. Generally, a participant will not recognize any
taxable income and Networks will not be allowed a tax deduction upon the
granting of an ISO. Upon the exercise of an ISO, the participant
46
<PAGE> 51
will not realize ordinary taxable income and Networks will not be allowed a tax
deduction, as long as the participant is an employee of Networks (or of a
participating subsidiary) from the time of the grant through the date three
months before the ISO was exercised. (The foregoing requirement is waived with
respect to exercises by the estate of a participant who dies while employed, or
within three months after the termination of his or her employment, and the
three-month period is extended to one year in the case of a termination because
of total and permanent disability.) If the foregoing requirement is not met, the
exercise of an ISO is treated in the same manner as the exercise of a
nonqualified option (see above). The basis for the shares so acquired equals the
exercise price, and the holding period for the shares begins on the day after
the date the shares are received.
Generally, upon the disposition of shares acquired through the exercise of
an ISO, the participant will recognize capital gain or loss to the extent the
amount realized on the sale of such shares is greater than or less than the
exercise price, as long as the disposition is not a "disqualifying disposition."
A "disqualifying disposition" generally occurs if shares acquired upon exercise
of an ISO are disposed of by the participant prior to the expiration of two
years from the date of grant of the ISO or within one year of the date of
transfer of shares to the participant. (However, disposition by the estate of a
deceased employee is not considered a disqualifying disposition even if it
occurs after these dates.) Upon a disqualifying disposition, the participant
realizes ordinary taxable income (and Networks will be allowed a tax deduction,
subject to the limitations described below) in an amount equal to the excess, if
any, of (A) the lesser of (i) the fair market value of the shares on the date
the ISO is exercised, or (ii) the amount realized on such disqualifying
disposition over (B) the exercise price. The excess, if any, of the amount
realized upon such qualifying disposition over the fair market value of the
shares on the date of exercise will be taxed as capital gain.
Generally, if the participant exchanges previously acquired shares of
Networks Common Stock in partial or full payment of the exercise price of an
ISO, the exchange will not affect the ISO treatment of the exercise and, except
as otherwise described herein, no gain or loss or other income will be
recognized upon the disposition of the previously acquired shares. Shares of
Networks Common Stock received by the participant equal in number to the
previously acquired shares exchanged therefor will have the same basis
(increased by the amount or ordinary income, if any, recognized on the exchange)
and the same holding period for capital gains purposes as the previously
acquired shares. A participant will not, however, be able to use the old holding
period for purposes of satisfying the holding period requirement for avoiding a
disqualifying disposition of the ISO. Shares of Networks Common Stock received
by the participant in excess of the number of previously acquired shares will
have a basis of zero and a holding period which commences on the day after the
date the shares are received upon exercise of the ISO. If payment of the
exercise price is made using shares of Networks Common Stock acquired upon
exercise of an ISO, the delivery of these previously acquired shares to Networks
will be considered a disposition of the shares for the purpose of determining
whether a disqualifying disposition has occurred.
Stock Appreciation Rights. Generally, a participant will not recognize any
taxable income, and Networks will not be allowed a tax deduction, upon the
granting of the SAR. Upon exercise of an SAR, the holder generally will realize
ordinary taxable income in an amount equal to the sum of any cash received and
the fair market value of any Networks Common Stock received. The participant's
basis in any shares of Networks Common Stock received is equal to the amount of
ordinary income recognized with respect to such shares, and, upon subsequent
disposition, any further gain or loss is capital gain or loss. The holding
period for such shares commences on the day after the shares are received.
Networks will be allowed a tax deduction equal to the amount of ordinary income
recognized by the holder, subject to the limitations described below.
Restricted Stock. Generally, a participant will not recognize any taxable
income, and Networks will not be allowed a tax deduction, upon the grant of
restricted stock. Upon the lapsing of restrictions on restricted stock, the
holder will recognize ordinary income equal to the fair market value of the
shares on the date of such lapse. Alternatively, the participant may elect,
within 30 days after the grant of restricted stock, to recognize ordinary income
at the time of the grant, in which event the amount of such ordinary income will
be equal to the fair market value of the shares on the date of grant. In either
event, at the time the participant recognizes income with respect to the
Restricted Stock, Networks is entitled to a deduction in an equal amount,
subject to the limitations described below.
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<PAGE> 52
Performance Awards. Generally, a participant will not recognize any
taxable income, and Networks will not be allowed a tax deduction, upon the grant
of a Performance Award. Upon the payment of cash and/or issuance of shares of
Networks Common Stock pursuant to a Performance Award, the holder will recognize
ordinary income equal to the amount of such cash, plus the fair market value of
such shares, on the date of such payment or issuance, and Networks is entitled
to a deduction in an equal amount, subject to the limitations described below.
Withholding. Networks has a right to withhold any sums required by
federal, state or local tax laws with respect to the exercise of any option or
SAR, the lapse of restrictions on any Restricted Stock, and the payment of cash
or issuance of shares pursuant to Performance Awards, or to require payment of
such amounts before delivery of shares.
Limitations on Networks' Ability to Take Deductions; Excess Parachute
Payments. Networks must satisfy applicable federal tax reporting requirements
with respect to Awards in order to be entitled to the deductions described
above. In addition, Section 162(m) of the Code provides that compensation of an
individual who is the CEO or any of the top four other officers of Networks may
not be deducted to the extent such compensation exceeds $1 million in any
taxable year, unless such compensation qualifies as "performance-based" under
Section 162(m). Awards granted under the Plan before the first annual
shareholders meeting of Networks that occurs at least 12 months after the
Spinoff should qualify as performance-based, provided that, in the case of
Restricted Stock and Performance Awards, the vesting of such Awards is
contingent upon the achievement of objective performance goals established in
accordance with the requirements of Section 162(m). Awards granted after such
shareholders meeting will be able to qualify as performance-based for purposes
of Section 162(m) if the material terms of the 1998 Plan are submitted to
shareholders and approved by them. However, the 1998 Plan permits the making of
awards that would not qualify as performance-based compensation.
If Awards are granted, accelerated or enhanced in connection with a change
of control of Networks, all or a portion of the value of such Awards may
constitute "excess parachute payments." Networks would not be permitted to
deduct excess parachute payments, and the recipient of such a payment would be
subject to a 20 percent federal excise tax. Furthermore, excess parachute
payments to individuals covered by Section 162(m) of the Code would reduce the
$1 million limitation on deduction of their compensation by an equal amount, and
thus could result in other compensation to such individuals being nondeductible.
THE FOREGOING DISCUSSION IS INTENDED FOR GENERAL INFORMATION PURPOSES ONLY,
NOT AS SPECIFIC TAX ADVICE. IT DOES NOT ADDRESS THE IMPACT OF STATE AND LOCAL
TAXES, THE FEDERAL ALTERNATIVE MINIMUM TAX, AND SECURITIES LAWS RESTRICTIONS.
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<PAGE> 53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF
NETWORKS COMMON STOCK
BY MANAGEMENT
The following table sets forth the number of shares of Networks Common
Stock expected to be beneficially owned, directly or indirectly, immediately
after the Spinoff by each director of Networks, each Networks Named Executive
Officer and all directors and executive officers of Networks as a group based on
such individual's ownership of General Signal Common Stock as of March 31, 1998.
Except as otherwise indicated, each individual named has sole investment and
voting power with respect to the securities shown.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENT OF CLASS(1)
---- ---------------- -------------------
<S> <C> <C>
Robert Coackley............................................ *
Peter D. Behrendt.......................................... *
James G. Hascall........................................... *
Robert J. Kamerschen....................................... *
Ryal R. Poppa.............................................. *
Vivian M. Stephenson....................................... *
LeRoy A. Vander Putten..................................... *
Terry J. Mortimer.......................................... *
Anthony J. Fusarelli....................................... *
Michael A. Ruggieri........................................ *
Evanthia C. Aretakis....................................... *
All executive officers and directors as a group (14
persons)................................................. *
</TABLE>
- ---------------
(1) Assumes 17.4 million shares of Networks Common Stock are issued in the
Spinoff.
* Less than 1%.
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<PAGE> 54
BY OTHERS
The following table sets forth each individual or entity that is expected
to beneficially own more than 5% of the Networks Common Stock outstanding
immediately after the Distribution Date, based on the ownership of General
Signal Common Stock as known to General Signal as of December 31, 1997 based
upon General Signal's records and upon filings with the Commission.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(1)
------------------- ----------------------- -----------
<S> <C> <C>
College Retirement Equities Fund............................ 1,316,960 shares(2) 7.57%
730 Third Avenue
New York, New York 10017
Harris Associates, Inc...................................... 1,122,360 shares(3) 6.45%
Two North LaSalle Street, Suite 500
Chicago, Illinois 60602
Iridian Asset Management LLC;............................... 1,079,600 shares(4) 6.20%
David L. Cohen; and
Harold J. Levy
c/o Iridian Asset Management LLC
276 Post Road West
Westport, Connecticut 06880
Putnam Investments, Inc..................................... 981,949 shares(5) 5.64%
One Post Office Square
Boston, Massachusetts 02109
General Signal Corporation.................................. 963,567 shares(6) 5.64%
Savings and Stock Ownership Plan
(the "Savings Plan") the trustee of which
is The Chase Manhattan Bank
Chase MetroTech Center
Brooklyn, New York 11245
</TABLE>
- ---------------
(1) Assumes 17.4 million shares of Network Common Stock are issued in the
Spinoff.
(2) Based on a Schedule 13G filed with respect to General Signal, the Board of
Trustees of College Retirement Equities Fund ("CREF"), an investment
company, will have sole voting power with respect to such shares and shared
dispositive power with respect to such shares with TIAA-CREF Investment
Management, LLC, CREF's registered investment adviser.
(3) Based on a Schedule 13G filed by Harris Associates, Inc., the general
partner of Harris Associates L.P., a registered investment adviser, Harris
Associates L.P. will have shared voting power with respect to all such
shares with investment clients for whom it serves as an investment adviser.
Also based on such filing, Harris Associates L.P. will have sole dispositive
power with respect to 816,160 such shares and shared dispositive power with
respect to 303,200 such shares.
(4) Based on a Schedule 13G filing, Iridian Asset Management LLC ("Iridian"), a
registered investment adviser, will have sole voting and dispositive power
with respect to 1,021,240 of such shares; LC Capital Management, LLC ("LC
Capital") is a member owning 69.6% of Iridian and may therefore be deemed to
have beneficial ownership of the shares held by Iridian and indirect sole
voting and dispositive power with respect thereto; CL Investors, Inc. ("CL
Investors") is a member owning 96% of LC Capital and may therefore be deemed
to have beneficial ownership of the shares held by Iridian and indirect sole
voting and dispositive power with respect thereto; each of David L. Cohen
and Harold J. Levy owns 50% of CL Investors, and each may therefore be
deemed to have beneficial ownership of the shares held by Iridian and
indirect shared voting and dispositive power with respect thereto; and each
of Messrs. Cohen and Levy is employed by Ambold & S. Bleichroeder Advisers,
Inc., which serves as an adviser to First Eagle Fund of America, Inc., a
mutual fund holding, according to such filing, 58,720 of such shares, as to
which shares each of Messrs. Cohen and Levy disclaims deemed beneficial
ownership and as to which shares none of Iridian, LC Capital nor CL
Investors has voting or dispositive power.
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<PAGE> 55
(5) Based on a Schedule 13G filing, Putnam Investments, Inc. ("Putnam
Investments"), a wholly-owned subsidiary of Marsh & McLennan Companies,
Inc., will have shared dispositive power with respect to all such shares and
shared voting power with respect to 5,760 such shares; the Putnam Advisory
Company, Inc. ("Putnam Advisory"), a registered investment adviser and
wholly-owned subsidiary of Putnam Investments, will have shared voting power
with respect to 5,760 such shares and shared dispositive power with respect
to 319,680 such shares; Putnam Investment Management, Inc. ("Putnam
Management"), a registered investment adviser and wholly-owned subsidiary of
Putnam Investments, will have shared dispositive power with respect to
662,269 such shares; and that Putnam Advisory is the investment adviser to
the Putnam family of mutual funds and Putnam Management is the investment
adviser to institutional clients of Putnam Investments.
(6) The Chase Manhattan Bank, as trustee of the Savings Plan, will vote the
shares as instructed by participants, and shares for which no instructions
have been received will be voted by the trustee in the same proportion as
the shares for which instructions have been received.
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<PAGE> 56
DESCRIPTION OF NETWORKS CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under the Networks Certificate, which is set forth as an exhibit to the
Registration Statement, the total number of shares of all classes of stock that
Networks will have authority to issue under the Networks Certificate will be
95,000,000 of which 10,000,000 will be shares of preferred stock, $0.01 par
value (the "Networks Preferred Stock"), and 85,000,000 will be shares of
Networks Common Stock. No shares of Networks Preferred Stock will be issued in
connection with the Spinoff. Based on the number of shares of General Signal
Common Stock expected to be outstanding on the record date for the Spinoff,
approximately 17.4 million shares of Networks Common Stock, constituting
approximately 20% of the authorized Networks Common Stock, will be issued to
stockholders of General Signal in the Spinoff. All of the shares of Networks
Common Stock issued in the Spinoff will be validly issued, fully paid and
nonassessable.
NETWORKS COMMON STOCK
The holders of Networks Common Stock will be entitled to one vote for each
share on all matters voted on by stockholders, including elections of directors,
and, except as otherwise required by law or provided in any resolution adopted
by the Networks Board with respect to any series of Networks Preferred Stock,
the holders of Networks Common Stock will exclusively possess all voting power
in Networks. The Networks Certificate does not provide for cumulative voting for
the election of directors. Subject to any preferential rights of any outstanding
series of Networks Preferred Stock designated by the Networks Board from time to
time, the holders of Networks Common Stock will be entitled to such dividends as
may be declared from time to time by the Networks Board from funds available
therefor, and, upon liquidation, will be entitled to receive pro rata all assets
of Networks available for distribution to such holders. See "Risk
Factors -- Absence of Dividends."
NETWORKS PREFERRED STOCK
The Networks Board will be authorized to provide for the issue of shares of
Networks Preferred Stock, in one or more series, and to fix for each such series
such voting powers, designations, preferences and relative, participating,
optional and other special rights, and such qualifications, limitations or
restrictions, as are stated in the resolutions adopted by the Networks Board
providing for the issue of such series and as are permitted by the General
Corporation Law of the State of Delaware (the "Delaware Law"). See "Certain
Antitakeover Effects of Certain Charter and By-Law Provisions and General Signal
Rights and the Networks Rights -- Preferred Stock." In connection with the
Networks Rights Agreement by and between Networks and [ ], as Rights
Agent, to be adopted by Networks and to be effective as of the Distribution Date
(the "Networks Rights Agreement"), the Networks Board will designate a series of
Networks Preferred Stock that will be issuable upon exercise of the Networks
Rights. For a description of the terms of such Networks Preferred Stock, see
" -- Networks Rights."
NETWORKS RIGHTS
In connection with the Spinoff, the Networks Board intends to adopt the
Networks Rights Agreement. Prior to the Distribution Date, the Networks Board
will declare a dividend of one Networks Right to be paid on the Distribution
Date in respect of each share of the Networks Common Stock to the holder of
record thereof as of the Distribution Date. Each Networks Right will entitle the
registered holder to purchase from Networks one one-hundredth of a share of
Series A Junior Participating Preferred Stock, $0.01 par value, of Networks
("Networks Junior Preferred Stock") at a price per one one-hundredth of a share
of $ (the "Purchase Price"), subject to adjustment. The terms of the
Networks Rights will be set forth in the Networks Rights Agreement. One Networks
Right will be attached to and will be issued with each share of Networks Common
Stock issued in the spinoff.
Until the earlier to occur of (1) ten days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 15% or more of the then
outstanding shares of Networks Common Stock or (2) ten business days (or such
later date as may
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<PAGE> 57
be determined by action of the Networks Board prior to such time as any person
or group becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding shares of Networks Common Stock (the
earlier of such dates being called the "Networks Rights Distribution Date"), the
Networks Rights will be evidenced by the certificates representing shares of
Networks Common Stock.
The Networks Rights Agreement will provide that, until the Networks Rights
Distribution Date (or earlier redemption or expiration of the Networks Rights),
the Networks Rights will be transferred with and only with the shares of
Networks Common Stock. Until the Networks Rights Distribution Date (or earlier
redemption or expiration of the Networks Rights), certificates representing
shares of Networks Common Stock will contain a notation incorporating the terms
of the Networks Rights by reference. Until the Networks Rights Distribution Date
(or earlier redemption or expiration of the Networks Rights), the surrender for
transfer of any certificates representing shares of Networks Common Stock will
also constitute the transfer of the Networks Rights associated with the shares
of Networks Common Stock represented by such certificate. As soon as practicable
following the Networks Rights Distribution Date, separate certificates
evidencing the Networks Rights ("Networks Rights Certificates") will be mailed
to holders of record of the shares of Networks Common Stock as of the close of
business on the Networks Rights Distribution Date and such separate Networks
Rights Certificates alone will evidence the Networks Rights.
The Networks Rights will not be exercisable until the Networks Rights
Distribution Date. The Networks Rights will expire on the tenth anniversary of
the Networks Rights Distribution Date (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Networks Rights are earlier
redeemed or exchanged by Networks, in each case, as described below.
The Purchase Price payable, and the number of shares of Networks Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Networks Rights are subject to adjustment from time to time to prevent dilution
(1) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the shares of Networks Junior Preferred Stock, (2) upon the
grant to holders of the shares of Networks Junior Preferred Stock of certain
rights or warrants to subscribe for or purchase shares of Networks Junior
Preferred Stock at a price, or securities convertible into shares of Networks
Junior Preferred Stock with a conversion price, less than the then-current
market price of the shares of Networks Junior Preferred Stock or (3) upon the
distribution to holders of the shares of Networks Junior Preferred Stock of
evidences of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in shares of
Networks Junior Preferred Stock) or of subscription rights or warrants (other
than those referred to above).
The number of outstanding Networks Rights and the number of one
one-hundredths of a share of Networks Junior Preferred Stock issuable upon
exercise of each Networks Right are also subject to adjustment in the event of a
stock split of Networks Common Stock or a stock dividend on Networks Common
Stock payable in Networks Common Stock or subdivisions, consolidations or
combinations of Networks Common Stock occurring, in any such case, prior to the
Networks Rights Distribution Date.
Shares of Networks Junior Preferred Stock purchasable upon exercise of the
Networks Rights will not be redeemable. Each share of Networks Junior Preferred
Stock will be entitled to a minimum preferential quarterly dividend payment of
$1.00 per share but will be entitled to an aggregate dividend equal to 100 times
the dividend declared per share of Networks Common Stock. In the event of
liquidation, the holders of the Networks Junior Preferred Stock will be entitled
to a minimum preferential liquidation payment of $100 per share but will be
entitled to an aggregate payment equal to 100 times the payment made per share
of Networks Common Stock. Each share of Networks Junior Preferred Stock will
have 100 votes, together with Networks Common Stock. Finally, in the event of
any merger, consolidation or other transaction in which Networks Common Stock is
exchanged, each share of Networks Junior Preferred Stock will be entitled to
receive an amount equal to 100 times the amount received per share of Networks
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the dividend, liquidation and voting rights of Networks
Junior Preferred Stock, the value of the one one-hundredth interest in a share
of
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<PAGE> 58
Networks Junior Preferred Stock purchasable upon exercise of each Networks Right
should approximate the value of one share of Networks Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder
of a Networks Right, other than Networks Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the right
to receive upon exercise thereof at the then-current exercise price that number
of shares of Networks Common Stock having a market value of two times the
exercise price of the Networks Right (such right being referred to as a
"Flip-in-Right"). In the event that, at any time on or after the date that any
person has become an Acquiring Person, Networks is acquired in a merger or other
business combination transaction or 50% or more of consolidated assets or
earning power are sold, proper provision will be made so that each holder of a
Networks Right will thereafter have the right to receive, upon the exercise
thereof at the then-current exercise price of the Networks Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the
Networks Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of Networks Common Stock, the Networks
Board may exchange the Networks Rights (other than Networks Rights owned by such
person or group which will have become void), in whole or in part, at an
exchange ratio of one share of Networks Common Stock, or one one-hundredth of a
share of Networks Junior Preferred Stock, per Networks Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Networks Junior Preferred Stock
will be issued (other than fractions which are integral multiples of one
one-hundredth of a share of Networks Junior Preferred Stock, which may, at the
election of the Networks Board, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
shares of Networks Junior Preferred Stock on the last trading day prior to the
date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
shares of Networks Common Stock, the Networks Board may redeem the Networks
Rights in whole, but not in part, at a price of $.01 per Networks Right (the
"Redemption Price"). The redemption of the Networks Rights may be made effective
at such time, on such basis and with such conditions as the Networks Board in
its sole discretion may establish. Immediately upon any redemption of the
Networks Rights, the right to exercise the Networks Rights will terminate and
the only right of the holders of Networks Rights will be to receive the
Redemption Price.
The terms of the Networks Rights may be amended by the Networks Board
without the consent of the holders of the Networks Rights, including an
amendment to lower (1) the threshold at which a person becomes an Acquiring
Person and (2) the percentage of Networks Common Stock proposed to be acquired
in a tender or exchange offer that would cause the Networks Rights Distribution
Date to occur, to not less than the greater of (a) the sum of .001% and the
largest percentage of the outstanding Networks Common Stock then known to
Networks to be beneficially owned by any person or group of affiliated or
associated persons and (b) 10%, except that, from and after such time as any
person or group of affiliated or associated persons becomes an Acquiring Person,
no such amendment may adversely affect the interests of the holders of the
Networks Rights.
Until a Networks Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of Networks, including, without limitation, the right
to vote or to receive dividends.
The Networks Rights will have certain antitakeover effects. See "Certain
Antitakeover Effects of Certain Charter and By-Law Provisions and the Networks
Rights -- Preferred Share Purchase Rights."
The foregoing summary of certain terms of the Networks Rights is qualified
in its entirety by reference to the form of the Networks Rights Agreement, a
copy of which will be filed as an exhibit to the Registration Statement. The
Networks Rights are being registered under the Exchange Act, together with
Networks Common Stock, pursuant to the Registration Statement. In the event that
the Networks Rights become
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exercisable, Networks will register the shares of Networks Junior Preferred
Stock for which the Networks Rights may be exercised in accordance with
applicable law.
PREEMPTIVE RIGHTS
No holder of any stock of Networks of any class authorized at the
Distribution Date will then have any preemptive right to subscribe to any
securities of Networks of any kind or class.
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN
CHARTER AND BY-LAW PROVISIONS AND THE NETWORKS RIGHTS
GENERAL
The Networks Certificate and the Networks By-Laws will contain provisions
that will make more difficult the acquisition of control of Networks, by means
of a tender offer, open market purchases, a proxy fight or otherwise that are
not approved by the Networks Board.
The purposes of such provisions of the Networks Certificate and the
Networks By-Laws are to discourage certain types of transactions, described
below, which may involve an actual or threatened change of control of Networks
and to encourage persons seeking to acquire control of Networks to negotiate the
terms of any proposed business combination or offer with the Networks Board. The
provisions are designed to reduce the vulnerability of Networks to an
unsolicited proposal for a takeover that does not contemplate the acquisition of
all outstanding shares or is otherwise unfair to stockholders of Networks, or an
unsolicited proposal for the restructuring or sale of all or part of Networks.
General Signal and Networks believe that, as a general rule, such proposals
would not be in the best interests of Networks and its stockholders. These
provisions will help ensure that the Networks Board, if confronted by a surprise
proposal from a third party which has acquired a block of stock, will have
sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes to be the best interests of the
stockholders.
There has been a marked increase in hostile takeover activity during the
last four years. General Signal and Networks believe that the provisions
discussed herein may provide some measure of protection for stockholders against
certain potentially coercive takeover tactics. Such takeover tactics include the
accumulation of substantial stock positions in public companies by third parties
as a prelude to proposing a takeover, a restructuring or a sale of all or part
of the company or another similar extraordinary corporate action. Such actions
are often undertaken by a third party without advance notice to, or consultation
with, the management or board of directors of a company. In many cases, a
purchaser seeks representation on a company's board of directors in order to
increase the likelihood that its proposal will be implemented by a company. If a
company resists the efforts of the purchaser to obtain representation on the
company's board, a purchaser may commence a proxy contest to have its nominees
elected to the board of directors in place of certain directors or in place of
the entire board of directors. In some cases, a purchaser may not truly be
interested in taking over a company, but may use the threat of a proxy fight
and/or a bid to take over a company as a means of forcing the company to
repurchase its equity position at a substantial premium over market price.
General Signal and Networks believe that the imminent threat of removal of
Networks' management or the Networks Board in such situations would severely
curtail the ability of management or the Networks Board to negotiate effectively
with such purchasers. Management or the Networks Board would be deprived of the
time and information necessary to evaluate the takeover proposal, to study
alternative proposals and to help ensure that the best price is obtained in any
transaction involving Networks which may ultimately be undertaken. If the real
purpose of a takeover bid were to force Networks to repurchase an accumulated
stock interest at a premium price, management or the Networks Board would face
the risk that, if it did not repurchase the purchaser's stock interest,
Networks' business and management would be disrupted, perhaps irreparably.
These provisions, individually and collectively, will make difficult and
may discourage a merger, tender offer or proxy fight, even if such transaction
or occurrence may be favorable to the interests of the
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<PAGE> 60
stockholders, and may delay or frustrate the assumption of control by a holder
of a large block of Networks Common Stock and the removal of incumbent
management, even if such removal might be beneficial to stockholders.
Furthermore, these provisions may deter or could be used to frustrate a future
takeover attempt which is not approved by the incumbent Networks Board, but
which the holders of a majority of the shares may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
stock over prevailing market prices of such stock. By discouraging takeover
attempts these provisions might have the incidental effect of inhibiting certain
changes in management (some or all of the members of which might be replaced in
the course of a change of control) and also the temporary fluctuations in the
market price of the stock which often result from actual or rumored takeover
attempts.
Set forth below is a description of such provisions in the Networks
Certificate and the Networks By-Laws. Such description is intended as a summary
only and is qualified in its entirety by reference to the Networks Certificate
and the Networks By-Laws, which are filed as exhibits to the Registration
Statement. Capitalized terms used and not defined herein are defined in the
Networks Certificate or the Networks By-Laws, as the case may be.
CLASSIFIED BOARDS OF DIRECTORS
The Networks Certificate will provide for the Networks Board to be divided
into three classes serving staggered terms so that directors' initial terms will
expire at the 1999, 2000 or 2001 Annual Meeting of Networks Stockholders.
Starting with the 1999 Annual Meeting of Networks Stockholders, one class of
directors would be elected each year for three-year terms. See "Management of
Networks After the Spinoff -- Directors of Networks."
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Networks Board in a
relatively short period of time. At least two annual meetings of stockholders,
instead of one, will generally be required to effect a change in a majority of
the Networks Board. Such a delay may help ensure that the Networks Board, if
confronted by a stockholder's attempt to force a stock repurchase at a premium
above market price, a proxy contest or an extraordinary corporate transaction,
will have sufficient time to review the proposal and appropriate alternatives to
the proposal and to act in what they believe are the best interests of the
stockholders. General Signal and Networks also believe that a classified board
of directors will help to assure the continuity and stability of the Networks
Board and Networks' business strategies and policies as determined by the
Networks Board, because generally a majority of the directors at any given time
will have had prior experience as directors of Networks.
The classified board could have the effect of discouraging a third party
from making a tender offer or otherwise attempting to obtain control of
Networks, even though such an attempt might be beneficial to General Signal and
its stockholders. The classified board could thus increase the likelihood that
incumbent directors will retain their positions.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Networks Certificate will provide that the number of directors will be
fixed from time to time, exclusively by the Networks Board. In addition, the
Networks Certificate will provide that, subject to any rights of the holders of
Networks Preferred Stock, only a majority of the board of directors then in
office shall have the authority to fill any vacancies on the board of directors.
Accordingly, the Networks Board could prevent any stockholder from obtaining
majority representation on the Networks Board by enlarging such board of
directors and filling the new directorships with its own nominees.
Moreover, the Networks Certificate will provide that directors may be
removed only for cause and only by the affirmative vote of holders of at least
80% of the voting power of all of the then-outstanding shares of Networks Common
Stock voting together as a single class. This provision, when coupled with the
provisions of the Networks Certificate authorizing only the Board of Directors
to fill vacant directorships, would preclude stockholders from removing
incumbent directors without cause and filling the vacancies created by such
removal with their own nominees.
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LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Under the Delaware Law, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by the stockholders
of a Delaware corporation may be taken without a meeting, without prior notice
and without a stockholder vote if a written consent setting forth the action to
be taken is signed by the holders of outstanding stock having the requisite
number of shares that would be necessary to authorize such action at a meeting
at which all shares entitled to vote thereon were present and voted. The
Networks Certificate will provide that stockholder action can be taken only at
an annual or special meeting of stockholders and will prohibit stockholder
action by written consent in lieu of a meeting. In addition, the Networks
Certificate will provide that, subject to the rights of holders of any series of
Networks Preferred Stock, special meetings of stockholders can be called only by
the Chairman of the Board or pursuant to resolution of the Networks Board.
Stockholders will not permitted to call a special meeting or to require that the
Networks Board call a special meeting of stockholders. Moreover, the business
permitted to be conducted at any special meeting of stockholders be limited to
the purpose or purposes of the meeting as stated in the notice of the meeting.
The provisions of the Networks Certificate restricting stockholder action
by written consent may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting unless a special meeting is
called by the Chairman of the Board, the President or pursuant to a board
resolution. These provisions would also prevent the holders of a majority of the
voting power of Networks Common Stock from using the written consent procedure
to take stockholder action and from taking action by consent without giving all
the stockholders of Networks entitled to vote on a proposed action the
opportunity to participate in determining such proposed action. Moreover, a
stockholder could not force stockholder consideration of a proposal over the
opposition of the Networks Board by calling a special meeting of stockholders
prior to the time the board believed such consideration to be appropriate.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS
The Networks By-Laws will establish an advance notice procedure with regard
to the nomination, other than by or at the direction of the Networks Board, of
candidates for election as directors (the "Nomination Procedure") and with
regard to certain matters to be brought before an annual meeting of stockholders
(the "Business Procedure"). Pursuant to the Networks By-Laws, the Nomination
Procedure will provide that only persons who are nominated by, or at the
direction of, the Networks Board or by a stockholder of record who has given
timely prior written notice to the Secretary of Networks prior to the meeting at
which directors are to be elected will be eligible for election as directors.
The Business Procedure will provide that at an annual meeting only such business
can be conducted as has been brought before the meeting pursuant to the notice
of the meeting, by, or at the direction of, the Networks Board or by a
stockholder of record who has given timely prior written notice to the Secretary
of such stockholder's intention to bring such business before the meeting. To be
timely, notice must generally be received by Networks not less than 60 days nor
more than 90 days prior to the first anniversary of the previous year's annual
meeting. For notice of a stockholder nomination to be made at a special meeting
at which directors are to be elected to be timely, such notice must be received
not earlier than the 90th day before such meeting and not later than the later
of (1) the 60th day prior to such meeting and (2) the tenth day after public
announcement of the date of such meeting is first made.
Under the Nomination Procedure, notice to Networks from a stockholder who
proposes to nominate a person at a meeting for election as director must contain
certain information about that person, including such person's consent to be
nominated and such information as would be required to be included in a proxy
statement soliciting proxies for the election of the proposed nominee, and
certain information about the stockholder proposing to nominate that person or
the beneficial owner, if any, on whose behalf the nomination is made. Under the
Business Procedure, notice relating to the conduct of business must contain
certain information about such business and about the stockholder who proposes
to bring the business before the
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meeting including a brief description of the business the stockholder proposes
to bring before the meeting, the reasons for conducting such business at such
meeting, the class and number of shares of stock beneficially owned by such
stockholder, and by the beneficial owner, if any, on whose behalf the proposal
is made, and any material interest of such stockholder, and such beneficial
owner in the business so proposed. If the Chairman or other officer presiding at
a meeting determines that a person was not nominated in accordance with the
Nomination Procedure, such person will not be eligible for election as a
director, or if he or she determines that other business was not properly
brought before such meeting in accordance with the Business Procedure, such
business will not be conducted at such meeting.
The purpose of the Nomination Procedure is, by requiring advance notice of
nominations by stockholders, to afford the Networks Board a meaningful
opportunity to consider the qualifications of the proposed nominees and, to the
extent deemed necessary or desirable by the Networks Board, to inform
stockholders about such qualifications. The purpose of the Business Procedure
is, by requiring advance notice of proposed business, to provide a more orderly
procedure for conducting annual meetings of stockholders and, to the extent
deemed necessary or desirable by the Networks Board to provide such board with a
meaningful opportunity to inform stockholders, prior to such meetings, of any
business proposed to be conducted at such meetings, together with any
recommendation as to the Networks Board's position or belief as to action to be
taken with respect to such business, so as to enable stockholders better to
determine whether they desire to attend such meeting or grant a proxy to the
Networks Board as to the disposition of any such business. Although the Networks
By-Laws will not give the Networks Board any power to approve or disapprove
stockholder nominations for the election of directors or of any other business
desired by a stockholder to be conducted at an annual meeting, the Networks
By-Laws may have the effect of precluding a nomination for the election of
directors or precluding the conducting of business at a particular annual
meeting if the proper procedures are not followed, and may discourage or deter a
third party from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of Networks, even if the
conduct of such solicitation or such attempt might be beneficial to Networks and
its stockholders.
PREFERRED STOCK
The Networks Certificate authorizes the Networks Board to establish series
of Networks Preferred Stock and to determine, with respect to any series of
Networks Preferred Stock, the voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights and such qualifications, limitations or restrictions
thereof as are stated in the board resolutions providing for such series. The
number of authorized shares of Networks Preferred Stock is 10,000,000.
General Signal and Networks believe that the availability of such Networks
Preferred Stock will provide Networks with increased flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs which might arise. Having such authorized shares available for issuance
will allow Networks to issue shares of Networks Preferred Stock without the
expense and delay of a special stockholder's meeting. The authorized shares of
Networks Preferred Stock, as well as shares of Networks Common Stock, will be
available for issuance without further action by stockholders, unless such
action is required by applicable law or the rules of any stock exchange on which
the Networks securities may be listed. Although the Networks Board has no
intention at the present time of doing so, it could issue a series of Networks
Preferred Stock that could, subject to certain limitations imposed by the
securities laws and stock exchange rules, depending on the terms of such series,
impede the completion of a merger, tender offer or other takeover attempt. For
instance, such series of Networks Preferred Stock might impede a business
combination by including class voting rights that would enable the holder to
block such a transaction. The Networks Board will make any determination to
issue such shares based on its judgment as to the best interests of Networks and
its then-existing stockholders. The Networks Board, in so acting, could issue
Networks Preferred Stock having terms which could discourage an acquisition
attempt or other transaction that some, or a majority, of the stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then-market price of such stock. The authorized
and unissued Networks Preferred Stock, as well as the authorized and unissued
Networks Common Stock, would be available, and the Networks Certificate
explicitly authorize use of such capital stock, for the above purposes.
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COMMON STOCK
At the Spinoff, the Networks Certificate will authorize the Networks Board
to issue up to 85,000,000 shares of Networks Common Stock of which approximately
17,400,000 are expected to be issued in the Spinoff.
The authorized but unissued Networks Common Stock will provide Networks
with the ability to meet future capital needs and to provide shares for possible
acquisitions and stock dividends or stock splits. The Networks Board would have
the ability, in the event of a proposed merger, tender offer or other attempt to
gain control of Networks that was not approved by the Networks Board, to issue
additional common stock that would dilute the stock ownership of the acquiror.
Except as provided under the terms of the Networks Rights Agreement, Networks
does not currently contemplate any issuance of common stock that might be deemed
to have an antitakeover purpose.
AMENDMENT OF CERTAIN CHARTER PROVISIONS AND THE BY-LAWS
The Networks Certificate will contain provisions requiring the affirmative
vote of the holders of at least 80% of the outstanding Networks Common Stock to
amend the provisions of the charter pertaining to classification of the Networks
Board, the number of directors, filling vacancies on the Networks Board, removal
of directors, the requirement that stockholders can act only at annual or
special meetings and not by written consent and the persons permitted to call a
special meeting of stockholders. The Networks Certificate and the Networks
By-Laws will also require the vote of at least 80% of the outstanding Networks
Common Stock for stockholders to adopt, amend or repeal any provision of the
Networks By-Laws. These provisions will make it more difficult for stockholders
to make changes in the Networks Certificate and the Networks By-Laws including
changes designed to facilitate the exercise of control over Networks. In
addition, the requirement for approval by at least an 80% stockholder vote will
enable the holders of a minority of Networks' capital stock to prevent holders
of a less-than-80% majority from amending the indicated provisions of the
Networks Certificate and the Networks By-Laws.
PREFERRED SHARE PURCHASE RIGHTS
Networks will enter into the Networks Rights Agreement, which will have
certain antitakeover effects. The Networks Rights will cause substantial
dilution to a person or group that attempts to acquire Networks and thereby
effect a change in the composition of the Networks Board on terms not approved
by the Networks Board, including by means of a tender offer at a premium to the
market price, other than an offer conditioned on a substantial number of
Networks Rights being acquired. The Networks Rights should not interfere with
any merger or business combination approved by the Networks Board, since the
Networks Rights may be redeemed by Networks at the applicable redemption price
prior to the time that a person or group has become an Acquiring Person. See
"Description of Networks Capital Stock -- Networks Rights."
FAIR PRICE PROVISION
Definitions. Article Eighth of the Networks Certificate ("Article Eighth")
will confer upon a majority of the Networks Board, or, if a majority of the
Networks Board does not consist exclusively of Continuing Directors (as defined
below), a majority of the then-Continuing Directors, the power and duty to
determine, on the basis of information known after reasonable inquiry, the
applicability of certain defined terms used in Article Eighth as well as all
other facts necessary to determine compliance with Article Eighth. A summary of
the definitions of certain of these terms follows.
For purposes of Article Eighth, an "Interested Stockholder" is any person
(other than Networks or a subsidiary thereof) who or which is (1) the Beneficial
Owner (as defined below) of more than 10% of the voting power of the outstanding
voting stock, or (2) an "Affiliate" (as defined in Article Eighth) of Networks,
and at any time within the two-year period immediately prior to the date in
question was the Beneficial Owner of 10% or more of the voting power of the then
outstanding voting stock, or (3) an assignee of or has otherwise succeeded to
any shares of voting stock which were at any time within the two-year period
immediately prior
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to the date in question Beneficially Owned (as defined below) by a person
described in (1) or (2) above (other than shares acquired through a public
offering).
For purposes of Article Eighth, a person is the "Beneficial Owner" of, or
"Beneficially Owns," any shares of voting stock which such person or any of its
Affiliates or Associates (as defined in Article Eighth) directly or indirectly
owns or has the right to acquire or vote or which are Beneficially Owned by any
member of any group of such persons having any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares of voting stock.
For purposes of Article Eighth, a "Business Combination" includes the
following transactions: (1) a merger or consolidation of the company or any of
its subsidiaries with an Interested Stockholder or any corporation (whether or
not itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate of such Interested Stockholder; (2) the
sale or other disposition (in one transaction or a series of transactions) by
the company or any of its subsidiaries of assets having an aggregate "Fair
Market Value" (as defined in Article Eighth) of $25 million or more if an
Interested Stockholder or any Affiliate or Associate of an Interested
Stockholder is a party to the transaction; (3) the issuance or transfer (in one
transaction or a series of transactions) of any securities of the company or of
any of its subsidiaries to an Interested Stockholder or any Affiliate or
Associate of an Interested Stockholder in exchange for cash or property
(including stock or other securities) having an aggregate Fair Market Value of
$25 million or more; (4) the adoption of any plan or proposal for the
liquidation or dissolution of the company proposed by or on behalf of an
Interested Stockholder or any Affiliate or Associate of an Interested
Stockholder; (5) any reclassification of securities, recapitalization, merger
with a subsidiary or other transaction which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding stock of
any class of the company or any of its subsidiaries Beneficially Owned by an
Interested Stockholder or any Affiliate or Associate of an Interested
Stockholder.
For purposes of Article Eighth, a "Continuing Director" is any member of
the Networks Board who is not affiliated with the Interested Stockholder in
question and was a director of the company prior to the time such Interested
Stockholder became an Interested Stockholder, and any director who is thereafter
appointed to fill any vacancy on the Networks Board or who is elected and who,
in either event, is not affiliated with an Interested Stockholder and in
connection with his or her initial assumption of office was recommended by a
majority of the Continuing Directors then on the Networks Board.
Stockholder Vote Required for Certain Business Combinations. Except in
cases in which one of the two alternatives described under "-- Exceptions to
Higher Vote Requirement" are applicable and are satisfied, Article Eighth will
requires that Business Combinations be approved by the holders of 80% of the
voting power of all of the then outstanding shares of voting stock, voting
together as a single class. In the event that either of such alternatives is
applicable and satisfied with respect to the particular Business Combination,
the affirmative vote otherwise required by the Delaware Law and the other
provisions of the Networks Certificate and by the terms of any class or series
of Networks stock which might be outstanding at the time of the Business
Combination would still apply.
Even if an Interested Stockholder could obtain an 80% affirmative
stockholder vote in favor of a Business Combination -- so that neither the
approval of such Business Combination by a majority of the Continuing Directors
nor the satisfaction of the form of consideration, minimum price and procedural
requirements set forth in Article Eighth (as described below) would be necessary
to effect such Business Combination -- under the Delaware Law, such Business
Combination may nevertheless (depending upon its nature) require approval by the
Networks Board prior to its submission to a stockholder vote (such would be the
case, for instance, with respect to a merger or consolidation involving
Networks). In that case, the Interested Stockholder could not effect such
Business Combination, regardless of its ability to assure an 80% stockholder
vote, without action by the Networks Board. Further, even were an Interested
Stockholder able to obtain votes sufficient to effect a repeal of such
provisions, it could not, under the Networks Certificate, exercise its power by
written consent or compel the Networks Board to call a special meeting of
stockholders for the purpose of voting on such repeal.
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Exceptions to Higher Vote Requirement. In the case of a Business
Combination that involved the receipt of cash or other consideration by Networks
stockholders, solely in their capacity as stockholders, the 80% affirmative
stockholder vote requirement does not apply if either (1) the Business
Combination is approved by a majority of the Continuing Directors of the company
(in order for this condition to be satisfied there must be at least three
Continuing Directors), or (2) all of the requirements described in paragraphs
(1), (2) and (3) below are satisfied.
If the Business Combination did not involve the receipt of consideration by
the Network's stockholders solely as stockholders (e.g., because it took the
form of a sale of assets or an original issuance of the company's securities to
an Interested Stockholder), only approval by a majority of the Continuing
Directors would avoid the requirement for such 80% stockholder vote.
In order to avoid the requirement of an 80% stockholder vote or approval by
a majority of the Continuing Directors in the case of a Business Combination
that involved the receipt of cash or other consideration by Networks
stockholders, the following conditions must be met:
(1) Form of Consideration Requirement. The consideration to be
received by holders of a particular class (or series) of capital stock in
the Business Combination is required to be either cash or the same type of
consideration used by the Interested Stockholder and its Affiliates in
acquiring the largest portion of their interest in such class (or series)
of capital stock. If the Interested Stockholder and its Affiliates have not
previously purchased any shares of such class (or series) of capital stock,
the consideration paid to holders of shares of that class (or series) in
the Business Combination is required to be cash.
(2) Minimum Price Requirements. The aggregate of (a) the cash and (b)
the Fair Market Value, as of the date of consummation of the Business
Combination (the "Consummation Date"), of any consideration other than cash
to be received per share by holders of the Networks Common stock in the
Business Combination would have to be at least equal to the higher of (i)
the highest per share price paid by the Interested Stockholder or any of
its Affiliates in acquiring any shares of Networks Common stock during the
two years immediately prior to the date of the first public announcement of
the proposal of the Business Combination (the "Announcement Date") or in
any transaction in which the Interested Stockholder became an Interested
Stockholder (whichever is higher), plus interest compounded annually from
the first date on which the Interested Stockholder became an Interested
Stockholder (the "Determination Date") through the Consummation Date at the
publicly announced base rate of interest of Chase Manhattan Bank or such
other major bank headquartered in the City of New York as the Continuing
Directors may determine, from time to time in effect in the City of New
York, less the aggregate dividends paid on each share of the Networks
Common stock from the Determination Date through the Consummation Date up
to but not exceeding the amount of interest so payable per share of
Networks common stock, and (ii) the Fair Market Value per share of the
Networks Common Stock on the Announcement Date or the Determination Date,
as the case may be, whichever is higher.
The higher of (i) and (ii) above would have to be paid in respect of
all outstanding shares of Networks Common Stock, whether or not the
Interested Stockholder or any of its Affiliates had previously acquired any
shares of Networks Common Stock. If the Interested Stockholder and its
Affiliates did not purchase any shares of Networks common stock during the
two-year period prior to the Announcement Date or in the transaction in
which the Interested Stockholder became an Interested Stockholder (e.g., if
the Interested Stockholder became an Interested Stockholder by purchasing
shares of any then-outstanding class of voting Preferred Stock), the
minimum price would be as determined under (ii). Under (i), interest and
dividends would be computed from the Determination Date, whether the
highest price during the two-year period prior to the Announcement Date is
higher than the price paid in the transaction on the Determination Date or
vice versa and whether the Determination Date occurs before or after the
beginning of such two-year period. Thus, for instance, if the highest price
per share paid by the Interested Stockholder and its Affiliates during such
two-year period was higher than the price paid in the transaction on the
Determination Date and the Determination Date occurred before the beginning
of such two-year period, interest and dividends would nevertheless be
required to be computed
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on such highest price from the Determination Date. Since (ii) does not
include an interest factor, if (ii) exceeded (i), no interest would be
included in computing the per share amount required to be paid in the
Business Combination.
Under the minimum price requirements, the Fair Market Value of
non-cash consideration to be received by holders of shares of any class of
voting stock in a Business Combination is to be determined as of the
Consummation Date. Where the definitive terms of such non-cash
consideration are established in advance of the Consummation Date,
intervening adverse developments, either in the economy or the market
generally or in the financial condition or business of the Interested
Stockholder, could result in a decline in the originally anticipated Fair
Market Value of such consideration, so that, on the date scheduled for its
consummation, the Business Combination, which had theretofore been
considered as not requiring an 80% stockholder vote or approval by a
majority of the Continuing Directors (i.e., because it was expected to
satisfy the minimum price requirements and it satisfied the form of
consideration and procedural requirements), could not be consummated
because it had not received such vote or approval (even if it had received
any less-than-80% stockholder vote required by the Delaware Law, and any
separate class vote required by the terms of any class or series of
then-outstanding Networks Preferred Stock) and did not, in fact, meet the
minimum price requirements on such date. However, an Interested Stockholder
could avoid such a situation by establishing, in advance, terms for the
Business Combination whereby the non-cash consideration was to be finalized
by reference to its Fair Market Value on the Consummation Date. Such an
approach would assure that the Interested Stockholder would bear the risk
of a decline in the Fair Market Value of the offered consideration prior to
the consummation of the Business Combination. Article Eighth uses the
Consummation Date as the determination date of the Fair Market Value of
non-cash consideration to be paid in a Business Combination in order to
ensure that the Interested Stockholder uses this approach so that the
Interested Stockholder, and not the other stockholders, would bear this
risk.
In addition, since the minimum price requirements call for a
determination to be made with respect to interest at the base rate
compounded, and dividends per share paid, through the Consummation Date, in
a particular case it might not be possible to determine with certainty
whether, at the time a Business Combination was submitted for stockholder
approval, it would ultimately satisfy the minimum price requirements on the
Consummation Date. Accordingly, it might not be possible to determine with
certainty whether the Business Combination would require an 80% stockholder
vote or the lesser vote otherwise applicable under the Delaware Law until
the Consummation Date, and there might be uncertainty as to whether the
Business Combination, if it in fact received less than an 80% affirmative
stockholder vote, could be consummated under Article Eighth. This
uncertainty could deter an Interested Stockholder who did not own (and was
not assured of obtaining the affirmative votes of) 80% of the voting power
of the voting stock from going forward with a Business Combination that had
not been approved by a majority of the Continuing Directors. However,
Networks considers that it is appropriate, for the reasons indicated above,
to use the Consummation Date as the determination date with respect to the
minimum price requirements of Article Eighth and that this will benefit
stockholders by encouraging the Interested Stockholder to negotiate with
the Continuing Directors (and to refrain from taking action which would
result in there being fewer than three Continuing Directors) and obtain
their approval of the Business Combination, since such approval would avoid
the applicability of both the 80% stockholder approval requirement and the
minimum price requirement.
(3) Procedural Requirements. In order to avoid the requirement of an
80% affirmative stockholder vote or approval by a majority of the
Continuing Directors, after an Interested Stockholder became an Interested
Stockholder and prior to the consummation of a Business Combination, all of
the following procedural requirements, as well as the form of consideration
and minimum price requirements, must be complied with.
(a) Networks, after the Determination Date, shall not have failed
to pay full quarterly dividends on any then-outstanding Networks
Preferred Stock and not have reduced the rate of dividends paid on
Networks Common Stock, unless such failure or reduction was approved by
a majority of the Continuing Directors. This provision is designed to
prevent an Interested Stockholder
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from attempting to depress the market price of the voting stock prior to
proposing a Business Combination by reducing dividends thereon, and
thereby reducing the consideration required to be paid pursuant to the
minimum price requirements of Article Eighth.
(b) The Interested Stockholder and its Affiliates shall not have
acquired any additional shares of the voting stock, directly from
Networks or otherwise, in any transaction subsequent to the transaction
pursuant to which the Interested Stockholder became an Interested
Stockholder. This provision is intended to prevent an Interested
Stockholder from purchasing additional shares of Voting Stock at prices
which are lower than those set by the minimum price requirements of
Article Eighth. Since all of the form of consideration, minimum price
and procedural requirements must be satisfied in order for the
Interested Stockholder to avoid the need for either an 80% affirmative
stockholder vote or the approval of a majority of any Continuing
Directors, an effect of this provision, where the Interested Stockholder
or any of its Affiliates acquired additional shares of Voting Stock
after the Interested Stockholder became an Interested Stockholder, is
that the Interested Stockholder could only acquire all of the Voting
Stock by means of a Business Combination if such Business Combination
either satisfied the 80% stockholder approval requirement or were
approved by a majority of the Continuing Directors.
(c) The Interested Stockholder and its Affiliates shall not have
received, at any time after the Interested Stockholder became an
Interested Stockholder, whether in connection with the Business
Combination or otherwise, the benefit of any loans or other financial
assistance or tax advantages provided by Networks (other than
proportionately, solely in its capacity as a stockholder). This
provision is intended to deter an Interested Stockholder from
self-dealing or otherwise taking advantage of its equity position in
Networks by using Networks' resources to finance the Business
Combination or otherwise for its own purposes in a manner not
proportionately available to all stockholders.
(d) A proxy or information statement disclosing the terms and
conditions of the Business Combination and complying with the
requirements of the proxy rules promulgated under the Exchange Act shall
be mailed to all stockholders of Networks at least 30 days prior to the
consummation of the Business Combination, whether or not such proxy or
information statement is required to be mailed pursuant to the Exchange
Act. This provision is intended to ensure that stockholders will be
fully informed of the terms and conditions of the Business Combination
even if the Interested Stockholder were not otherwise required by law to
disclose such information to stockholders.
(e) The Interested Stockholder shall have supplied Networks will
all information requested by the Continuing Directors pursuant to
Article Eighth. Under Article Eighth, the Continuing Directors have the
right to request information as to the Beneficial Ownership of stock by
the Interested Stockholder and other factual matters relating to the
applicability and effect of Article Eighth.
ANTITAKEOVER LEGISLATION AND RULES
Business Combinations involving Networks would be subject to the applicable
voting requirements, if any, specified under the Delaware Law, the Networks
Certificate, and the rules of the National Association of Securities Dealers,
Inc. (the "NASD"). In general, under current provisions of the Delaware Law,
most mergers and consolidations, the sale of substantially all of the assets and
any reclassification of securities or plan for the dissolution of a corporation
must be approved by the board of directors of the corporation and by the vote of
the holders of a majority of the outstanding shares entitled to vote thereon.
Under the Networks Certificate, the holder of each currently outstanding share
of Networks Common Stock is entitled to one vote per share on all such matters.
Furthermore, under NASD rules that will be applicable to Networks after the
Spinoff, approval by holders a majority of the voting power of the shares of
voting stock will be required for certain corporate actions, including, among
other things, any issuance of securities (1) that would result in a change of
control of Networks; (2) that is made in connection with the acquisition of
stock or assets of
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another company in which any director, officer or substantial stockholder of
Networks has a 5% or greater interest (or all such persons in the aggregate have
a 10% or greater interest) if such issuance of securities by Networks could
result in an increase in outstanding common shares or voting power of 5% or
more; (3) where the securities to be issued would have upon issuance voting
power equal to 20% or more of the voting power outstanding prior to the issuance
or where the number of shares of common stock to be issued is equal to 20% or
more of the number of shares of common stock outstanding prior to the issuance
(in each case, except for a public offering of securities for cash); (4) in
connection with the issuance of securities, other than in a public offering, at
a price less than the greater of book value or market value that, together with
sales by directors, officers, and substantial securities holders of Networks,
equals 20% or more of the common stock or 20% or more of the voting power
outstanding before the issuance, except for public offerings.
In addition, Section 203 of the Delaware Law ("Section 203") prohibits
certain "Business Combination" transactions (described below) between a publicly
held Delaware corporation, such as Networks, and any Interested Stockholder (as
defined below) for a period of three years after the date the Interested
Stockholder became an Interested Stockholder, unless (1) prior to the Interested
Stockholder becoming an Interested Stockholder, either the proposed Business
Combination or the proposed acquisition of stock which would make such
Interested Stockholder an Interested Stockholder was approved by the company's
board of directors, (2) in the same transaction in which the Interested
Stockholder becomes an Interested Stockholder, the Interested Stockholder
acquires at least 85% of the voting stock of the company (excluding shares owned
by directors who are also officers and certain shares held in employee stock
plans), or (3) the Interested Stockholder obtains the approval of a company's
board of directors and the approval of the holders of at least two-thirds of the
outstanding shares of a company's voting stock other than any shares of voting
stock held by the Interested Stockholder.
For purposes of Section 203, an "Interested Stockholder" is any person that
(1) beneficially owns 15% or more of the outstanding voting stock of the company
or (2) is an affiliate or associate of the company and at any time within the
preceding three-year period was the beneficial owner of 15% or more of the
outstanding voting stock of the company, together, in each case, with the
affiliates and associates of such person. The Business Combination transactions
to which Section 203 applies include: (1) any merger or consolidation with an
Interested Stockholder; (2) any sale, lease, exchange, or other disposition to
or with an Interested Stockholder (except proportionately as a stockholder of
the company) of 10% or more of the company's assets; (3) any issuance or
transfer of stock to the Interested Stockholder except pursuant to the exercise
of previously outstanding options or rights; (4) any transaction involving the
company that has the effect of increasing the Interested Stockholder's
percentage ownership; and (5) any loan, guarantee, or other financial benefit
provided by or through the company to the Interested Stockholder, except
proportionately as a stockholder of such company.
Section 203 should encourage persons interested in acquiring Networks to
negotiate in advance with the Networks Board since the higher stockholder voting
requirements imposed would not be invoked if such person, prior to acquiring 15%
of Networks' voting stock obtains the approval of the Networks Board for such
stock acquisition or for the proposed business combination transaction (unless
such person acquires 85% or more of such voting stock in the transaction). As
stated above, in the event of a proposed acquisition of Networks, General Signal
and Networks believe that the interests of Networks and Networks' stockholders
will best be served by a transaction that results from negotiations based upon
careful consideration of the proposed terms, such as the price to be paid to
minority stockholders, the form of consideration paid and tax effects of the
transaction.
In addition, Section 203 should tend to prevent certain of the potential
inequities of business combinations which are part of a two-tier transaction.
Any merger, consolidation or similar transaction following a partial tender
offer not approved by a board of directors under Section 203 would have to be
approved by the holders of at least two-thirds of the remaining shares of stock
unless the acquiror obtains 85% or more of Networks' voting stock in such
partial tender offer. Section 203 should also tend to discourage the
accumulation of large blocks of Networks' stock by third parties which the
Networks Board believes can be disruptive to the stability of Networks'
important relationships with its employees, customers and major
64
<PAGE> 69
lenders, since the acquiror would run the risk of being required to wait three
years in order to eliminate the remaining public stockholders of Networks if the
two-thirds stockholder vote could not be obtained.
Section 203 will not prevent a hostile takeover of Networks. It may,
however, make more difficult or discourage a takeover of Networks or the
acquisition of control of Networks by a principal stockholder and thus the
removal of incumbent management. Some stockholders may find this disadvantageous
in that they may not be afforded the opportunity to participate in takeovers
which are not approved by the Networks Board, but in which they might receive,
for at least some of their shares, a substantial premium above the market price
at the time of a tender offer or other acquisition transaction. Section 203
should not prevent or discourage transactions in which an acquiring person is
willing to negotiate in good faith with the Networks Board and is prepared to
pay the same price to all stockholders of each class of Networks' voting stock.
RELATIONSHIP OF ARTICLE EIGHTH TO SECTION 203 OF DELAWARE LAW
The protection afforded stockholders other than an Interested Stockholder
by Section 203 is stronger than the protection that would be afforded by Article
Eighth in situations in which the provisions of both apply. This is because,
unless the requisite Board or stockholder approval is obtained or the acquiror
succeeds in obtaining at least 85% of Networks' voting stock in the initial
transaction, Section 203 would prevent any of the specified business combination
transactions which could be used by an acquiror to eliminate remaining
stockholders, would prevent the acquiror's use of the assets of the company to
finance its acquisition, and would prevent other abuse by the acquiror of its
equity position from occurring for a period of three years thereafter, whereas
proposed Article Eighth would merely require that the specified minimum price
and procedural conditions be satisfied. Nevertheless, Article Eighth has been
included in the Networks Certificate for several reasons. First, the term
"Business Combination" is defined differently in Article Eighth and in Section
203, and, as a result, Article Eighth may afford protection to Networks'
stockholders in certain situations in which Section 203 would not apply. Second,
Article Eighth would apply to transactions with or for the benefit of any person
(together with such person's affiliates and associates) beneficially owning 10%
of Networks' voting stock, while Section 203 would only apply to transactions
involving persons (together with their affiliates and associates) beneficially
owning 15% or more of Networks' voting stock.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND
DIRECTORS OF NETWORKS
LIMITATION OF LIABILITY OF NETWORKS DIRECTORS
The Networks Certificate provides that a director of Networks will not be
personally liable to Networks or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any breach
of the director's duty of loyalty to Networks or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the Delaware Law, which
concerns unlawful payments of dividends, stock purchases or redemptions, or (4)
for any transaction from which the director derived an improper personal
benefit.
While the Networks Certificate will provide directors with protection from
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Networks Certificate will have no effect
on the availability of equitable remedies such as an injunction or rescission
based on a director's breach of his or her duty of care. The provisions of the
Networks Certificate described above apply to an officer of Networks only if he
or she is a director of Networks and is acting in his or her capacity as
director, and do not apply to officers of Networks who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Networks Certificate provides that each person who is or was or has
agreed to become a director or officer of Networks, or each such person who is
or was serving or has agreed to serve at the request of Networks as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, will be indemnified by Networks, in accordance with
the Networks By-Laws, to the fullest
65
<PAGE> 70
extent permitted from time to time by the Delaware Law, as the same exists or
may hereafter be amended or any other applicable laws as presently or hereafter
in effect. Networks may be required to indemnify any person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Networks Board or is a proceeding to enforce such person's claim to
indemnification pursuant to the rights granted by the Networks Certificate or
otherwise by Networks. In addition, Networks may enter into one or more
agreements with any person providing for indemnification greater than or
different from that provided in the Networks Certificate.
The Networks By-Laws provide that each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director, officer or employee of
Networks or any such person who is or was serving at the request of Networks as
a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such Proceeding is
alleged action in an official capacity as a director, officer or employee or in
any other capacity while serving as a director, officer or employee, will be
indemnified and held harmless by Networks to the fullest extent authorized by
the Delaware Law as the same exists or may in the future be amended against all
expense, liability and loss (including attorneys' fees, judgments, fines,
liability under the Employee Retirement Income Security Act of 1974, as amended,
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith;
provided, however, except as described in the next paragraph with respect to
Proceedings to enforce rights to indemnification, Networks will indemnify any
such person seeking indemnification in connection with a Proceeding (or part
thereof) initiated by such person only if such Proceeding (or part thereof) was
authorized by the Networks Board.
Pursuant to the Networks By-Laws, if a claim is not paid in full by
Networks within 30 days after a written claim has been received by Networks, the
claimant may at any time thereafter bring suit against Networks to recover the
unpaid amount of the claim, and, if successful in whole or in part, the claimant
will also be entitled to be paid the expense of prosecuting such claim. The
Networks By-Laws will provide that it will be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any Proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to Networks) that the
claimant has not met the standard of conduct which makes it permissible under
the Delaware Law for Networks to indemnify the claimant for the amount claimed,
but the burden of proving such defense will be on Networks.
The Networks By-Laws will provide that the right to indemnification
conferred therein is a contract right and includes the right to be paid by
Networks the expenses incurred in defending any Proceeding in advance of its
final disposition, subject to certain exceptions and conditions.
The Networks By-Laws will provide that the right to indemnification and the
payment of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in the Networks By-Laws will not be exclusive of any other
right which any person may have or may in the future acquire under any statute,
provision of the Networks Certificate, the Networks By-Laws, agreement, vote of
stockholders or disinterested directors or otherwise.
66
<PAGE> 71
WHERE YOU CAN FIND MORE INFORMATION
General Signal files, and after the spinoff Networks will file, annual,
quarterly and special reports, proxy statements and other information with the
SEC. You may read and copy any reports, statements or other information that the
companies file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. These SEC filings are also
available to the public from commercial document retrieval services and at the
Internet web site maintained by the SEC at "http://www.sec.gov." Reports, proxy
statements and other information should also be available for inspection at the
offices of the New York Stock Exchange (for General Signal) and, after the
spinoff, the National Association of Securities Dealers (for Networks).
Networks has filed a Registration Statement on Form 10 (the "Registration
Statement") to register with the SEC the Networks Common Stock to be issued in
the spinoff. This Information Statement is a part of the Registration Statement,
but, as allowed by SEC rules, does not contain all of the information you can
find in Networks' Registration Statement and the exhibits to it. Copies of the
Registration Statement and the exhibits to it may be obtained from the sources
referred to above or by requesting them in writing or by telephone from Networks
by contacting Jean Santoro, Investor Services, 13000 Midlantic Drive, Mt.
Laurel, New Jersey 08054, 609-234-7900.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS INFORMATION
STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS INFORMATION STATEMENT. THIS INFORMATION
STATEMENT IS DATED , 1998. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS INFORMATION STATEMENT IS ACCURATE AS OF ANY DATE
OTHER THAN THAT DATE. NEITHER THE MAILING OF THIS INFORMATION STATEMENT TO
STOCKHOLDERS NOR THE ISSUANCE OF NETWORKS COMMON STOCK IN THE SPINOFF CREATES
ANY IMPLICATION TO THE CONTRARY.
67
<PAGE> 72
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1988 Plan............................. 44
7-VIEW................................ 26
Acquiring Person...................... 52
Announcement Date..................... 61
Article Eighth........................ 59
ASICs................................. 8
ATM................................... 29
Awards................................ 45
Beneficial Owner...................... 60
Beneficially Owns..................... 60
BERT.................................. 30
Broadband............................. 29
Bus & Tag............................. 28
Business Combination.................. 60
Business Procedure.................... 57
Canadian Pension Plan................. 14
CL Investors.......................... 50
CNT................................... 34
Code.................................. 9
Commission............................ 7
Consummation Date..................... 61
Continuing Director................... 60
CPM................................... 26
CREF.................................. 50
Data Switch........................... 16
Delaware Law.......................... 52
Determination Date.................... 61
Distribution Agent.................... 10
Distribution Agreement................ 13
Distribution Date..................... 10
Distribution Ratio.................... 10
Distribution Record Date.............. 10
DLC................................... 30
Employee Benefits Allocation 14
Agreement...........................
ERISA................................. 45
ESCON................................. 28
Exchange Act.......................... 7
FASB.................................. 20
Fibre Channel......................... 28
Final Expiration Date................. 53
Flip-in-Right......................... 54
Frame Relay........................... 29
General Signal........................ 7
General Signal Board.................. 13
General Signal Common Stock........... 9
General Signal Options................ 43
General Signal Rights................. 11
General Signal Rights Agreement....... 11
Hewlett-Packard....................... 28
IBM................................... 28
IMATS................................. 30
Industrial Businesses................. 10
Interested Stockholder................ 59
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Iridian............................... 50
IRS................................... 9
ISO's................................. 45
LANs.................................. 26
LC Capital............................ 50
Mega-Matrix........................... 29
NASD.................................. 63
Nasdaq................................ 9
NCOE.................................. 26
Networks.............................. 7
Networks Board........................ 9
Networks By-Laws...................... 10
Networks Certificate.................. 10
Networks Common Stock................. 9
Networks Junior Preferred Stock....... 52
Networks Named Executive Officers..... 42
Networks Options...................... 12
Networks Preferred Stock.............. 52
Networks Rights....................... 9
Networks Rights Agreement............. 52
Networks Rights Certificates.......... 53
Networks Rights Distribution Date..... 53
New Credit Facility................... 24
ngRTH................................. 30
ngDLC................................. 30
Nomination Procedure.................. 57
PCs................................... 29
Proceeding............................ 66
Purchase Price........................ 49
Putnam Advisory....................... 51
Putnam Investments.................... 51
Putnam Management..................... 51
Redemption Price...................... 54
QoS................................... 30
Registration Statement................ 67
SARs.................................. 45
SCSI.................................. 28
Section 203........................... 64
Securities Act........................ 7
SFAS.................................. 20
SNA................................... 29
Spinoff............................... 7
SS-7.................................. 30
Sun................................... 28
Tandem................................ 28
Tax Sharing Agreement................. 12
Transitional Services................. 15
Transitional Services Agreement....... 15
WANs.................................. 26
xDSL.................................. 30
</TABLE>
68
<PAGE> 73
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Combined Statements of Income for the Years Ended December
31, 1997, 1996 and 1995................................... F-3
Combined Balance Sheets as of December 31, 1997 and 1996.... F-4
Combined Statements of Changes in Stockholder's Investment
for the Years Ended December 31, 1997, 1996 and 1995...... F-5
Combined Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-6
Notes to Combined Financial Statements...................... F-7
Financial Statement Schedule
Schedule II: Valuation and Qualifying Accounts.............. F-19
</TABLE>
F-1
<PAGE> 74
REPORT OF INDEPENDENT AUDITORS
General Signal Corporation
We have audited the accompanying combined balance sheets of Networks, as
defined in Note 1 to the combined financial statements, as of December 31, 1997
and 1996, and the related combined statements of income, changes in
stockholder's investment, and cash flows for each of the three years in the
period ended December 31, 1997. Our audits also included the financial statement
schedule listed in the Index to the Combined Financial Statements. These
financial statements and schedule are the responsibility of Networks'
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Networks at
December 31, 1997 and 1996, and the combined results of its operations and cash
flows for the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 31, 1998
F-2
<PAGE> 75
NETWORKS
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $218,971 $214,433 $202,686
Cost of sales.............................................. 104,009 105,103 99,204
-------- -------- --------
Gross profit............................................... 114,962 109,330 103,482
Operating expenses:
Research, development and engineering.................... 25,757 23,125 21,454
Selling, general and administrative...................... 57,641 53,128 54,030
Merger and restructuring costs........................... -- 731 12,671
-------- -------- --------
Operating expenses......................................... 83,398 76,984 88,155
-------- -------- --------
Operating income........................................... 31,564 32,346 15,327
Interest and other expenses, net........................... 1,509 497 1,966
-------- -------- --------
Income before provision for income taxes................... 30,055 31,849 13,361
Provision for income taxes................................. 12,198 13,497 7,208
-------- -------- --------
Net income................................................. $ 17,857 $ 18,352 $ 6,153
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE> 76
NETWORKS
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ -- $ --
Accounts receivable, net.................................. 38,466 45,769
Inventories............................................... 17,223 17,558
Prepaid expenses and other................................ 1,673 1,161
Deferred income taxes..................................... 6,950 9,044
-------- --------
Total current assets........................................ 64,312 73,532
Property, plant, and equipment, net......................... 18,271 18,037
Goodwill, net............................................... 9,846 11,123
Other assets, net........................................... 13,023 15,589
-------- --------
Total assets................................................ $105,452 $118,281
======== ========
LIABILITIES AND STOCKHOLDER'S INVESTMENT
Current liabilities:
Short-term borrowings and current portion of long-term
debt................................................... $ 7,341 $ 3,025
Accounts payable.......................................... 14,665 14,454
Other accrued expenses.................................... 21,164 24,160
-------- --------
Total current liabilities................................... 43,170 41,639
Long-term debt.............................................. 8,944 9,669
Deferred taxes.............................................. 3,511 2,116
-------- --------
55,625 53,424
Stockholder's investment:
Net investment............................................ 50,246 65,006
Cumulative translation adjustment......................... (419) (149)
-------- --------
Total stockholder's investment.............................. 49,827 64,857
-------- --------
Total liabilities and stockholder's investment.............. $105,452 $118,281
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 77
NETWORKS
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S INVESTMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
STOCKHOLDER'S COMPREHENSIVE
INVESTMENT INCOME(A) TOTAL
------------- ------------- --------
<S> <C> <C> <C>
Balance at December 31, 1994........................... $ 45,177 $(196) $ 44,981
Net income............................................. 6,153 -- 6,153
Net change in intercompany accounts.................... (14,409) -- (14,409)
Translation adjustments................................ -- 36 36
-------- ----- --------
Balance at December 31, 1995........................... 36,921 (160) 36,761
Net income............................................. 18,352 -- 18,352
Net change in intercompany accounts.................... 9,733 -- 9,733
Translation adjustments................................ -- 11 11
-------- ----- --------
Balance at December 31, 1996........................... 65,006 (149) 64,857
Net income............................................. 17,857 -- 17,857
Net change in intercompany accounts.................... (32,617) -- (32,617)
Translation adjustments................................ -- (270) (270)
-------- ----- --------
Balance at December 31, 1997........................... $ 50,246 $(419) $ 49,827
======== ===== ========
</TABLE>
- ---------------
(a) Entire amount relates to cumulative translation adjustment.
See accompanying notes to combined financial statements.
F-5
<PAGE> 78
NETWORKS
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income................................................. $ 17,857 $ 18,352 $ 6,153
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................. 5,331 4,272 5,432
Amortization............................................. 9,197 8,196 4,434
Merger and restructuring costs........................... -- -- 9,008
Deferred income taxes.................................... 3,489 842 (8,033)
Write-off of intangibles................................. -- -- 1,099
Changes in operating assets and liabilities:
Accounts receivable................................... 7,303 (5,242) (9,172)
Long-term receivables................................. 276 674 2,263
Inventories........................................... 335 1,512 9
Prepaid expenses and other current assets............. (782) (71) 189
Accounts payable...................................... 211 2,042 645
Accrued expenses...................................... (2,996) (1,355) (581)
-------- -------- --------
Net cash provided by operating activities.................. 40,221 29,222 11,446
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment, net........... (5,565) (4,062) (6,077)
Change in other noncurrent assets.......................... (5,630) (12,470) (4,301)
-------- -------- --------
Net cash used in investing activities...................... (11,195) (16,532) (10,378)
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings (payments) under revolving lines of
credit................................................... 4,154 (3,772) 5,972
Net payments on long-term borrowing........................ (563) (18,651) (388)
Proceeds from (payments to) General Signal................. (32,617) 9,733 (14,409)
-------- -------- --------
Net cash used in financing activities...................... (29,026) (12,690) (8,825)
-------- -------- --------
Net decrease in cash....................................... -- -- (7,757)
Cash at beginning of year.................................. -- -- 7,757
-------- -------- --------
Cash at end of year........................................ $ -- $ -- $ --
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE> 79
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SPINOFF AND BASIS OF PRESENTATION
The combined financial statements include the assets, liabilities, revenues
and expenses of General Signal Networks, Inc. (a wholly-owned subsidiary of
General Signal Corporation ("General Signal")), and the assets, liabilities,
revenues and expenses of certain other units comprising the data networking and
telecommunications business of General Signal which will be contributed to
General Signal Networks, Inc. (referred to hereinafter as "Networks" or the
"Company") upon the Spinoff defined below. Networks develops, manufactures,
markets and services data networking and switching equipment for large,
mission-critical data centers and monitoring equipment for data and
telecommunications applications.
Subject to satisfaction of certain conditions, General Signal intends to
separate its data networking and telecommunications business from its other
businesses resulting in Networks operating as a stand-alone publicly traded
company. To effect the separation of Networks, General Signal will distribute
shares of common stock, par value $.01 per share, of Networks ("Networks Common
Stock") to holders of record of General Signal common stock on a pro rata basis
of two shares of Networks Common Stock for every five shares of General Signal
common stock owned by the holders of record on the distribution record date (the
"Spinoff"). As a result of the Spinoff, 100% of the outstanding shares of
Networks Common Stock will be distributed to General Signal shareholders.
General Signal does not intend to consummate the Spinoff unless it receives a
ruling from the Internal Revenue Service that the Spinoff will be tax-free for
federal income tax purposes.
BASIS OF PRESENTATION
The combined financial statements have been prepared on the historical cost
basis as if Networks had operated as a freestanding entity for all periods
presented, and present the Company's financial position, results of operations
and cash flows as derived from General Signal's historical financial statements.
The financial statements reflect an allocation of general corporate expenses and
actual expenses incurred by General Signal directly attributable to Networks'
business as defined in Note 3. In the opinion of management, the allocated and
direct costs have been made on a reasonable basis and approximate the costs that
would have been incurred had Networks been operating on a stand-alone basis.
Advances and other intercompany accounts between Networks and General
Signal are recorded as a component of stockholder's investment. All intercompany
transactions between entities included in the combined financial statements have
been eliminated.
The financial information included herein does not necessarily reflect what
the financial position and results of operations of Networks would have been had
it operated as a stand-alone entity during the periods covered, and may not be
indicative of future operations or financial position.
SPINOFF AGREEMENTS
In conjunction with the Spinoff, Networks and General Signal will enter
into various agreements that address the allocation of assets and liabilities
between them and define their relationship after the separation, including a:
Separation and Distribution Agreement ("Distribution Agreement"); Transitional
Services Agreement ("Transitional Services Agreement"); Employee Benefits
Allocation Agreement ("Benefits Agreement"); and Tax Sharing Agreement ("Tax
Sharing Agreement").
The Distribution Agreement will provide for, among other things, the
principal transactions required to effect the Spinoff, the conditions to the
Spinoff, the allocation between General Signal and Networks of certain assets
and liabilities, and cooperation by General Signal and Networks in the provision
of information necessary to perform the administrative functions incident to
their respective businesses. The Distribution Agreement will include
cross-indemnification provisions pursuant to which Networks and General Signal
F-7
<PAGE> 80
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
indemnify each other for damages that may arise out of a breach of their
respective obligations under the agreement, which include, subject to certain
exceptions, all liabilities and obligations arising out of the conduct or
operation of their respective businesses before, on, or after the Spinoff.
The Transitional Services Agreement will provide for transitional support
with respect to information services for a period not to exceed twelve months
from the Distribution Date. Networks will pay General Signal an amount intended
to reflect the fair value of the services performed.
Pursuant to the Benefits Agreement, General Signal will generally remain
responsible for the benefits accrued and vested to Networks' employees and
former employees through the date of the Spinoff under General Signal's pension
and other postretirement plans. Networks will be responsible for compensation
and benefits of its employees following the Spinoff. Options to acquire General
Signal stock held by Networks' employees will generally be converted into
options to acquire Networks Common Stock (see Note 16). Networks' employees who
participate in long-term and other incentive plans will receive a pro rata
payout for the performance periods through the date of the Spinoff based upon
performance through that date.
The Tax Sharing Agreement will set forth each party's rights and
obligations with respect to payments and refunds, if any, of income taxes for
the periods before and after the Distribution Date and related matters such as
filing of tax returns and the conduct of audits or other proceedings involving
claims made by taxing authorities.
In general, all U.S. and certain foreign income tax liability for
pre-Spinoff periods is expected to be borne by General Signal. The financial
statements reflect such terms.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Estimates are used for, but not limited
to, the accounting for doubtful accounts, depreciation and amortization, sales
returns, warranty costs, taxes, and contingencies. Actual results could differ
from these estimates.
CASH MANAGEMENT
General Signal uses a centralized cash management system for all of its
domestic operations, including those of Networks. The net amount of daily cash
transactions is transferred to General Signal and credited to stockholder's
investment.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
on the first-in, first-out method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation,
including amortization of capitalized leases, is calculated on the straight-line
method over the estimated useful lives of the assets, which range from 30 years
to 40 years for buildings and 3 years to 10 years for machinery and equipment.
Leasehold improvements and equipment under capital leases are amortized over the
shorter of the life of the related asset or the life of the lease.
F-8
<PAGE> 81
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL
Goodwill represents the excess of the costs over the net tangible and
identifiable intangible assets of acquired businesses, is stated at cost, and is
amortized on a straight-line basis over 20 years, the estimated future period to
be benefited. On a periodic basis, the Company reviews the recoverability of
goodwill based primarily upon an analysis of undiscounted cash flows from the
acquired businesses. No impairment losses have been recognized in any period
presented. Goodwill totaled $21,366 at December 31, 1997 and 1996 and
accumulated amortization amounted to $11,520 and $10,243, respectively.
SOFTWARE DEVELOPMENT COST
Costs incurred in the research and development of new software included in
products are expensed as incurred until technological feasibility is
established. After technological feasibility is established, additional costs
are capitalized in accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed." Such costs are amortized over the lesser of three years or
the economic life of the related products. The Company performs a periodic
review of the recoverability of such capitalized software costs. At the time a
determination is made that capitalized amounts are not recoverable based on the
estimated cash flows to be generated from the applicable software, any remaining
capitalized amounts are written off.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment for standard products when
subsequent commitments by the Company are considered incidental. Revenue is
recognized on certain products upon customer acceptance or when the Company has
fulfilled the terms of the sales agreement. The Company accrues for warranty
costs, sales returns, and other allowances at the time of shipment based on its
experience.
Revenue from service obligations is deferred and recognized over the lives
of the contracts. Service revenues amounted to $30,306, $30,793 and $29,908 in
1997, 1996 and 1995, respectively. Service expenses amounted to $16,997, $14,193
and $13,608 in 1997, 1996 and 1995, respectively.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at fiscal year-end exchange rates. Income and
expense items are translated at average exchange rates prevailing during the
fiscal year. The resulting translation adjustments are recorded as a component
of equity.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain severance benefits to former or inactive
employees during the period following employment but before retirement. The
Company accrues the costs of such benefits over the expected service lives of
the employees in accordance with FASB Statement No. 112. Postemployment benefit
expense totaled $236, $403 and $177 in 1997, 1996 and 1995, respectively. At
December 31, 1997 and 1996, accrued cost for postemployment benefits was $2,183
and $2,838, respectively. Severance benefits resulting from actions not in the
ordinary course of business are accrued when those actions occur.
STOCK INCENTIVE PLANS
The Company intends to adopt a stock incentive plan. The Company will
follow Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in
F-9
<PAGE> 82
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
accounting for its employees' stock-based compensation. The Company will adopt
the disclosure-only option under SFAS No. 123, "Accounting for Stock-Based
Compensation."
CONCENTRATION OF RISK
The Company transacts business with one significant customer in its
telecommunications segment whose revenues to the Company exceeded 20% of
combined net sales. The amount of net sales and accounts receivable related to
this customer for the year ended December 31, 1997 were $50,353 and $3,928,
respectively. While management believes its relationship with this customer is
good, management believes such customer's demand for Networks'
telecommunications products will decline in the future. The loss of this
business or a greater-than-expected decline in such customer's purchasing
requirements could have a material adverse effect on Networks' business, results
of operations and financial condition.
Except as discussed above, the Company sells its products and services to a
large number of customers in various industries and geographical areas. The
Company's trade accounts receivable are exposed to credit risk; however, the
risk is limited due to the general diversity of the customer base. The Company
performs ongoing credit evaluations of its customers' financial condition. The
Company maintains reserves for potential bad debt losses and such bad debt
losses have been within the Company's expectations. Accounts receivable were net
of allowances for doubtful accounts of $925 and $1,195 at December 31, 1997 and
1996, respectively.
The Company receives certain of its products from sole suppliers. The
inability of any supplier or manufacturer to fulfill supply requirements of the
Company could impact future results.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains, and losses)
in a full set of general-purpose financial statements. The Company has adopted
the disclosure requirements of SFAS No. 130.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which changes the way public companies
report information about public segments. SFAS 131, which is based on the
management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers, and the material countries in
which the entity holds assets and reports revenue. The Company has adopted the
provisions of SFAS 131.
PRO FORMA NET INCOME PER COMMON SHARE (UNAUDITED)
Historical net income per share has been omitted since Networks was an
operating entity of General Signal during the periods presented and will be
recapitalized as part of the Spinoff. Unaudited pro forma net income per common
share is calculated as if the Spinoff had occurred on January 1, 1997. Net
income used in determining the pro forma amount is based on historical net
income adjusted for: additional costs of $520 related to insurance, directors'
fees and other functions the Company expects to incur as a stand-alone entity;
and additional interest expense of $120 resulting from additional $1,715 of debt
expected to occur in connection with the Spinoff. The assumed number of weighted
average common shares (17,400,000) is based on the number of shares of General
Signal Common Stock expected to be outstanding as of the record date for the
Spinoff and the issuance of two shares of Networks Common Stock for every five
shares of General Signal Common Stock. The dilutive effect of Networks' stock
options expected to be issued to replace General Signal stock options held by
Networks' employees is not expected to be material. In addition, because the
exercise price of the additional stock options expected to be issued to
Networks' employees upon the Spinoff (see Note 16) will be based on the fair
market value of the underlying stock upon the date of grant, such options
F-10
<PAGE> 83
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
are assumed to have nominal impact. The actual number of common shares used to
compute earnings per share after the Spinoff will depend upon the number of
shares of Networks Common Stock that are outstanding at such time as well as the
number and exercise price of outstanding options issued to acquire Networks
Common Stock. Pro forma net income and basic net income per common share is
$17,473 and $1.00, respectively for the year ended December 31, 1997. Pro forma
net income per share is presented in accordance with SFAS No. 128, "Earnings per
Share."
3. TRANSACTIONS WITH GENERAL SIGNAL
There are no material intercompany purchase or sale transactions between
General Signal and Networks. General Signal utilizes a centralized cash
management system for its operating units. All transactions under this cash
management system are reflected as payments to General Signal which is included
in stockholder's investment.
General Signal incurs costs for various matters including, administration
on common employee benefit programs, insurance, legal, accounting and other
miscellaneous items which are attributable to Networks' operations and reflected
in the financial statements. The financial statements also reflect allocated
charges from General Signal for services performed that benefit Networks
including tax compliance and financial reporting matters. The allocated costs
are based on an estimate of the proportion of corporate expenses related to the
Networks' business for the periods presented. The direct costs and allocations
from General Signal are included in selling, general and administrative, and
amounted to $3,414, $4,590 and $3,554 for 1997, 1996 and 1995.
Substantially all of the Company's salaried and hourly paid employees have
been covered by General Signal's pension plans including certain employees in
foreign countries. The plans generally provide benefit payments using a formula
based on an employee's compensation and length of service or, in some cases,
stated amounts for each year of service. Amounts charged to the Company under
the General Signal plan were $1,171, $1,403 and $507 in 1997, 1996 and 1995,
respectively, and are included in the costs above.
4. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Raw materials............................................... $ 9,011 $ 9,873
Work in process............................................. 3,839 3,837
Finished goods.............................................. 4,373 3,848
-------- --------
Net inventories............................................. $ 17,223 $ 17,558
======== ========
</TABLE>
5. PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Land........................................................ $ 1,623 $ 1,623
Building and improvements................................... 10,837 10,629
Machinery and equipment..................................... 26,035 21,575
Furniture and fixtures...................................... 8,322 7,515
-------- --------
46,817 41,342
Accumulated depreciation.................................... (28,546) (23,305)
-------- --------
$ 18,271 $ 18,037
======== ========
</TABLE>
F-11
<PAGE> 84
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Capitalized software........................................ $ 19,809 $ 18,136
Demonstration equipment..................................... 8,961 8,861
Other....................................................... 2,547 3,075
-------- --------
Total other assets.......................................... 31,317 30,072
Accumulated amortization:
Capitalized software...................................... (13,226) (10,982)
Demonstration equipment................................... (3,923) (2,681)
Other..................................................... (1,145) (820)
-------- --------
Net other assets............................................ $ 13,023 $ 15,589
======== ========
</TABLE>
Demonstration equipment represents equipment at customer locations for
demonstration purposes and is amortized on a straight-line basis over a period
not to exceed three years.
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Deferred revenue............................................ $ 5,707 $ 5,758
Payroll and other compensation.............................. 5,082 5,731
Accrued severance pay....................................... 2,183 2,838
Accrued commissions......................................... 1,795 1,443
Other accrued expenses...................................... 6,397 8,390
------- -------
Total accrued expenses...................................... $21,164 $24,160
======= =======
</TABLE>
8. COMPREHENSIVE INCOME
Comprehensive income for each of the years ended December 31 includes the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Net income.................................................. $17,857 $18,352 $6,153
Other comprehensive income:
Foreign currency translation adjustment................... 270 (11) (36)
------- ------- ------
Comprehensive income........................................ $17,587 $18,363 $6,189
======= ======= ======
</TABLE>
F-12
<PAGE> 85
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. DEBT
Short-term borrowings and long-term debt at December 31, 1997 and 1996
consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Massachusetts Industrial Revenue Bonds due December 1,
2004...................................................... $7,500 $ 7,500
Connecticut Development Authority Bonds due April 1, 2005... 1,931 2,273
Capital lease obligations................................... 500 721
------ -------
9,931 10,494
Less current portion of long-term debt...................... 987 825
------ -------
$8,944 $ 9,669
====== =======
Short-term borrowings....................................... $6,354 $ 2,200
====== =======
</TABLE>
Interest on the Massachusetts Industrial Revenue Bonds is payable quarterly
and is based on market interest rates for comparable tax-exempt securities. The
interest rate in effect at December 31, 1997 was 3.85%. The weighted average
interest rate was 3.70% and 3.19% in 1997 and 1996, respectively. These bonds
are guaranteed by General Signal and supported by a standby letter of credit
issued by a financial institution. A fee of 0.25% per annum is paid on the
letter of credit. The letter of credit securing the Massachusetts Industrial
Revenue Bonds contains financial covenants and restrictions relating to General
Signal's interest expense coverage, debt to equity ratios and minimum net worth.
The Connecticut Development Authority Bonds have monthly principal and
interest payments. Interest is calculated annually at the greater of (a) 5.25%
or (b) the London Interbank Offered Rate (LIBOR) less 1%. The bond contains
certain covenants including maintenance of minimum employee levels within the
State of Connecticut. The Networks employee base in Connecticut was below the
minimum required under the bond covenants. Covenant violations resulted in an
increased interest rate and acceleration of annual principal payments. The
interest rate was 5.25% in 1997 and 1996. The bonds are secured by certain real
property of the Company with a net book value of $3,373.
The Massachusetts Industrial Revenue Bonds and the Connecticut Development
Authority Bonds (the "Bonds") are expected to be liabilities of Networks after
the Spinoff, and General Signal is expected to be released from its obligations
under the Bonds.
Foreign subsidiaries had lines of credit with European banks in their local
currency with a U.S. value of approximately $8,611, of which approximately
$2,257 was unused at December 31, 1997. The revolving credit loans are
classified on the accompanying balance sheet as short-term borrowings. The
weighted average interest rate on the used portion of the foreign lines of
credit was 7.1% and 7.4% in 1997 and 1996, respectively. The lines of credit are
guaranteed by General Signal through the date of the Spinoff. Networks does not
expect a material adverse change to the terms of these facilities subsequent to
the Spinoff.
On December 31, 1997, the aggregate annual maturities of long-term debt are
as follows: 1998 -- $987; 1999 -- $324; 2000 -- $293; 2001 -- $304;
2002 -- $277; and thereafter -- $7,746.
The fair market value of short-term borrowings approximates the carrying
value due to the terms of the debt agreements. It is not practical to determine
the fair market value of the bonds because they are fixed rate bonds with
governmental entities that do not trade.
Interest paid in 1997, 1996 and 1995 amounted to $1,509, $497 and $1,966,
respectively.
10. INCOME TAXES
The Company has been included in the consolidated federal income tax return
of General Signal. The following provision for income taxes was determined as if
the Company were a separate taxpayer.
F-13
<PAGE> 86
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Current provision:
Federal...................................... $ 4,909 $ 9,137 $5,487
Foreign...................................... 514 337 716
State and local.............................. 1,539 2,870 1,574
Deferred provision:
Federal...................................... 4,678 946 (610)
Foreign...................................... -- -- --
State and local.............................. 558 207 41
------- ------- ------
Total.......................................... $12,198 $13,497 $7,208
======= ======= ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of
deferred income tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Inventories.............................................. $ 3,630 $ 3,935
General business credits................................. -- 2,220
Employee benefits........................................ 1,568 2,298
Warranty................................................. 703 648
Bad debt reserve......................................... 361 513
Other.................................................... 345 998
------- -------
Total deferred tax assets................................ 6,607 10,612
Deferred tax liabilities:
Accelerated depreciation................................. (626) (636)
Capitalized software..................................... (2,388) (2,263)
Other.................................................... (154) (785)
------- -------
Total deferred tax liabilities........................... (3,168) (3,684)
------- -------
Net deferred tax assets.................................... $ 3,439 $ 6,928
======= =======
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $1,300 at December 31, 1997. Those earnings are considered to be
indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes or foreign withholding taxes has been made. Upon distribution
of those earnings, the Company would be subject to U.S. income taxes (subject to
a reduction for foreign tax credits) and withholding taxes payable to the
various foreign countries. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable.
F-14
<PAGE> 87
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
For financial reporting purposes, earnings from operations before income
taxes includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Pretax income:
United States............................... $29,878 $32,123 $11,709
Foreign..................................... 177 (274) 1,652
------- ------- -------
$30,055 $31,849 $13,361
======= ======= =======
</TABLE>
Components of the effective income tax rate are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax at U.S. federal statutory rate..................... 35.0% 35.0% 35.0%
State and local income taxes, net of U.S. federal
benefit.............................................. 4.5 6.3 7.8
Goodwill............................................... 1.4 1.4 3.2
Nondeductible merger and restructuring costs........... -- -- 7.1
Other.................................................. -- -- 0.6
Foreign Sales Corporation.............................. (1.8) (1.7) (.8)
Foreign rates and foreign dividends.................... 1.5 1.4 1.0
---- ---- ----
40.6% 42.4% 53.9%
==== ==== ====
</TABLE>
Tax provisions are settled through the intercompany account and General
Signal made payments (refunds) on behalf of the Company, which approximated
$7,000, $12,000, and $8,000 in 1997, 1996, and 1995, respectively.
11. FOREIGN CURRENCY CONTRACTS
General Signal utilized natural hedges and offsets to reduce foreign
currency exposures and also combined positions to reduce the cost of hedging.
General Signal entered into forward foreign exchange contracts and purchased
currency options to hedge net combined currency transaction exposure for periods
consistent with the terms of the underlying transactions including consideration
given to Networks' foreign operations.
The Company conducts its business in various foreign countries and foreign
currencies. Accordingly, the Company is subject to the typical currency risks
and exposures that arise as a result of changes in the relative value of
currencies such as transactional, translational, and economic currency
exposures. General Signal's policy stresses risk reductions and prohibits
speculation. General Signal policy objectives were to: reduce currency risk on a
consolidated basis; protect the functional currency value of foreign currency
denominated cash flows and reduce the volatility the changes in foreign exchange
rates may present to operating income.
Foreign currency forward or option contracts were not used for trading
purposes by General Signal, and these contracts did not subject the Company to
currency risk from exchange rate movements. Gains and losses related to forward
foreign exchange and option contracts that qualify for hedge accounting
treatment are deferred and offset against losses and gains when the underlying
transaction occurs.
12. CONTINGENCIES
There are contingent liabilities for lawsuits and various other matters
occurring in the ordinary course of business. On the basis of information
furnished by counsel and others, management believes that none of these
contingencies will materially affect Networks' financial position or results of
operations.
F-15
<PAGE> 88
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. OPERATING LEASES
The Company has various operating lease agreements for office space and
equipment. The lease agreements generally contain renewal options. The future
minimum rental payments under leases with remaining noncancelable terms in
excess of one year are:
<TABLE>
<S> <C>
Year ending December 31,
1998...................................................... $2,187
1999...................................................... 1,472
2000...................................................... 930
2001...................................................... 251
2002...................................................... 188
Subsequent to 2002........................................ 1,927
------
$6,955
======
</TABLE>
Rent expense amounted to $2,747 in 1997, $2,861 in 1996, and $3,921 in
1995.
14. CAPITAL STOCK
In connection with the Spinoff, the Company will have authorized capital
stock consisting of 10,000,000 shares of preferred stock, $0.01 par value, and
85,000,000 shares of common stock, $0.01 par value. No shares of preferred stock
will be issued in connection with the Spinoff. Based on the number of shares of
General Signal common stock expected to be outstanding on the record date for
the Spinoff, approximately 17,400,000 shares of Networks Common Stock will be
issued and outstanding upon the Spinoff.
Networks Common Stock will entitle the holder to one vote for each share on
all matters voted on by stockholders and be entitled to such dividends as may be
declared from time to time by the Board of Directors of the Company.
In connection with the Spinoff, the Board of Directors of Networks intends
to adopt the Networks Rights Agreement. Prior to the Distribution Date, the
Board of Directors of Networks will declare a dividend of one right (the
"Networks Right") to be paid on the Distribution Date in respect to each share
of Networks Common Stock to the holder of record on the record date for the
Spinoff. Each Networks Right will entitle the registered holder to purchase from
the Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock of Networks ("Junior Preferred Stock") at an exercise price to
be determined. The Networks Rights will not be exercisable until the occurrence
of certain events relating to a potential change of control. If a person or
group of affiliated or associated persons acquires beneficial ownership of 15%
or more of the outstanding Networks Common Stock, the Networks Rights will
become exercisable to acquire Networks Common Stock at half price (other than
the Networks Rights held by such acquirer which become void). The Board of
Directors of Networks may amend the terms of the Networks Rights or redeem the
Networks Rights at any time prior to an acquisition of 15% or more of the then
outstanding Networks Common Stock at a price of $.01 per Networks Right.
15. EMPLOYEE BENEFITS PLANS
As discussed in Note 3 above, Networks participated in General Signal's
defined benefit pension plan which covered substantially all employees. The
Company does not intend to offer a defined benefit plan to its employees and all
vested benefits under the General Signal plan will be frozen and remain the
liability of General Signal.
Networks intends to establish a qualified defined contribution plan to
which the accounts of Networks' employees under the General Signal Savings and
Stock Ownership plan will be transferred.
F-16
<PAGE> 89
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
16. STOCK OPTIONS
General Signal has certain Stock Option Plans (the "Plans") under which
nonqualified stock options were granted to certain employees of Networks. The
options were issued with an exercise price equal to the fair market value of the
underlying stock at the date of grant, accordingly, no compensation was
recorded. In connection with the Spinoff, stock options under the Plans that are
not exercised prior to the effective date of the Spinoff will be adjusted. Stock
options under the Plans held by employees who remain with Networks after the
Spinoff will generally be converted into options to purchase shares of Networks
Common Stock. The number of shares subject to, and the exercise price of, each
General Signal option that is converted to a Network stock option will be
adjusted based upon a formula that preserves the inherent economic value,
vesting and term provisions of such General Signal options. At December 31,
1997, there are 86,064 shares subject to the outstanding General Signal stock
options issued to Networks' employees under the Plan with an exercise price
ranging from $13.94 to $53.98 per share which are expected to be converted. The
ultimate number and exercise price of the Network stock options to be issued
upon the Spinoff, subject to the above calculation, cannot yet be determined.
In connection with the Spinoff, Networks intends to adopt the Networks 1998
Stock Incentive Plan (the "1998 Plan"), pursuant to which 3.0 million shares of
Networks Common Stock will be reserved for issuance in connection with the
granting of stock options, restricted stock and other stock-based incentive
awards to Networks employees and directors. Under the 1998 Plan, Networks
expects to grant options to employees to purchase approximately 1.64 million
shares of Networks Common Stock with an exercise price equal to the fair market
value of the Networks Common Stock at the time of the Spinoff.
Networks also plans to issue under the 1998 Plan 41,500 shares of
restricted Networks Common Stock to its executive officers at the time of the
Spinoff. The fair market value of the restricted stock will be charged to
compensation expense over the related vesting period of such stock.
17. BUSINESS COMBINATION
On November 9, 1995, General Signal completed a merger with Data Switch
Corporation by exchanging 1.8 million shares of General Signal common stock and
0.2 million rights to receive General Signal common stock for all of the
outstanding common stock and related options and warrants of Data Switch. Data
Switch designs, develops, manufactures, markets, and services products for
large-scale data center networks. The merger constituted a tax-free exchange and
was accounted for as a pooling of interests under Accounting Principles Board
Opinion No. 16. The Data Switch operations were combined with Networks upon
completion of the merger and are included in the combined financial statements.
In connection with the merger, the Company recorded a charge to operating
expenses of $12,671 in 1995 and $731 in 1996 for direct and other merger-related
costs pertaining to the merger transaction and certain restructuring programs.
Merger transaction costs ($2,753) consisted primarily of fees for investment
bankers, attorneys, and other professional fees. Restructuring costs of $5,728
represented estimated severance and outplacement of terminated employees and
exit cost. Also the charge included a non-cash charge of $4,921 related to asset
valuation adjustments. Actual payments amounted to $3,663, $4,034, and $630 in
1995, 1996, and 1997, respectively.
In 1995, Data Switch wrote-off $1,099 of intangibles which were determined
not to be recoverable.
Data Switch had $7,757 of cash on January 1, 1995 reflected in the cash
flow statement and $18,600 of long-term debt as of December 31, 1995 which was
paid in full in 1996.
18. GEOGRAPHIC REGION AND BUSINESS SEGMENT INFORMATION
The Company has two operating segments, data networking and
telecommunications. The data networking segment provides technologically
advanced, scalable networking and switching products to businesses that handle
high-volume on-line transaction processing such as banks, credit card
processors, airline reservation
F-17
<PAGE> 90
NETWORKS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
systems, and government agencies. The telecommunications segment provides test
and monitoring products to enable customers to test transmission quality and
reliability.
The reportable segments are each managed separately. The Company evaluates
performances and allocates resources separately for each division. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Data networking.......................................... $162,127 $164,992 $160,096
Telecommunications....................................... 56,844 49,441 42,590
-------- -------- --------
Total combined sales....................................... $218,971 $214,433 $202,686
======== ======== ========
Operating income before merger and restructuring costs:
Data networking.......................................... $ 12,460 $ 19,473 $ 18,273
Telecommunications....................................... 19,104 13,604 9,725
-------- -------- --------
Total operating income before merger and restructuring
costs.................................................... $ 31,564 $ 33,077 $ 27,998
======== ======== ========
Depreciation and amortization:
Data networking.......................................... $ 11,395 $ 10,099 $ 8,248
Telecommunications....................................... 3,133 2,369 1,618
-------- -------- --------
Total depreciation and amortization........................ $ 14,528 $ 12,468 $ 9,866
======== ======== ========
Identifiable assets:
Data networking.......................................... $ 89,855 $ 97,883 $ 92,575
Telecommunications....................................... 15,597 20,398 18,828
-------- -------- --------
Total identifiable assets.................................. $105,452 $118,281 $111,403
======== ======== ========
Expenditures for long-lived assets:
Data networking.......................................... $ 9,510 $ 15,046 $ 8,536
Telecommunications....................................... 1,685 1,486 1,842
-------- -------- --------
Total expenditures for long-lived assets................... $ 11,195 $ 16,532 $ 10,378
======== ======== ========
</TABLE>
The data networking segment recorded merger and restructuring cost of
$12,671 in 1995 and $731 in 1996 in connection with the acquisition of Data
Switch.
Revenues, operating income and identifiable assets by geographic area as of
and for fiscal years ended December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Domestic......................................... $170,132 $169,161 $161,834
Foreign.......................................... 27,691 25,392 21,950
Export........................................... 21,148 19,880 18,902
-------- -------- --------
$218,971 $214,433 $202,686
======== ======== ========
Long-lived assets:
Domestic......................................... $ 38,629 $ 43,728 $ 40,337
Foreign.......................................... 2,511 1,021 1,022
-------- -------- --------
$ 41,140 $ 44,749 $ 41,359
======== ======== ========
</TABLE>
F-18
<PAGE> 91
NETWORKS
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BEGINNING CHARGED TO ENDING
DESCRIPTIONS BALANCE COSTS & EXPENSES DEDUCTIONS(1) BALANCE
- ------------ --------- ---------------- ------------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts............ $1,195 $132 $(402) $ 925
Year ended December 31, 1996:
Allowance for doubtful accounts............ $1,018 $216 $ (39) $1,195
Year ended December 31, 1995:
Allowance for doubtful accounts............ $1,189 $ 49 $(220) $1,018
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
F-19
<PAGE> 92
PART II
INFORMATION NOT INCLUDED IN THE INFORMATION STATEMENT
15. Financial Statements and Exhibits.
(b) Exhibits:
<TABLE>
<C> <S>
2* Form of Distribution Agreement between General Signal and
Networks
3.1* Form of Amended and Restated Certificate of Incorporation of
Networks
3.2* Form of Amended and Restated By-Laws of Networks
4.1 No instrument that defines the rights of holders of
long-term debt of Networks and all of its subsidiaries is
filed herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to such regulation, the
Registrant hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
4.2* Form of Rights Agreement by and between Networks and
[ ], as Rights Agent
10.1* Form of Employee Benefit Allocation Agreement between
General Signal and Networks
10.2* Form of Tax Sharing Agreement between General Signal and
Networks
10.3** Form of Transitional Services Agreement between General
Signal and Networks
10.4* Form of Networks 1998 Stock Incentive Plan
10.5** Form of Change of Control Agreements between Networks and
eight executive officers
21** Subsidiaries of Networks
27** Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
II-1
<PAGE> 93
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant as duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
GENERAL SIGNAL NETWORKS, INC.
By: /s/ ROBERT COACKLEY
------------------------------------
Name: Robert Coackley
Title: President
Date: May 13, 1998
II-2
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
2* Form of Distribution Agreement between General Signal and
Networks....................................................
3.1* Form of Amended and Restated Certificate of Incorporation of
Networks....................................................
3.2* Form of Amended and Restated By-Laws of Networks............
4.1 No instrument that defines the rights of holders of
long-term debt of Networks and all of its subsidiaries is
filed herewith pursuant to Regulation S-K, Item
601(b)(4)(iii)(A). Pursuant to such regulation, the
Registrant hereby agrees to furnish a copy of any such
instrument to the Commission upon request...................
4.2* Form of Rights Agreement by and between Networks and [ ],
as Rights Agent.............................................
10.1* Form of Employee Benefit Allocation Agreement between
General Signal and Networks.................................
10.2* Form of Tax Sharing Agreement between General Signal and
Networks....................................................
10.3** Form of Transitional Services Agreement between General
Signal and Networks.........................................
10.4* Form of Networks 1998 Stock Incentive Plan..................
10.5** Form of Change of Control Agreements between Networks and
eight executive officers....................................
21** Subsidiaries of Networks....................................
27** Financial Data Schedule.....................................
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 2
================================================================================
FORM OF
SEPARATION AND DISTRIBUTION AGREEMENT
by and between
GENERAL SIGNAL CORPORATION,
a New York corporation
and
GENERAL SIGNAL NETWORKS, INC.,
a Delaware corporation
-------------
As of __________ __, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
1.1 General........................................................ 1
1.2 References to Time............................................. 12
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO
THE DISTRIBUTION DATE
2.1 Share Purchase Rights Plan; Certificate of Incorporation;
By-laws ....................................................... 13
2.2 Issuance of Stock.............................................. 13
2.3 Contribution of Assets and Assumption of Liabilities........... 13
2.4 Consummation of Local Agreements............................... 14
2.5 Conduct of Business Pending the Distribution Date.............. 14
2.6 Financing...................................................... 14
2.7 Registration and Listing....................................... 14
2.8 Intercompany Accounts; Dividends............................... 15
2.9 Tautron Industrial Revenue Bond................................ 15
2.10 Transfer Act Filings........................................... 15
ARTICLE III
THE DISTRIBUTION
3.1 Record Date and Distribution Date.............................. 16
3.2 The Agent...................................................... 16
3.3 Delivery of Share Certificates to the Agent.................... 16
3.4 Distribution................................................... 16
3.5 Fractional Shares.............................................. 16
ARTICLE IV
SURVIVAL; ASSUMPTION AND INDEMNIFICATION
4.1 Survival of Agreements......................................... 17
4.2 Income Tax Liabilities......................................... 17
4.3 Assumption and Indemnification................................. 17
-i-
<PAGE> 3
4.4 Procedure for Indemnification.................................. 18
4.5 Remedies Cumulative............................................ 20
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
5.1 Further Assurances............................................. 20
5.2 Intercompany Agreements........................................ 21
5.3 Other Agreements............................................... 21
5.4 Transfer Taxes................................................. 22
5.5 Networks Support Agreements.................................... 22
5.6 Directors and Officers......................................... 22
5.7 Use of General Signal Name..................................... 22
5.8 Data Switch Warrant Obligations................................ 22
ARTICLE VI
ACCESS TO INFORMATION
6.1 Provision of Corporate Records................................. 23
6.2 Access to Information.......................................... 23
6.3 Production of Witnesses........................................ 24
6.4 Reimbursement.................................................. 24
6.5 Retention of Records........................................... 24
6.6 Privileged Information......................................... 24
6.7 Confidentiality................................................ 26
ARTICLE VII
ARBITRATION; DISPUTE RESOLUTION
7.1 Agreement to Arbitrate......................................... 26
7.2 Escalation..................................................... 27
7.3 Demand for Arbitration......................................... 27
7.4 Arbitrators.................................................... 28
7.5 Hearings....................................................... 29
7.6 Discovery and Certain Other Matters............................ 29
7.7 Certain Additional Matters..................................... 30
7.8 Limited Court Actions.......................................... 31
7.9 Continuity of Service and Performance.......................... 31
7.10 Law Governing Arbitration Procedures........................... 31
-ii-
<PAGE> 4
ARTICLE VIII
NO REPRESENTATIONS OR WARRANTIES; EXCEPTIONS; MUTUAL RELEASE
8.1 No Representations or Warranties; Exceptions................... 32
8.2 Mutual Release................................................. 32
ARTICLE IX
INSURANCE
9.1 Insurance Policies and Rights.................................. 33
9.2 Post-Distribution Date Claims.................................. 33
9.3 Administration and Reserves.................................... 33
9.4 Insurance Premiums............................................. 34
9.5 Allocation of Insurance Proceeds; Cooperation.................. 34
9.6 Reimbursement of Expenses...................................... 34
9.7 Insurer Insolvency............................................. 35
9.8 Letters of Credit.............................................. 35
9.9 No Reduction of Coverage....................................... 35
9.10 Future Insurance Coverage...................................... 35
9.11 Assistance, Waiver of Conflict and Shared Defense.............. 35
ARTICLE X
MISCELLANEOUS
10.1 Conditions to Obligations...................................... 36
10.2 Complete Agreement............................................. 37
10.3 Expenses....................................................... 37
10.4 Governing Law.................................................. 37
10.5 Notices........................................................ 37
10.6 Amendment and Modification..................................... 38
10.7 Successors and Assigns; No Third-Party Beneficiaries........... 38
10.8 Counterparts................................................... 38
10.9 Interpretation................................................. 38
10.10 Legal Enforceability........................................... 38
10.11 References; Construction....................................... 38
10.12 Termination.................................................... 38
-iii-
<PAGE> 5
List of Exhibits and Schedules:
Exhibit A -- Form of Employee Benefits Allocation Agreement
Exhibit B -- Form of Tax Sharing Agreement
Exhibit C -- Form of Transitional Services Agreement
Exhibit D -- Form of Restated Certificate of Incorporation of Networks
Exhibit E -- Form of By-laws of Networks
Exhibit F(1) -- Form of License Relating to Mt. Laurel Office Space
Exhibit F(2) -- Form of License Relating to Singapore Office Space
Schedule 1 -- Certain Contributed Intellectual Property
Schedule 2 -- General Signal Casualty Insurance Policies
Schedule 3 -- Miscellaneous Networks Liabilities
Schedule 4 -- Networks Subsidiaries
Schedule 5 -- Surviving Intercompany Agreements
-iv-
<PAGE> 6
SEPARATION AND DISTRIBUTION AGREEMENT
SEPARATION AND DISTRIBUTION AGREEMENT, dated as of _________ __,
1998, by and between General Signal Corporation, a New York corporation
("General Signal"), and General Signal Networks, Inc., a Delaware corporation
and indirect wholly owned subsidiary of General Signal ("Networks").
W I T N E S S E T H:
WHEREAS, the Board of Directors of General Signal has determined
that it is appropriate and desirable to separate General Signal and its
subsidiaries into two publicly traded companies by: (1) consolidating into
Networks and its subsidiaries all of General Signal's telecommunications testing
and monitoring businesses and data networking businesses that are not already in
Networks and its subsidiaries and (2) distributing to the holders of the issued
and outstanding shares of common stock, $6.67 par value (in the case of shares
issued in or prior to 1969) and $1 par value (in the case of all other shares),
of General Signal all of the issued and outstanding shares of common stock, par
value $.01 per share, of Networks in accordance with Article III hereof (the
"Distribution");
WHEREAS, the Distribution is intended to qualify as a tax-free spin
off under Section 355 of the Internal Revenue Code of 1986, as amended;
WHEREAS, the parties hereto have determined that it is necessary and
desirable to set forth the principal corporate transactions required to effect
the Distribution and to set forth other agreements that will govern certain
other matters prior to and following such Distribution;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. General. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
Action: any demand, action, suit, countersuit, arbitration, inquiry,
proceeding or investigation by or before any federal, state, local, foreign or
international Governmental Authority or any arbitration or mediation tribunal.
Actual Operating Cash Flow: unit cash flow (as defined in General
Signal's internal financial policy manual) of the Networks Business from January
1, 1998 through the Distribution Date.
<PAGE> 7
Affiliate: with respect to any specified Person, a Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person; provided,
however, that for purposes of this Agreement, no member of either Group shall be
deemed to be an Affiliate of any member of the other Group.
Agent: the distribution agent to be appointed by General Signal to
distribute shares of Networks Common Stock in the Distribution.
Applicable Deadline: as defined in Section 7.3(b).
Arbitration Act: the United States Arbitration Act, 9 U.S.C. ss.ss.
1-14, as the same may be amended from time to time.
Arbitration Demand Date: as defined in Section 7.3(a) hereof.
Arbitration Demand Notice: as defined in Section 7.3(a) hereof.
Arbitrator: as defined in Section 7.4(a).
Assets: any and all assets, properties and rights (including
goodwill), wherever located (including in the possession of vendors or other
third parties or elsewhere), whether real, personal or mixed, tangible,
intangible or contingent, in each case whether or not recorded or reflected or
required to be recorded or reflected on the books and records or financial
statements of any Person, including the following:
(1) all accounting and other books, records and files whether
in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any
other form;
(2) all apparatus, computers and other electronic data
processing equipment, fixtures, trade fixtures, machinery, equipment, furniture,
office equipment, automobiles, trucks, rolling stock, motor vehicles and other
transportation equipment, special and general tools, test devices, prototypes
and models and any other tangible personal property;
(3) all inventories of materials, parts, raw materials,
supplies, work-in-process, consigned goods and finished goods and products;
(4) all interests in real property of whatever nature,
including easements, whether as owner, mortgagee or holder of a Security
Interest in real property, lessor, sublessor, lessee, sublessee or otherwise;
(5) all buildings and other improvements to real property and
all leasehold improvements;
(6) all bonds, notes, debentures or other securities issued by
any other Person, all loans, advances or other extensions of credit or capital
contributions to any Subsidiary or any other Person, all certificates of
deposit, banker's acceptances, certificates of interest or participation in
profit sharing agreements, collateral trust certificates, preorganization
certificates
-2-
<PAGE> 8
or subscriptions, transferable shares, investment contracts, voting trust
certificates, fractional undivided interests in oil, gas or other mineral
rights, puts, calls, straddles, options and other securities of any kind;
(7) all license agreements, leases of personal property, open
purchase orders for raw materials, supplies, parts or services, unfilled orders
for the manufacture and sale of products and other sales and purchase
agreements, permits, distribution arrangements, and all other contracts,
agreements or commitments;
(8) all deposits, letters of credit and performance and surety
bonds;
(9) all written technical information, data, specifications,
research and development information, engineering drawings, operating and
maintenance manuals, and materials and analyses prepared by consultants and
other third parties;
(10) all domestic and foreign patents, statutory, common law
and registered copyrights, trade names, registered and unregistered trademarks,
service marks, service names, trade styles, product bar codes and associated
goodwill, and registrations and applications for any of the foregoing, mask
works, trade secrets, inventions, confidential information, other proprietary
information and licenses from third Persons granting the right to use any of the
foregoing and other rights in, to and under the foregoing;
(11) all computer applications, programs and other software,
including operating software, network software, firmware, middleware, design
software, design tools, systems documentation and instructions owned by or
licensed to such Person;
(12) all cost information, sales and pricing data, customer
prospect lists, supplier records, customer and supplier lists, customer and
vendor data, correspondence and lists, product literature, artwork, design,
development and manufacturing files, vendor and customer drawings, formulations
and specifications, quality records and reports, lists of advertisers, records
pertaining to advertisers and accounts, and other books, records, studies,
surveys, reports, plans and documents;
(13) all prepayments or prepaid expenses, trade accounts and
other accounts and notes receivable;
(14) the right to receive mail, payments on accounts
receivable and other communications;
(15) all rights under contracts or agreements, all claims or
rights against any Person arising from the ownership of any Asset, all rights in
connection with any bids or offers and all claims, causes of action, rights of
recovery and rights of set-off or similar rights, whether accrued or contingent;
(16) all licenses, permits, approvals and authorizations which
have been issued by any Governmental Authority;
-3-
<PAGE> 9
(17) advertising materials and other printed or written
materials;
(18) employee contracts, including any rights thereunder to
restrict an employee from competing in certain respects;
(19) bank accounts, lock boxes and other deposit arrangements;
and
(20) interest rate, currency, commodity or other swap, collar,
cap or other hedging or similar agreements or arrangements.
Assumed Liabilities: all Networks Liabilities that are not
Liabilities of a member of the Networks Group immediately prior to the
Contribution, other than the Foreign Networks Liabilities.
Budgeted Operating Cash Flow: an amount equal to the sum of (i)
$17,316,000, (ii) $22,786 multiplied by the number of days from and including
June 28, 1998 to the earlier of the Distribution Date or July 25, 1998, and
(iii) $209,214 multiplied by the number of days, if any, from and including July
26, 1998 to the earlier of the Distribution Date or August 22, 1998.
Business Day: any day other than a Saturday, a Sunday or a day on
which banking institutions located in the states of Connecticut, New York or
Delaware are authorized or obligated by law or executive order to close.
Cash Amount: the sum of (x) any cash on hand at the Networks
Business at the close of business on the Distribution Date (other than cash
drawn down from the Financing Facility to pay the Measured Debt Amount) and (b)
the Cash Amount Shortfall.
Cash Amount Excess: the amount, if any, by which (x) Actual
Operating Cash Flow exceeds (y) $1 million plus Budgeted Operating Cash Flow.
Cash Amount Shortfall: the amount, if any, by which (x) Budgeted
Operating Cash Flow minus $1 million exceeds (y) Actual Operating Cash Flow.
Claims Administration: the processing of claims made under the
Insurance Policies, including the reporting of claims to the insurance carrier,
management and defense of claims and providing for appropriate releases upon
settlement of claims.
Contributed Assets: subject to the provisions of the Other
Agreements and Section 5.7 hereof, (1) the Tautron Assets, (2) the patents and
registered trademarks, trade names and copyrights (including applications for
any of the foregoing) listed on Schedule 1, (3) all rights of General Signal and
its Affiliates in any other statutory or common law trademarks, trade names,
copyrights, service marks, service names, trade styles, product bar codes and
associated goodwill, and registrations and applications for any of the
foregoing, mask works, trade secrets, inventions, confidential information,
other proprietary information and licenses from third Persons granting the right
to use any of the foregoing and other rights in, to and under the foregoing, to
the extent the foregoing were used exclusively in the Networks Business, (4) the
books and rec-
-4-
<PAGE> 10
ords to be delivered to Networks pursuant to and to the extent set forth in
Article VI of this Agreement, (5) the rights under the General Signal Combined
Policies to the extent set forth in Article IX of this Agreement, and (6) any
Assets that are expressly contemplated to be transferred to Networks pursuant to
any Other Agreement (other than the Foreign Networks Assets to be transferred to
Networks Subsidiaries pursuant to the Local Agreements).
Contribution: as defined in Section 2.3(a).
CPR: the Center for Public Resources.
Data Switch Warrants: the warrants to purchase shares of General
Signal Common Stock issued and outstanding pursuant to the Warrant Agreement.
Distribution: the distribution to holders of shares of General
Signal Common Stock to be effected pursuant to Article III on the basis of two
shares of Networks Common Stock for every five shares of General Signal Common
Stock held of record as of the Record Date.
Distribution Date: the date, to be determined by the Board of
Directors of General Signal, or the Executive Committee thereof, as of which the
Distribution shall be effected.
Employee Benefits Allocation Agreement: an employee benefits
allocation agreement to be entered into between General Signal and Networks
substantially in the form attached hereto as Exhibit A, with such changes as may
be mutually satisfactory to General Signal and Networks.
Escalation Notice: as defined in Section 7.2(a) hereof.
Exchange Act: the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
Financing Facility: the working capital facility to be entered into
prior to the Distribution Date by and among Networks and an agent or co-agents
selected by Networks.
Foreign Exchange Rate: with respect to any currency other than
United States dollars as of any date, the average of the opening bid and asked
rates on such date at which such currency may be exchanged for United States
dollars as quoted by Commerzbank, except that, with respect to any Indemnifiable
Loss covered by insurance, the Foreign Exchange Rate for such currency shall be
determined as set forth in Section 4.3(e)(2).
Foreign Networks Assets: the Assets relating to the Networks
Business to be transferred to Networks Subsidiaries pursuant to the Local
Agreements.
-5-
<PAGE> 11
Foreign Networks Liabilities: the Liabilities arising out of or
relating to the Networks Business to be assumed by Networks Subsidiaries
pursuant to the Local Agreements.
Foreign Subsidiary: any of General Signal Limited (Canada), General
Signal U.K. Ltd., General Signal GmbH & Co. KG (Germany), Tautron UK Limited
(UK), Telenex Europe Limited (UK), General Signal Networks GmbH and Data Switch
Electronik GmbH.
General Signal: as defined in the preamble to this Agreement.
General Signal Assets: subject to the provisions of the Other
Agreements, all of the Assets, other than the Networks Assets, held prior to the
Distribution Date by any member of the General Signal Group.
General Signal Business: all of the businesses, other than the
Networks Business, conducted prior to the Distribution Date by the General
Signal Group.
General Signal Casualty Insurance Policies: The insurance policies
set forth on Schedule 2.
General Signal Combined Policies: all Insurance Policies, current
and past, which relate to both the General Signal Business and the Networks
Business.
General Signal Common Stock: the common stock, $6.67 par value (in
the case of shares issued in or prior to 1969) and $1 par value (in the case of
all other shares), of General Signal.
General Signal Director: any individual who is a member of the Board
of Directors of General Signal following the Distribution.
General Signal Employee: as defined in the Employee Benefits
Allocation Agreement.
General Signal Former Employee: as defined in the Employee Benefits
Allocation Agreement.
General Signal Group: General Signal and its Affiliates, other than
members of the Networks Group.
General Signal Liabilities: all of the Liabilities, other than the
Networks Liabilities, of any member of the General Signal Group, including
without limitation liabilities assumed or retained by any member of the General
Signal Group pursuant to the Other Agreements (subject to the provisions
thereof).
Governmental Authority: any federal, state, local, foreign or
international court, government, department, commission, board, bureau, agency,
official or other regulatory, administrative or governmental authority.
Group: the General Signal Group or the Networks Group.
Income Tax: as defined in the Tax Sharing Agreement.
-6-
<PAGE> 12
Indemnifiable Losses: all losses, Liabilities, damages, claims,
demands, judgments or settlements of any nature or kind, known or unknown,
fixed, accrued, absolute or contingent, liquidated or unliquidated, including
all reasonable costs and expenses (legal, accounting or otherwise as such costs
are incurred) relating thereto, suffered by an Indemnitee.
Indemnifying Party: a Person who or which is obligated under this
Agreement to provide indemnification.
Indemnitee: a Person who may seek indemnification under this
Agreement.
Indemnity Payment: an amount that an Indemnifying Party is required
to pay to an Indemnitee pursuant to Article IV.
Information: all records, books, contracts, instruments, computer
data and other data and information.
Information Statement: an information statement relating to the
Distribution, which shall form a part of the Registration Statement and shall be
mailed to stockholders of General Signal.
Insurance Administration: with respect to each Insurance Policy, (1)
the accounting for premiums (including retrospectively-rated premiums), defense
costs, indemnity payments, deductibles and retentions as appropriate under the
terms and conditions of each of the Insurance Policies, (2) the reporting of
losses or claims to primary insurance carriers, (3) the reporting to umbrella
and excess insurance carriers of any losses or claims which may cause the
per-occurrence or aggregate limits of any Insurance Policy to be exceeded and
(4) the distribution of Insurance Proceeds as contemplated by this Agreement.
Insurance Policy: insurance policies and insurance contracts of any
kind that are owned or maintained by any member of either Group as the insured
interest, including primary umbrella and excess policies, comprehensive general
liability policies, automobile, directors' and officers', fidelity, property and
casualty, aircraft and workers' compensation insurance policies, together with
the rights, benefits and privileges thereunder, but excluding self-insurance and
captive insurance arrangements.
Insurance Proceeds: those monies received by an insured from an
insurance carrier or paid by an insurance carrier on behalf of the insured, in
either case net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.
Insured Claims: those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Insurance
Policies, whether or not subject to deductibles, coinsurance, uncollectibility
or retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Insurance Policy limits, including aggregates.
-7-
<PAGE> 13
Liabilities: all debts, liabilities and obligations, whether
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising, and whether or not the
same would properly be reflected on a balance sheet, including all costs and
expenses relating thereto.
Licenses: the licenses to be entered into between General Signal and
Networks, or the appropriate members of the General Signal Group and the
Networks Group, substantially in the forms attached hereto as Exhibits F(1) and
F(2) with respect to the use of office space for one General Signal employee at
Networks' Mt. Laurel offices and the use of office space for one Networks
employee at General Signal's Singapore offices, respectively.
Litigation Matters: as defined in Section 6.6(a) hereof.
Local Agreements: the agreements to be entered into between certain
Networks Subsidiaries and certain Subsidiaries of General Signal relating to the
transfers of assets and liabilities of the Networks Business in Canada, the
United Kingdom and Germany.
Measured Debt Amount: the difference between $18,000,000 and the
amount of Networks Debt as of the close of business on the second business day
immediately preceding the Distribution Date.
Nasdaq: The Nasdaq Stock Market, Inc.'s National Market.
Networks: as defined in the preamble to this Agreement.
Networks Assets: the Assets of any member of the Networks Group, the
Contributed Assets and the Foreign Networks Assets, collectively.
Networks Balance Sheet: the audited combined balance sheet of the
Networks Business as of December 31, 1997 and the notes thereto.
Networks Business: the businesses and operations of Networks, any
Networks Subsidiary and the Tautron Business and the telecommunications testing
and monitoring businesses and data networking businesses and operations
conducted by any Foreign Subsidiary, in each case, as such businesses and
operations were heretofore, are currently or are hereafter conducted by any of
the foregoing or their predecessors, successors or affiliates, including such
businesses and operations which were sold or otherwise disposed of or
discontinued prior to the Distribution Date.
Networks CDA Loan: that certain Loan Agreement made March 31, 1995
by and between Data Switch Corporation and the Connecticut Development
Authority, and the related Promissory Note made March 31, 1995 in the original
principal amount of $2,500,000.
Networks Claim: any claim against any Networks Employee or member of
the Networks Group with respect to any injury, loss, Liability, damage or
expense that (1) is or was incurred or asserted to have been incurred prior to
the Distribution Date in, or in connection with,
-8-
<PAGE> 14
the conduct of the General Signal Assets, the Networks Assets, the General
Signal Business or the Networks Business and (2) arose or may have arisen out of
one or more occurrences or events that are or may be insured or insurable under
one or more of the General Signal Combined Policies.
Networks Common Stock: the common stock, par value $.01 per share,
of Networks. References to Networks Common Stock shall also include the
associated preferred share purchase rights issued under the Networks Rights
Plan.
Networks Debt: the aggregate outstanding principal balance
(including the current portions thereof) under the Tautron IRB, the Networks CDA
Loan, all of Networks' capital lease obligations, and all borrowings under
revolving lines of credit that are borrowings of any Networks Subsidiary or that
constitute Foreign Networks Liabilities.
Networks Director: any individual who is a director of Networks
after the Distribution.
Networks Employee: as defined in the Employee Benefits Allocation
Agreement.
Networks Environmental Liabilities: any injury, loss, Liability,
damage, or expense (including fines, penalties, attorney's fees, investigation
expenses, costs of remediation or removal, natural resource damages,
consequential or incidental damages, personal injury, including death, or
property damage) resulting from the treatment, handling, use, generation,
transportation, incorporation into any product, presence, recycling, storage, or
disposal of a hazardous material or substance, petroleum or petroleum product,
toxic substance, hazardous or special waste, contaminant, chemical, or pollutant
(as defined in or regulated under any state, federal, or local environmental
law) arising out of or related to (a) the operations of the Networks Business at
any time prior to, on or after the Distribution Date, (b) releases into the
environment (including the air, soil, groundwater, surface water, or within any
buildings or structures) prior to, on or after the Distribution Date at, under,
onto or from any property which is or has been owned, leased or occupied with
respect to the operations of the Network Business or the operations of any
predecessor of its members at any time prior to, on or after the Distribution
Date or (c) any obligations of the certifying party, owner, operator, lessor,
lessee, transferor, or transferee (including compliance requirements,
investigation, remediation and other obligations) resulting from the
Distribution and the tax-free spin-off arising under (1) New Jersey's Industrial
Site Recovery Act (N.J.S.A. 13:1k-6) or (2) the Connecticut Transfer Act (Conn.
Gen. Stat. Sec. 22a-134) (both statutes collectively referred to as the
"Transfer Acts").
Networks Former Employee: as defined in the Employee Benefits
Allocation Agreement.
Networks Group: Networks and the Networks Subsidiaries.
Networks Liabilities: other than any Liabilities specifically
retained by General Signal under any of the Other Agreements, all of the
Liabilities (or any portion thereof) (1) included on the Networks Balance Sheet
or incurred by the Networks Business on or after January
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1, 1998 (other than Liabilities paid or otherwise satisfied on or prior to the
Distribution Date), (2) that arise out of or relate primarily to the Networks
Assets or the Networks Business whether incurred or arising prior to, on, or
after the Distribution Date, including without limitation the Foreign Networks
Liabilities assumed or retained by any member of the Networks Group under the
Other Agreements (subject to the provisions thereof) and any Non-Income Taxes,
(3) Networks Environmental Liabilities, (4) under the Financing Facility and (5)
set forth on Schedule 3.
Networks Rights Plan: the preferred stock purchase rights plan in
the form approved by the Board of Directors of Networks prior to the
Distribution Date.
Networks Subsidiaries: all of the corporations, partnerships or
joint ventures listed on Schedule 4.
Networks Support Agreements: any obligation or agreement of the
General Signal Group under any guarantee, letter of credit, letter of comfort,
foreign exchange contract, surety bond or working capital maintenance agreement
obtained prior to the Distribution Date for the benefit of the Networks Business
or any member of the Networks Group.
Non-Income Tax: shall mean any foreign or any United States federal,
state or local tax, charge, fee, import, levy or other assessment that is based
upon, measured by, or calculated with respect to sales, use, value added, real
property gains, real or personal property, transfer taxes (other than Transfer
Taxes provided for in Section 5.4) or similar taxes, but not including Income
Taxes, together with any interest and any penalties, fines, additions to tax or
additional amounts imposed by any taxing authority with respect thereto and
shall include any transferee liability in respect thereof.
Notices: as defined in Section 10.5 hereof.
Other Agreements: the Transitional Services Agreement, the Employee
Benefits Allocation Agreement, the Tax Sharing Agreement, the Lease Agreements
and the Local Agreements.
Person: an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization or a government or any
department or agency thereof.
Plan: as defined in the Employee Benefits Allocation Agreement.
Prime Rate: the rate which Chase Manhattan Bank, N.A. (or any
successor thereto or other major money center commercial bank agreed to by the
parties hereto) announces from time to time as its prime lending rate, as in
effect from time to time.
Privileged Information: as defined in Section 6.6(a) hereof.
Record Date: the date to be determined by the Board of Directors of
General Signal, or the Executive Committee thereof, as the record date for
determining stockholders of General Signal entitled to receive the Distribution.
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Registration Statement: the registration statement on Form 10 to
effect the registration of the Networks Common Stock under the Exchange Act.
Representative: with respect to any Person, any of such Person's
directors, officers, employees, agents, consultants, advisors, accountants,
attorneys and representatives.
Rights: as defined in the Networks Rights Plan.
SEC: the United States Securities and Exchange Commission.
Security Interest: means any mortgage, security interest, pledge,
lien, charge, claim, option, right to acquire, voting or other restriction,
right-of-way, covenant, condition, easement, encroachment, restriction on
transfer, or other encumbrance of any nature whatsoever.
Service Agreement: any third-party administrator or claims handling
agreement of any kind or nature to which any member of either Group is directly
or indirectly a party, in effect as of the date hereof, related to the handling
of Networks Claims.
Surviving Intercompany Agreements: as defined in Section 5.2.
Subsidiary: with respect to any specified Person, any corporation or
other legal entity of which such Person or any of its Subsidiaries controls or
owns, directly or indirectly, more than 50% of the stock or other equity
interest entitled to vote on the election of members to the board of directors
or similar governing body; provided, however, that for purposes of this
Agreement, (1) the Networks Subsidiaries shall be deemed to be Subsidiaries of
Networks and (2) the Networks Subsidiaries shall not be deemed to be
Subsidiaries of General Signal or any of General Signal's Subsidiaries.
Tautron Assets: all of the Assets of the General Signal Group that
are primarily related to the Tautron Business.
Tautron Business: all businesses and operations of the Tautron
divisions of General Signal and the Foreign Subsidiaries as heretofore,
currently or hereafter conducted, and all businesses or operations managed or
operated by or otherwise operationally related to, any of such businesses,
including such businesses or operations which were sold or otherwise disposed of
or discontinued prior to the Distribution Date.
Tautron IRB: that certain Loan Agreement, dated as of December 1,
1984, as amended, by and between the Massachusetts Industrial Finance Agency
("MIFA") and General Signal, as successor-in-interest to Tautron Inc., relating
to the proceeds of an industrial revenue bond issued by MIFA in the original
principal amount of $7,500,000, together with all related agreements.
Tautron Liabilities: all of the Liabilities of the General Signal
Group that arise out of or relate primarily to the Tautron Assets or the Tautron
Business, including without limitation Liabilities arising out of or relating to
the Tautron IRB.
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Tax Sharing Agreement: the tax sharing agreement to be entered into
between General Signal and Networks substantially in the form attached hereto as
Exhibit B, with such changes as may be mutually satisfactory to General Signal
and Networks.
Third-Party Claim: any claim, suit, arbitration, inquiry, proceeding
or investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal asserted by a
Person who is not a party hereto or an Affiliate thereof.
Transfer Tax: any real property transfer or gains tax.
Transitional Services Agreement: the transitional services agreement
to be entered into between General Signal and Networks, substantially in the
form attached hereto as Exhibit C, with such changes as may be satisfactory to
General Signal and Networks, providing for the General Signal Group to make
available certain personnel and services to the Networks Group for up to twelve
months following the Distribution Date.
Warrant Agreement: that certain Warrant Agreement, dated as of March
1, 1990, between Data Switch Corporation and First Chicago Trust Company of New
York (as successor warrant agent to American Stock Transfer and Trust Company),
as amended.
Warrant Certificate: as defined in the Warrant Agreement.
Warrantholder: as defined in Section 5.8 hereof.
1.2. References to Time. All references in this Agreement to times
of the day shall be to New York City time.
ARTICLE II
CERTAIN TRANSACTIONS PRIOR TO
THE DISTRIBUTION DATE
2.1. Share Purchase Rights Plan; Certificate of Incorporation;
By-laws. (a) Prior to the Distribution Date, the Board of Directors of Networks
shall adopt the Networks Rights Plan and declare the related dividend of Rights
on shares of Networks Common Stock to be issued on the Distribution Date.
(b) General Signal and Networks each shall take all action necessary
so that, at the Distribution Date, the Restated Certificate of Incorporation and
By-laws of Networks shall be in the forms attached hereto as Exhibits D and E,
respectively.
2.2. Issuance of Stock. Prior to or as of the Distribution Date,
General Signal and Networks each hereto shall take all steps necessary to
reclassify the outstanding shares of Networks Common Stock so that immediately
prior to or as of the Distribution Date the number of shares of Networks Common
Stock outstanding and held by General Signal shall equal 40
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percent of the number of shares of General Signal Common Stock outstanding on
the Record Date.
2.3. Contribution of Assets and Assumption of Liabilities. (a) On or
prior to the Distribution Date, subject to Section 5.1(a), General Signal shall,
or shall cause its appropriate Subsidiaries to, contribute, grant, convey,
assign and otherwise transfer and deliver or cause to be Contributed to Networks
all of General Signal's right, title and interest in the Contributed Assets (the
"Contribution").
(b) Concurrently with the Contribution, subject to Section 5.1(a),
Networks shall assume, and agree to pay and discharge, as and when they become
due, or otherwise take subject to, all of the Assumed Liabilities.
(c) On or prior to the Distribution Date, (i) General Signal agrees
to execute and deliver such deeds, bills of sale, certificates of title,
assignments and other instruments as are necessary to evidence the Contribution,
and (ii) Networks agrees to execute and deliver such instruments of assumption
as are necessary to evidence the assumption of the Assumed Liabilities.
2.4. Consummation of Local Agreements. On or prior to the
Distribution Date, subject to Section 5.1(a), General Signal shall, or shall
cause its appropriate subsidiaries to, and Networks shall, or shall cause its
appropriate subsidiaries to, consummate the transactions contemplated by each of
the Local Agreements, including, without limitation, the transfer of the Foreign
Networks Assets by Subsidiaries of General Signal and the assumption of Foreign
Networks Liabilities by Networks Subsidiaries provided for in each such
agreement, and in each case in accordance with the terms of each such agreement.
2.5. Conduct of Business Pending the Distribution Date. Each of the
parties hereto agrees that from the date hereof until the Distribution Date,
except as otherwise contemplated by this Agreement or the Other Agreements, it
will use its reasonable efforts to carry on the Networks Business in the
ordinary course and substantially in the same manner as heretofore conducted by
it and to preserve intact the Networks Assets and the business organization and
goodwill of the Networks Business.
2.6. Financing. Networks shall use its reasonable efforts to arrange
the Financing Facility as promptly as practicable. On or prior to the
Distribution Date, Networks shall borrow under the Financing Facility the
amount, if any, required to pay the Measured Debt Amount.
2.7. Registration and Listing. Prior to the Distribution Date:
(a) General Signal and Networks shall prepare the Registration
Statement (which shall contain the Information Statement). Networks shall file
the Registration Statement with the SEC. General Signal and Networks shall use
reasonable efforts to cause the Registration Statement to become effective under
the Exchange Act as promptly as reasonably practicable. General Signal shall
mail the Information Statement to the holders of General Signal Common Stock as
of the Record Date.
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(b) General Signal and Networks shall prepare, and Networks shall
file and seek to make effective, an application for the listing of the Networks
Common Stock on Nasdaq.
(c) The parties hereto shall cooperate in preparing and filing with
the SEC any other registration statements or any amendments to any thereof which
are necessary or appropriate in order to effect the transactions contemplated
hereby or to reflect the establishment of, or amendments to, any Plans
contemplated in the Employee Benefits Allocation Agreement.
(d) The parties hereto shall prepare and mail to the holders of
General Signal Common Stock such other information or documentation as the
parties shall reasonably determine and as may be required by law. General Signal
and Networks shall prepare, and General Signal or Networks shall, as applicable,
file such documents, and any forms, schedules, or registration statements and
any no action letters which are required by applicable law or which General
Signal determines are necessary or desirable to effectuate the Distribution, and
General Signal and Networks shall each use its reasonable efforts to obtain all
necessary approvals from the SEC with respect thereto as soon as practicable.
2.8. Intercompany Accounts; Dividends. (a) Prior to the Distribution
Date, General Signal shall repay to Networks the amount of all intercompany
payables owed by General Signal to Networks, net of all intercompany payables
owed by Networks to General Signal. From time to time prior to the Distribution
Date, Networks shall declare and pay to General Signal cash dividends in an
amount equal to the sum of (i) all intercompany payments made by General Signal
to Networks pursuant to the preceding sentence of this Section 2.8 and (ii) the
Measured Debt Amount.
(b) Prior to the Distribution Date, Networks shall declare a
dividend to General Signal equal to the Cash Amount and shall pay such dividend
as promptly as practicable following the Distribution Date but in no event later
than the 16th Business Day following the Distribution Date. General Signal shall
pay the Cash Amount Excess, if any, to Networks as promptly as practicable
following the Distribution Date, but in no event later than the 16th Business
Day following the Distribution Date.
(c) Networks and General Signal shall cooperate in good faith to
determine, as promptly as practicable following the Distribution Date, but in no
event later than the 15th Business Day following the Distribution Date, the
amount of Actual Operating Cash Flow, which determination shall be made in a
manner and employing a method or methods consistent with past practice. General
Signal and Networks each shall have the right to reasonable access to the books,
records and employees of the other to the extent necessary to determine and
confirm the amount of Actual Operating Cash Flow.
2.9. Tautron Industrial Revenue Bond. Prior to the Distribution
Date, Networks shall (i) execute all documents and agreements necessary to
assume all obligations and liabilities under the Tautron IRB (such that General
Signal may be released and discharged from the same) and (ii) obtain a letter of
credit in favor of the trustee to the Tautron IRB which, in form, substance and
amount, is the equivalent of the $7,875,000 letter of credit posted by Wachovia
Bank of Georgia, N.A. and secured by a reimbursement agreement with General
Signal.
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2.10. Transfer Act Filings. The parties hereto shall cooperate in
preparing any notices, forms, or assessments required to be filed under the
Transfer Acts.
ARTICLE III
THE DISTRIBUTION
3.1. Record Date and Distribution Date. Subject to the satisfaction
of the conditions set forth in Section 10.1(a), the Board of Directors of
General Signal, or the Executive Committee thereof, shall establish the Record
Date and the Distribution Date and any appropriate procedures in connection with
the Distribution.
3.2. The Agent. Prior to the Distribution Date, General Signal shall
enter into an agreement with the Agent providing for, among other things, the
payment of the Distribution to the holders of General Signal Common Stock in
accordance with this Article III.
3.3. Delivery of Share Certificates to the Agent. Prior to or as of
the Distribution Date, General Signal shall deliver to the Agent a share
certificate representing all of the outstanding shares of Networks Common Stock
to be distributed in connection with the payment of the Distribution.
3.4. Distribution. Except as otherwise contemplated by this
Agreement, and subject to the satisfaction of the conditions set forth in
Section 10.1(a), General Signal shall instruct the Agent to distribute, as of
the Distribution Date, two shares of Networks Common Stock in respect of every
five shares of General Signal Common Stock held by holders of record of General
Signal Common Stock on the Record Date. All shares of Networks Common Stock
issued in the Distribution shall be duly authorized, validly issued, fully paid
and nonassessable. The Distribution shall be deemed to be effective as of the
time General Signal so instructs the Agent. As soon as practicable after the
Distribution Date, an account statement setting forth the number of shares of
Networks Common Stock, including fractional shares, if any, will be mailed by
the Agent to such holders of record as of the Record Date. No certificates for
shares of Networks Common Stock will be issued unless the stockholder so
requests.
3.5. Fractional Shares. No certificates or scrip representing
fractional interests in a share of Networks Common Stock shall be issued.
Instead, if a stockholder requests a physical certificate, such stockholder
shall receive cash in lieu of fractional shares. With respect to shares of
Networks Common Stock for which physical certificates are requested, General
Signal shall direct the Agent, as soon as practicable after the Distribution
Date, to aggregate the fractional interests in a share of Networks Common Stock
and sell the whole shares obtained by such aggregation at the direction of the
Agent, in open market transactions or otherwise, in each case at then prevailing
trading prices, and to cause to be distributed to each such holder, in lieu of
any fractional share, such holder's ratable share of the proceeds of such sale,
after making appropriate deductions of the amount required to be withheld for
United States federal income tax purposes.
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ARTICLE IV
SURVIVAL; ASSUMPTION AND INDEMNIFICATION
4.1 Survival of Agreements. All covenants and agreements of the
parties hereto contained in this Agreement shall survive the Distribution Date.
4.2. Income Tax Liabilities. This Article IV shall not be
applicable to any Indemnifiable Losses or Liabilities related to Income Taxes
which shall be governed by the Tax Sharing Agreement.
4.3. Assumption and Indemnification. (a) Subject to Section 4.2,
from and after the Distribution Date, General Signal shall indemnify, defend and
hold harmless each member of the Networks Group, and each of their
Representatives and Affiliates, from and against, (1) all General Signal
Liabilities and (2) all Indemnifiable Losses of any such member of the Networks
Group, Representative or Affiliate relating to or arising out of the failure of
any member of the General Signal Group to pay, perform or discharge in due
course any General Signal Liability, whether relating to or arising out of
occurrences prior to or after the Distribution Date.
(b) Subject to Section 4.2, and except as specifically provided in
Section 4.3(a), from and after the Distribution Date, Networks shall indemnify,
defend and hold harmless each member of the General Signal Group, and each of
their Representatives and Affiliates, from and against, (1) all Networks
Liabilities and (2) any and all Indemnifiable Losses of any such member of the
General Signal Group, Representative or Affiliate relating to or arising out of
the failure of any member of the Networks Group to pay, perform or discharge in
due course any Networks Liability, whether relating to or arising out of
occurrences prior to or after the Distribution Date.
(c) The amount which an Indemnifying Party is required to pay to any
Indemnitee pursuant to this Section 4.3 shall be reduced (including
retroactively) by any Insurance Proceeds and other amounts actually recovered by
such Indemnitee in reduction of the related Indemnifiable Loss, it being
understood and agreed that each of General Signal and Networks shall use its
reasonable efforts to collect any such proceeds or other amounts to which it or
any of its Subsidiaries is entitled, without regard to whether it is the
Indemnified Party hereunder. Notwithstanding the foregoing or any other
provision to the contrary in this Agreement or the Other Agreements, General
Signal shall have no obligation to file a suit, cause of action or proceeding of
any kind whatsoever seeking a declaration of coverage with respect to any
Networks Environmental Liabilities against any primary, umbrella, or excess
insurer under any Insurance Policies (including the General Signal Combined
Policies) issued to any member of the General Signal Group or the Networks Group
or the predecessors of each, and the Networks Group shall have no right to file
such a suit, cause of action or proceeding (whether as an insured or third-party
beneficiary of the Insurance Policies, as a subrogee of the General Signal
Group, or in any other capacity). If an Indemnitee receives an Indemnity Payment
in respect of an Indemnifiable Loss and subsequently receives Insurance Proceeds
or other amounts in respect of such Indemni-
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fiable Loss, then such Indemnitee shall pay to such Indemnifying Party an amount
equal to the difference between (1) the sum of the amount of such Indemnity
Payment and the amount of such Insurance Proceeds or other amounts actually
received and (2) the amount of such Indemnifiable Loss, adjusted (at such time
as appropriate adjustment can be determined) in each case to reflect any premium
adjustment attributable to such claim.
(d) If any Indemnity Payment required to be made hereunder or under
any Other Agreement is denominated in a currency other than United States
dollars, the amount of such payment shall be translated into United States
dollars using the Foreign Exchange Rate for such currency determined in
accordance with the following rules:
(1) with respect to an Indemnifiable Loss arising from payment
by a financial institution under a guarantee, comfort letter, letter of
credit, foreign exchange contract or similar instrument, the Foreign
Exchange Rate for such currency shall be determined as of the date on
which such financial institution is reimbursed;
(2) with respect to an Indemnifiable Loss covered by
insurance, the Foreign Exchange Rate for such currency shall be the
Foreign Exchange Rate employed by the insurance company providing such
insurance in settling such Indemnifiable Loss with the Indemnifying Party;
and
(3) with respect to an Indemnifiable Loss not described in
clause (1) or (2) of this Section 4.3(d), the Foreign Exchange Rate for
such currency shall be determined as of the date that notice of the claim
with respect to such Indemnifiable Loss is given to the Indemnitee.
4.4. Procedure for Indemnification. (a) If any Indemnitee receives
notice of the assertion of any Third-Party Claim with respect to which an
Indemnifying Party is obligated under this Agreement to provide indemnification,
such Indemnitee shall give such Indemnifying Party notice thereof promptly after
becoming aware of such Third-Party Claim; provided, however, that the failure of
any Indemnitee to give notice as provided in this Section 4.4 shall not relieve
any Indemnifying Party of its obligations under this Article IV, except to the
extent that such Indemnifying Party is actually prejudiced by such failure to
give notice. Such notice shall describe such Third-Party Claim in reasonable
detail and, if practicable, shall indicate the estimated amount of the
Indemnifiable Loss that has been or may be sustained by such Indemnitee.
(b) An Indemnifying Party, at such Indemnifying Party's own expense
and through counsel chosen by such Indemnifying Party (which counsel shall be
reasonably satisfactory to the Indemnitee), may elect to defend any Third-Party
Claim; provided, however, that such an election by the Indemnifying Party shall
be deemed an admission of its obligation to indemnify the Indemnitee with
respect to such Third-Party Claim. If an Indemnifying Party elects to defend a
Third-Party Claim, then, within fifteen Business Days after receiving notice of
such Third-Party Claim (or sooner (but in no event less than five Business
Days), if the nature of such Third-Party Claim so requires), such Indemnifying
Party shall notify the Indemnitee of its intent to do so, and such Indemnitee
shall cooperate in the defense of such Third-Party Claim. Such Indemnifying
Party shall pay such Indemnitee's reasonable out-of-pocket expenses incurred in
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connection with such cooperation. After notice from an Indemnifying Party to an
Indemnitee of its election to assume the defense of a Third-Party Claim, such
Indemnifying Party shall not be liable to such Indemnitee under this Article IV
for any legal or other expenses subsequently incurred by such Indemnitee in
connection with the defense thereof; provided, however, that such Indemnitee
shall have the right to employ one law firm as counsel to represent such
Indemnitee (which firm shall be reasonably acceptable to the Indemnifying Party)
if, in such Indemnitee's reasonable judgment, either a conflict of interest
between such Indemnitee and such Indemnifying Party exists in respect of such
claim or there may be defenses available to such Indemnitee which are different
from or in addition to those available to such Indemnifying Party, and in that
event (1) the reasonable fees and expenses of such separate counsel shall be
paid by such Indemnifying Party (but not more than one separate counsel for all
Indemnitees) and (2) each of such Indemnifying Party and such Indemnitee shall
have the right to run its own defense in respect of such claim. If an
Indemnifying Party elects not to defend against a Third-Party Claim, or fails to
notify an Indemnitee of its election as provided in this Section 4.4 within the
period of fifteen Business Days described above, such Indemnitee may defend,
compromise and settle such Third-Party Claim; provided, however, that no such
Indemnitee may compromise or settle any such Third-Party Claim without the prior
written consent of the Indemnifying Party, which consent shall not be withheld
unreasonably.
(c) Notwithstanding the foregoing, the Indemnifying Party shall not,
without the prior written consent of the Indemnitee, settle or compromise any
Third-Party Claim or consent to the entry of any judgment which does not include
as an unconditional term thereof the delivery by the claimant or plaintiff to
the Indemnitee of a written release from all Liability in respect of such
Third-Party Claim.
(d) If an Indemnifying Party chooses to defend or to seek to
compromise any Third-Party Claim, the related Indemnitee shall make available to
such Indemnifying Party any personnel or any books, records or other documents
within its control or which it otherwise has the ability to make available that
are necessary or appropriate for such defense.
(e) Any claim on account of an Indemnifiable Loss which does not
result from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have
a period of 30 days after the receipt of such notice within which to respond
thereto. If such Indemnifying Party does not respond within such 30-day period,
such Indemnifying Party shall be deemed to have refused to accept responsibility
to make payment. If such Indemnifying Party does not respond within such 30-day
period or rejects such claim in whole or in part, such Indemnitee shall be free
to pursue such remedies as may be available to such party, under applicable law
or under this Agreement.
(f) If the amount of any Indemnifiable Loss shall, at any time
subsequent to the payment required by this Agreement, be reduced by recovery,
settlement or otherwise, the amount of such reduction, less any expenses
incurred in connection therewith, shall promptly be repaid by the Indemnitee to
the Indemnifying Party.
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<PAGE> 24
(g) With the exception of Third-Party claims to the extent such
claims relate to Networks Environmental Liabilities, in the event of payment by
an Indemnifying Party to any Indemnitee in connection with any Third-Party
Claim, such Indemnifying Party shall be subrogated to and shall stand in the
place of such Indemnitee as to any events or circumstances in respect of which
such Indemnitee may have any right or claim relating to such Third-Party Claim
against any claimant or plaintiff asserting such Third-Party Claim. Such
Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner,
and at the cost and expense of such Indemnifying Party, in prosecuting any
subrogated right or claim.
4.5. Remedies Cumulative. The remedies provided in this Article IV
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any other remedies against any Indemnifying
Party.
ARTICLE V
CERTAIN ADDITIONAL COVENANTS
5.1. Further Assurances. (a) In addition to the actions specifically
provided for elsewhere in this Agreement, each of the parties hereto shall use
its reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws, regulations and agreements to consummate and make effective the
transactions contemplated by this Agreement, provided that nothing herein shall
be deemed to require the transfer of any Assets or the assumption of any
Liabilities which by their terms or operation of law cannot be transferred or
assumed. Without limiting the foregoing, each party hereto shall cooperate with
the other parties, and execute and deliver, or use its reasonable efforts to
cause to be executed and delivered, all instruments, including instruments of
conveyance, assignment and transfer, and to make all filings with, and to obtain
all consents, approvals or authorizations of, any governmental or regulatory
authority or any other Person under any permit, license, agreement, indenture or
other instrument, and take all such other actions as such party may reasonably
be requested to take by any other party hereto from time to time, consistent
with the terms of this Agreement, in order to effectuate the provisions and
purposes of this Agreement and the transfers of Assets and Liabilities and the
other transactions contemplated hereby. If any such transfer of Assets or
Liabilities is not consummated prior to or at the Distribution Date, then the
party hereto retaining such Asset or Liability shall thereafter hold such Asset
in trust for the use and benefit of the party entitled thereto (at the expense
of the party entitled thereto), or shall retain such Liability for the account
of the party by whom such Liability is to be assumed pursuant hereto, as the
case may be, and shall take such other action as may be reasonably requested by
the party to whom such Asset is to be transferred, or by whom such Liability is
to be assumed, as the case may be, in order to place such party, insofar as
reasonably possible, in the same position as if such Asset or Liability had been
transferred as contemplated hereby. If and when any such Asset or Liability
becomes transferable, such transfer shall be effected forthwith. The parties
hereto agree that, as of the Distribution Date, Networks shall be deemed to have
acquired complete and sole beneficial ownership of all of the Contributed
Assets, together with all rights, powers and privileges incident thereto, and
shall be deemed to have
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assumed in accordance with the terms of this Agreement all of the Assumed
Liabilities, and all duties, obligations and responsibilities incident thereto,
that such party is entitled to acquire or required to assume pursuant to the
terms of this Agreement.
(b) Without limiting the generality of Section 5.1(a), General
Signal, as the sole stockholder of Networks, shall ratify any actions which are
reasonably necessary or desirable to be taken by Networks to effectuate the
transactions contemplated by this Agreement or the Other Agreements in a manner
consistent with the terms of this Agreement or such Other Agreements.
5.2. Intercompany Agreements. All contracts, licenses, agreements,
commitments, joint marketing programs and other arrangements, formal or
informal, between any member of the General Signal Group, on the one hand, and
the Networks Group, on the other, in existence as of the Distribution Date,
pursuant to which any member of either Group provides to any member of the other
Group services (including management, administrative, legal, financial,
accounting, data processing, insurance or other technical support), or the use
of any assets of any member of the other Group, or the seconding of any
employee, or pursuant to which any rights, privileges or benefits are afforded
to members of either Group as an affiliate of the other Group, shall be deemed
to have terminated as of the close of business on the day prior to the
Distribution Date, except as specifically provided herein or on Schedule 5 (any
such matters set forth on Schedule 5, the "Surviving Intercompany Agreements"))
or in any Other Agreement. From and after the Distribution Date, no member of
either Group shall have any rights under any such contract, license, agreement,
commitment or arrangement with any member of the other group, except as
specifically provided herein, or in a Surviving Intercompany Agreement or in any
Other Agreement.
5.3. Other Agreements. Each of General Signal and Networks shall use
reasonable efforts to enter into, or to cause the appropriate members of its
Group to enter into, the Other Agreements prior to the Distribution Date. If
there shall be a conflict between the provisions of this Agreement and the
provisions of the Other Agreements, the provisions of the Other Agreements shall
control.
5.4. Transfer Taxes. General Signal shall pay any Transfer Tax in
any jurisdiction (and any penalties and interest with respect to such Transfer
Taxes), which become payable in connection with the transactions contemplated by
this Agreement. General Signal shall prepare and file any required returns with
respect to such Transfer Taxes.
5.5. Networks Support Agreements. Effective as of the Distribution
Date, Networks shall or shall cause one or more members of the Networks Group to
be substituted in all respects for the General Signal Group or any member
thereof in respect of all Networks Support Agreements. Subsequent to the
Distribution Date, with respect to any uncancelled Networks Support Agreement
for which no substitution has yet been effected, Networks shall indemnify the
General Signal Group against any Liabilities under any such Networks Support
Agreement in accordance with the provisions of Article IV.
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5.6. Directors and Officers. (a) Prior to, or simultaneously with,
the Distribution Date, Networks shall take such actions as are necessary such
that the Board of Directors of Networks is comprised of those individuals named
as directors of Networks in the Registration Statement.
(b) Except as otherwise agreed by the parties hereto, effective as
of the Distribution Date, (1) all officers or employees of the General Signal
Group who are acting as directors or officers of the Networks Group and are not
employed in the Networks Business shall resign from such positions with the
Networks Group and (2) all officers or employees of the Networks Group who are
acting as directors or officers of the General Signal Group and who are to be
employed in the Networks Group following the Distribution Date shall resign from
such positions with the General Signal Group.
5.7. Use of General Signal Name. From and after the Distribution
Date, Networks shall not (i) be entitled to use the trade names or marks
"General Signal," "GS," "GSC," "GSX" or any variant thereof in any manner in
connection with the Networks Business and (ii) represent, publicly, to third
parties or otherwise, that it is affiliated, connected or associated with
General Signal; provided, however, that any printed material showing any
affiliation, connection or association with General Signal may be used by
Networks for a period of [ ] months following the Distribution Date. As promptly
as practicable after the Distribution, the Networks Group shall take such action
as may be necessary to change the name of any of the Networks Subsidiaries to a
name that does not include "General Signal."
5.8. Data Switch Warrant Obligations. (a) From the Distribution Date
and for so long as any Data Switch Warrant remains outstanding and exercisable,
in the event (and upon each such event) that a Data Switch Warrant is exercised
in whole or in part by the holder thereof (each such holder, a "Warrantholder"),
then upon delivery to General Signal by Networks of (i) an amount in cash equal
to the exercise price per share then in effect for such warrant multiplied by
the number of shares of General Signal Common Stock for which such warrant is
exercised and (ii) a copy of the Warrant Certificate, which shall have been
canceled by Networks, and Form of Election to Purchase on the reverse thereof
duly completed and executed, General Signal promptly shall issue or cause to be
issued to the Warrantholder, in such name or names as the Warrantholder shall
have designated, a certificate or certificates representing the number of full
shares of General Signal Common Stock purchased upon exercise of such warrant,
together with cash in lieu of any fraction of a share that would otherwise be
issuable. The foregoing notwithstanding, General Signal shall not be obligated
to issue any shares of General Signal Common Stock in any circumstance in which
Networks is not obligated to issue such shares pursuant to the terms of the
Warrant Agreement. The amount of cash, if any, payable in lieu of fractional
shares shall be determined in accordance with Section 10.12 of the Warrant
Agreement.
(b) For so long as any Data Switch Warrant remains outstanding and
exercisable, General Signal shall at all times keep reserved, out of its
authorized capital stock, a number of shares of General Signal Common Stock at
least equal to the number of shares of General Signal Common Stock purchasable
upon exercise of all outstanding Data Switch Warrants.
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ARTICLE VI
ACCESS TO INFORMATION
6.1. Provision of Corporate Records. Prior to or as promptly as
practicable after the Distribution Date, General Signal shall deliver to
Networks all corporate books and records of the Networks Group and give
reasonable access during customary business hours to Networks to all corporate
books and records of the General Signal Group relating to the Networks Assets,
the Networks Liabilities, or the Networks Business, including in each case all
active agreements, active litigation files and government filings and give
Networks the opportunity, at its cost and expense, to make copies thereof. From
and after the Distribution Date, all books, records and copies so delivered
shall be the property of Networks.
6.2. Access to Information. From and after the Distribution Date and
upon reasonable notice, each member of the General Signal Group, on the one
hand, and the Networks Group, on the other, shall afford to the other and to the
other's Representatives reasonable access and duplicating rights during normal
business hours to all Information within such party's possession relating to
such other party's businesses, Assets or Liabilities, insofar as such access is
reasonably required by such other party. Without limiting the foregoing,
Information may be requested under this Section 6.2 for audit, accounting,
claims, litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations.
6.3. Production of Witnesses. After the Distribution Date, each
member of the General Signal Group, on the one hand, and the Networks Group, on
the other, shall use reasonable efforts to make available to the other, upon
written request, its directors, officers, employees and agents as witnesses to
the extent that any such Person may reasonably be required (giving consideration
to business demands of such Persons) in connection with any legal,
administrative or other proceedings in which the requesting party may from time
to time be involved.
6.4. Reimbursement. Except to the extent otherwise contemplated by
any Other Agreement, a party providing Information or witness services to the
other party under this Article VI shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments for such
amounts, relating to supplies, disbursements and other out-of-pocket expenses
and direct and indirect costs of employees who are witnesses, as may be
reasonably incurred in providing such Information or witness services.
6.5. Retention of Records. Except as otherwise required by law or
agreed in writing, or as otherwise provided in the Tax Sharing Agreement, each
of General Signal and Networks shall retain, for a period of at least [ten]
years following the Distribution Date, all significant Information in such
party's possession or under its control relating to the business, Assets or
Liabilities of the other party and, after the expiration of such [ten]-year
period, prior to destroying or disposing of any of such Information, (a) the
party proposing to dispose of or destroy any such Information shall provide no
less than 30 days' prior written notice to the other party, specifying the
Information proposed to be destroyed or disposed of, and (b) if, prior to the
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scheduled date for such destruction or disposal, the other party requests in
writing that any of the Information proposed to be destroyed or disposed of be
delivered to such other party, the party proposing to dispose of or destroy such
Information promptly shall arrange for the delivery of the requested Information
to a location specified by, and at the expense of, the requesting party.
6.6. Privileged Information. In furtherance of the rights and
obligations of the parties set forth in Sections 6.2 and 6.5:
(a) Each party hereto acknowledges that (1) each of the General
Signal Group on the one hand, and the Networks Group on the other hand, has or
may obtain Information regarding a member of the other Group, or any of its
operations, employees, Assets or Liabilities (whether in documents or stored in
any other form or known to its employees or agents), as applicable, that is or
may be protected from disclosure pursuant to the attorney-client privilege, the
work product doctrine or other applicable privileges ("Privileged Information");
(2) there are a number of actual, threatened or future litigations,
investigations, proceedings (including arbitration proceedings), claims or other
legal matters that have been or may be asserted by or against, or otherwise
affect, each or both of General Signal and Networks (or members of either Group)
(the "Litigation Matters"); (3) General Signal and Networks have a common legal
interest in the Litigation Matters, in the Privileged Information, and in the
preservation of the confidential status of the Privileged Information, in each
case relating to the General Signal Business or the Networks Business as it or
they existed prior to the Distribution Date or relating to or arising in
connection with the relationship between the constituent elements of the Groups
on or prior to the Distribution Date; and (4) General Signal and Networks intend
that the transactions contemplated by this Agreement and the Other Agreements
and any transfer of Privileged Information in connection herewith or therewith
shall not operate as a waiver of any potentially applicable privilege.
(b) Each of General Signal and Networks agrees, on behalf of itself
and each member of the Group of which it is a member, not to disclose or
otherwise waive any privilege attaching to any Privileged Information relating
to the General Signal Business or the Networks Business as they or it existed
prior to the Distribution Date, respectively, or relating to or arising in
connection with the relationship between the Groups on or prior to the
Distribution Date, without providing prompt written notice to and obtaining the
prior written consent of the other, which consent shall not be unreasonably
withheld and shall not be withheld if the other party certifies that such
disclosure is to be made in response to a likely threat of suspension or
debarment or similar action; provided, however, that General Signal and Networks
may make such disclosure or waiver with respect to Privileged Information if
such Privileged Information relates, in the case of General Signal, solely to
the General Signal Business as it existed prior to the Distribution Date or, in
the case of Networks, solely to the Networks Business, as it existed prior to
the Distribution Date. In the event of a disagreement between any member of the
General Signal Group and any member of the Networks Group concerning the
reasonableness of withholding such consent, no disclosure shall be made prior to
a final, nonappealable resolution of such disagreement by a court of competent
jurisdiction.
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(c) Upon any member of the General Signal Group or any member of the
Networks Group receiving any subpoena or other compulsory disclosure notice from
a court, other governmental agency or otherwise which requests disclosure of
Privileged Information, in each case relating to the General Signal Business or
the Networks Business, respectively, as they or it existed prior to the
Distribution Date or relating to or arising in connection with the relationship
between the constituent elements of the Groups on or prior to the Distribution
Date, the recipient of the notice shall promptly provide to General Signal, in
the case of receipt by a member of the Networks Group, or Networks, in the case
of receipt by a member of the General Signal Group, a copy of such notice, the
intended response, and all materials or information relating to the other Group
that might be disclosed. In the event of a disagreement as to the intended
response or disclosure, unless and until the disagreement is resolved as
provided in paragraph (b) above, General Signal and Networks shall cooperate to
assert all defenses to disclosure claimed by either Group, at the cost and
expense of the Group claiming such defense to disclosure, and shall not disclose
any disputed documents or information until all legal defenses and claims of
privilege have been finally determined.
6.7. Confidentiality. From and after the Distribution Date, each of
General Signal and Networks shall hold, and shall use its reasonable efforts to
cause its Affiliates and Representatives to hold, in strict confidence all
Information concerning the other party obtained by it prior to the Distribution
Date or furnished to it by such other party pursuant to this Agreement or the
Other Agreements and shall not release or disclose such Information to any other
Person, except its Representatives, who shall be bound by the provisions of this
Section 6.7; provided, however, that General Signal and Networks may disclose
such Information to the extent that (a) disclosure is compelled by judicial or
administrative process or, in the opinion of such party's counsel, by other
requirements of law, or (b) such party can show that such Information was (1)
available to such party on a nonconfidential basis prior to its disclosure by
the other party, (2) in the public domain through no fault of such party or (3)
lawfully acquired by such party from other sources after the time that it was
furnished to such party pursuant to this Agreement or the Other Agreements.
Notwithstanding the foregoing, each of General Signal and Networks shall be
deemed to have satisfied its obligations under this Section 6.7 with respect to
any Information if it exercises the same care with regard to such Information as
it takes to preserve confidentiality for its own similar Information.
ARTICLE VII
ARBITRATION; DISPUTE RESOLUTION
7.1. Agreement to Arbitrate. Except as otherwise specifically
provided in any Other Agreement, the procedures for discussion, negotiation and
arbitration set forth in this Article VII shall apply to all disputes,
controversies or claims (whether sounding in contract, tort or otherwise), other
than Third-Party Claims, that may arise out of or relate to, or arise under or
in connection with this Agreement or any Other Agreement, or the transactions
contemplated hereby or thereby (including all actions taken in furtherance of
the transactions contemplated hereby or thereby on or prior to the date hereof),
or any commercial or economic relationship of
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the parties relating hereto or thereto, between or among any member of the
General Signal Group and the Networks Group. Each party agrees on behalf of
itself and each member of its respective Group that the procedures set forth in
this Article VII shall be the sole and exclusive remedy in connection with any
dispute, controversy or claim relating to any of the foregoing matters and
irrevocably waives any right to commence any Action in or before any
Governmental Authority, except as expressly provided in Sections 7.7(b) and 7.8
and except to the extent provided under the Arbitration Act in the case of
judicial review of arbitration results or awards. Each party on behalf of itself
and each member of its respective Group irrevocably waives any right to any
trial by jury with respect to any claim, controversy or dispute set forth in the
first sentence of this Section 7.1.
7.2. Escalation. (a) It is the intent of the parties to use their
respective reasonable efforts to resolve expeditiously any dispute, controversy
or claim between or among them with respect to the matters covered hereby that
may arise from time to time on a mutually acceptable negotiated basis. In
furtherance of the foregoing, any party involved in a dispute, controversy or
claim may deliver a notice (an "Escalation Notice") demanding an in-person
meeting involving representatives of the parties at a senior level of management
of the parties (or if the parties agree, of the appropriate business unit or
division within such entity). A copy of any such Escalation Notice shall be
given to the General Counsel, or like officer or official, of each party
involved in the dispute, controversy or claim (which copy shall state that it is
an Escalation Notice pursuant to this Agreement). Any agenda, location or
procedures for such discussions or negotiations between the parties may be
established by the parties from time to time; provided, however, that the
parties shall use their reasonable efforts to meet within 30 days of the
Escalation Notice.
(b) The parties may, by mutual consent, retain a mediator to aid the
parties in their discussions and negotiations by informally providing advice to
the parties. Any opinion expressed by the mediator shall be strictly advisory
and shall not be binding on the parties, nor shall any opinion expressed by the
mediator be admissible in any arbitration proceedings. The mediator may be
chosen from a list of mediators previously selected by the parties or by other
agreement of the parties. Costs of the mediation shall be borne equally by the
parties involved in the matter, except that each party shall be responsible for
its own expenses. Mediation is not a prerequisite to a demand for arbitration
under Section 7.3.
7.3. Demand for Arbitration. (a) At any time after the first to
occur of (1) the date of the meeting actually held pursuant to the applicable
Escalation Notice or (2) 45 days after the delivery of an Escalation Notice (as
applicable, the "Arbitration Demand Date"), any party involved in the dispute,
controversy or claim (regardless of whether such party delivered the Escalation
Notice) may, unless the Applicable Deadline has occurred, make a written demand
(the "Arbitration Demand Notice") that the dispute be resolved by binding
arbitration, which Arbitration Demand Notice shall be given to the parties to
the dispute, controversy or claim in the manner set forth in Section 10.5. In
the event that any party shall deliver an Arbitration Demand Notice to another
party, such other party may itself deliver an Arbitration Demand Notice to such
first party with respect to any related dispute, controversy or claim with
respect to which the Applicable Deadline has not passed without the requirement
of delivering an Escalation Notice. No
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party may assert that the failure to resolve any matter during any discussions
or negotiations, the course of conduct during the discussions or negotiations or
the failure to agree on a mutually acceptable time, agenda, location or
procedures for the meeting, in each case, as contemplated by Section 7.2, is a
prerequisite to a demand for arbitration under Section 7.3. In the event that
any party delivers an Arbitration Demand Notice with respect to any dispute,
controversy or claim that is the subject of any then-pending arbitration
proceeding or of a previously delivered Arbitration Demand Notice, all such
disputes, controversies and claims shall be resolved in the arbitration
proceeding for which an Arbitration Demand Notice was first delivered unless the
arbitrator in his or her sole discretion determines that it is impracticable or
otherwise inadvisable to do so.
(b) Except as may be expressly provided in any Other Agreement, any
Arbitration Demand Notice may be given until one year and 45 days after the
later of the occurrence of the act or event giving rise to the underlying claim
or the date on which such act or event was, or should have been, in the exercise
of reasonable due diligence, discovered by the party asserting the claim (as
applicable and as it may in a particular case be specifically extended by the
parties in writing, the "Applicable Deadline"). Any discussions, negotiations or
mediations between the parties pursuant to this Agreement or otherwise will not
toll the Applicable Deadline unless expressly agreed in writing by the parties.
Each of the parties agrees on behalf of itself and each member of its Group that
if an Arbitration Demand Notice with respect to a dispute, controversy or claim
is not given prior to the expiration of the Applicable Deadline, as between or
among the parties and the members of their Groups, such dispute, controversy or
claim will be barred. Subject to Sections 7.7(d) and 7.8, upon delivery of an
Arbitration Demand Notice pursuant to Section 7.3(a) prior to the Applicable
Deadline, the dispute, controversy or claim shall be decided by a sole
arbitrator in accordance with the rules set forth in this Article VII, unless
both parties agree that the dispute, controversy or claim shall be decided by a
three-arbitrator panel.
7.4. Arbitrators. (a) Within 45 days after a valid Arbitration
Demand Notice is received, the parties involved in the dispute, controversy or
claim referenced therein shall attempt to select a sole arbitrator or
three-arbitrator panel as provided above (the "Arbitrator") satisfactory to all
such parties.
(b) In the event that the parties do not agree on the selection of
the Arbitrator within 45 days following receipt of an Arbitration Demand Notice,
any party involved in such dispute may apply to the Center for Public Resources
("CPR"), New York, New York to select the Arbitrator, which selection shall be
made by such organization within 30 days after such application. Any Arbitrator
selected pursuant to this paragraph (b) shall be disinterested with respect to
any of the parties and the matter and shall be reasonably competent in the
applicable subject matter.
(c) The Arbitrator selected pursuant to paragraph (a) or (b) above
will set a time for the hearing of the matter which will commence no later than
90 days after the date of appointment of the Arbitrator and which hearing will
be no longer than 30 days (unless in the judgment of the Arbitrator the matter
is unusually complex and sophisticated and thereby requires a longer time, in
which event such hearing shall be no longer than 90 days). Such time
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periods shall not include periods of adjournment of the proceedings as agreed by
the parties or as permitted by the Arbitrator. The final decision of such
Arbitrator will be rendered in writing to the parties not later than 60 days
after the last hearing date, unless otherwise agreed by the parties in writing.
(d) The place of any arbitration hereunder will be New York, New
York, unless otherwise agreed by the parties.
7.5. Hearings. Within the time period specified in Section 7.4(c),
the matter shall be presented to the Arbitrator at a hearing by means of written
submissions of memoranda and verified witness statements, filed simultaneously
with copies provided to the other party, and responses, if necessary in the
judgment of the Arbitrator or both the parties. If the Arbitrator deems it to be
essential to a fair resolution of the dispute, live cross-examination or direct
examination may be permitted, but is not generally contemplated to be necessary.
The Arbitrator shall actively manage the arbitration with a view to achieving a
just, speedy and cost-effective resolution of the dispute, claim or controversy.
The Arbitrator may, in the Arbitrator's discretion, set time and other limits on
the presentation of each party's case, its memoranda or other submissions, and
refuse to receive any proffered evidence, which the Arbitrator, in the
Arbitrator's discretion, finds to be cumulative, unnecessary, irrelevant or of
low probative nature. Except as otherwise set forth herein, any arbitration
hereunder will be conducted in accordance with the CPR Rules for
Non-Administered Arbitration of Business Disputes then prevailing (except that
the fee schedule of CPR will not apply). Except as expressly set forth in
Section 7.8(b), the decision of the Arbitrator will be final and binding on the
parties, and judgment thereon may be had and will be enforceable in any court
having jurisdiction over the parties. Arbitration awards will bear interest at
an annual rate of the Prime Rate plus __% per annum. To the extent that the
provisions of this Agreement and the prevailing rules of the CPR conflict, the
provisions of this Agreement shall govern.
7.6. Discovery and Certain Other Matters. (a) Any party involved in
the applicable dispute may request limited document production from the other
party or parties of specific and expressly relevant documents. Any such
discovery (which rights to documents shall be substantially less than document
discovery rights prevailing under the Federal Rules of Civil Procedure) shall be
conducted expeditiously and shall not cause the hearing provided for in Section
7.5 to be adjourned except upon consent of all parties involved in the
applicable dispute or as determined by the Arbitrator upon a showing of cause
demonstrating that such adjournment is necessary to permit discovery essential
to a party to the proceeding. Depositions, interrogatories or other forms of
discovery (other than the document production set forth above) shall not occur
except by consent of the parties involved in the applicable dispute as
determined by the Arbitrator. Disputes concerning discovery, the scope of
document production and enforcement of the document production requests, will be
determined by written agreement of the parties involved in the applicable
dispute or, failing such agreement, will be referred to the Arbitrator for
resolution. All discovery requests will be subject to the parties' rights to
claim any applicable privilege. The Arbitrator will adopt procedures to protect
the proprietary rights of the parties and to maintain the confidential treatment
of the arbitration proceedings (except as may be required by law).
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Subject to the foregoing, the Arbitrator shall have the power to issue subpoenas
to compel the production of documents relevant to the dispute, controversy or
claim.
(b) The Arbitrator shall have full power and authority to determine
issues of arbitrability but shall otherwise be limited to interpreting or
construing the applicable provisions of this Agreement or any Other Agreement,
and will have no authority or power to limit, expand, alter, amend, modify,
revoke or suspend any condition or provision of this Agreement or any Other
Agreement; it being understood, however, that the Arbitrator will have full
authority to implement the provisions of this Agreement or any Other Agreement,
and to fashion appropriate remedies for breaches of this Agreement (including
interim or permanent injunctive relief); provided that the Arbitrator shall not
have (1) any authority in excess of the authority a court having jurisdiction
over the parties and the controversy or dispute would have absent these
arbitration provisions or (2) any right or power to award punitive, treble, or
other exemplary or multiple damages. It is the intention of the parties that in
rendering a decision the Arbitrator give effect to the applicable provisions of
this Agreement and the Other Agreements and follow applicable law (it being
understood and agreed that this sentence shall not give rise to a right of
judicial review of the Arbitrator's award).
(c) If a party fails or refuses to appear at and participate in an
arbitration hearing after due notice, the Arbitrator may hear and determine the
controversy upon evidence produced by the appearing party.
(d) Arbitration costs will be borne equally by each party involved
in the matter, except that each party will be responsible for its own attorney's
fees and other costs and expenses, including the costs of witnesses selected by
such party.
7.7. Certain Additional Matters. (a) Unless both parties agree to
the contrary or unless the arbitration award is in an amount in excess of $10
million, any arbitration award shall be a bare award limited to a holding for or
against a party and shall be without findings as to facts, issues or conclusions
of law (including with respect to any matters relating to the validity or
infringement of patents or patent applications) and shall be without a statement
of the reasoning on which the award rests, but must be in adequate form so that
a judgment of a court may be entered thereupon. Judgment upon any arbitration
award hereunder may be entered in any court having jurisdiction thereof.
(b) Prior to the time at which an arbitrator is appointed pursuant
to Section 7.4, any party may seek one or more temporary restraining orders in a
court of competent jurisdiction if necessary in order to preserve and protect
the status quo. Neither the request for, or grant or denial of, any such
temporary restraining order shall be deemed a waiver of the obligation to
arbitrate as set forth herein and the Arbitrator may dissolve, continue or
modify any such order. Any such temporary restraining order shall remain in
effect until the first to occur of the expiration of the order in accordance
with its terms or the dissolution thereof by the Arbitrator.
(c) Except as required by law, the parties shall hold, and shall
cause their respective officers, directors, employees, agents and other
representatives to hold, the existence, content and result of mediation or
arbitration in confidence in accordance with the provisions of
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Article VI and except as may be required in order to enforce any award. Each of
the parties shall request that any mediator or arbitrator comply with such
confidentiality requirement.
(d) In the event that at any time the Arbitrator (or one or more
members of a three-Arbitrator panel) shall fail to serve as an Arbitrator for
any reason, the parties shall select a new Arbitrator (or member) who shall be
disinterested as to the parties and the matter in accordance with the procedures
set forth herein for the selection of the initial Arbitrator. The extent, if
any, to which testimony previously given shall be repeated or as to which the
replacement Arbitrator elects to rely on the stenographic record (if there is
one) of such testimony shall be determined by the replacement Arbitrator.
7.8. Limited Court Actions. (a) In the event that an arbitration
award in excess of $10 million is issued in any arbitration proceeding commenced
hereunder, any party may, within 60 days after the date of such award, submit
the dispute, controversy or claim (or series of related disputes, controversies
or claims) giving rise thereto to a court of competent jurisdiction. In such
event, the applicable court may elect to rely on the record developed in the
arbitration or, if it determines that it would be advisable in connection with
the matter, allow the parties to seek additional discovery or to present
additional evidence. Each party shall be entitled to present arguments to the
court with respect to whether any such additional discovery or evidence shall be
permitted and with respect to all other matters relating to the applicable
dispute, controversy or claim (or series of related disputes, controversies or
claims).
(b) No party shall raise as a defense the statute of limitations if
the applicable Arbitration Demand Notice was delivered on or prior to the
Applicable Deadline and, if applicable, if the matter is submitted to a court of
competent jurisdiction within the 60-day period specified in Section 7.8(a).
7.9. Continuity of Service and Performance. Unless otherwise agreed
in writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Other Agreement during the course of
dispute resolution pursuant to the provisions of this Article VII with respect
to all matters not subject to such dispute, controversy or claim.
7.10. Law Governing Arbitration Procedures. The interpretation of
the provisions of this Article VII, only insofar as they relate to the agreement
to arbitrate and any procedures pursuant thereto, shall be governed by the
Arbitration Act and other applicable federal law. In all other respects, the
interpretation of this Agreement shall be governed as set forth in Section 10.4.
ARTICLE VIII
NO REPRESENTATIONS OR WARRANTIES; EXCEPTIONS; MUTUAL RELEASE
8.1. No Representations or Warranties; Exceptions. Networks
understands and agrees that no member of the General Signal Group is, in this
Agreement or in any Other
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Agreement, representing or warranting to Networks in any way as to the Networks
Assets, the Networks Liabilities or the Networks Business, or as to any consents
or approvals required in connection with the consummation of the transactions
contemplated by this Agreement, it being agreed and understood that Networks
shall take all of the Contributed Assets "as is, where is" (and, in the case of
transfer of real property, by means of a quitclaim or similar form deed or
conveyance) and that, except as provided in Section 5.1, Networks shall bear the
economic and legal risk that conveyances of the Contributed Assets shall prove
to be insufficient or that the title of any member of the Networks Group to any
Contributed Assets shall be other than good and marketable and free from
encumbrances.
8.2. Mutual Release. Effective upon the Distribution and except as
otherwise specifically set forth in this Agreement, each member of the General
Signal Group, on the one hand, and each member of the Networks Group, on the
other, releases and forever discharges the other, and its affiliates, successors
and assigns and the officers, directors, employees, partners, agents and
representatives of any of them, of and from all debts, demands actions, causes
of action, suits, accounts, covenants, contracts, agreements, damages and any
and all claims and Liabilities whatsoever of every name and nature, both in law
and in equity, against such other party or any of its successors or assigns,
that the releasing party has or ever had, that arise out of or relate to events,
circumstances or actions taken by such other party prior to the Distribution
Date; provided, however, that the foregoing general release shall not apply to
this Agreement, the Other Agreements or any of the Surviving Intercompany
Agreements, in each case in accordance with its terms.
ARTICLE IX
INSURANCE
9.1. Insurance Policies and Rights. (a) Without limiting the
generality of the definition of Contributed Assets or Networks Assets set forth
in Section 1.1, but subject to the limitations with respect to Networks
Environmental Liabilities set forth in Section 4.3(c), the Networks Assets shall
include any and all rights of an insured party under each of the General Signal
Combined Policies, including rights of indemnity and the right to be defended by
or at the expense of the insurer, with respect to all Networks Claims; provided,
however, that nothing in this sentence shall be deemed to constitute (or to
reflect) the assignment of any of the General Signal Combined Policies to
Networks. Networks shall be entitled to receive from General Signal any
Insurance Proceeds paid to any member of the General Signal Group with respect
to any third-party Networks Claim under any General Signal Combined Policy.
(b) Without limiting the generality of the definition of General
Signal Assets set forth in Section 1.1, the General Signal Assets shall include
any and all rights of an insured party under each of the General Signal Combined
Policies, including rights of indemnity and the right to be defended by or at
the expense of the insurer, other than the rights under the General Signal
Combined Policies included in Networks Assets pursuant to Section 9.1(a).
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9.2. Post-Distribution Date Claims. If, subsequent to the
Distribution Date, any Person shall assert a Networks Claim, then General Signal
shall at the time such Networks Claim is asserted be deemed to assign, without
need of further documentation, to Networks all of the General Signal Group's
rights, if any, as an insured party under the applicable General Signal Combined
Policy with respect to such Networks Claim, including rights of indemnity and
the right to be defended by or at the expense of the insurer; provided, however,
that nothing in this Section 9.2 shall be deemed to (1) constitute (or to
reflect) the assignment of any of the General Signal Combined Policies to
Networks or (2) affect the General Signal indemnity set forth in Section 4.3 of
this Agreement.
9.3. Administration and Reserves. Notwithstanding the provisions of
Article IV, from and after the Distribution Date:
(a) General Signal shall be responsible for (1) Insurance
Administration with respect to the General Signal Combined Policies, (2) Claims
Administration with respect to any General Signal Liabilities and (3) subject to
Section 4.3(c), Claims Administration and Insurance Administration with respect
to Networks Environmental Liabilities; provided, however, that the retention of
the General Signal Combined Policies by General Signal is in no way intended to
limit, inhibit or preclude any right to insurance coverage for any Insured Claim
of a named insured under the General Signal Combined Policies;
(b) Networks shall be responsible for Claims Administration with
respect to any Networks Liabilities other than Networks Environmental
Liabilities.
(c) General Signal shall be entitled to reserves established by any
member of the General Signal Group, or the benefit of reserves held by any
insurance carrier, with respect to any General Signal Liabilities; and
(d) General Signal shall indemnify Networks and General Signal shall
not be entitled to indemnification under Article IV, in each case with respect
to the retention portion of any Insured Claims that (x) are acknowledged by the
relevant insurance carrier to be covered by a General Signal Casualty Insurance
Policy, (y) would otherwise be a Networks Liability, and (z) are reported to the
insurance carrier and General Signal within three years of the Distribution
Date, up to a maximum of $1,000,000 in the aggregate. To the extent Networks
benefits from the indemnification referred to in the previous sentence in excess
of $1,000,000 in the aggregate, Networks shall promptly reimburse General Signal
for all such amounts in excess of $1,000,000 in the aggregate.
9.4. Insurance Premiums. Networks shall pay premiums
(retrospectively-rated or otherwise) under the General Signal Combined Policies
with respect to Networks Liabilities which are Insured Claims under the General
Signal Combined Policies. General Signal shall have the right but not the
obligation to pay premiums (retrospectively-rated or otherwise) under the
General Signal Combined Policies with respect to Networks Liabilities which are
Insured Claims under the General Signal Combined Policies to the extent that
Networks does not pay such premiums, whereupon Networks shall forthwith
reimburse General Signal for any premiums paid by General Signal with respect to
such Networks Liabilities.
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<PAGE> 37
9.5. Allocation of Insurance Proceeds; Cooperation. Insurance
Proceeds received with respect to claims, costs and expenses under the Insurance
Policies shall be paid to General Signal with respect to General Signal
Liabilities which are Insured Claims under the General Signal Combined Policies
and to Networks with respect to the Networks Liabilities which are Insured
Claims under the General Signal Combined Policies. Payment of the allocable
portions of indemnity costs of Insurance Proceeds resulting from the Insurance
Policies will be made to the appropriate party upon receipt from the insurance
carrier. In the event of the exhaustion of coverage under any General Signal
Combined Policy, General Signal and Networks shall allocate Insurance Proceeds
equitably based upon the bona fide claims of the General Signal Group and the
Networks Group, respectively. The parties hereto agree to use their reasonable
efforts to cooperate with respect to insurance matters.
9.6. Reimbursement of Expenses. Networks shall (a) upon the request
of General Signal, reimburse the relevant insurer or the relevant third-party
administrator, to the extent required under any Insurance Policy or Service
Agreement with respect to any and all Networks Claims which are paid, settled,
adjusted, defended and/or otherwise handled by such insurer or third-party
administrator pursuant to the terms and conditions of such Insurance Policy or
Service Agreement and (b) except as otherwise provided in Section 9.3(d), pay
and/or reimburse General Signal, or such third party as General Signal may
require, for any and all costs, premiums, retentions, deductibles, expenses,
losses paid, attorneys' fees retrospectivley rated/or charges incurred prior to
the Distribution Date by either Group or after the Distribution Date by the
General Signal Group arising directly or indirectly in connection with the
payment, settlement, adjustment, defense and/or handling of any such Networks
Claim or under the terms and conditions of any Insurance Policies or Service
Agreements (including any reimbursement paid by General Signal with respect to
any such Networks Claim to any insurer or third-party administrator pursuant to
the terms of any Insurance Policy or Service Agreement). Networks shall make any
reimbursement required by clause (a) of this Section 9.6 at the time required by
the relevant Insurance Policy or Service Agreement. Networks shall make any
reimbursement required by clause (b) of this Section 9.6, on a monthly basis.
9.7. Insurer Insolvency. General Signal shall not be obligated to
reimburse Networks for any Networks Claim under any Insurance Policies where
such Networks Claim would have been paid by the insurer or other third party,
but for the insolvency of such insurer or other third party or the refusal by
any insurer or other third party to pay such Networks Claim.
9.8. Letters of Credit. Networks shall post such letters of credit
in favor of such Persons as General Signal may reasonably request for any
amounts due or reasonably expected to come due under Section 9.6. Networks shall
make reasonable efforts to negotiate agreements with any and all insurers or
third-party administrators whereby Networks shall assume direct responsibility
for any and all Liabilities related to it under any Insurance Policies and/or
Service Agreements, and General Signal shall provide reasonable assistance in
this effort.
9.9. No Reduction of Coverage. General Signal shall take no action
to eliminate or materially reduce coverage under any General Signal Combined
Policy or Service Agreement for any Networks Claim.
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<PAGE> 38
9.10. Future Insurance Coverage. For a period of one year following
the Distribution Date, General Signal shall assist Networks, to the extent
reasonably requested by Networks, with the efforts of the Networks Group to
secure insurance coverage or claim-handling services for the Networks Business
for the period from and after the Distribution Date. General Signal shall have
no liability to the Networks Group for any failure of the Networks Group to
secure such coverage or services and shall have no obligation to provide
insurance coverage or claim-handling services of any type whatsoever for the
Networks Group, the Networks Business, the Networks Assets, or any
Representative of the Networks Group with respect to any events or occurrences
which do not constitute Network Claims.
9.11. Assistance, Waiver of Conflict and Shared Defense. Each of the
parties hereto agrees to provide reasonable assistance to the other parties
hereto as regards any dispute with any third party (including insurers,
third-party administrators and state guaranty funds) as to any matter related to
the Insurance Policies or Service Agreements, but only insofar as such dispute
arises out of the acts or omissions of any third party with respect to a
Networks Claim. In the event that Insured Claims of more than one Group exist
relating to the same occurrence, the parties hereto agree to defend such Insured
Claims jointly and to waive any conflict of interest necessary to the conduct of
such joint defense. Nothing in this Section 9.11 shall be construed to limit or
otherwise alter in any way the indemnity obligations of the parties hereto,
including those created by this Agreement or by operation of law.
ARTICLE X
MISCELLANEOUS
10.1. Conditions to Obligations. (a) The obligations of the parties
hereto to effect the Distribution are subject to the satisfaction, or waiver by
General Signal in its sole discretion, of each of the following conditions:
(1) The transactions and actions contemplated by Sections 2.1,
2.2, 2.3, 2.7, 2.8 and 2.9 shall have been consummated or completed in all
material respects;
(2) The Networks Common Stock shall have been approved for
listing on Nasdaq;
(3) The Registration Statement shall have been filed with the
SEC and shall have become effective, and no stop order with respect
thereto shall be in effect;
(4) All material authorizations, consents, approvals and
clearances of federal, state, local and foreign governmental agencies
required to permit the valid consummation by the parties hereto of the
transactions contemplated by this Agreement shall have been obtained;
(5) No preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
government, regulatory or ad-
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<PAGE> 39
ministrative agency or commission, and no statute, rule, regulation or
executive order promulgated or enacted by any governmental authority,
shall be in effect preventing the consummation of the Distribution;
(6) General Signal shall have received a ruling from the
Internal Revenue Service that the Distribution shall be tax-free for
federal income tax purposes to General Signal and its stockholders, and
such ruling shall be in form and substance satisfactory to General Signal
in its sole discretion.
(b) The foregoing conditions are for the sole benefit of General
Signal and shall not give rise to any duty on the part of General Signal or its
Board of Directors to waive or not waive any such condition. Any determination
made by the Board of Directors of General Signal in good faith on or prior to
the Distribution Date concerning the satisfaction or waiver of any or all of the
conditions set forth in Section 10.1(a) shall be conclusive.
10.2. Complete Agreement. This Agreement, the Exhibits and Schedules
hereto and the agreements and other documents referred to herein shall
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and shall supersede all previous negotiations, commitments
and writings with respect to such subject matter.
10.3. Expenses. Except as otherwise provided in this Agreement and
the Other Agreements, all costs and expenses of any party hereto in connection
with the preparation, execution, delivery and implementation of this Agreement
and with the consummation of the transactions contemplated by this Agreement
shall be paid by General Signal.
10.4. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (other than the
laws regarding choice of laws and conflicts of laws) as to all matters,
including matters of validity, construction, effect, performance and remedies.
10.5. Notices. All notices, requests, claims, demands and other
communications hereunder (collectively, "Notices") shall be in writing and shall
be given (and shall be deemed to have been duly given upon receipt) by delivery
in person, by cable, telegram, telex or other standard form of
telecommunications, or by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to General Signal: General Signal Corporation
Box 10010 High Ridge Park
Stamford, Connecticut 06904-2010
Fax: 203-329-4396
Attn: General Counsel
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<PAGE> 40
If to Networks: General Signal Networks, Inc.
13000 Midlantic Drive
Mt. Laurel, New Jersey 08054
Fax: 609-273-1555
Attn: Robert Coackley
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section 10.5.
10.6. Amendment and Modification. This Agreement may be amended,
modified or supplemented only by a written agreement signed by all of the
parties hereto.
10.7. Successors and Assigns; No Third-Party Beneficiaries. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their successors and permitted assigns,
but neither this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by any party hereto without the prior written
consent of each of the other parties (which consent shall not be unreasonably
withheld). Except for the provisions of Sections 4.3 and 4.4 relating to
Indemnities, which are also for the benefit of the Indemnitees, this Agreement
is solely for the benefit of the parties hereto and their Subsidiaries and
Affiliates and is not intended to confer upon any other Persons any rights or
remedies hereunder.
10.8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.9. Interpretation. The Article and Section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties hereto and shall not in any way affect the meaning or
interpretation of this Agreement.
10.10. Legal Enforceability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Each party
acknowledges that money damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
10.11. References; Construction. References to any "Article,"
"Exhibit," "Schedule" or "Section," without more, are to Appendices, Articles,
Exhibits, Schedules and Sections to or of this Agreement. Unless otherwise
expressly stated, clauses beginning with the term "including" set forth examples
only and in no way limit the generality of the matters thus exemplified.
10.12. Termination. Any provision hereof to the contrary
notwithstanding, this Agreement may be terminated and the Distribution abandoned
at any time prior to the Dis-
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<PAGE> 41
tribution Date by and in the sole discretion of the Board of Directors of
General Signal without the approval of any other party hereto or of General
Signal's stockholders. In the event of such termination, no party hereto shall
have any Liability to any Person by reason of this Agreement.
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<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
GENERAL SIGNAL CORPORATION
By:
----------------------------
Name:
Title:
GENERAL SIGNAL NETWORKS, INC.
By:
----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 3.1
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
ARTICLE I
The name of the corporation (which is hereinafter referred to
as the "Corporation") is:
[]
ARTICLE II
The address of the Corporation's registered office in the
State of Delaware is The Corporation Trust Center, 1209 Orange Street in the
City of Wilmington, County of New Castle. The name of the Corporation's
registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation shall be to engage in any
lawful act or activity for which corporations may be organized and incorporated
under the General Corporation Law of the State of Delaware.
ARTICLE IV
The total number of shares of stock which the Corporation
shall have authority to issue is 95,000,000, consisting 10,000,000 shares of
preferred stock, par value $.01 per share (hereinafter referred to as "Preferred
Stock"), and 85,000,000 shares of common stock, par value $.01 per share
(hereinafter referred to as "Common Stock").
Shares of Preferred Stock may be issued from time to time in
one or more series. The Board of Directors is hereby authorized to provide for
the issuance of shares of Preferred Stock in series and, by filing a certificate
pursuant to the applicable law of the State of Delaware (hereinafter referred to
as a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series and to fix the designation, powers,
preferences and special rights of the shares of each such series and the
qualifications, limitations
<PAGE> 2
and restrictions thereof. The authority of the Board of Directors with respect
to each series of Preferred Stock shall include, but not be limited to,
determination of the following:
(1) The designation of the series, which may be by
distinguishing number, letter or title.
(2) The number of shares of the series, which number the Board
of Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(3) The amounts payable on, and the preferences, if any, of
shares of the series in respect of dividends, and whether such dividends, if
any, shall be cumulative or noncumulative.
(4) Dates at which dividends, if any, shall be payable.
(5) The redemption rights and price or prices, if any, for
shares of the series.
(6) The terms and amount of any sinking fund providing for the
purchase or redemption of shares of the series.
(7) The amounts payable on, and the preferences, if any, of
shares of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(8) Whether the shares of the series shall be convertible into
or exchangeable for shares of any other class or series, or any other security,
of the Corporation or any other corporation or entity, and, if so, the
specification of such other class or series or such other security, the
conversion or exchange price or prices or rate or rates, any adjustments
thereof, the date or dates at which such shares shall be convertible or
exchangeable and all other terms and conditions upon which such conversion or
exchange may be made.
(9) Restrictions on the issuance of shares of the same series
or of any other class or series.
(10) The voting rights and powers, if any, of the holders of
shares of the series.
The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. Except as may be provided in this
Certificate of Incorporation or in a Preferred Stock Designation, the holders of
shares of Common Stock shall be entitled to one vote for each such share upon
all questions presented to the stockholders, the Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes, and holders of Preferred Stock shall not be entitled to receive notice
of any meeting of stockholders at which they are not entitled to vote.
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<PAGE> 3
ARTICLE V
In furtherance of, and not in limitation of, the powers
conferred by law, the Board of Directors is expressly authorized and empowered
to adopt, amend or repeal the By-Laws of the Corporation; provided, however,
that the By-Laws adopted by the Board of Directors under the powers hereby
conferred may be amended or repealed by the Board of Directors or by the
stockholders having voting power with respect thereto; provided, further, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any series of Preferred Stock
required by law, this Certificate of Incorporation or any Preferred Stock
Designation, the affirmative vote of the holders of at least 80 percent of the
voting power of the then outstanding Voting Stock (as defined herein), voting
together as a single class, shall be required in order for the stockholders to
adopt, amend or repeal any provision of the By-Law;
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80 percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend or repeal, or to adopt
any provision inconsistent with, the first paragraph of this Article V.
For the purposes of this Certificate of Incorporation, "Voting
Stock" shall mean the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors.
ARTICLE VI
Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing in lieu of a meeting of such stockholders.
Subject to the rights of the holders of any series of
Preferred Stock, special meetings of the stockholders may be called only by the
Chairman of the Board or by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of directors which the Corporation
would have if there were no vacancies (the "Whole Board").
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least 80 percent of
the voting power of the then outstanding Voting Stock, voting together as a
single class, shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article VI.
ARTICLE VII
Subject to the rights of the holders of any series of
Preferred Stock to elect directors under specified circumstances, the number of
directors constituting the Whole Board
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<PAGE> 4
shall be fixed from time to time exclusively pursuant to a resolution adopted by
a majority of the Whole Board.
Unless and except to the extent that the By-Laws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
The directors, other than those who may be elected by the
holders of any series of Preferred Stock, shall be divided into three classes,
as nearly equal in number as possible. One class of directors shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
1999, another class shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 2000, and another class shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
2001. Members of each class shall hold office until their successors are elected
and qualified. At each annual meeting of the stockholders of the Corporation
commencing with the 1999 annual meeting, (1) directors elected to succeed those
directors whose terms then expire shall be elected by a plurality vote of all
votes cast at such meeting to hold office for a term expiring at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified, and (2) only if authorized by a resolution of the Board of
Directors, directors may be elected to fill any vacancy on the Board of
Directors, regardless of how such vacancy shall have been created.
Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, and
unless the Board of Directors otherwise determines, vacancies resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, and newly created directorships resulting from any increase in the
authorized number of directors, may be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the total number of directors which the Corporation would
have if there were no vacancies shall shorten the term of any incumbent
director.
Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
By-Laws.
Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, any
director, or the entire Board of Directors, may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of at
least 80 percent of the voting power of the then outstanding Voting Stock,
voting together as a single class.
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80 percent of the voting power of the then
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<PAGE> 5
outstanding Voting Stock, voting together as a single class, shall be required
to amend, repeal or adopt any provision inconsistent with, this Article VII.
ARTICLE VIII
A. (1) In addition to any affirmative vote required by law, by this
Certificate of Incorporation or by any Preferred Stock Designation, and except
as otherwise expressly provided in Section B of this Article VIII:
(i) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested Stockholder
(as hereinafter defined) or (b) any other corporation (whether or not
itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder or any Affiliate of any Interested
Stockholder of any assets of the Corporation or any Subsidiary having
an aggregate Fair Market Value (as hereinafter defined) of $25 million
or more; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange
for cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value of $25 million or more; or
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder;
or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
any Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is Beneficially Owned (as
hereinafter defined) by any Interested Stockholder or any Affiliate of
any Interested Stockholder.
shall require the affirmative vote of the holders of at least 80 percent of the
voting power of all of the then-outstanding shares of the Voting Stock, voting
together as a single class. Such affirmative vote shall be required
notwithstanding any other provisions of this Certificate of Incorporation or any
provision of law or of any agreement with any national securities exchange or
otherwise which might otherwise permit a lesser vote or no vote.
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<PAGE> 6
(2) The term "Business Combination" as used in this Article
VIII shall mean any transaction which is referred to in any one or more
of subparagraphs (i) through (v) of paragraph (1) of this Section A.
B. The provisions of Section A of this Article VIII shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law, any other
provision of this Certificate of Incorporation and any Preferred Stock
Designation, if, in the case of a Business Combination that does not involve any
cash or other consideration being received by the stockholders of the
Corporation, solely in their respective capacities as stockholders of the
Corporation, the conditions specified in the following paragraph (1) is met or,
in the case of any other Business Combination, the conditions specified in
either of the following paragraph (1) or paragraph (2) are met:
(1) The Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined);
provided, however, that this condition shall not be capable of
satisfaction unless there are at least three Continuing Directors.
(2) All of the following conditions shall have been met:
(i) The consideration to be received by holders of
shares of a particular class (or series) of outstanding
capital stock (including Common Stock and other than Excluded
Preferred Stock (as hereinafter defined)) shall be in cash or
in the same form as the Interested Stockholder or any of its
Affiliates has previously paid for shares of such class (or
series) of capital stock. If the Interested Stockholder or any
of its Affiliates have paid for shares of any class (or
series) of capital stock with varying forms of consideration,
the form of consideration to be received per share by holders
of shares of such class (or series) of capital stock shall be
either cash or the form used to acquire the largest number of
shares of such class (or series) of capital stock previously
acquired by the Interested Stockholder.
(ii) The aggregate amount of (x) the cash and (y) the
Fair Market Value, as of the date (the "Consummation Date") of
the consummation of the Business Combination, of the
consideration other than cash to be received per share by
holders of Common Stock in such Business Combination shall be
at least equal to the higher of the following (in each case
appropriately adjusted in the event of any stock dividend,
stock split, combination or shares or similar event):
(a) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the
Interested Stockholder or any of its Affiliates for
any shares of Common Stock acquired by them within
the two-year period immediately prior to the date of
the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or in
any transaction in which the Interested Stockholder
became an Interested Stockholder, whichever is
higher, plus interest compounded annually from the
first date
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<PAGE> 7
on which the Interested Stockholder became an
Interested Stockholder (the "Determination Date")
through the Consummation Date at the publicly
announced base rate of interest of The Chase
Manhattan Bank, N.A. (or such other major bank
headquartered in the City of New York as may be
selected by the Continuing Directors) from time to
time in effect in the City of New York, less the
aggregate amount of any cash dividends paid, and the
Fair Market Value of any dividends paid in other than
cash, on each share of Common Stock from the
Determination Date through the Consummation Date in
an amount up to but not exceeding the amount of
interest so payable per share of Common Stock; and
(b) The Fair Market Value per share of
Common Stock on the Announcement Date or the
Determination Date, whichever is higher.
(iii) The aggregate amount of (x) the cash and (y)
the Fair Market Value, as of the Consummation Date, of the
consideration other than cash to be received per share by
holders of shares of any class (or series), other than Common
Stock or Excluded Preferred Stock, of outstanding capital
stock shall be at least equal to the highest of the following
(in each case appropriately adjusted in the event of any stock
dividend, stock split, combination of shares or similar
event), it being intended that the requirements of this
paragraph (2)(iii) shall be required to be met with respect to
every such class (or series) of outstanding capital stock
whether or not the Interested Stockholder or any of its
Affiliates has previously acquired any shares of a particular
class (or series) of capital stock:
(a) (if applicable) the highest per share
price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the
Interested Stockholder or any of its Affiliates for
any shares of such class (or series) of capital stock
acquired by them within the two-year period
immediately prior to the Announcement Date or in any
transaction in which it became an Interested
Stockholder, whichever is higher, plus interest
compounded annually from the Determination Date
through the Consummation Date at the publicly
announced base rate of interest of The Chase
Manhattan Bank, N.A. (or such other major bank
headquartered in the City of New York as may be
selected by the Continuing Directors) from time to
time in effect in the City of New York, less the
aggregate amount of any cash dividends paid, and the
Fair Market Value of any dividends paid in other than
cash, on each share of such class (or series) of
capital stock from the Determination Date through the
Consummation Date in an amount up to but not
exceeding the amount of interest so payable per share
of such class (or series) of capital stock;
(b) the Fair Market Value per share of such
class (or series) of capital stock on the
Announcement Date or the Determination Date,
whichever is higher; and
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<PAGE> 8
(c) the highest preferential amount per
share, if any, to which the holders of shares of such
class (or series) of capital stock would be entitled
in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (a) except as approved by a majority of
the Continuing Directors, there shall have been no failure to
declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any
outstanding Preferred Stock; (b) there shall have been (I) no
reduction in the annual rate of dividends paid on the Common
Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the
Continuing Directors, and (II) an increase in such annual rate
of dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect
of reducing the number of outstanding shares of the Common
Stock, unless the failure so to increase such annual rate is
approved by a majority of the Continuing Directors; and (c)
neither such Interested Stockholder nor any of its Affiliates
shall have become the beneficial owner of any additional
shares of Voting Stock except as part of the transaction which
results in such Interested Stockholder becoming an Interested
Stockholder; provided, however, that no approval by Continuing
Directors shall satisfy the requirements of this subparagraph
(iv) unless at the time of such approval there are at least
three Continuing Directors.
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder and any of
its Affiliates shall not have received the benefit, directly
or indirectly (except proportionately, solely in such
Interested Stockholder's or Affiliate's capacity as a
stockholder of the Corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or
regulations) shall be mailed to all stockholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
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<PAGE> 9
(vii) Such Interested Stockholders shall have
supplied the Corporation with such information as shall have
been requested pursuant to Section E of this Article VIII
within the time period set forth therein.
C. For the purposes of this Article VIII:
(1) A "person" means any individual, limited partnership,
general partnership, corporation or other firm or entity.
(2) "Interested Stockholder" means any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner (as hereinafter defined),
directly or indirectly, of 10 percent or more of the voting
power of the outstanding Voting Stock;
(ii) is an Affiliate or an Associate of the
Corporation and at any time within the two-year period
immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 10 percent or more of the
voting power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question
beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of
a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933, as
amended.
(3) A person shall be a "beneficial owner" of, or shall
"Beneficially Own", any Voting Stock:
(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns,
directly or indirectly, within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934, as amended, or
(ii) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding (but
neither such person nor any such Affiliate or Associate shall
be deemed to be the beneficial owner of any shares of Voting
Stock solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, and with respect to
which shares neither such person nor any such Affiliate or
Associate is otherwise deemed the beneficial owner); or
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<PAGE> 10
(iii) which are beneficially owned, directly or
indirectly, within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, by any other
person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting (other than solely
by reason of a revocable proxy as described in subparagraph
(ii) of this paragraph (3)) or disposing of any shares of
Voting Stock;
provided, however, that in the case of any employee stock ownership or similar
plan of the Corporation or of any Subsidiary in which the beneficiaries thereof
possess the right to vote any shares of Voting Stock held by such plan, no such
plan nor any trustee with respect thereto (nor any Affiliate of such trustee),
solely by reason of such capacity of such trustee, shall be deemed, for any
purposes hereof, to beneficially own any shares of Voting Stock held under any
such plan.
(4) For the purposes of determining whether a person is an
Interested Stockholder pursuant to paragraph (2) of this Section C, the
number of shares of Voting Stock deemed to be outstanding shall include
shares deemed owned through application of paragraph (3) of this
Section C but shall not include any other unissued shares of Voting
Stock which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
(5) "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
April 1, 1998.
(6) "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition
of Interested Stockholder set forth in paragraph (2) of this Section C,
the term "Subsidiary" shall mean only a corporation of which a majority
of each class of equity security is owned, directly or indirectly, by
the Corporation.
(7) "Continuing Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested
Stockholder and was a member of the Board prior to the time that the
Interested Stockholder became an Interested Stockholder, and any
director who is thereafter chosen to fill any vacancy on the Board of
Directors or who is elected and who, in either event, is unaffiliated
with the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment or election
by a majority of Continuing Directors then on the Board.
(8) "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange-Listed Stocks, or, if such
stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities
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<PAGE> 11
exchange registered under the Securities Exchange Act of 1934 on which
such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a share of
such stock during the 30-day period preceding the date in question on
The Nasdaq Stock Market, Inc.'s National Market or any system then in
use, or if no such quotations are available, the fair market value on
the date in question of a share of such stock as determined by the
Board in accordance with Section D of this Article VIII; and (ii) in
the case of property other than cash or stock, the fair market value of
such property on the date in question as determined by the Board in
accordance with Section D of this Article VIII.
(9) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in paragraphs (2)(ii) and (2)(iii) of Section B of
this Article VIII shall include the shares of Common Stock and/or the
shares of any other class (or series) of outstanding capital stock
retained by the holders of such shares.
(10) "Excluded Preferred Stock" means any series of Preferred
Stock with respect to which the Preferred Stock Designation creating
such series expressly provides that the provisions of this Article VIII
shall not apply.
D. A majority of the Whole Board, but only if a majority of the Whole
Board shall then consist of Continuing Directors or, if a majority of the Whole
Board shall not then consist of Continuing Directors, a majority of the then
Continuing Directors, shall have the power and duty to determine, on the basis
of information known to them after reasonable inquiry, all facts necessary to
determine compliance with this Article VIII, including, without limitation, (i)
whether a person is an Interested Stockholder, (ii) the number of shares of
Voting Stock beneficially owned by any person, (iii) whether a person is an
Affiliate or Associate of another, (iv) whether the applicable conditions set
forth in paragraph (2) of Section B have been met with respect to any Business
Combination, (v) the Fair Market Value of stock or other property in accordance
with paragraph (8) of Section C of this Article VIII, and (vi) whether the
assets which are the subject of any Business Combination referred to in
paragraph (1)(ii) of Section A have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any Subsidiary in any
Business Combination referred to in paragraph (1)(iii) of Section A has, an
aggregate Fair Market Value of $25 million or more.
E. A majority of the Whole Board shall have the right to demand, but
only if a majority of the Whole Board shall then consist of Continuing
Directors, or, if a majority of the Whole Board shall not then consist of
Continuing Directors, a majority of the then Continuing Directors shall have the
right to demand, that any person who it is reasonably believed is an Interested
Stockholder (or holds of record shares of Voting Stock Beneficially Owned by any
Interested Stockholder) supply the Corporation with complete information as to
(i) the record owner(s) of all shares Beneficially Owned by such person who it
is reasonably believed is an Interested Stockholder, (ii) the number of, and
class or series of, shares Beneficially Owned by such person who it is
reasonably believed is an Interested Stockholder and held of record by each such
record owner and the number(s) of the stock certificate(s) evidencing such
shares, and (iii)
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<PAGE> 12
any other factual matter relating to the applicability or effect of this Article
VIII, as may be reasonably requested of such person, and such person shall
furnish such information within 10 days after receipt of such demand.
F. Nothing contained in this Article VIII shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
G. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 80 percent of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal this Article VIII.
ARTICLE IX
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any amendment
or repeal of this Article IX shall not adversely affect any right or protection
of a director of the Corporation existing hereunder in respect of any act or
omission occurring prior to such amendment or repeal.
ARTICLE X
Except as may be expressly provided in this Certificate of
Incorporation, the Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation or a Preferred Stock Designation, and any other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner now or hereafter prescribed herein or by
applicable law, and all rights, preferences and privileges of whatsoever nature
conferred upon stockholders, directors or any other persons whomsoever by and
pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the right reserved in this Article X;
provided, however, that any amendment or repeal of Article IX of this
Certificate of Incorporation shall not adversely affect any right or protection
existing hereunder in respect of any act or omission occurring prior to such
amendment or repeal; and provided, further, that no Preferred Stock Designation
shall be amended after the issuance of any shares of the series of Preferred
Stock created thereby, except in accordance with the terms of such Preferred
Stock Designation and the requirements of applicable law.
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EXHIBIT 3.2
FORM OF
AMENDED AND RESTATED BY-LAWS
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. DELAWARE OFFICE. The name of the registered agent
of the Corporation is The Corporation Trust Corporation and the registered
office of the Corporation shall be located in the City of Wilmington, County of
New Castle, State of Delaware.
SECTION 1.2. OTHER OFFICES. The Corporation may have such
other offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
SECTION 1.3. BOOKS AND RECORDS. The books and records of the
Corporation may be kept outside the State of Delaware at such place or places as
may from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the
stockholders of the Corporation shall be held on such date and at such place and
time as may be fixed by resolution of the Board of Directors.
SECTION 2.2. SPECIAL MEETING. Subject to the rights of the
holders of any series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation ("Preferred Stock") with respect
to such series of Preferred Stock, special meetings of the stockholders may be
called only in the manner provided in the Certificate of Incorporation.
SECTION 2.3. PLACE OF MEETING. The Board of Directors or the
Chairman of the Board, as the case may be, may designate the place of meeting
for any annual meeting or for any special meeting of the stockholders called by
the Board of Directors or the Chairman of the Board. If no designation is so
made, the place of meeting shall be the principal office of the Corporation.
SECTION 2.4. NOTICE OF MEETING. Written or printed notice,
stating the place, day and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be delivered by the Corporation not less than
10 days nor more than 60 days before the date of the meeting, either personally
or by mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon prepaid, addressed to the stockholder at his
address as it appears
<PAGE> 2
on the stock transfer books of the Corporation. Such further notice shall be
given as may be required by law. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Meetings may be held without
notice if all of the stockholders entitled to vote are present, or if notice is
waived by those not present in accordance with Section 6.4 of these By-Laws. Any
previously scheduled meeting of the stockholders may be postponed, and, unless
the Amended and Restated Certificate of Incorporation, as it may be amended (the
"Certificate of Incorporation") otherwise provides, any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given on or prior to the date previously scheduled for such
meeting of stockholders.
SECTION 2.5. QUORUM AND ADJOURNMENT. Except as otherwise
provided by law or by the Certificate of Incorporation, the holders of a
majority of the outstanding shares of the Corporation entitled to vote generally
in the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series of stock voting as a
class, the holders of a majority of the outstanding shares of such class or
series shall constitute a quorum of such class or series for the transaction of
such business. The Chairman of the meeting or a majority of the shares so
represented may adjourn the meeting from time to time, whether or not there is
such a quorum. No notice of the time and place of adjourned meetings need be
given except as required by law. The stockholders present at a duly called
meeting at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
SECTION 2.6. PROXIES. At all meetings of stockholders, a
stockholder may vote by proxy executed in writing (or in such manner prescribed
by the General Corporation Law of the State of Delaware (the "DGCL")) by the
stockholder, or by his duly authorized attorney in fact.
SECTION 2.7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders. (1) Nominations of
persons for election to the Board of Directors of the Corporation and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the Corporation's notice of
meeting, (b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice provided for in this By-Law, who is entitled to vote at the
meeting and who complies with the notice procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this By-Law, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of busi-
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<PAGE> 3
ness on the 90th day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that with respect to the annual meeting to be
held in 1999, the first anniversary date shall be deemed for all purposes under
this Section 2.7 to be ________, 1999, and provided, further, that in the event
that the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the close of business on the 90th day prior to
such annual meeting and not later than the close of business on the later of the
60th day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or
re-election as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this By-Law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-Law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this By-Law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-Law. In the event
the Corporation calls a
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<PAGE> 4
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the Corporation's notice of meeting, if the stockholder's notice required by
paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
(C) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this By-Law shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-Law. Except as otherwise provided by law,
the Certificate of Incorporation or these By-Laws, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this By-Law and, if any
proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
SECTION 2.8. PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED
VOTE. Election of directors at all meetings of the stockholders at which
directors are to be elected shall be by ballot, and, subject to the rights of
the holders of any series of Preferred Stock to elect directors under specified
circumstances, a plurality of the votes cast thereat shall elect directors.
Except as otherwise provided by law, the Certificate of Incorporation, or these
By-Laws, in all matters other than the election of directors, the affirmative
vote of a majority of the shares present in person or represented by proxy at
the meeting shall be the act of the stockholders.
SECTION 2.9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE
POLLS. The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, with-
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<PAGE> 5
out limitation, as officers, employees, agents or representatives, to act at the
meetings of stockholders and make a written report thereof. One or more persons
may be designated as alternate inspectors to replace any inspector who fails to
act. If no inspector or alternate has been appointed to act or is able to act at
a meeting of stockholders, the Chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before discharging his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at the meeting.
SECTION 2.10. NO STOCKHOLDER ACTION BY WRITTEN CONSENT.
Subject to the rights of the holders of any series of Preferred Stock with
respect to such series of Preferred Stock, any action required or permitted to
be taken by the stockholders of the Corporation must be effected at an annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders in lieu of a meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. In
addition to the powers and authorities by these By-Laws expressly conferred upon
it, the Board of Directors may exercise all powers of the Corporation and do all
such lawful acts and things as are not by law or by the Certificate of
Incorporation or by these By-Laws required to be exercised or done by the
stockholders.
SECTION 3.2. NUMBER AND TENURE. Subject to the rights of the
holders of any series of Preferred Stock to elect directors under specified
circumstances, the total number of directors shall be fixed from time to time in
the manner provided in the Certificate of Incorporation. The directors, other
than those who may be elected by the holders of any series of Preferred Stock
under specified circumstances, shall be divided, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as is reasonably possible, with the term of office of the first class to expire
at the 1999 annual meeting of stockholders, the term of office of the second
class to expire at the 2000 annual meeting of stockholders and the term of
office of the third class to expire at the 2001 annual meeting of stockholders,
with each director to hold office until his or her successor shall have been
duly elected and qualified. At each annual meeting of stockholders, commencing
with the 1999 annual meeting, (i) directors elected to succeed those directors
whose terms then expire shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after their election, with each
director to hold office until his or her successor shall have been duly elected
and qualified, and (ii) if authorized by a resolution of the Board of Directors,
directors may be elected to fill any vacancy on the Board of Directors,
regardless of how such vacancy shall have been created.
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SECTION 3.3. AGE QUALIFICATION. Any other provision of these
By-Laws notwithstanding, no person shall be eligible to be elected, appointed or
designated to serve as a director of the Corporation if at the time of such
election, appointment or designation such person would have attained the age of
72 years or more; provided, however, that nothing in this Section 3.3 shall
shorten the term of any director elected, appointed or designated prior to such
director's 72nd birthday.
SECTION 3.4. REGULAR MEETINGS. A regular meeting of the Board
of Directors shall be held without other notice than this By-Law on the same
date, and at the same place as, the Annual Meeting of Stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without other notice than such resolution.
SECTION 3.5. SPECIAL MEETINGS. Special meetings of the Board
of Directors shall be called at the request of the Chairman of the Board or a
majority of the directors then in office. The person or persons authorized to
call special meetings of the Board of Directors may fix the place and time of
the meetings.
SECTION 3.6. NOTICE. Notice of any special meeting of
directors shall be given to each director at his business or residence in
writing by hand delivery, first class or overnight mail or other overnight or
express delivery service, telegram or facsimile transmission, by electronic mail
or orally by telephone. If mailed by first class mail, such notice shall be
deemed adequately delivered when deposited in the United States mails so
addressed, with postage thereon prepaid, at least five days before such meeting.
If by telegram, overnight mail or courier service, such notice shall be deemed
adequately delivered when the telegram is delivered to the telegraph company or
the notice is delivered to the overnight mail or other overnight or express
delivery service company at least 24 hours before such meeting. If by facsimile
transmission or electronic mail, such notice shall be deemed adequately
delivered when the notice is transmitted at least 12 hours before such meeting.
If by telephone or by hand delivery, the notice shall be given at least 12 hours
prior to the time set for the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice of such meeting, except for amendments to these
By-Laws, as provided under Section 9.1. A meeting may be held at any time
without notice if all the directors are present or if those not present waive
notice of the meeting in accordance with Section 6.4 of these By-Laws.
SECTION 3.7. ACTION BY CONSENT OF BOARD OF DIRECTORS. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
SECTION 3.8. CONFERENCE TELEPHONE MEETINGS. Members of the
Board of Directors, or any committee thereof, may participate in a meeting of
the Board of Directors or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.9. QUORUM. Subject to Section 3.10, a majority of
the number of directors which the Corporation would have if there were no
vacancies (the "Whole Board") shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
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meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 3.10. VACANCIES. Subject to applicable law and the
rights of the holders of any series of Preferred Stock with respect to such
series of Preferred Stock, and unless the Board of Directors otherwise
determines, vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
shall be filled only in the manner provided in the Certificate of Incorporation.
Directors chosen in such manner shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Whole Board shall shorten the term of any incumbent
director.
SECTION 3.11. COMMITTEES. The Board of Directors may, by
resolution adopted by a majority of the Whole Board, designate one or more
committees consisting of two or more directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee may to the extent permitted by law exercise such powers and shall
have such responsibilities as shall be specified in the designating resolution.
In the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the Board to act at the meeting in the place of any
such absent or disqualified member. Each committee shall keep written minutes of
its proceedings and shall report such proceedings to the Board when required.
At any meeting of a committee, the presence of a majority of
its members, but not less than two, shall constitute a quorum for the
transaction of business and the act of a majority of any committee may determine
its action. Each committee may provide for the holding of regular meetings, make
provision for the calling of special meetings and, except as otherwise provided
in these By-Laws or by resolution of the Board of Directors, make rules for the
conduct of its business. Notice of such meetings shall be given to each member
of the committee in the manner provided for in Section 3.6 of these By-Laws. The
Board shall have power at any time to fill vacancies in, to change the
membership of, or to dissolve any such committee. Nothing herein shall be deemed
to prevent the Board from appointing one or more committees consisting in whole
or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority of the
Board.
SECTION 3.12. REMOVAL. Subject to the rights of the holders of
any series of Preferred Stock with respect to such series of Preferred Stock,
any director, or the entire Board of Directors, may be removed from office in
the manner provided in the Certificate of Incorporation.
SECTION 3.13. RECORDS. The Board of Directors shall cause to
be kept a record containing the minutes of the proceedings of the meetings of
the Board and of the stockholders,
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appropriate stock books and registers and such books of records and accounts as
may be necessary for the proper conduct of the business of the Corporation.
ARTICLE IV
OFFICERS
SECTION 4.1. ELECTED OFFICERS. The elected officers of the
Corporation shall be a Chairman of the Board of Directors, a Secretary, a
Treasurer, a number of Vice Presidents, and such other officers (including,
without limitation, a President, a Chief Financial Officer and a Controller) as
the Board of Directors from time to time may deem proper. The Chairman of the
Board shall be chosen from among the directors. All officers elected by the
Board of Directors shall each have such powers and duties as generally pertain
to their respective offices, subject to the specific provisions of this Article
IV. Such officers shall also have such powers and duties as from time to time
may be conferred by the Board of Directors or by any committee thereof. The
Board may from time to time elect, or the Chairman of the Board or President may
appoint, such other officers (including one or more Assistant Vice Presidents,
Assistant Secretaries, Assistant Treasurers, and Assistant Controllers) and such
agents, as may be necessary or desirable for the conduct of the business of the
Corporation. Such other officers and agents shall have such duties and shall
hold their offices for such terms as shall be provided in these By-Laws or as
may be prescribed by the Board or such committee or by the Chairman of the Board
or President, as the case may be.
SECTION 4.2. ELECTION AND TERM OF OFFICE. The elected officers
of the Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held on the date of the annual meeting
of the stockholders. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as convenient.
Alternatively, at the last regular meeting of the Board of Directors prior to an
annual meeting of stockholders, the Board of Directors may elect the officers of
the Corporation, contingent upon the election of the persons nominated to be
directors by the Board of Directors. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
earlier death, resignation or removal.
SECTION 4.3. CHAIRMAN OF THE BOARD. The Chairman of the Board
shall preside at all meetings of the stockholders and of the Board of Directors
and shall be the Chief Executive Officer of the Corporation. The Chairman of the
Board shall be responsible for the general management of the affairs of the
Corporation and shall perform all duties incidental to his office which may be
required by law and all such other duties as are properly required of him by the
Board of Directors. He shall make reports to the Board of Directors and the
stockholders, and shall see that all orders and resolutions of the Board of
Directors and of any committee thereof are carried into effect. The Chairman of
the Board may also serve as President, if so elected by the Board.
SECTION 4.4. PRESIDENT. The President (if any) shall act in a
general executive capacity and shall assist the Chairman of the Board in the
administration and operation of the
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Corporation's business and general supervision of its policies and affairs. The
President shall, in the absence of or because of the inability to act of the
Chairman of the Board, perform all duties of the Chairman of the Board and
preside at all meetings of stockholders and of the Board of Directors.
SECTION 4.5. VICE-PRESIDENTS. Each Vice President shall have
such powers and shall perform such duties as shall be assigned to him by the
Board of Directors, the Chairman of the Board or the President.
SECTION 4.6. CHIEF FINANCIAL OFFICER. The Chief Financial
Officer (if any) shall be a Vice President and act in an executive financial
capacity. He shall assist the Chairman of the Board and the President in the
general supervision of the Corporation's financial policies and affairs.
SECTION 4.7. TREASURER. The Treasurer shall exercise general
supervision over the receipt, custody and disbursement of corporate funds. The
Treasurer shall cause the funds of the Corporation to be deposited in such banks
as may be authorized by the Board of Directors, or in such banks as may be
designated as depositaries in the manner provided by resolution of the Board of
Directors. He shall have such further powers and duties and shall be subject to
such directions as may be granted or imposed upon him from time to time by these
By-Laws, the Board of Directors, the Chairman of the Board, the President or the
Chief Financial Officer.
SECTION 4.8. SECRETARY. The Secretary shall keep or cause to
be kept in one or more books provided for that purpose, the votes, proceedings
and minutes of all meetings of the Board, the committees of the Board and the
stockholders; he shall see that all notices are duly given in accordance with
the provisions of these By-Laws and as required by law; he shall be custodian of
the records and the seal of the Corporation and affix and attest the seal to all
stock certificates of the Corporation (unless the seal of the Corporation on
such certificates shall be a facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal; and he shall see that the books, reports,
statements, certificates and other documents and records required by law to be
kept and filed are properly kept and filed; and in general, he shall perform all
the duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him by the Board, the Chairman of the Board or
the President.
SECTION 4.9. REMOVAL. Any officer or agent may be removed from
office at any time by the affirmative vote of a majority of the Whole Board or,
except in the case of an officer or agent elected by the Board, by the Chairman
of the Board or the President. Such removal shall be without prejudice to the
contractual rights, if any, of the person removed, provided that no elected
officer shall have any contractual rights against the Corporation for
compensation by virtue of his election as an officer beyond the date of the
election of his successor, his death, his resignation or his removal, whichever
event shall first occur, except as otherwise expressly provided in an employment
contract or under an employee deferred compensation plan.
SECTION 4.10. VACANCIES. A newly created elected office and a
vacancy in any elected office because of death, resignation, or removal may be
filled by the Board of Directors
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for the unexpired portion of the term at any meeting of the Board of Directors.
Any vacancy in an office appointed by the Chairman of the Board or the President
because of death, resignation, or removal may be filled by the Chairman of the
Board or the President.
ARTICLE V
STOCK CERTIFICATES, BOOK-ENTRY ACCOUNTS AND TRANSFERS
SECTION 5.1. STOCK CERTIFICATES AND TRANSFERS. The interest of
each stockholder of the Corporation shall be evidenced by certificates or by
registration in book-entry accounts without certificates for shares of stock in
such form as the appropriate officers of the Corporation may from time to time
prescribe. The shares of the stock of the Corporation shall be transferred on
the books of the Corporation by the holder thereof in person or by his attorney,
upon surrender for cancellation of certificates for the same number of shares,
with an assignment and power of transfer endorsed thereon or attached thereto,
duly executed, with such proof of the authenticity of the transfer and payment
of any applicable transfer taxes as the Corporation or its agents may reasonably
require or by appropriate book-entry procedures.
Certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
SECTION 5.2. LOST, STOLEN OR DESTROYED CERTIFICATES. No
certificate for shares of stock in the Corporation shall be issued in place of
any certificate alleged to have been lost, destroyed or stolen, except on
production of such evidence of such loss, destruction or theft and on delivery
to the Corporation of a bond of indemnity in such amount, upon such terms and
secured by such surety, as the Board of Directors or any officer may in its or
his discretion require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. FISCAL YEAR. The fiscal year of the Corporation
shall begin on the first day of January and end on the thirty-first day of
December of each year.
SECTION 6.2. DIVIDENDS. The Board of Directors may from time
to time declare, and the Corporation may pay, dividends on its outstanding
shares in the manner and upon the terms and conditions provided by law and the
Certificate of Incorporation.
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SECTION 6.3. SEAL. The corporate seal shall have enscribed
thereon the words "Corporate Seal," the year of incorporation and "Delaware" and
around the margin thereof the name of the Corporation.
SECTION 6.4. WAIVER OF NOTICE. Whenever any notice is required
to be given to any stockholder or director of the Corporation under the
provisions of the DGCL or these By-Laws, a waiver thereof in writing, signed by
the person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice. Neither
the business to be transacted at, nor the purpose of, any annual or special
meeting of the stockholders or the Board of Directors or committee thereof need
be specified in any waiver of notice of such meeting.
SECTION 6.5. AUDITS. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be done
annually.
SECTION 6.6. RESIGNATIONS. Any director or any officer,
whether elected or appointed, may resign at any time by giving written notice of
such resignation to the Chairman of the Board, the President, or the Secretary,
and such resignation shall be deemed to be effective as of the close of business
on the date said notice is received by the Chairman of the Board, the President,
or the Secretary, or at such later time as is specified therein. No formal
action shall be required of the Board of Directors or the stockholders to make
any such resignation effective.
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ARTICLE VII
INDEMNIFICATION
SECTION 7.1. ACTIONS BY OTHERS. The Corporation (1) shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was a director
or an officer of the Corporation and (2) except as otherwise required by Section
3 of this Article VII, may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
agent of or participant in another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 7.2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director or officer of the
Corporation, and the Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she is or was an employee or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, agent of or participant in another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the Corporation unless and
only to the extent that the Delaware Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indem-
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nity for such expenses which the Delaware Court of Chancery or such other court
shall deem proper.
SECTION 7.3. SUCCESSFUL DEFENSE. To the extent that a person
who is or was a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 7.1 or Section 7.2, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
SECTION 7.4. RIGHT TO INDEMNIFICATION. The right to
indemnification conferred in this Article VII shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition, such expenses
to be paid by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the claimant requesting such
payment or payments of expenses from time to time; provided, however, that if
the DGCL requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding shall be made only upon
delivery to the Corporation of an undertaking by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article VII or otherwise.
SECTION 7.5. SPECIFIC AUTHORIZATION. To obtain indemnification
under this Article VII, a claimant shall submit to the Corporation a written
request, including therein or therewith such documentation and information as is
reasonably available to the claimant and is reasonably necessary to determine
whether and to what extent the claimant is entitled to indemnification. Any
indemnification under Section 7.1 or Section 7.2 (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in said Sections 7.1 and 7.2. Such determination shall be made
by (a) the stockholders, (b) the Disinterested Directors or a committee of such
Disinterested Directors designated by the Disinterested Directors by majority
vote, in either case even though less than a quorum, or (c) if (1) there are no
Disinterested Directors or if the Disinterested Directors by majority vote so
direct, or (2) a Change of Control shall have occurred, then, in the case of
either of clauses (1) and (2) of this clause (c), by an Independent Counsel in a
written opinion, which Independent Counsel shall be selected by a majority vote
of a quorum of Disinterested Directors or, if there are no Disinterested
Directors or if a Change of Control shall have occurred, by the claimant. If it
is so determined that the claimant is entitled to indemnification, payment to
the claimant shall be made within 10 days after such determination.
SECTION 7.6. SUIT AGAINST CORPORATION. If a claim under
Section 7.1 or 7.2 is not paid in full by the Corporation within 30 days after a
written claim pursuant to Section 7.5 has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
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the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the DGCL or this Article VII for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, Independent Counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
DGCL or this Article VII, nor an actual determination by the Corporation
(including its Board of Directors, Independent Counsel or stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
SECTION 7.7. CORPORATION BOUND. If a determination shall have
been made pursuant to Section 7.5 that the claimant is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding commenced pursuant to Section 7.6.
SECTION 7.8. PRECLUSION. The Corporation shall be precluded
from asserting in any judicial proceeding commenced pursuant to Section 7.6 that
the procedures and presumptions of this Article VII are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this Article VII.
SECTION 7.9. RIGHT OF INDEMNITY NOT EXCLUSIVE. The
indemnification and advancement of expenses provided by this Article shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
SECTION 7.10. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of or participant in
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article, Section 145 of the DGCL or otherwise.
SECTION 7.11. INVALIDITY OF ANY PROVISIONS OF THIS ARTICLE.
The invalidity or unenforceability of any provision of this Article VII shall
not affect the validity or enforceability of the remaining provisions of this
Article VII, and, to the fullest extent possible, such provisions of this
Article VII (including, without limitation, each such portion of any Section of
this Article VII containing any such provision held to be invalid, illegal or
unenforceable) shall be construed
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so as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
SECTION 7.12. DEFINITIONS. For purposes of this Article VII:
(A) "Change of Control" means:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act ) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then outstanding shares of common
stock of the Corporation (the "Outstanding Corporation Common Stock") or (ii)
the combined voting power of the then outstanding shares of Voting Stock;
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Corporation, (ii) any acquisition by the Corporation, (iii)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Corporation or any corporation controlled by the Corporation
or (iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of paragraph (3) below; or
(2) Individuals who, as of ______ __, 1998, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Whole Board; provided, however, that any individual
becoming a director subsequent to _______ __, 1998 whose election, or nomination
for election by the Corporation's stockholders, 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
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest 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 of Directors; or
(3) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Corporation (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Corporation Common Stock and the then outstanding shares of Voting Stock
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then 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
Corporation or all or substantially all of the Corporation'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 Corporation Common Stock and the then outstanding shares of
Voting Stock, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Corporation or such corporation re-
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sulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation 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 were
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
(4) Approval by the stockholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
(B) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the matter in respect of which
indemnification is sought by the claimant.
(C) "Independent Counsel" means a law firm, a member of a law
firm, or an independent practitioner, that is experienced in matters of
corporation law and shall include any person who, under the applicable standards
of professional conduct then prevailing, would not have a conflict of interest
in representing either the Corporation or the claimant in an action to determine
the claimant's rights under this Article VII.
SECTION 7.13. NOTICE. Any notice, request or other
communication required or permitted to be given to the Corporation under this
Article VII shall be in writing and either delivered in person or sent by
telecopy, telex, telegram, overnight mail or courier service, or certified or
registered mail, postage prepaid, return receipt requested, to the Secretary of
the Corporation and shall be effective only upon receipt by the Secretary.
ARTICLE VIII
CONTRACTS, PROXIES, ETC.
SECTION 8.1. CONTRACTS. Except as otherwise required by law,
the Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time direct. Such authority may be general or
confined to specific instances as the Board may determine. The Chairman of the
Board, the President or any Vice President may execute bonds, contracts, deeds,
leases and other instruments to be made or executed for or on behalf of the
Corporation. Subject to any restrictions imposed by the Board of Directors or
the Chairman of the Board, the President or any Vice President of the
Corporation may delegate contractual powers to others under his jurisdiction, it
being understood, however, that any such delegation of power shall not relieve
such officer of responsibility with respect to the exercise of such delegated
power.
SECTION 8.2. PROXIES. Unless otherwise provided by resolution
adopted by the Board of Directors, the Chairman of the Board, the President or
any Vice President, the Secretary
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<PAGE> 17
or any Assistant Secretary, may from time to time appoint an attorney or
attorneys or agent or agents of the Corporation, in the name and on behalf of
the Corporation, to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, any of
whose stock or other securities may be held by the Corporation, at meetings of
the holders of the stock or other securities of such other corporation, or to
consent in writing, in the name of the Corporation as such holder, to any action
by such other corporation, and may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, and may execute
or cause to be executed in the name and on behalf of the Corporation and under
its corporate seal or otherwise, all such written proxies or other instruments
as he may deem necessary or proper in the premises.
ARTICLE IX
AMENDMENTS
SECTION 9.1. AMENDMENTS. These By-Laws may be amended or
repealed, or new By-Laws may be adopted, at any meeting of the Board of
Directors or of the stockholders, provided notice of the proposed change was
given in the notice of the meeting and, in the case of a meeting of the Board of
Directors, in a notice given not less than 12 hours prior to the meeting;
provided, however, that, in the case of amendment, repeal or adoption by
stockholders, notwithstanding any other provisions of these By-Laws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any series of Preferred Stock
required by law, the Certificate of Incorporation, any Preferred Stock
designation, or these By-Laws, the affirmative vote of the holders of at least
80 percent of the voting power of all the then outstanding shares of the Voting
Stock, voting together as a single class, shall be required for the stockholders
to adopt, amend or repeal any provision of these By-Laws.
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<PAGE> 1
EXHIBIT 4.1
GENERAL SIGNAL NETWORKS, INC.
and
----------------------------------
as
Rights Agent
Rights Agreement
Dated as of _________ ___, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Certain Definitions....................................................................... 1
Section 2. Appointment of Rights Agent............................................................... 3
Section 3 Issue of Right Certificates............................................................... 3
Section 4. Form of Right Certificates................................................................ 5
Section 5. Countersignature and Registration......................................................... 5
Section 6. Transfer, Split-Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed,
Lost or Stolen Right Certificates......................................................... 6
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights............................. 6
Section 8. Cancellation and Destruction of Right Certificates........................................ 7
Section 9. Availability of Preferred Shares.......................................................... 7
Section 10. Preferred Shares Record Date.............................................................. 8
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights........................ 8
Section 12. Certificate of Adjusted Purchase Price or Number of Shares................................ 14
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power...................... 14
Section 14. Fractional Rights and Fractional Shares................................................... 15
Section 15. Rights of Action.......................................................................... 16
Section 16 Agreement of Right Holders................................................................ 16
Section 17. Right Certificate Holder Not Deemed a Stockholder......................................... 17
Section 18. Concerning the Rights Agent............................................................... 17
Section 19. Merger or Consolidation or Change of Name of Rights Agent................................. 18
Section 20. Duties of Rights Agent.................................................................... 18
Section 21. Change of Rights Agent.................................................................... 20
Section 22. Issuance of New Right Certificates........................................................ 20
Section 23. Redemption................................................................................ 21
Section 24. Exchange.................................................................................. 21
Section 25. Notice of Certain Events.................................................................. 22
Section 26. Notices................................................................................... 23
Section 27. Supplements and Amendments................................................................ 24
Section 28. Successors................................................................................ 24
Section 29. Benefits of this Agreement................................................................ 24
Section 30. Severability.............................................................................. 24
Section 31. Governing Law............................................................................. 25
Section 32. Counterparts.............................................................................. 25
Section 33. Descriptive Headings...................................................................... 25
Signatures
Exhibit A - Form of Right Certificate
Exhibit B - Form of Certificate of Designations
</TABLE>
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<PAGE> 3
RIGHTS AGREEMENT
Agreement, dated as of _________ ___, 1998, between General
Signal Networks, Inc., a Delaware corporation (the "Company"), and
____________________________, as rights agent (the "Rights Agent").
WHEREAS, the Board of Directors of the Company has authorized
and declared a dividend of one preferred share purchase right (a "Right") for
each Common Share (as hereinafter defined) of the Company to be issued in the
distribution of Common Shares of the Company (the "Spin-Off") by General Signal
Corporation, a New York corporation ("General Signal"), to its stockholders,
each Right representing the right to purchase one one-hundredth of a Preferred
Share (as hereinafter defined), upon the terms and subject to the conditions
herein set forth, and has further authorized and directed the issuance of one
Right with respect to each Common Share that shall become outstanding between
the effective date of the Spin-Off (the "Record Date") and the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date (as such
terms are hereinafter defined).
ACCORDINGLY, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 15% or more of the Common Shares
of the Company then outstanding, but shall not include the Company, any
Subsidiary (as such term is hereinafter defined) of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, any entity holding
Common Shares for or pursuant to the terms of any such plan or, prior to the
Spin-Off, General Signal. Notwithstanding the foregoing, no Person shall become
an "Acquiring Person" as the result of an acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 15% or more
of the Common Shares of the Company then outstanding; provided, however, that if
a Person shall become the Beneficial Owner of 15% or more of the Common Shares
of the Company then outstanding by reason of share purchases by the Company and
shall, after such share purchases by the Company, become the Beneficial Owner of
any additional Common Shares of the Company, then such Person shall be deemed to
be an "Acquiring Person." Notwithstanding the foregoing, if the Board of
Directors of the Company determines in good faith that a Person who would
otherwise be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of Common Shares so that
such Person would no longer be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be deemed
to be an "Acquiring Person" for any purposes of this Agreement.
<PAGE> 4
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), or
upon the exercise of conversion rights, exchange rights, rights (other
than these Rights), warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote pursuant to
any agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security if the agreement, arrangement or understanding to
vote such security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not
also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any of such
Person's Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except to the extent contemplated by the proviso to Section
1(c)(ii)(B)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
Person would be deemed to own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
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<PAGE> 5
(e) "Close of business" on any given date shall mean 5:00
P.M., New York City time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(f) "Common Shares" when used with reference to the Company
shall mean the shares of common stock, par value $0.01 per share, of the
Company. "Common Shares" when used with reference to any Person other than the
Company shall mean the capital stock (or equity interest) with the greatest
voting power of such other Person or, if such other Person is a Subsidiary of
another Person, the Person or Persons which ultimately control such
first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(i) "Final Expiration Date" shall have the meaning set forth
in Section 7 hereof.
(j) "Person" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
(k) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $0.01 per share, of the Company having
the rights and preferences set forth in the Certificate of Designations attached
to this Agreement as Exhibit B.
(l) "Purchase Price" shall have the meaning set forth in
Section 4 hereof.
(m) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(n) "Shares Acquisition Date" shall mean the first date of
public announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.
(o) "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier
of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth
Business Day (or such later date as may be determined by action of the Board of
Directors of the Company prior to such time as any Person becomes an Acquiring
Person) after the date of the commencement by any Person (other than the
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<PAGE> 6
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) of, or of the first public announcement
of the intention of any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company or any entity holding Common Shares for or pursuant to the terms of any
such plan) to commence, a tender or exchange offer the consummation of which
would result in any Person becoming the Beneficial Owner of Common Shares
aggregating 15% or more of the then outstanding Common Shares (including any
such date which is after the date of this Agreement and prior to the issuance of
the Rights; the earlier of such dates being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b) hereof) by the certificates for Common Shares
registered in the names of the holders thereof (which certificates shall also be
deemed to be Right Certificates) and not by separate Right Certificates, and (y)
the right to receive Right Certificates will be transferable only in connection
with the transfer of Common Shares. As soon as practicable after the
Distribution Date, the Company will prepare and execute, the Rights Agent will
countersign, and the Company will send or cause to be sent (and the Rights Agent
will, if requested, send) by first-class, insured, postage-prepaid mail, to each
record holder of Common Shares as of the close of business on the Distribution
Date, at the address of such holder shown on the records of the Company, a Right
Certificate, in substantially the form of Exhibit A hereto (a "Right
Certificate"), evidencing one Right for each Common Share so held. As of the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) Until the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date, Certificates for Common Shares
shall have impressed on, printed on, written on or otherwise affixed to them a
legend in substantially the following form:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between General
Signal Networks, Inc. and _________________, dated as of _________ ___,
1998 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal executive offices of General Signal Networks, Inc. Under
certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. General Signal Networks, Inc. will mail
to the holder of this certificate a copy of the Rights Agreement
without charge after receipt of a written request therefor. Under
certain circumstances, as set forth in the Rights Agreement, Rights
issued to any Person who becomes an Acquiring Person (as defined in the
Rights Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed
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<PAGE> 7
cancelled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit A
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 22 hereof, the Right Certificates
shall entitle the holders thereof to purchase such number of one one-hundredths
of a Preferred Share as shall be set forth therein at the price per one
one-hundredth of a Preferred Share set forth therein (the "Purchase Price"), but
the number of such one one-hundredths of a Preferred Share and the Purchase
Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President, any of its Vice Presidents,
or its Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be countersigned by the Rights
Agent, either manually or by facsimile signature, and shall not be valid for any
purpose unless countersigned. In case any officer of the Company who shall have
signed any of the Right Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Right Certificates, nevertheless, may be countersigned by the
Rights Agent and issued and delivered by the Company with the same force and
effect as though the person who signed such Right Certificates had not ceased to
be such officer of the Company; and any Right Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Right Certificate, shall be a proper officer of the Company to sign such
Right Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of Section 14 hereof, at any time after the close of
business on the Distribution Date, and at or prior to the close of business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Sec-
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<PAGE> 8
tion 24 hereof) may be transferred, split up, combined or exchanged for another
Right Certificate or Right Certificates, entitling the registered holder to
purchase a like number of one one-hundredths of a Preferred Share as the Right
Certificate or Right Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Right Certificate or Right Certificates shall make such request in
writing delivered to the Rights Agent, and shall surrender the Right Certificate
or Right Certificates to be transferred, split up, combined or exchanged at the
principal office of the Rights Agent. Thereupon the Rights Agent shall
countersign and deliver to the person entitled thereto a Right Certificate or
Right Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent,
together with payment of the Purchase Price for each one one-hundredth of a
Preferred Share as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on the tenth anniversary of the Record
Date (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share purchasable pursuant to the exercise of a Right shall initially
be $[ ], and shall be subject to adjustment from time to time as provided in
Section 11 or 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax required to be paid by the holder
of such Right Certificate in accordance with Section 9 hereof by certified
check, cashier's check or money order payable to the order of the Company, the
Rights Agent shall thereupon promptly (i) (A) requisition from any transfer
agent of the Preferred Shares certificates for the number of Preferred Shares to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) requisition from the deposi-
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<PAGE> 9
tary agent depositary receipts representing such number of one one-hundredths of
a Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof, (iii) after receipt of such certificates
or depositary receipts, cause the same to be delivered to or upon the order of
the registered holder of such Right Certificate, registered in such name or
names as may be designated by such holder and (iv) when appropriate, after
receipt, deliver such cash to or upon the order of the registered holder of such
Right Certificate.
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the
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<PAGE> 10
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's reasonable satisfaction that
no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose
name any certificate for Preferred Shares is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Shares transfer books of the Company
are closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Shares transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Shares for which
the Rights shall be exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number of Preferred Shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after
the date of this Agreement (A) declare a dividend on the Preferred Shares
payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
combine the outstanding Preferred Shares into a smaller number of Preferred
Shares or (D) issue any shares of its capital stock in a reclassification of the
Preferred Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a), the Purchase
Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Company were
open, he would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification; provided,
however, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the
event any Person becomes an Acquiring Person, each holder of a Right shall
thereafter have a right to receive, upon exercise thereof at a price equal to
the then current Purchase Price multiplied by the number of one one-hundredths
of a Preferred Share for which a Right is then exercisable, in accordance
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<PAGE> 11
with the terms of this Agreement and in lieu of Preferred Shares, such number of
Common Shares of the Company as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the number of one one-hundredths
of a Preferred Share for which a Right is then exercisable and dividing that
product by (y) 50% of the then current per share market price of the Company's
Common Shares (determined pursuant to Section 11(d) hereof) on the date of the
occurrence of such event. In the event that any Person shall become an Acquiring
Person and the Rights shall then be outstanding, the Company shall not take any
action which would eliminate or diminish the benefits intended to be afforded by
the Rights.
From and after the occurrence of such event, any Rights that
are or were acquired or beneficially owned by any Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be void and any holder of
such Rights shall thereafter have no right to exercise such Rights under any
provision of this Agreement. No Right Certificate shall be issued pursuant to
Section 3 that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof; no Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate; and any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence shall be
cancelled.
(iii) In the event that there shall not be
sufficient Common Shares issued but not outstanding or authorized but unissued
to permit the exercise in full of the Rights in accordance with the foregoing
subparagraph (ii), the Company shall take all such action as may be necessary to
authorize additional Common Shares for issuance upon exercise of the Rights. In
the event the Company shall, after good faith effort, be unable to take all such
action as may be necessary to authorize such additional Common Shares, the
Company shall substitute, for each Common Share that would otherwise be issuable
upon exercise of a Right, a number of Preferred Shares or fraction thereof such
that the current per share market price of one Preferred Share multiplied by
such number or fraction is equal to the current per share market price of one
Common Share as of the date of issuance of such Preferred Shares or fraction
thereof.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price of the Preferred Shares (as defined in
Section 11(d)) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price
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<PAGE> 12
of the convertible securities so to be offered) would purchase at such current
market price and the denominator of which shall be the number of Preferred
Shares outstanding on such record date plus the number of additional Preferred
Shares and/or equivalent preferred shares to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current per share market price of
the Security is determined during a period following the announcement by the
issuer of such Security of (A) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such shares,
or (B) any subdivision, combination or reclassification of such Security and
prior to the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in
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<PAGE> 13
each such case, the current per share market price shall be appropriately
adjusted to reflect the current market price per share equivalent of such
Security. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Security
is not listed or admitted to trading on the New York Stock Exchange, as reported
in the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Security is listed or admitted to trading or, if the Security is not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then
in use, or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the Board
of Directors of the Company. The term "Trading Day" shall mean a day on which
the principal national securities exchange on which the Security is listed or
admitted to trading is open for the transaction of business or, if the Security
is not listed or admitted to trading on any national securities exchange, a
Business Day.
(ii) For the purpose of any computation hereunder,
the "current per share market price" of the Preferred Shares shall be determined
in accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "current per share market price" shall mean the fair value per
share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one one-millionth
of a Preferred Share or one ten-thousandth of any other share or security as the
case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(f) If as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, thereafter the number of such other shares so receivable upon exercise
of any Right shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Pre-
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<PAGE> 14
ferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number
of one one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of one one-hundredths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
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<PAGE> 15
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-hundredth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall determine
to be advisable in order that any consolidation or subdivision of the Preferred
Shares, issuance wholly for cash of any Preferred Shares at less than the
current market price, issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for Preferred Shares,
dividends on Preferred Shares payable in Preferred Shares or issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter made by
the Company to holders of its Preferred Shares shall not be taxable to such
stockholders.
(n) In the event that at any time after the Record Date of
this Agreement and prior to the Distribution Date, the Company shall (i) declare
or pay any dividend on the Common Shares payable in Common Shares or (ii) effect
a subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made suc-
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<PAGE> 16
cessively whenever such a dividend is declared or paid or such a subdivision,
combination or consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 or 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent, each transfer agent for the Common Shares or the
Preferred Shares and the Securities and Exchange Commission a copy of such
certificate and (c) if such adjustment occurs at any time after the Distribution
Date, mail a brief summary thereof to each holder of a Right Certificate in
accordance with Section 25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. In the event, directly or indirectly, at any time after
a Person has become an Acquiring Person, (a) the Company shall consolidate with,
or merge with and into, any other Person, (b) any Person shall consolidate with
the Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly-owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation) as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (B) 50% of the then current per share market price of
the Common Shares of such other Person (determined pursuant to Section 11(d)
hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (ii) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (iii) the
term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights. The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and such issuer shall have
executed and delivered to the Rights Agent a supplemental agreement so
providing. The Company shall not enter into any transaction of the kind referred
to in this Section 13 if at the time of such transaction there are any rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of
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<PAGE> 17
such transaction, would eliminate or substantially diminish the benefits
intended to be afforded by the Rights. The provisions of this Section 13 shall
similarly apply to successive mergers or consolidations or sales or other
transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share).
Fractions of Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-hundredth of a Preferred
Share, the Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one Preferred Share. For the
purposes of this Section 14(b), the current market value of a Preferred Share
shall be the closing price of a Preferred Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of such exercise.
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<PAGE> 18
(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions
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<PAGE> 19
affecting stockholders (except as provided in Section 25 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in accordance with
the provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer or corporate trust powers of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement.
In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its
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<PAGE> 20
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after actual
notice that such change or adjustment is required); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Right Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
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<PAGE> 21
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Secretary or the Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered by it in
good faith in accordance with instructions of any such officer or for any delay
in acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of the State of New York (or of any other state of the United States
so long as such corporation is authorized to do business as
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<PAGE> 22
a banking institution in the State of New York), in good standing, having an
office in the State of New York and which is authorized under such laws to
exercise corporate trust or stock transfer powers. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Shares or Preferred Shares, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption. (a) The Board of Directors of the
Company may, at its option, at any time prior to such time as any Person becomes
an Acquiring Person, redeem all but not less than all the then outstanding
Rights at a redemption price of $.01 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the Record Date (such redemption price being hereinafter referred to as the
"Redemption Price"). The redemption of the Rights by the Board of Directors of
the Company may be made effective at such time, on such basis and with such
conditions as the Board of Directors of the Company in its sole discretion may
establish.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to paragraph (a) of
this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or Associates may
redeem, acquire or purchase for value any Rights at any time in any manner other
than
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<PAGE> 23
that specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the
Company may, at its option, at any time after any Person becomes an Acquiring
Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions
of Section 11(a)(ii) hereof) for Common Shares at an exchange ratio of one
Common Share per Right, appropriately adjusted to reflect any adjustment in the
number of Rights pursuant to Section 11(i) (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors of the Company shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, after the Record
Date, becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Common Shares equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void pursuant to the provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exchange of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exchange
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional
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<PAGE> 24
Common Shares, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Common Shares would otherwise
be issuable an amount in cash equal to the same fraction of the current market
value of a whole Common Share. For the purposes of this paragraph (d), the
current market value of a whole Common Share shall be the closing price of a
Common Share (as determined pursuant to the second sentence of Section 11(d)(i)
hereof) for the Trading Day immediately prior to the date of exchange pursuant
to this Section 24.
Section 25. Notice of Certain Events. (a) In case at any time
after the Distribution Date the Company shall propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Shares or to make
any other distribution to the holders of its Preferred Shares (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred
Shares rights or warrants to subscribe for or to purchase any additional
Preferred Shares or shares of stock of any class or any other securities, rights
or options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person, (v) to effect the liquidation, dissolution or
winding up of the Company, or (vi) to declare or pay any dividend on the Common
Shares payable in Common Shares or to effect a subdivision, combination or
consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend, or distribution of rights or warrants,
or the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and the date
of participation therein by the holders of the Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) above at least 10 days
prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
hereof.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
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<PAGE> 25
General Signal Networks, Inc.
1300 Midlantic Drive
Mt. Laurel, New Jersey 08054
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
___________________________
___________________________
___________________________
___________________________
Attention:
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from
time to time supplement or amend this Agreement without the approval of any
holders of Right Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or to make any other provisions with respect
to the Rights which the Company may deem necessary or desirable, any such
supplement or amendment to be evidenced by a writing signed by the Company and
the Rights Agent; provided, however, that from and after such time as any Person
becomes an Acquiring Person, this Agreement shall not be amended in any manner
which would adversely affect the interests of the holders of Rights. Without
limiting the foregoing, the Company may at any time prior to such time as any
Person becomes an Acquiring Person amend this Agreement to lower the thresholds
set forth in Sections 1(a) and 3(a) to not less than the greater of (i) the sum
of .001% and the largest percentage of the outstanding Common Shares then known
by the Company to be beneficially owned by any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or any
Subsidiary of the Company, or any entity holding Common Shares for or pursuant
to the terms of any such plan) and (ii) 10%.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for
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<PAGE> 26
the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and year first
above written.
GENERAL SIGNAL NETWORKS, INC.
Attest:
By: _____________________________ By: ______________________________
Title: Title:
[Rights Agent]
Attest:
By:_______________________________ By: ______________________________
Title: Title:
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<PAGE> 28
EXHIBIT A
Form of Right Certificate
Certificate No. R- Rights
NOT EXERCISABLE AFTER _________ __, 2008 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
GENERAL SIGNAL NETWORKS, INC.
This certifies that , or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of _________ ___, 1998 (the "Rights Agreement"),
between General Signal Networks, Inc., a Delaware corporation (the "Company"),
and ____________________________ (the "Rights Agent"), to purchase from the
Company at any time after the Distribution Date (as such term is defined in the
Rights Agreement) and prior to 5:00 P.M., New York City time, on __________ __,
2008 at the principal office of the Rights Agent, or at the office of its
successor as Rights Agent, one one-hundredth of a fully paid non-assessable
share of Series A Junior Participating Preferred Stock, par value $0.01 per
share (the "Preferred Shares"), of the Company, at a purchase price of $[ ] per
one one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation
and surrender of this Right Certificate with the Form of Election to Purchase
duly executed. The number of Rights evidenced by this Right Certificate (and the
number of one one-hundredths of a Preferred Share which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of __________ __, 1998, based on the Preferred
Shares as constituted at such date. As provided in the Rights Agreement, the
Purchase Price and the number of one one-hundredths of a Preferred Share which
may be purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of
certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned offices of the Rights Agent.
A-1
<PAGE> 29
This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for
Preferred Shares or shares of the Company's Common Stock, par value $0.01 per
share.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
A-2
<PAGE> 30
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _________ __, ____.
GENERAL SIGNAL NETWORKS, INC.
Attest:
_________________________________ By: ______________________________
Title: Title:
Countersigned:
[RIGHTS AGENT]
By: _____________________________
Authorized Signature
A-3
<PAGE> 31
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if
such holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED hereby sells, assigns and
transfers unto ______________________________________________________
(Please print name and address of transferee)
______________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint Attorney, to transfer the
within Right Certificate on the books of the within-named Company, with full
power of substitution.
Dated: ______________, _____ ___________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- -------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
___________________________________
Signature
- -------------------------------------------------------------------------------
A-4
<PAGE> 32
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: General Signal Networks, Inc.
The undersigned hereby irrevocably elects to exercise
______________________ represented by this Right Certificate to purchase the
Preferred Shares issuable upon the exercise of such Rights and requests that
certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
_____________________________________________
(Please print name and address)
_____________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
_____________________________________________
(Please print name and address)
_____________________________________________
Dated:________________,__________
___________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
A-5
<PAGE> 33
Form of Reverse Side of Right Certificate -- continued
- -------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
___________________________________
Signature
- -------------------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
A-6
<PAGE> 34
Exhibit B
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
GENERAL SIGNAL NETWORKS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
General Signal Networks, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Corporation as required by Section 151
of the General Corporation Law at a meeting duly called and held on _________,
1998:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Amended and
Restated Certificate of Incorporation, the Board of Directors hereby creates a
series of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), of
the Corporation and hereby states the designation and number of shares, and
fixes the relative rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 250,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
B-1
<PAGE> 35
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock, par value $0.01 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable in cash on the tenth day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of is-
B-2
<PAGE> 36
sue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the
payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares
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of Series A Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other Certificate
of Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of
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shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have received
$100 per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.
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Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its Chairman of the Board and attested
by its Secretary this __ day of __________, 1998.
___________________________________
Robert Coackley
Chairman of the Board
Attest:
________________________
Name:
Title:
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<PAGE> 1
EXHIBIT 10.1
================================================================================
FORM OF
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
by and between
GENERAL SIGNAL CORPORATION,
a New York corporation
and
GENERAL SIGNAL NETWORKS, INC.,
a Delaware corporation
-------------
As of __________ __, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
1.1 General.......................................................... 1
ARTICLE II
GENERAL PRINCIPLES
2.1 Relation to Distribution Agreement............................... 4
2.2. Liabilities for Compensation and Benefits, Etc................... 4
2.3 Non-U.S. Employees............................................... 5
ARTICLE III
PENSION AND SAVINGS PLANS
3.1 Retirement Plan and Benefit Equalization Plan.................... 5
3.2 Savings Plans.................................................... 5
3.3 Deferred Compensation Plan....................................... 6
3.4 Canadian Plans................................................... 6
ARTICLE IV
INCENTIVE PLANS
4.1 Stock Options.................................................... 6
4.2 Restricted Stock................................................. 7
4.3 Incentive Compensation Plans..................................... 7
ARTICLE V
WELFARE BENEFITS
5.1 In General....................................................... 8
5.2 Health Coverage.................................................. 8
5.3 Continuity of Certain Plans...................................... 9
5.4 Long-Term Disabled Employees..................................... 9
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ARTICLE VI
EMPLOYMENT TRANSFERS AND SEVERANCE
6.1 Employment Transfers; No Severance............................... 10
6.2 Assumption of Certain Severance Liabilities...................... 10
ARTICLE VII
MISCELLANEOUS
7.1 Complete Agreement............................................... 10
7.2 Expenses......................................................... 10
7.3 Governing Law.................................................... 12
7.4 Notices.......................................................... 11
7.5 Amendment and Modification....................................... 11
7.6 Successors and Assigns; No Third-Party Beneficiaries............. 11
7.7 Counterparts..................................................... 11
7.8 Interpretation................................................... 12
7.9 Legal Enforceability............................................. 12
7.10 References; Construction......................................... 12
7.11 Termination...................................................... 12
List of Schedules:
Schedule I Networks Savings Plan Participants
Schedule II Certain Options
Schedule III Listed Welfare Plans
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<PAGE> 4
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
EMPLOYEE BENEFITS ALLOCATION AGREEMENT, dated as of _________ __,
1998, by and between General Signal Corporation, a New York corporation
("General Signal"), and General Signal Networks, Inc., a Delaware corporation
and indirect wholly owned subsidiary of General Signal ("Networks").
W I T N E S S E T H:
WHEREAS, the Board of Directors of General Signal has determined
that it is appropriate and desirable to separate General Signal and its
subsidiaries into two companies by: (1) consolidating into Networks and its
subsidiaries all of General Signal's telecommunications and data networking
businesses that are not already in Networks and its subsidiaries and (2)
distributing (the "Distribution") to the holders of the issued and outstanding
shares of common stock, $6.67 par value (in the case of shares issued in or
prior to 1969) and $1 par value (in the case of all other shares), of General
Signal all of the issued and outstanding shares of common stock, par value $.01
per share, of Networks in accordance with Article III of the Distribution
Agreement of even date herewith (the "Distribution Agreement");
WHEREAS, the Distribution Agreement contemplates that the parties
will also enter into this Employee Benefits Allocation Agreement relating to the
manner in which they will allocate responsibility for certain employee benefit
matters;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. General. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
Affiliate: as defined in the Distribution Agreement.
Benefit Equalization Plan: the General Signal Corporation Benefit
Equalization Plan.
Canadian Pension Plan: the Pension Plan for Salaried Employees of
General Signal Limited in Canada.
Canadian Savings Plan: the General Signal Limited Savings and Stock
Ownership Plan (Canada).
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Code: the Internal Revenue Code of 1986, as amended, and any
applicable Treasury Regulations thereunder.
Distribution: as defined in the preamble to this Agreement.
Distribution Date: as defined in the preamble to this Agreement.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended, and any applicable regulations thereunder.
General Signal: as defined in the preamble to this Agreement.
General Signal Beneficiary: an individual entitled to receive
benefits under any Plan by virtue of a relationship to a General Signal Employee
or General Signal Former Employee (for example, by reason of being a member of
the family or a designated beneficiary of a General Signal Employee or General
Signal Former Employee).
General Signal Employee: any individual who is, as of the
Distribution Date, an employee of any member of either Group, other than a
Networks Employee.
General Signal Former Employee: any individual who is neither a
General Signal Employee nor a Networks Employee, but at any time prior to the
Distribution Date was an employee of any member of either Group and immediately
before he or she left such employment for the last time was not primarily
employed in the Networks Business.
General Signal Group: as defined in the Distribution Agreement.
General Signal Option: an option to acquire General Signal Common
Stock granted pursuant to the General Signal Corporation 1996 Stock Incentive
Plan, the General Signal Corporation 1992 Stock Incentive Plan, the General
Signal Corporation 1989 Stock Option and Incentive Plan, the General Signal
Corporation 1985 Stock Option and Incentive Plan, the Data Switch Corporation
1989 Incentive Stock Option Plan, the Data Switch Corporation 1983 Incentive
Stock Option Plan, or the Data Switch Corporation 1982 Incentive Stock Option
Plan.
General Signal Restricted Stock: restricted stock consisting of
shares of General Signal Common Stock granted pursuant to the General Signal
Corporation 1996 Stock Incentive Plan, the General Signal Corporation 1992 Stock
Incentive Plan, the General Signal Corporation 1989 Stock Option and Incentive
Plan, or the General Signal Corporation 1985 Stock Option and Incentive Plan, as
to which the restrictions have not lapsed as of the Distribution Date.
General Signal Savings Plan: the General Signal Savings and Stock
Ownership Plan.
General Signal Savings Plan Trust: the trust funding the General
Signal Savings Plan.
Group: as defined in the Distribution Agreement.
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Liabilities: as defined in the Distribution Agreement.
Listed Welfare Plans: as defined in Section 5.1.
Local Agreements: as defined in the Distribution Agreement.
Mirror Welfare Plans: as defined in Section 5.1.
Nasdaq: as defined in the Distribution Agreement.
Networks: as defined in the preamble to this Agreement.
Networks Beneficiary: an individual entitled to receive benefits
under any Plan by virtue of a relationship to a Networks Employee or Networks
Former Employee (for example, by reason of being a member of the family or a
designated beneficiary of a Networks Employee or Networks Former Employee).
Networks Business: as defined in the Distribution Agreement.
Networks Common Stock: as defined in the Distribution Agreement.
Networks Employee: any individual who immediately prior to the
Distribution Date is an officer or employee of any member of either Group and
(a) is primarily employed in the Networks Business or (b) will be an employee of
the Networks Group immediately following the Distribution.
Networks Former Employee: any individual who is neither a General
Signal Employee nor a Networks Employee but at any time prior to the
Distribution Date was an employee of any member of either Group and immediately
before he or she left such employment for the last time was primarily employed
in the Networks Business.
Networks Group: as defined in the Distribution Agreement.
Networks Option: as defined in Section 4.1(a).
Networks Savings Plan: as defined in Section 3.2(a).
Networks Savings Plan Participants: as defined in Section 3.2(b).
Networks Savings Plan Trust: as defined in Section 3.2(a).
Person: as defined in the Distribution Agreement.
Plan: any written or unwritten plan, policy, program, payroll
practice, ongoing arrangement, trust, fund, contract, insurance policy or other
agreement or funding vehicle provided by, contributed to or sponsored by one or
more members of the General Signal Group or the Networks Group, providing
benefits to employees, former employees or their beneficiaries,
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dependents and family members, regardless of whether it is mandated under local
law or negotiated or agreed to as a term or condition of employment or
otherwise, and regardless of whether it is governmental, private, funded,
unfunded, financed by the purchase of insurance, contributory or
noncontributory.
Ratio: the amount obtained by dividing (i) the average of the daily
high and low trading prices on the NYSE Composite Tape, as reported in The Wall
Street Journal, for the General Signal Common Stock with due bills on each of
the five consecutive trading days prior to the Distribution Date by (ii) the
average of the daily high and low trading prices on Nasdaq, as reported in The
Wall Street Journal, for the Networks Common Stock, regular way, on each of the
first five trading days immediately following the Distribution Date on which the
Networks Common Stock and the General Signal Common Stock both trade regular
way.
Retirement Plan: the Corporate Retirement Plan of General Signal
Corporation.
Straddle Period: as defined in Section 4.2(b).
Welfare Benefit Plan: any Plan that is an "employee welfare benefit
plan" as defined in Section 3(1) of ERISA (whether or not such Plan is subject
to ERISA).
ARTICLE II
GENERAL PRINCIPLES
2.1. Relation to Distribution Agreement. All Liabilities for which
Networks or the Networks Group is made responsible under this Agreement shall be
Networks Liabilities within the meaning of the Distribution Agreement. All
Liabilities for which General Signal or the General Signal Group is made
responsible under this Agreement shall be General Signal Liabilities within the
meaning of the Distribution Agreement. The provisions of Article IV (relating to
indemnification) and Article VII (relating to arbitration) of the Distribution
Agreement shall apply to such Liabilities.
2.2. Liabilities for Compensation and Benefits, Etc. Except as
specifically provided otherwise in this Agreement: (i) the Networks Group shall
be solely responsible for all Liabilities for or relating to the compensation
and benefits of Networks Employees and Networks Former Employees, whether
arising before, on or after the Distribution Date, as well as for all
Liabilities to such individuals and Networks Beneficiaries arising out of the
employment of such individuals by any member of either Group before the
Distribution Date; (ii) the General Signal Group shall be solely responsible for
all Liabilities for or relating to the compensation and benefits of General
Signal Employees and General Signal Former Employees, whether arising before, on
or after the Distribution Date, as well as for all Liabilities to such
individuals and General Signal Beneficiaries arising out of the employment of
such individuals by any member of either Group before the Distribution Date; and
(iii) the active participation of Networks Employees, Networks Former Employees
and Networks Beneficiaries in Plans sponsored or maintained by any member of the
General Signal Group shall cease as of the Distribution Date.
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2.3. Non-U.S. Employees. To the extent that any specific provision
contained in any Local Agreement relating to the treatment of Networks Employees
or Networks Former Employees who are or were employed outside the United States,
and to the treatment of Plans for the benefit of such individuals and their
Networks Beneficiaries, is inconsistent with any provision of this Agreement,
the provision of the Local Agreement shall control.
ARTICLE III
PENSION AND SAVINGS PLANS
3.1. Retirement Plan and Benefit Equalization Plan. As of the
Distribution Date, the Networks Employees who are participants in the Retirement
Plan and/or the Benefit Equalization Plan shall be fully vested in their accrued
benefits thereunder, and shall cease to accrue any additional benefits
thereunder. The General Signal Group shall retain all responsibility for
Liabilities to Networks Employees, Networks Former Employees and Networks
Beneficiaries under, arising out of or relating to the Retirement Plan and the
Benefit Equalization Plan.
3.2. Savings Plans. (a) Effective as of the Distribution Date,
Networks shall establish a defined contribution plan (the "Networks Savings
Plan") and a related, separate trust (the "Networks Savings Plan Trust"), to
assume Liabilities of and receive the transfer of assets from the General Signal
Savings Plan and the General Signal Savings Plan Trust as provided for in this
Section 3.2. Networks shall take all steps necessary or appropriate to ensure
that the Networks Savings Plan is qualified in accordance with Section 401(a) of
the Code, and that the Networks Savings Plan Trust is exempt from taxation under
Section 501(a) of the Code, including without limitation submitting the Networks
Savings Plan to the IRS for a determination letter within the remedial amendment
period and timely adopting any amendments thereto required by the IRS as a
condition to the issuance of such determination letter.
(b) General Signal and Networks shall take all actions as may be
necessary or appropriate in order to effect the transfer to the Networks Savings
Plan and the Networks Savings Plan Trust, on or as soon as practicable after the
Distribution Date, of the balances of all accounts under the General Signal
Savings Plan of (i) Networks Employees and (ii) Networks Former Employees and
Networks Beneficiaries identified on Schedule I hereto (collectively, the
individuals described in clauses (i) and (ii) being referred to as the "Networks
Savings Plan Participants"). The transfer of such accounts shall be made in
kind, to the extent the assets thereof consist of General Signal Common Stock or
Networks Common Stock, and otherwise in cash.
(c) General Signal and Networks shall cooperate in making all
appropriate filings required under the Code or ERISA, and the regulations
thereunder and any applicable securities laws, implementing all appropriate
communications with participants, maintaining and transferring appropriate
records, and taking all such other actions as may be necessary and appropriate
to implement the provisions of this Section 3.2 and to cause the transfers of
assets pursuant to Sections 3.2(b) to take place as soon as practicable after
the Distribution Date.
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(d) Subject to the completion of the transfer provided for in
Section 3.2(b), and effective as of the Distribution Date, the Networks Savings
Plan and the Networks Group shall assume, and shall be solely responsible for,
all Liabilities to or with respect to Networks Savings Plan Participants under
the General Signal Savings Plan. The General Signal Group shall remain solely
responsible for all other Liabilities arising under or relating to the General
Signal Savings Plan, and the Networks Group shall be solely responsible for all
Liabilities under, arising out of or relating to the Networks Savings Plan.
(e) The General Signal Savings Plan and the Networks Savings Plan
shall provide that participants shall not be permitted to retain or invest their
account balances in Networks Common Stock or General Signal Common Stock,
respectively, but that any such Networks Common Stock or General Signal Common
Stock, respectively, shall be exchanged for, or disposed of and the proceeds
reinvested in, General Signal Common Stock or Networks Common Stock,
respectively, by a fiduciary of the applicable Plan in an orderly and prudent
manner consistent with all applicable fiduciary duties. In order to facilitate
the foregoing, General Signal and Networks shall cooperate and take all steps
necessary and appropriate so that, as soon as practicable following the
Distribution Date, the trustee of the General Signal Savings Plan Trust and the
trustee of the Networks Savings Plan Trust exchange shares of Networks Common
Stock held in the General Signal Savings Plan Trust for shares of General Signal
Common Stock held in the Networks Savings Plan Trust, to the greatest extent
possible[, at an exchange ratio that is approved by an independent fiduciary].
3.3. Deferred Compensation Plan. Effective as of the Distribution
Date, the Networks Group shall assume and be solely responsible for all
Liabilities to Networks Employees under, arising out of or relating to the
General Signal Deferred Compensation Plan.
3.4. Canadian Plans. [Provisions to be inserted whereby: (i) General
Signal retains all liabilities for accrued benefits under the Canadian Pension
Plan of Networks Employees and Networks Former Employees; (ii) Networks will
reimburse General Signal for the amount of additional benefit liability
attributable to enhancements under the Canadian Pension Plan that will be
required by law to be provided for Networks Employees (but General Signal will
bear incidental costs such as actuaries' fees); (iii) all account balances of
Networks Employees in the Canadian savings plan will be fully vested; and (iv) a
new Networks Canadian savings plan will be established to which Networks
Employees can elect to transfer their savings plan accounts.]
ARTICLE IV
INCENTIVE PLANS
4.1. Stock Options. General Signal and Networks shall take all
action necessary or appropriate so that as soon as practicable after the
Distribution Date and effective immediately after the Distribution, each General
Signal Option held by a Networks Employee immediately before the Distribution,
other than those identified on Schedule I hereto, is converted as set forth in
Sections 4.1(a) and 4.1(b) below.
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(a) Each such General Signal Option shall be converted into an
option (a "Networks Option") with respect to a number of shares of Networks
Common Stock equal to the number of shares subject to such General Signal Option
immediately before such conversion, times the Ratio, and with a per-share
exercise price equal to the per-share exercise price of such General Signal
Option immediately before such conversion, divided by the Ratio.
(b) The terms and conditions of each Networks Option into which a
General Signal Option is converted pursuant to this Section 4.1 shall be the
same as those of such General Signal Option, except that: (i) references to
employment with or termination of employment with General Signal and its
Affiliates shall be considered to be changed to references to employment with or
termination of employment with Networks and its Affiliates; (ii) references to a
change of control or other corporate transaction involving General Signal shall
be considered to be changed to references to a change of control or other
corporate transaction involving Networks (excluding transactions related to the
Distribution); and (iii) other references to General Signal and its Affiliates
shall be considered to be changed to references to Networks and its Affiliates
as appropriate.
(c) Effective as of the Distribution Date, Networks shall assume and
be solely responsible for all Liabilities with respect to the Networks Options
into which General Signal Options are converted pursuant to this Section 4.1.
General Signal Options held by Networks Former Employees and Networks
Beneficiaries shall not be converted as provided in this Section, but shall be
adjusted in the same manner as General Signal Options held by employees of the
General Signal Group, and General Signal shall remain solely responsible for all
Liabilities with respect thereto.
4.2. Restricted Stock. As soon as practicable after the Distribution
Date, General Signal shall cause all General Signal Restricted Stock held by a
Networks Employee to be cancelled in exchange for a payment of cash equal to the
average of the daily high and low trading prices on the NYSE Composite Tape, as
reported in The Wall Street Journal, for the General Signal Common Stock with
due bills on each of the five consecutive trading days prior to the Distribution
Date.
4.3. Incentive Compensation Plans. (a) Each individual who is a
Networks Employee on the day after the Distribution Date and who is a
participant in the General Signal Corporation Incentive Compensation Plan
immediately before the Distribution Date shall be entitled to receive an award
for the year in which the Distribution occurs, payable in cash as soon as
practicable after the Distribution Date, equal to (i) the award such Networks
Employee would have been entitled for such year if he or she had remained
employed by the General Signal Group, but computed based solely upon such
employee's earned base salary during such year up to the Distribution Date and
actual performance through the end of the latest calendar month that ends on or
before the Distribution Date as compared to the budget for the same period. Such
award shall be in full satisfaction of the rights of such Networks Employee
under such plan, and such Networks Employee shall otherwise cease to participate
in such plan as of the Distribution Date.
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(b) Each individual who is a Networks Employee on the day after the
Distribution Date and who is a participant in the General Signal Corporation
Long-Term Incentive Compensation Plan immediately before the Distribution Date
shall be entitled to receive an award for each performance period under such
plan that begins before and ends after the Distribution (each such performance
period, a "Straddle Period"), payable in cash as soon as practicable after the
Distribution Date, equal to (i) the award such Networks Employee would have been
entitled for such Straddle Period if he or she had remained employed by the
General Signal Group, but computed based solely upon such employee's earned base
salary during such Straddle Period up to the Distribution Date and actual
performance through the end of the latest calendar quarter that ends on or
before the Distribution Date as compared to the budget for the same period. Such
awards shall be in full satisfaction of the rights of such Networks Employee
under such plan, and such Networks Employee shall otherwise cease to participate
in such plan as of the Distribution Date.
(c) The awards payable pursuant to this Section 4.3 shall be
computed by General Signal, whose determination shall be final and binding on
Networks and the Networks Employees, and shall be paid by Networks. Except as
provided in the foregoing sentence, General Signal shall remain responsible for
all Liabilities under, arising out of or relating to the General Signal
Corporation Incentive Compensation Plan and the General Signal Corporation
Long-Term Incentive Compensation Plan.
(d) From and after the Distribution Date, Networks Employees shall
cease to be entitled to, and shall not receive, any payments, General Signal
Common Stock or other compensation or benefits under the General Signal Patent
Award program.
(e) As of the Distribution Date, the Networks Group shall retain or
assume, as applicable, and be solely responsible for, all Liabilities under,
arising out of or relating to any Plan providing incentive compensation to
Networks Employees not otherwise specifically provided for in this Agreement.
ARTICLE V
WELFARE BENEFITS
5.1. In General. Except as provided in Section 5.4, effective as of
the Distribution Date, Networks Employees, Networks Former Employees and
Networks Beneficiaries shall cease to participate in Welfare Benefit Plans
sponsored by any member of the General Signal Group. The Networks Group shall
continue to be responsible for reimbursing the General Signal Group for all
Liabilities incurred under such Welfare Benefit Plans to or with respect to
Networks Employees, Networks Former Employees and Networks Beneficiaries with
respect to participation therein through the Distribution Date.
5.2. Health Coverage. The Networks Group shall be responsible for
providing coverage under Welfare Benefit Plans to Networks Employees, Networks
Former Employees and Networks Beneficiaries from and after the Distribution
Date, including without
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limitation to individuals who are, as of the Distribution Date, receiving group
health continuation coverage ("COBRA Coverage") pursuant to the requirements of
Section 4980B of the Code and part 6 of Title I of ERISA. Such coverage shall be
sufficient to prevent the imposition upon General Signal of an obligation to
provide COBRA Coverage to any Networks Employee, Networks Former Employee or
Networks Beneficiary as a result of the Distribution.
5.3. Continuity of Certain Plans. Without limiting the generality of
the foregoing provisions of this Article V, Networks shall establish, effective
as of the Distribution Date, Plans (the "Mirror Welfare Plans") substantially
the same as the Welfare Benefit Plans listed on Schedule II hereto (the "Listed
Welfare Plans") for the benefit of Networks Employees, Networks Former Employees
and Networks Beneficiaries who are participants in the Listed Welfare Benefit
Plans immediately before the Distribution Date. Each Mirror Welfare Plan shall,
to the extent permitted by applicable law, provide benefits to the Networks
Employees, Networks Former Employees and Networks Beneficiaries who are
participants therein without interruption or change solely as a result of the
transition from the corresponding Listed Welfare Plan, and, without limiting the
generality of the foregoing: (i) shall, to the extent applicable, recognize all
amounts applied to deductibles, out-of-pocket maximums and lifetime maximum
benefits with respect to such individuals under the corresponding Listed Welfare
Plan for the plan year that includes the Distribution Date and for prior periods
(if applicable); (ii) shall, to the extent applicable, not impose any
limitations on coverage of preexisting conditions of such individuals except to
the extent such limitations applied to such individuals under the corresponding
Listed Welfare Plan immediately before the Distribution Date; and (iii) shall
not impose any other conditions (such as proof of good health, evidence of
insurability or a requirement of a physical examination) upon the participation
by such individuals who were participating in the corresponding Listed Welfare
Plan immediately before the Distribution Date. The Mirror Welfare Plans shall
remain in effect through the end of the calendar year in which the Distribution
Date occurs, and General Signal and Networks shall cooperate so that, to the
extent reasonably practicable, all third-party administrators and other service
providers who render services to General Signal in connection with the Listed
Welfare Plans enter into separate contracts with the Networks Group to provide
such services on a substantially similar basis with respect to the Mirror
Welfare Plans through the end of such calendar year.
Long-Term Disabled Employees. Notwithstanding Section 5.1, General Signal shall
remain responsible for all Liabilities to Networks Former Employees and their
Networks Beneficiaries under [name of LTD plan] (the "LTD Plan") who are
eligible to receive benefits under the LTD Plan as of the Distribution Date, for
so long as they remain eligible therefor. If and when any such Networks Former
Employee is able to return to work, the Networks Group, and not the General
Signal Group, shall be responsible for complying with any obligation to employ
such Networks Former Employee that may be imposed by applicable law or
regulations on any member of either Group.
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<PAGE> 13
ARTICLE VI
EMPLOYMENT TRANSFERS AND SEVERANCE
6.1. Employment Transfers; No Severance. General Signal and Networks
shall take all steps necessary and appropriate so that, as of the Distribution
Date, all individuals who are employed in the Networks Business immediately
before the Distribution Date are employed, or (where employment does not
continue by operation of law) are offered employment, by a member of the
Networks Group, and all individuals who are employed by any member of the Group
but not in the Networks Business are employed, or (where employment does not
continue by operation of law) are offered employment, by a member of the General
Signal Group. Such steps shall include, where necessary or appropriate under
local law, making employment offers and/or transferring contracts of employment
on such terms and conditions as may be required under local law to prevent
giving rise to a right, on the part of such individuals, to refuse a transfer
and/or to claim severance, redundancy, salary continuation or similar benefits.
General Signal and Networks agree that, except as specifically provided by law
or otherwise in this Agreement, individuals who, in connection with the
Distribution, become Networks Employees shall not be deemed to have experienced
a termination or severance of employment from Monsanto and its subsidiaries for
purposes of any Plan that provides for the payment of severance, redundancy,
salary continuation or similar benefits.
6.2. Assumption of Certain Severance Liabilities. The Networks Group
shall assume and be solely responsible for all Liabilities in connection with
claims made by or on behalf of the following individuals in respect of
severance, redundancy and similar pay, salary continuation and similar
obligations relating to the termination or alleged termination of any such
individual's employment before, on or after the Distribution Date: (i) Networks
Employees and Networks Former Employees; and (ii) Employees who have been
designated as employed in the Networks Business who do not become Networks
Employees because they exercise their rights, under local law, to refuse to
transfer to the employment of a member of the Networks Group. Notwithstanding
any other provision of this Agreement, individuals described in clause (ii) of
the preceding sentence shall be considered to be Networks Former Employees from
and after the date they cease to be Employees of the General Signal Group.
ARTICLE VII
MISCELLANEOUS
7.1. Complete Agreement. This Agreement, the Schedules hereto and
the agreements and other documents referred to herein shall constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof and shall supersede all previous negotiations, commitments and writings
with respect to such subject matter.
7.2. Expenses. Networks shall be responsible for all costs and
expenses of establishing its own Plans, including without limitation the
Networks Savings Plan and the Net-
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<PAGE> 14
works Savings Plan Trust. The other costs and expenses of implementing this
Agreement shall be borne by General Signal, except as specifically provided
otherwise in Section 3.4.
7.3. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware (other than the
laws regarding choice of laws and conflicts of laws) as to all matters,
including matters of validity, construction, effect, performance and remedies.
7.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram, telex or other standard form of telecommunications, or by registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
If to General Signal: General Signal Corporation
Box 10010 High Ridge Park
Stamford, Connecticut 06904-2010
Fax: 203-329-4396
Attn: General Counsel
If to Networks: General Signal Networks, Inc.
13000 Midlantic Drive
Mt. Laurel, New Jersey 08054
Fax: 609-273-1555
Attn: Robert Coackley
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section 7.4.
7.5. Amendment and Modification. This Agreement may be amended,
modified or supplemented only by a written agreement signed by all of the
parties hereto.
7.6. Successors and Assigns; No Third-Party Beneficiaries. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto and their successors and permitted assigns,
but neither this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by any party hereto without the prior written
consent of each of the other parties (which consent shall not be unreasonably
withheld). This Agreement is solely for the benefit of the parties hereto and
their Subsidiaries and Affiliates and is not intended to confer upon any other
Persons any rights or remedies hereunder.
7.7. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 15
7.8. Interpretation. The Article and Section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties hereto and shall not in any way affect the meaning or
interpretation of this Agreement.
7.9. Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Each party acknowledges
that money damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
7.10. References; Construction. References to any "Article,"
"Schedule" or "Section," without more, are to Articles, Schedules and Sections
to or of this Agreement. Unless otherwise expressly stated, clauses beginning
with the term "including" set forth examples only and in no way limit the
generality of the matters thus exemplified.
7.11. Termination. Any provision hereof to the contrary
notwithstanding, this Agreement shall be terminated if the Distribution
Agreement and the Distribution are abandoned at any time prior to the
Distribution Date pursuant to Section 10.12 of the Distribution Agreement. In
the event of such termination, no party hereto shall have any Liability to any
Person by reason of this Agreement.
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
GENERAL SIGNAL CORPORATION
By:_______________________________
Name:
Title:
GENERAL SIGNAL NETWORKS, INC.
By:_______________________________
Name:
Title:
<PAGE> 17
Schedule I
Networks Savings Plan Participants
[List]
<PAGE> 18
Schedule II
Certain Options
All General Signal Options held by Terry Mortimer.
<PAGE> 19
Schedule III
Listed Welfare Plans
General Signal Comprehensive Medical Plan
General Signal Catastrophic Medical Plan
General Signal Dental Plan
General Signal Prescription Drug Plan
General Signal Group Universal Life Insurance
CIGNA HealthCare HMOs
<PAGE> 1
EXHIBIT 10.2
FORM OF
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT (the "Agreement") dated as of [ ] by and
between General Signal Corporation, a New York corporation ("General Signal"),
and General Signal Networks, Inc., a Delaware corporation ("Networks").
W I T N E S S E T H
WHEREAS, General Signal intends to distribute to its shareholders
the stock of Networks in a pro-rata spin-off (the "Distribution" or the
"Spin-Off") and to effect certain related transactions;
WHEREAS, for U.S. federal income tax purposes, it is intended that
the Distribution shall qualify as a tax-free distribution under Sections
368(a)(1)(D) and 355 of the Code (as defined below);
WHEREAS, at the close of business on the day on which the
Distribution occurs (the "Distribution Date"), the taxable year of Networks
shall close for U.S. federal income tax purposes;
WHEREAS, the parties hereto wish to provide for the payment of
Income Taxes (as defined herein) and entitlement to refunds thereof, allocate
responsibility and provide for cooperation in connection with the filing of
returns in respect of Income Taxes, and provide for certain other matters
relating to Income Taxes;
NOW, THEREFORE, in consideration of the premises and the
representations, covenants and agreements herein contained and intending to be
legally bound hereby, General Signal and Networks hereby agree as follows:
1. Definitions. Capitalized terms used but not otherwise defined
herein shall have the respective meanings assigned to them in the Separation and
Distribution Agreement, dated as of , 1998, by and between General Signal and
Networks (the "Distribution Agreement"). For purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Action" shall mean any action, claim, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental, regulatory
or other administrative agency or commission or any arbitration tribunal.
"Actual Tax Payment" shall have the meaning set forth in Section 3.c
hereof.
"Actually Realized" or "Actually Realizes" shall mean, for purposes
of determining the timing of the incurrence of any Income Tax Liability or the
realization of a Refund (or any related Income Tax cost or benefit) by a Person
in respect of any payment, transaction, occurrence or event, the time at which
the amount of Income Taxes paid by such
<PAGE> 2
Person is increased above or reduced below the amount of Income Taxes that such
Person would have been required to pay but for such payment, transaction,
occurrence or event.
"Aggregate Spin-Off Tax Liabilities" means the sum of the Spin-Off
Tax Liabilities with respect to each Taxing Jurisdiction.
"Business Day" shall mean any day other than a Saturday, a Sunday or
a day on which banking institutions located in the State of New York are
authorized or obligated by law or executive order to close.
"Carryback" shall mean the carryback of a Tax Attribute (including,
without limitation, a net operating loss, a net capital loss or a tax credit) by
a member of the Networks Group (as defined below) (i) from a Post-Distribution
Taxable Period to a Straddle Period or a Pre-Distribution Taxable Period or (ii)
from a Straddle Period to a Pre-Distribution Taxable Period.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
together with the rules and regulations promulgated thereunder.
"Combined Return" shall mean a consolidated, combined or unitary
Income Tax Return that includes, or is permitted to include, one or more members
of the General Signal Group (as defined below) together with one or more members
of the Networks Group (as defined below).
"Controlling Party" shall have the meaning set forth in subsection
8.c(i) hereof.
"Deemed Tax Payment" shall have the meaning set forth in Section 3.c
hereof.
"Distribution Agreement" shall have the meaning set forth in the
first paragraph of this Section 1.
"Equity Securities" shall mean any stock or other equity securities
treated as stock for tax purposes, or options, warrants, rights, convertible
debt, or any other instrument or security that affords any Person the right,
whether conditional or otherwise, to acquire stock.
"Fifty-Percent or Greater Interest" shall have the meaning ascribed
to such term for purposes of Sections 355(d) and (e) of the Code.
"Final Determination" shall mean the final resolution of liability
for any Income Tax, which resolution may be for a specific issue or adjustment
or for a taxable period, (i) by Internal Revenue Service Form 870 or 870-AD (or
any successor forms thereto), on the date of acceptance by or on behalf of the
taxpayer, or by a comparable form under the laws of a state, local, or foreign
taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall
not constitute a Final Determination to the extent that it reserves (whether by
its terms or by
2
<PAGE> 3
operation of law) the right of the taxpayer to file a claim for Refund or the
right of the taxing authority to assert a further deficiency in respect of such
issue or adjustment or for such taxable period (as the case may be); (ii) by a
decision, judgment, decree, or other order by a court of competent jurisdiction,
which has become final and unappealable; (iii) by a closing agreement or
accepted offer in compromise under Sections 7121 or 7122 of the Code, or a
comparable agreement under the laws of a state, local, or foreign taxing
jurisdiction; (iv) by any allowance of a Refund or credit in respect of an
overpayment of Income Tax, but only after the expiration of all periods during
which such Refund may be recovered (including by way of offset) by the
jurisdiction imposing such Income Tax; or (v) by any other final disposition,
including by reason of the expiration of the applicable statute of limitations
or by mutual agreement of the parties.
"Foreign Networks Subsidiaries" shall have the meaning set forth in
Section 2.f hereof.
"General Signal Consolidated Group" shall mean General Signal and
the other members of the affiliated group of corporations (within the meaning of
Section 1504(a) of the Code without regard to the exclusions in Section
1504(a)(1) through (8)) of which General Signal is the common parent.
"General Signal Group" shall mean, solely for purposes of this
Agreement, General Signal and each of the other members of the General Signal
Consolidated Group other than any member of the Networks Group, as defined
below.
"Income Tax" (i) shall mean (A) any foreign or any United States
federal, state or local tax, charge, fee, impost, levy or other assessment that
is based upon, measured by, or calculated with respect to (1) net income or
profits (including, but not limited to, any capital gains, gross receipts, or
minimum tax, and any tax on items of tax preference, but not including sales,
use, value added, real property gains, real or personal property, transfer or
similar taxes), or (2) multiple bases (including, but not limited to, corporate
franchise, doing business or occupation taxes), if one or more of the bases upon
which such tax may be based, by which it may be measured, or with respect to
which it may be calculated is described in clause (i)(A)(1) of this definition,
together with (B) any interest and any penalties, fines, additions to tax or
additional amounts imposed by any taxing authority with respect thereto and (ii)
shall include any transferee liability in respect of an amount described in
clause (i) of this definition.
"Income Tax Benefit" shall mean, in respect of a Person or group of
Persons for any taxable period, the excess of (A) the hypothetical Income Tax
Liability of such Person or group of Persons for such taxable period, calculated
as if the Timing Difference, Reverse Timing Difference, increase in foreign tax
credits or carryover of a Tax Attribute, as the case may be, had not occurred
but with all other facts unchanged, over (B) the actual Income Tax Liability of
such Person or group of Persons for such taxable period, calculated taking into
account the Timing Difference, Reverse Timing Difference, increase in foreign
tax credits or carryover of such Tax Attribute, as the case may be (and treating
a Refund as a negative Income Tax Liability, and taking into account credits (if
any), for purposes of such calculation).
3
<PAGE> 4
"Income Tax Detriment" shall mean, in respect of any Person or group
of Persons for any taxable period, the excess of (A) the actual Income Tax
Liability of such Person or group of Persons for such taxable period, calculated
taking into account the Timing Difference, Reverse Timing Difference or decrease
in foreign tax credits or carryover of a Tax Attribute, as the case may be, over
(B) the hypothetical Income Tax Liability of such Person or group of Persons for
such taxable period, calculated as if the Timing Difference, Reverse Timing
Difference or decrease in foreign tax credits, as the case may be, had not
occurred but with all other facts unchanged (and treating a Refund as a negative
Income Tax Liability, and taking into account credits (if any), for purposes of
such calculation).
"Income Tax Liabilities" shall mean all liabilities for Income
Taxes.
"Income Tax Return" shall mean any return, report, filing,
statement, questionnaire, declaration or other document required to be filed
with a taxing authority in respect of Income Taxes.
"Indemnified Party" shall mean any Person seeking indemnification
pursuant to the provisions of this Agreement.
"Indemnifying Party" shall mean any party hereto from which any
Indemnified Party is seeking indemnification pursuant to the provisions of this
Agreement.
"Losses" shall mean any and all losses, liabilities, claims,
damages, obligations, payments, costs and expenses, matured or unmatured,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated, known
or unknown (including, without limitation, the costs and expenses of any and all
Actions, threatened Actions, demands, assessments, judgments, settlements and
compromises relating thereto and attorneys' fees and any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such Actions or threatened Actions).
"Networks Business" shall have the meaning set forth in the Ruling
Documents (as defined below).
"Networks Group" shall mean, solely for purposes of this Agreement,
Networks and each member of the affiliated group of corporations (within the
meaning of Section 1504(a) of the Code without regard to the exclusions in
Section 1504(a)(1) through (8)) of which Networks is the common parent,
determined immediately after the Distribution, and shall include any corporation
that shall have merged or liquidated into Networks or any of its subsidiaries or
into which Networks or any of its subsidiaries shall have merged or liquidated.
"Notice Date" with respect to Subsequent Tax Legislation or
Regulation (as defined below) shall mean the earliest of (i) the date such
legislation or materially identical legislation is introduced as a bill in the
United States House of Representatives or the United States Senate, (ii) the
date any amendment to any bill incorporating such legislation is approved by the
Congressional committee having jurisdiction or by the United States House of
Representatives or the United States Senate, (iii) the date any written proposal
incorporating such
4
<PAGE> 5
legislation is transmitted by the President of the United States to Congress,
(iv) the date any written proposal either by the Chairman of the United States
House of Representatives Ways and Means Committee or any successor thereto or
the Chairman of the United States Senate Finance Committee incorporating such
legislation is published in the Bureau of National Affairs' "Daily Tax Report,"
or any successor publication or (v) the date such regulation is published in the
Federal Register as proposed, temporary, or final Treasury Regulations.
"Overpayment Rate" shall mean the annual rate of interest described
in Section 6621(a)(1) of the Code (or similar provision of state, local, or
foreign Income Tax law, as applicable), as determined from time to time.
"Person" shall mean and include any individual, partnership, joint
venture, limited liability company, corporation, association, joint stock
company, trust, unincorporated organization or similar entity or a governmental
authority or any department or agency or other unit thereof.
"Post-Distribution Taxable Period" shall mean a taxable period that,
to the extent it relates to a member of the Networks Group, begins after the
Distribution Date.
"Pre-Distribution Taxable Period" shall mean a taxable period that,
to the extent it relates to a member of the Networks Group, ends on or before
the Distribution Date.
"Proceeding" shall mean any audit or other examination, judicial or
administrative proceeding relating to liability for, or Refunds or adjustments
with respect to, Income Taxes.
"Qualified Tax Counsel" shall mean independent tax counsel of
recognized national standing that is acceptable to General Signal.
"Refund" shall mean any refund of Income Taxes, including any
reduction in Income Tax Liabilities by means of a credit, offset or otherwise.
"Restriction Period" shall mean the period beginning on the date
hereof and ending on the four-year anniversary of the Distribution Date.
"Reverse Timing Difference" shall mean an adjustment to an Income
Tax Return that results in (x) an increase in income, gain or recapture, or a
decrease in deduction, loss or credit, as calculated for Income Tax purposes, of
any member of the General Signal Consolidated Group for any Pre-Distribution
Taxable Period or the portion of a Straddle Period ending on the Distribution
Date and (y) an increase in deduction, loss or credit, or a decrease in income,
gain or recapture, of a member of the Networks Group for a Post-Distribution
Taxable Period or the portion of a Straddle Period beginning on the day after
the Distribution Date.
"Ruling Documents" shall mean the Request for Rulings dated February
11, 1998, submitted on behalf of General Signal to the Internal Revenue Service,
the
5
<PAGE> 6
appendices and exhibits thereto, and any additional materials submitted at any
time on behalf of General Signal to the Internal Revenue Service in connection
with such Request for Rulings.
"Straddle Period" shall mean a taxable period that, to the extent it
relates to a member of the Networks Group, includes, but does not end on, the
Distribution Date.
"Spin-Off Tax Liabilities," with respect to any Taxing Jurisdiction,
as defined below, shall mean the sum of (i) the product of (x) the additional
corporate-level gain or income recognized with respect to the failure of the
Distribution to qualify for Tax-Free Status, as defined below, under the income
tax law of such Taxing Jurisdiction pursuant to any settlement, Final
Determination, judgment, assessment, proposed adjustment or otherwise and (y)
the Taxing Jurisdiction's highest marginal tax rate applicable to the taxable
income of corporations on income of the character subject to tax and indemnified
against under Section 3, (ii) interest on such amount calculated pursuant to
such Taxing Jurisdiction's laws regarding interest on tax liabilities at the
highest Underpayment Rate, as defined below, for corporations in such Taxing
Jurisdiction from the date such additional gain or income was recognized until
full payment with respect thereto is made pursuant to Section 3 hereof, and
(iii) any penalties actually paid to such Taxing Jurisdiction that would not
have been paid but for the failure of the Distribution to qualify for Tax-Free
Status in such Taxing Jurisdiction.
"Subsequent Tax Legislation or Regulation" shall mean any bill
introduced in the United States House of Representatives or the United States
Senate that amends the Code, or any amendment to any such bill; any written
proposal to amend the Code that is officially recommended by the President of
the United States; any written proposal to amend the Code that is made available
to the general public either by the Chairman of the United States House of
Representatives Ways and Means Committee or any successor thereto, the Chairman
of the United States Senate Finance Committee or any successor thereto, or the
temporary or final Treasury Regulation; provided, however, that no such bill,
amendment, proposal, or regulation shall constitute Subsequent Tax Legislation
or Regulation unless the Notice Date of such bill, amendment, proposal or
regulation is subsequent to the date of this Agreement.
"Tax Attribute" shall mean a consolidated net operating loss, a
consolidated net capital loss, a consolidated unused investment credit, a
consolidated unused foreign tax credit, or a consolidated excess charitable
contribution (as such terms are used in Treasury Regulations 1.1502-79 and
1.1502-79A), or a U.S. federal minimum tax credit or U.S. federal general
business credit (but not tax basis or earnings and profits) that arises in a
Pre-Distribution Taxable Period (including the taxable period in which the
Distribution Date occurs) and can be carried to a taxable period ending after
the Distribution Date.
"Tax-Free Status" shall mean the qualification of the Distribution
(i) as a transaction described in Sections 355(a)(1) and 368(a)(1)(D) of the
Code, (ii) as a transaction in which the stock distributed thereby is qualified
property for purposes of section 355(c)(2) of the Code, and (iii) as a
transaction in which General Signal recognizes no income or gain other than
intercompany items or excess loss accounts taken into account pursuant to the
Treasury Regulations promulgated pursuant to Section 1502 of the Code.
6
<PAGE> 7
"Tax-Related Losses" shall mean:
(i) the Aggregate Spin-Off Tax Liabilities,
(ii) all accounting, legal and other professional fees, and
court costs incurred in connection with any settlement, Final Determination,
judgment or other determination with respect to such Aggregate Spin-Off Tax
Liabilities, and
(iii) all costs, expenses and damages associated with
stockholder litigation or controversies and any amount paid by General Signal or
Networks in respect of the liability of shareholders, whether paid to
shareholders or to the IRS or any other taxing authority payable by General
Signal or Networks or their respective Affiliates, in each case, resulting from
the absence of Tax-Free Status for the Distribution.
"Taxing Jurisdiction" shall mean the United States and every other
government or governmental unit having jurisdiction to tax General Signal or
Networks or any of their respective Affiliates.
"Timing Difference" shall mean an adjustment to an Income Tax Return
that results in (x) an increase in income, gain or recapture, or a decrease in
deduction, loss or credit, as calculated for Income Tax purposes, of any member
of the Networks Group for any Post-Distribution Taxable Period or the portion of
a Straddle Period beginning on the day after the Distribution Date and (y) an
increase in deduction, loss or credit, or a decrease in income, gain or
recapture, of a member of the General Signal Consolidated Group for a
Pre-Distribution Taxable Period or the portion of a Straddle Period ending on
the Distribution Date.
"Underpayment Rate" shall mean the annual rate of interest described
in Section 6621(c) of the Code for large corporate underpayments of Income Tax
(or similar provision of state, local, or foreign Income Tax law, as
applicable), as determined from time to time.
"Unqualified Tax Opinion" means an unqualified "will" opinion of
Qualified Tax Counsel on which General Signal may rely, in form and substance
reasonably acceptable to General Signal (and in determining whether an opinion
is reasonably acceptable, General Signal may consider, among other factors, the
appropriateness of any underlying assumptions and management's representations
if used as a basis for the opinion) to the effect that a transaction will not
disqualify the Distribution from Tax-Free Status, assuming that the Distribution
would have qualified for Tax-Free Status if such transaction did not occur.
2. Filing of Income Tax Returns; Payment of Income Taxes.
a. Income Tax Returns for Pre-Distribution Taxable Periods.
(i) General Signal shall prepare and file or cause to be
prepared and filed (A) the U.S. consolidated federal Income Tax Returns of the
General Signal Consolidated Group required to be filed after the date hereof for
all Pre-Distribution Taxable Periods,
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<PAGE> 8
including the taxable period in which the Distribution Date occurs, (B) all
other Income Tax Returns for Pre-Distribution Taxable Periods that are required
to be filed by a member of the General Signal Group and (C) all other Income Tax
Returns of or which include one or more members of the Networks Group that are
required to be filed (taking into account any extensions) on or prior to the
Distribution Date. General Signal shall pay, or cause to be paid, any and all
Income Taxes due with respect to such Income Tax Returns.
(ii) General Signal shall prepare, with the cooperation
and assistance of Networks, and Networks shall file or cause to be filed (in the
form and manner so prepared by General Signal), any Income Tax Return which (A)
includes one or more members of the Networks Group for a Pre-Distribution
Taxable Period, (B) is not required to be, and is not, filed on or prior to the
Distribution Date and (C) is required to be filed by a member of the Networks
Group. Networks shall pay or cause to be paid the Income Tax Liability shown due
on such Income Tax Returns. No later than two Business Days prior to the due
date for filing any such Income Tax Return (taking into account extensions),
either (A) General Signal shall pay to Networks the excess, if any, of (1) the
Income Tax Liability shown due on such Income Tax Return over (2) the estimated
Income Tax payments (including payments made in connection with an application
for an extension) previously made in respect thereof by a member of the General
Signal Consolidated Group, or (B) Networks shall pay to General Signal the
excess, if any, of (1) the amount described in clause (A)(2) of this sentence
over (2) the amount described in clause (A)(1) of this sentence.
(iii) General Signal shall prepare any documentation
required to be filed in connection with the making of estimated Income Tax
payments due in respect of Pre-Distribution Taxable Periods for which General
Signal (or another member of the General Signal Group) is obligated to prepare
an Income Tax Return hereunder and shall make any such estimated Income Tax
payments, whether due before, on or after the Distribution Date.
b. Income Tax Returns for Post-Distribution Taxable Periods.
Networks shall be responsible for (i) preparing and filing or causing to be
prepared and filed all Income Tax Returns required to be filed by Networks or
any member of the Networks Group for any Post-Distribution Taxable Period and
(ii) paying the Income Tax Liability due with respect to such Income Tax
Returns.
c. Income Tax Returns for Straddle Periods.
(i) For U.S. federal Income Tax purposes, the taxable
year of each domestic member of the Networks Group shall end as of the close of
the Distribution Date and, with respect to all other Income Taxes, General
Signal (or the appropriate member of the General Signal Group) and Networks
shall, unless prohibited by applicable law, take all action necessary or
appropriate to close the taxable period of the members of the Networks Group as
of the close of the Distribution Date. Neither any member of the General Signal
Group nor any member of the Networks Group shall take any position inconsistent
with the preceding sentence on any Income Tax Return.
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(ii) General Signal shall prepare, with the cooperation
and assistance of Networks, and Networks shall file or cause to be filed (in the
form and manner so prepared by General Signal), all Income Tax Returns of or
which include the Networks Group or any member thereof for a Straddle Period.
(iii) An Income Tax Liability in respect of an Income
Tax Return for a Straddle Period shall be (A) allocated to General Signal to the
extent such Income Tax Liability is (1) attributable to a member of the Networks
Group for the period up to and including the Distribution Date or (2)
attributable solely to the inclusion in such Income Tax Return of one or more
members of the General Signal Group, and (B) allocated to Networks to the extent
such Income Tax Liability is (1) attributable to a member of the Networks Group
for the period subsequent to the Distribution Date or (2) attributable solely to
the inclusion in such Income Tax Return of any entity that is formed or acquired
by any member of the Networks Group after the Distribution. The allocation of
any Income Tax Liability between the portion of any Straddle Period ending on
the Distribution Date and the portion of such Straddle Period after the
Distribution Date shall be made by means of a closing of the books and records
of the members of the Networks Group as of the close of the Distribution Date,
as if such taxable period ended as of the close of the Distribution Date;
provided, that exemptions, allowances or deductions that are calculated on an
annual basis (including, but not limited to, depreciation and amortization
deductions) shall be allocated between the period ending on the Distribution
Date and the period after the Distribution Date in proportion to the number of
days in each such period.
(iv) Networks shall pay or cause to be paid the Income
Tax Liability due with respect to any Straddle Period with respect to any Income
Tax Return described in 2.c(ii) above. No later than two Business Days prior to
the due date for filing any such Income Tax Return (taking into account
extensions), either (A) General Signal shall pay to Networks the excess, if any,
of (1) the portion of the Income Tax Liability for such Straddle Period which is
allocable to General Signal pursuant to Section 2.c(iii) hereof over (2) the
estimated Income Tax payments (including payments made in connection with an
application for an extension) made in respect of such Straddle Period by a
member of the General Signal Consolidated Group on or prior to the Distribution
Date, or (B) Networks shall pay to General Signal the excess, if any, of (1) the
amount described in clause (A)(2) of this sentence over (2) the amount described
in clause (A)(1) of this sentence.
(v) General Signal shall prepare, with the cooperation
and assistance of Networks, any documentation required to be filed in connection
with the making of estimated Income Tax payments due in respect of Straddle
Periods for which Networks (or another member of the Networks Group) is
obligated to file an Income Tax Return hereunder. Networks shall make any such
estimated Income Tax payments which are due on or after the Distribution Date.
(vi) General Signal shall prepare and file all Income
Tax Returns of or including solely one or more members of the General Signal
Group for a Straddle Period and pay the Income Tax Liability with respect
thereto.
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d. Preparation of Income Tax Returns.
(i) General Signal (or its designee) shall, in its sole
and absolute discretion, determine the entities to be included in a Combined
Return and make or revoke any Income Tax elections, adopt or change any
accounting methods, and determine any other position taken on or in respect of
any Income Tax Return that it is required to prepare or file pursuant to Section
2.
(ii) Networks shall, and shall cause each member of the
Networks Group to, prepare and submit promptly to General Signal, at Networks'
expense, all information that General Signal shall reasonably request, in such
form as General Signal shall reasonably request, relating to the rights and
obligations of General Signal or Networks hereunder, including any such
information so requested to enable General Signal to prepare the Income Tax
Returns that it is required to prepare under Section 2 (which information shall
be provided by Networks no later than [60] Business Days prior to the due date
(taking into account extensions) of such Income Tax Return). In the event that
Networks (x) does not timely provide such information or (y) provides
information that is incomplete or otherwise not reasonably satisfactory to
General Signal and does not cure such defect within [two] days after General
Signal gives notice thereof, General Signal shall be entitled to require
Networks to engage, at Networks' expense, a nationally recognized independent
accounting firm reasonably acceptable to General Signal to gather and provide,
in the manner set forth in the preceding sentence, the information Networks is
required to provide under this Section 2.d. Except as required by applicable law
or as a result of a Final Determination, Networks shall not, and shall cause
each member of the Networks Group not to, take any position that is either
inconsistent with the treatment of the Distribution as having Tax-Free Status
(or analogous status under state, local or foreign law) or, with respect to a
specific item of income, deduction, gain, loss, or credit on an Income Tax
Return for a Post-Distribution Taxable Period inconsistent with a position taken
on an Income Tax Return prepared or filed by General Signal pursuant to Section
2 hereof (including, without limitation, the claiming of a deduction previously
claimed on any such Income Tax Return).
e. Redeterminations of Income Tax Liabilities. If the Income
Tax Liabilities attributable to the Networks Group or a member thereof are
redetermined for a Pre-Distribution Taxable Period or a Straddle Period as part
of a Final Determination, then whether or not the Income Tax Return with respect
to which such redetermination occurs was filed pursuant to this Section 2, the
payments required to be made by a party hereto pursuant to this Section 2, or
that would have been required to be made, shall be recomputed by substituting
the amount of the Income Tax Liabilities as so redetermined. A party hereto that
is liable to make a payment by reason of a redetermination to another party
hereto shall make such payment with interest thereon, computed at the
Underpayment Rate, from the due date for filing the Income Tax Return for which
the Income Tax Liabilities were redetermined until the date of payment pursuant
to this Section 2.e (but without duplication of the amount of interest included
in the Income Tax Liabilities as so redetermined). Such payment shall be made no
later than [five] Business Days prior to the date that payment is due to the
relevant taxing authority by reason of such redetermination.
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f. Certain Foreign Taxes. Notwithstanding any other provision
hereunder: (i) Networks shall be responsible for preparing and filing all Income
Tax Returns, and paying all Income Taxes, of each of General Signal Networks
Italia SRL, General Signal Networks Ltd., Data Switch UK Limited and the
Canadian and German subsidiaries of Networks formed prior to, and in connection
with, the Spin-Off (the "Foreign Networks Subsidiaries"), and General Signal
shall have no responsibility or liability with respect to such Income Tax
Returns or Income Taxes whatsoever; (ii) Networks shall be entitled to receive
and retain any Refunds of Income Taxes of the Foreign Networks Subsidiaries,
except to the extent otherwise provided in Section 7.b; (iii) in the event of a
disallowance or reduction of benefits derived from filing any foreign Income Tax
Return on a consolidated, combined, group relief or other basis which basis,
absent such disallowance or reduction, would allow income or gain attributable
to the Networks Business to be offset by losses or deductions that are not
attributable to the Networks Business, then Networks shall pay General Signal or
its designee any Income Tax (including interest and penalties) that would not
have arisen but for such disallowance or reduction no later than [five] Business
Days prior to the date such Tax is required to be paid to the applicable Taxing
Jurisdiction, (iv) Networks shall indemnify and hold each member of the General
Signal Group and each of their respective Representatives and Affiliates
harmless from and against any Income Taxes described in clauses (i) or (iii)
above and any related costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses); and (iv) Section 9 shall not apply
with respect to any Income Taxes or Refunds described in this Section 2f.
3. Indemnification for Income Taxes.
a. Indemnification by General Signal. Except as otherwise
provided in this Section 3, General Signal shall indemnify and hold each member
of the Networks Group and each of their respective Representatives and
Affiliates harmless from and against (i) all Spin-Off Tax Liabilities incurred
by any member of the General Signal Group, (ii) without duplication, all Income
Tax Liabilities that any member of the General Signal Group is liable for, or
required to reimburse Networks for, pursuant to Section 2 hereof, and (iii) all
Income Taxes incurred by any member of the Networks Group by reason of the
breach by General Signal of any of its covenants hereunder and, in each case,
any related costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses).
b. Indemnification by Networks. From and after the
Distribution Date, Networks shall indemnify and hold each member of the General
Signal Group and each of their respective Representatives and Affiliates
harmless from and against (i) all Income Tax Liabilities that Networks (or any
other member of the Networks Group) is required to pay, or reimburse General
Signal for, under Section 2 hereof and (ii) all Income Taxes, Spin-Off Tax
Liabilities or other Tax-Related Losses incurred by any member of the General
Signal Group or Networks Group by reason of the breach by Networks of any of its
covenants hereunder, and, in each case, any related costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses).
c. To the extent an indemnification obligation relates to
Spin-Off Tax Liabilities, the Indemnifying Party shall make payment pursuant to
such indemnification
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obligation no later than (i) [five] Business Days prior to the date the
Indemnified Party makes a payment of taxes, interest, or penalties with respect
to a proposed adjustment of taxes or an assessment of tax deficiency asserted or
made by any Taxing Jurisdiction that is premised in whole or part on Spin-Off
Tax Liabilities, including a payment made in settlement of an asserted tax
deficiency (each, an "Actual Tax Payment"), or (ii) [five] Business Days after
the date the Indemnified Party gives written notice to the Indemnifying Party
that the Indemnified Party has notified any Taxing Jurisdiction, or gives the
Indemnifying Party written notice or an acknowledgment by any Taxing
Jurisdiction, that such proposed adjustment of taxes or tax deficiency would not
result in a net payment by the Indemnified Party because of the carryover,
carryback or carryforward of net operating losses or credits, the crediting of
previously paid taxes, the utilization of deductions or credits not claimed on
the Indemnified Party's tax returns as originally filed, the exclusion of income
reported on such returns, or the utilization of any other tax attributes that
offset the asserted taxes (each, a "Deemed Tax Payment"). The amount payable
pursuant to the preceding sentence shall be the Tax-Related Loss implied by such
Actual Tax Payments and Deemed Tax Payments.
d. Subsequent Tax Legislation or Regulation. To the extent
Tax-Related Losses would not have arisen but for Subsequent Tax Legislation or
Regulation, such Losses shall be borne equally by General Signal and Networks.
The party making actual payment of such Losses shall be indemnified by the other
party to the extent of the other party's allocated share of such Losses.
e. General Signal shall be indemnified and held harmless
pursuant to this Section 3 without regard to the fact that (i) General Signal or
Networks may have received a subsequent ruling pursuant to Section 5.g(i)
hereof, (ii) General Signal may have made a determination pursuant to Section
5.g(ii), (iii) Networks may have obtained an Unqualified Tax Opinion pursuant to
Section 5.g(iii).
4. Representations Specific to Distribution Tax Matters.
a. Networks hereby represents and warrants that (i) it has
examined the Ruling Documents (including, without limitation, the
representations to the extent that they relate to the plans, proposals,
intentions, and policies of Networks, its subsidiaries, the Networks Business,
or the Networks Group) and (ii) to the extent descriptive of Networks, its
subsidiaries, the Networks Business, or the Networks Group, the facts presented
and the representations made therein are true and correct, except to the extent
that any such facts or representations:
(i) are about the General Signal Group (except for facts
about the Networks Business);
(ii) describe or characterize the purposes of General
Signal management for the Distribution; or
(iii) set forth legal conclusions.
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b. Networks hereby represents and warrants that it has no plan
or intention of taking any action, or failing or omitting to take any action,
that would (i) cause the Distribution not to have Tax-Free Status or (ii) cause
any representation or factual statement made in this Tax Sharing Agreement or in
the Ruling Documents to be untrue in a manner that would have an adverse effect
on the Tax-Free Status of the Distribution.
c. Networks hereby represents and warrants that the
Distribution is not part of a plan (or series of related transactions) pursuant
to which a Person will acquire stock representing a Fifty-Percent or Greater
Interest in Networks or any successor to Networks.
5. Covenants Specific to Distribution Tax Matters
a. Networks shall not take any action, nor fail or omit to
take any action, that would (i) cause the Distribution not to have Tax-Free
Status or (ii) cause any representation or factual statement made in this Tax
Sharing Agreement or the Request for Rulings to be untrue in a manner that would
have an adverse effect on the Tax-Free Status of the Distribution.
b. Until the first day after the Restriction Period, Networks
shall continue the active conduct of the Networks Business. Networks shall not
liquidate, dispose of, or otherwise discontinue the conduct of any material
portion of the Networks Business. Networks shall continue the active conduct of
the Networks Business primarily through officers and employees of Networks (and
not through independent contractors). For purposes of this Section 5.b, asset
retirements and discontinuations of product lines with respect to the Networks
Business in the ordinary course of business shall not be treated as a
disposition of a portion of the Networks Business.
c. Until the first day after the Restriction Period, no member
of the Networks Group shall sell or otherwise issue to any Person, or redeem or
otherwise acquire from any Person, any Equity Securities of any member of the
Networks Group; provided, however, that (i) the adoption by Networks of a rights
plan shall not constitute a sale or issuance of such Equity Securities, (ii)
Networks may repurchase Equity Securities to the extent that such repurchases
meet the requirements of section 4.05(1)(b) of Revenue Procedure 96-30 and (iii)
Networks may issue Equity Securities of Networks (including issuances as
compensation for services or pursuant to the exercise of compensatory stock
options) that do not exceed in the aggregate 20 percent of the Equity Securities
of Networks over the period from and including the Distribution Date to the
second anniversary of the Distribution Date and 40 percent of the Equity
Securities of Networks over the period from the Distribution Date to the end of
the Restriction Period.
d. Until the first day after the Restriction Period, no member
of the Networks Group shall (i) solicit any Person to make a tender offer for,
or otherwise acquire or sell, the Equity Securities of Networks, (ii)
participate in or support any unsolicited tender offer for, or other
acquisition, issuance or disposition of, the Equity Securities of Networks or
(iii) approve or otherwise permit any proposed business combination or any
transaction which, in the case of (i), (ii) or (iii), individually or in the
aggregate, together with the transactions
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contemplated by this Agreement, the Distribution Agreement, any Other Agreements
or the Ruling Documents, results in one or more Persons acquiring (other than in
acquisitions not taken into account for purposes of Section 355(e)) directly or
indirectly stock representing a Fifty-Percent or Greater Interest in Networks.
In addition, no member of the Networks Group shall at any time, whether before
or subsequent to the expiration of the Restriction Period, engage in any action
described in clauses (i), (ii) or (iii) of the preceding sentence if it is
pursuant to an arrangement negotiated (in whole or in part) prior to the
Distribution, even if at the time of the Distribution it is subject to various
conditions, nor shall any member take any action, or fail or omit to take any
action, that would cause Section 355(d) or (e) to apply to the Distribution.
e. Until the first day after the Restriction Period, no member
of the Networks Group shall sell, transfer, or otherwise dispose of or agree to
dispose of assets (including, for such purpose, any shares of capital stock of a
Subsidiary) that, in the aggregate, constitute more than 60 percent of the gross
assets of Networks, nor shall Networks or its subsidiaries sell, transfer, or
otherwise dispose of or agree to dispose of assets (including, for such purpose,
any shares of capital stock of a subsidiary) that, in the aggregate, constitute
more than 60 percent of the consolidated gross assets of Networks and its
subsidiaries. The foregoing sentence shall not apply to sales, transfers, or
dispositions of assets in the ordinary course of business. The percentages of
gross assets or consolidated gross assets of Networks or Networks and its
subsidiaries, as the case may be, sold, transferred, or otherwise disposed of,
shall be based on the fair market value of the gross assets of Networks and its
subsidiaries as of the Distribution Date. Sales, transfers or other dispositions
by Networks or any of its subsidiaries to Networks or any of its subsidiaries
are not subject to this Section 5.e to the extent not inconsistent with the
Tax-Free Status of the Distribution.
f. Until the first day after the Restriction Period, neither
Networks nor its subsidiaries shall voluntarily dissolve or liquidate or engage
in any merger, consolidation or other reorganization. The foregoing sentence
shall not apply to transactions in which Networks acquires another corporation,
limited liability company, limited partnership, general partnership or joint
venture solely for cash or other consideration that is not common stock of
Networks. Reorganizations of Networks with its subsidiaries, and liquidations of
Networks' subsidiaries, are not subject to this Section 5.f to the extent not
inconsistent with the Tax-Free Status of the Distribution.
g. Any of the provisions of Section 5.b, c, d, e, or f shall
be waived with respect to any particular transaction or transactions if (i)
General Signal or Networks has obtained a ruling from the IRS, in form and
substance reasonably satisfactory to General Signal, to the effect that such
proposed transaction will not adversely affect the Tax-Free Status of the
Distribution, (ii) General Signal has determined, in its sole and absolute
discretion that it could not reasonably be expected that such proposed
transaction would have an adverse effect on the Tax-Free Status of the
Distribution, or (iii) with respect to a transaction occurring at least two
years after the Distribution Date, Networks obtains an Unqualified Tax Opinion
(at its own expense), in form and substance reasonably satisfactory to General
Signal, with respect to such proposed transaction. Waiver with respect to one
transaction or group of transactions shall not constitute a waiver with respect
to any other transaction.
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h. Enforcement. The parties hereto acknowledge that
irreparable harm would occur in the event that any of the provisions of this
Section 5 were not performed in accordance with their specific terms or were
otherwise breached. The parties hereto agree that, in order to preserve the
Tax-Free Status of the Distribution, injunctive relief is appropriate to prevent
any violation of the foregoing covenants, provided, however, that injunctive
relief shall not be the exclusive legal or equitable remedy for any such
violation.
6. Cooperation Related to Distribution Tax Matters
a. Until the first day after the Restriction Period, Networks
shall furnish General Signal with a copy of any ruling request that any member
of the Networks Group may file with the IRS or any other taxing authority and
any opinion received that relates to or otherwise reasonably could be expected
to have any effect on the Tax-Free Status of the Distribution.
b. Networks shall cooperate with General Signal in connection
with (i) any determination pursuant to subsection 5.g(ii) above or (ii) any
request by General Signal for a subsequent ruling. Such cooperation shall
include, without limitation, providing any information and representations
reasonably requested by General Signal or its counsel to enable General Signal
or its counsel to make any such determination or to obtain and maintain any
subsequent ruling with respect to the Distribution. From and after the date of
the filing of any such request until the first day after the four-year
anniversary of the date that General Signal makes the correlative determination
or receives the correlative subsequent ruling, Networks shall not take (nor
shall it refrain from taking) any action that would have caused a representation
given by Networks in connection with any such determination or General Signal's
request for a subsequent ruling to have been untrue as of the relevant
representation date, had Networks intended to take (or refrain from taking) such
action on the relevant representation date.
c. General Signal shall cooperate with Networks in connection
with any request by Networks for an Unqualified Tax Opinion.
d. Until the first day after the Restriction Period, Networks
will provide adequate notice to General Signal of action described in Sections
5.b through f above, without regard to the exceptions thereto, within a period
of time sufficient to enable General Signal (i) to make the determination
referred to in Section 5.g(ii), (ii) to prepare and seek any subsequent ruling
in connection with such proposed transaction, or (iii) to seek injunctive relief
pursuant to Section 5.h hereof in a court of competent jurisdiction. Each such
notice shall set forth the terms and conditions of the proposed transaction,
including, without limitation, the nature of any related action proposed to be
taken by the board of directors of Networks, the approximate number of shares of
Networks stock (if any) proposed to be sold by Networks or otherwise issued by
Networks, the approximate value of Networks' assets (or assets of any of the
Networks subsidiaries) proposed to be transferred, and the proposed timetable
for such transaction, all with sufficient particularity to enable General Signal
to make such determination, prepare and seek such subsequent ruling, or seek
such injunctive relief. Promptly, but in any event within [30] Business Days,
after General Signal receives such written notice from Networks, General Signal
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shall notify Networks in writing of such determination or of General Signal's
intent to seek a subsequent ruling and the proposed date for the initial
submission thereof, which date shall not be more than [60] Business Days after
General Signal so notifies Networks of its intent to seek such subsequent
ruling, provided that such [30]-day period or [60]-day period, as the case may
be, shall be appropriately extended for any period of noncompliance by Networks
with this Section 6.d.
7. Refunds; Foreign Tax Credits.
a. Refunds. Except to the extent provided in Sections 9.a and
9.d hereof, General Signal shall be entitled to all Refunds (and any interest
thereon received from the applicable taxing authority) in respect of Income
Taxes for all Pre-Distribution Taxable Periods and the portion of any Straddle
Period ending on the Distribution Date. Except to the extent provided in Section
9.b or 9.d hereof, Networks shall be entitled to all Refunds (and any interest
thereon received from the applicable taxing authority) in respect of Income
Taxes for all Post-Distribution Taxable Periods and the portion of any Straddle
Period beginning after the Distribution Date. A party receiving a Refund to
which another party is entitled pursuant to this Section 7.a shall pay the
amount to which such other party is entitled within [ten] days after such Refund
is Actually Realized. General Signal shall be permitted to file, and Networks
shall fully cooperate with General Signal in connection with, any claim for
Refund in respect of an Income Tax for which any member of the General Signal
Group is responsible pursuant to Section 2 hereof.
b. Foreign Tax Credits.
(i) If, as a result of the payment by the Networks Group
after the Distribution Date of a foreign tax, there is an increase in the
foreign tax credits allowed to a member of the General Signal Group for Income
Tax purposes, General Signal shall pay to Networks the amount of any Income Tax
Benefit Actually Realized therefrom, including interest (computed at the
Overpayment Rate) from the original due date (without extensions) of the Income
Tax Return for the taxable period in which such Income Tax Benefit is Actually
Realized (or, if later, the date which is [45] days after the date of receipt of
the notice described in the next sentence) through the date of payment under
this subsection 7.b(i) (but without duplication of the amount of interest, if
any, included in the Income Tax Benefit Actually Realized). Networks shall
provide written notice to General Signal of any such payment of a foreign tax,
together with any documentation reasonably requested by General Signal to enable
General Signal to verify and substantiate such payment. General Signal shall
determine the extent to which any such foreign tax credit has been Actually
Realized, and such determination shall be final and binding upon the parties
(subject to adjustment in the event of a subsequent Final Determination). Upon
request, General Signal shall provide Networks with a statement, signed by
General Signal's chief financial officer and certified by General Signal's
independent accounting firm, setting forth calculations in detail sufficient to
permit Networks to verify General Signal's calculations pursuant to this Section
7.b(i). Any tax attribute arising from the carryforward of any such foreign tax
credit shall not be subject to Section 9.d hereof.
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(ii) If, as a result of the receipt by the Networks
Group after the Distribution Date of a Refund of foreign tax (including by means
of a credit or offset), there is a decrease in the foreign tax credits allowed
to a member of the General Signal Group for Income Tax purposes, Networks shall
pay to General Signal the amount of any Income Tax Detriment Actually Realized
by the General Signal Group therefrom, including interest (computed at the
Underpayment Rate) from the original due date (without extensions) of the Income
Tax Return for the taxable period in which such Income Tax Detriment is Actually
Realized through the date of payment under this Section 7.b(ii) (but without
duplication of the amount of interest, if any, included in the Income Tax
Detriment Actually Realized). Networks shall provide written notice to General
Signal of the nature and amount of any such Refund. General Signal shall
determine the extent to which any such foreign tax credit has been Actually
Realized, and such determination shall be final and binding upon the parties
(subject to adjustment in the event of a subsequent Final Determination). Any
tax attribute arising from the carryforward of any such foreign tax credit shall
not be subject to Section 9.d hereof.
8. Income Tax Contests.
a. Notification. Networks shall, promptly upon receipt of
notice thereof by any member of the Networks Group, notify General Signal in
writing of any communication with respect to any pending or threatened
Proceeding in connection with an Income Tax Liability (or an issue related
thereto) for which a member of the General Signal Group may be responsible
pursuant to this Agreement. Networks shall include with such notification a
true, correct and complete copy of any written communication, and an accurate
and complete written summary of any oral communication, so received by a member
of the Networks Group. The failure of Networks timely to forward such
notification in accordance with the immediately preceding sentence shall not
relieve General Signal of its obligation to pay such Income Tax Liability or
indemnify the Networks Group therefor, except and to the extent that the failure
timely to forward such notification actually prejudices the ability of General
Signal to contest such Income Tax Liability or increases the amount of such
Income Tax Liability.
b. Pre-Distribution Taxable Periods and Straddle Periods.
General Signal (or such member of the General Signal Group as General Signal
shall designate) shall have the sole right to represent the interests of the
members of the Networks Group in any Proceeding relating to Pre-Distribution
Taxable Periods or Straddle Periods and to employ counsel of its choice at its
expense; provided, however, that any expenses relating to items for which
Networks is responsible pursuant to Section 2 in connection with such a
Proceeding shall be borne by Networks; provided, further, however, that Networks
shall be entitled to designate counsel with respect to any such Proceeding with
respect to an Income Tax Return that includes solely one or more members of the
Networks Group and relates solely to items for which Networks is responsible
hereunder.
c. Post-Distribution Taxable Periods. Networks shall have the
sole right to represent the interests of the Networks Group (or any member
thereof) in any Proceedings relating to a Post-Distribution Taxable Period.
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d. Power of Attorney. Each member of the Networks Group shall
execute and deliver to General Signal (or such member of the General Signal
Group as General Signal shall designate) any power of attorney or other document
requested by General Signal (or such designee) in connection with any Proceeding
described in Section 8.b hereof.
9. Timing Differences; Reverse Timing Differences; Apportionment of
Tax Attributes; Carrybacks.
a. Timing Differences. If an adjustment to an Income Tax
Return, pursuant to a Final Determination, results in a Timing Difference, then
for each Post-Distribution Taxable Period or portion of a Straddle Period
beginning on the day after the Distribution Date in which a member of the
Networks Group Actually Realizes an Income Tax Detriment by reason of such
Timing Difference, General Signal shall pay to Networks an amount equal to such
Income Tax Detriment, including interest (computed at the Underpayment Rate for
the taxing jurisdiction in which such Income Tax Detriment is Actually Realized)
from the original due date (without extensions) for filing of the Income Tax
Return for such taxable period through the date of payment under this Section
9.a; provided, however, that subject to the last sentence of Section 9.c(i)
hereof, the aggregate payments that General Signal shall be required to make
under this Section 9.a with respect to a Timing Difference shall not exceed the
aggregate amount of the Income Tax Benefits Actually Realized by a member of the
General Signal Consolidated Group for all Pre-Distribution Taxable Periods and
the portion of a Straddle Period ending on the Distribution Date by reason of
such Timing Difference, including interest (computed at the Overpayment Rate for
the taxing jurisdiction in which such Income Tax Benefit is Actually Realized)
from the original due date (without extensions) for filing of the Income Tax
Return for such taxable period through the date of payment under this Section
9.a.
b. Reverse Timing Differences. If an adjustment to an Income
Tax Return, pursuant to a Final Determination, results in a Reverse Timing
Difference, then, subject to the last sentence of Section 9.c(ii) hereof, for
each Post-Distribution Taxable Period or portion of a Straddle Period beginning
on the day after the Distribution Date in which a member of the Networks Group
Actually Realizes an Income Tax Benefit by reason of such Reverse Timing
Difference, Networks shall pay to General Signal an amount equal to such Income
Tax Benefit, including interest (computed at the Overpayment Rate for the taxing
jurisdiction in which such Income Tax Benefit is Actually Realized) from the
original due date (without extensions) for filing of the Income Tax Return for
such taxable period through the date of payment under this Section 9.b;
provided, however, that the aggregate payments which Networks shall be required
to make under this Section 9.b with respect to a Reverse Timing Difference shall
not exceed the aggregate amount of the Income Tax Detriments Actually Realized
by a member of the General Signal Consolidated Group (whether in one or more
taxable periods, and whether such taxable periods end before, after or on the
Distribution Date) by reason of such Reverse Timing Difference, including
interest (computed at the Underpayment Rate for the taxing jurisdiction in which
such Income Tax Detriment is Actually Realized) from the original due date
(without extensions) for filing of the Income Tax Return for such taxable period
through the date of payment under this Section 9.b. Upon request, Networks shall
provide General Signal with a statement, signed by Networks' chief financial
officer and certified by Networks' independent
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accounting firm, setting forth calculations in detail sufficient to permit
General Signal to verify Networks' compliance with this Section 9.b.
c. Notification of Timing Differences and Reverse Timing
Differences.
(i) In the event of an adjustment to an Income Tax
Return that Networks reasonably believes will result in a Timing Difference,
Networks shall deliver notice in writing of such adjustment to General Signal.
General Signal (or the appropriate member of the General Signal Group) (A) shall
take such action as shall be legally available and necessary or appropriate to
preserve the opportunity of the members of the General Signal Consolidated Group
to obtain a Refund in respect of taxable periods for which Income Tax Returns
already shall have been filed, and to obtain the Income Tax Benefits resulting
from such Timing Difference to the maximum extent permitted by applicable law,
and (B) shall provide Networks with written notice of the timing and amount of
any Income Tax Benefits Actually Realized by the General Signal Consolidated
Group as a result of such Timing Difference or that would have been Actually
Realized by the General Signal Consolidated Group but for a failure to take the
actions described in clause (A) of this sentence.
(ii) In the event of an adjustment to an Income Tax
Return of a member of the General Signal Consolidated Group that General Signal
(or such other member of the General Signal Group as shall be designated by
General Signal) reasonably believes will result in a Reverse Timing Difference,
General Signal (or such other member) shall deliver notice in writing of such
adjustment to Networks. Networks shall take, and shall cause the appropriate
member of the Networks Group to take, such action as shall legally be available
and necessary or appropriate to preserve the opportunity of the appropriate
members of the Networks Group to obtain a Refund in respect of taxable periods
for which Income Tax Returns already shall have been filed, and shall take such
positions as shall be consistent with obtaining the Income Tax Benefits
resulting from such Reverse Timing Difference for such taxable periods for which
Income Tax Returns shall not have been filed. For all such taxable periods,
Networks (A) shall take all actions necessary or appropriate and legally
available to obtain the Income Tax Benefits resulting from such Reverse Timing
Difference to the maximum extent permitted by applicable law and (B) shall
provide General Signal with written notice of the timing and amount of any
Income Tax Benefits Actually Realized by the Networks Group as a result of such
Reverse Timing Difference or which would have been Actually Realized by the
Networks Group but for a failure to take the actions described in clause (A) of
this sentence. The failure to have taken such actions as shall have been legally
available and necessary or appropriate to obtain the Income Tax Benefits
resulting from such Reverse Timing Difference shall not relieve Networks from
the obligation to make the payments that would have been due from Networks under
Section 9.b had Networks (or the appropriate members of the Networks Group)
taken such actions.
d. Apportionment of Tax Attributes.
(i) If the General Signal Consolidated Group has a Tax
Attribute, the portion, if any, of such Tax Attribute that shall be apportioned
to Networks or any member of the
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Networks Group and treated as a carryover to the first Post-Distribution Taxable
Period of Networks (or such member) shall be determined in accordance with
Treasury Regulation Section 1.1502-79 and 1.1502-79A; provided, however, that
the portion, if any, of any consolidated unused foreign tax credit which shall
be apportioned to Networks or such member shall be determined separately with
respect to each of the items of income listed in Section 904(d) of the Code.
(ii) No consolidated U.S. federal Income Tax attribute
of the General Signal Consolidated Group, other than those described in
subsection 9.d(i) hereof, and no consolidated, combined or unitary state, local,
or foreign Income Tax attribute arising in respect of a Combined Return shall be
apportioned to Networks or any member of the Networks Group, except as General
Signal (or such member of the General Signal Group as General Signal shall
designate) determines is otherwise required under the provisions of applicable
law.
(iii) General Signal (or its designee) shall determine
the portion, if any, of any Tax Attribute which must (absent a Final
Determination to the contrary) be apportioned to Networks or to any member of
the Networks Group in accordance with this Section 9.d and applicable law, and
the amount of tax basis and earnings and profits to be apportioned to Networks
in accordance with applicable law, and shall provide written notice of the
calculation thereof to Networks as soon as practicable after the information
necessary to make such calculation becomes available to General Signal.
(iv) Networks shall prepare, or cause to be prepared,
and file, or cause to be filed, all Income Tax Returns for which it is
responsible under this Agreement, so as to take into account, to the extent
permitted by applicable law, any Tax Attribute (and the amount of tax basis and
earnings and profits) apportioned to Networks or any member of the Networks
Group as calculated pursuant to subsection 9.d(iii) hereof. Until such time as
any such Tax Attribute has been utilized by Networks or any member of the
Networks Group (or would have been so utilized had Networks complied with the
requirements of the previous sentence), Networks shall, in connection with each
Income Tax Return filed by or on behalf of a member of the Networks Group,
provide General Signal with a statement, signed by Networks's chief financial
officer and certified by Networks's independent accounting firm, setting forth
in reasonable detail a calculation of the extent to which any such Tax Attribute
was utilized on such Income Tax Return (or would have been so utilized had
Networks complied with the requirements of the previous sentence).
(v) If any Tax Attribute is carried forward to an Income
Tax Return of Networks or any other member of the Networks Group for any
Post-Distribution Taxable Period or the portion of any Straddle Period beginning
after the Distribution Date, Networks shall pay to General Signal (or its
designee) the amount of any Income Tax Benefit Actually Realized by a member of
the Networks Group as a result of the carryover of such Tax Attribute, including
interest (computed at the Overpayment Rate) from the original due date (without
extensions) of the Income Tax Return for the taxable period in which such Income
Tax Benefit is Actually Realized through the date of payment under this Section
9.d(v) (but without duplication of the amount of interest, if any, included in
the Income Tax Benefit Actually Realized); provided,
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however, that the failure of Networks to comply with the requirements of the
first sentence of Section 9.d(iv) hereof shall not relieve Networks of the
obligation to make the payment that it would be required to make pursuant to
this Section 9.d(v) were Networks to have complied with such requirements.
(vi) If there is a Final Determination that results in
any change to or adjustment of the portion of any Tax Attribute which shall have
been apportioned to Networks or to any member of the Networks Group pursuant to
this Section 9.d, then General Signal (or its designee) shall make a payment to
Networks, or Networks shall make a payment to General Signal (or its designee),
as may be necessary to adjust the payments between Networks and General Signal
(or its designee) to reflect the payments that would have been made under
Section 9.d(v) had the adjusted amount of the Tax Attribute been taken into
account in computing the payments due under Section 9.d(v) hereof.
e. Present Value Determination. To the extent any Income Tax
Benefit or Income Tax Detriment is not Actually Realized when a Timing
Difference or Reverse Timing Difference occurs, General Signal and Networks
shall attempt in good faith to agree (i) upon the present value of the Income
Tax Benefits and Income Tax Detriments reasonably expected to be Actually
Realized, and (ii) to base the payments due to or from General Signal or
Networks under Sections 9.a or 9.b hereof on such present values; provided,
however, that such parties shall be under no obligation to reach such an
agreement. Section 11 hereof shall not apply if the parties shall not have
reached such an agreement.
f. Carrybacks. Except to the extent otherwise consented to by
General Signal or prohibited by applicable law, Networks shall elect to
relinquish, waive or otherwise forgo all Carrybacks. In the event that Networks
(or the appropriate member of the Networks Group) is prohibited by applicable
law to relinquish, waive or otherwise forgo a Carryback (or General Signal
consents thereto), (i) General Signal shall cooperate with Networks, at
Networks' expense, in seeking from the appropriate taxing authority such Refund
as reasonably would result from such Carryback, and (ii) Networks shall be
entitled to any Income Tax Benefit Actually Realized by a member of the General
Signal Group (including any interest thereon received from such taxing
authority), to the extent that such Refund is directly attributable to such
Carryback, within [10] days after such Refund is Actually Realized; provided,
however, that Networks shall indemnify and hold the members of the General
Signal Group harmless from and against any and all collateral tax consequences
resulting from or caused by any such Carryback, including (but not limited to)
the loss or postponement of benefit from the use of tax attributes generated by
a member of the General Signal Group or an Affiliate thereof and (x) that expire
unutilized, but would have been utilized but for such Carryback, or (y) the use
of which is postponed to a later taxable period than the taxable period in which
such tax attributes otherwise would have been utilized but for such Carryback.
If there is a Final Determination that results in any change to or adjustment of
an Income Tax Benefit Actually Realized by a member of the General Signal Group
that is directly attributable to a Carryback, then General Signal (or its
designee) shall make a payment to Networks, or Networks shall make a payment to
General Signal (or its designee), as may be necessary to adjust the payments
between Networks and General Signal (or its designee) to reflect the payments
that would have been made under this Section 9.f had the
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adjusted amount of such Income Tax Benefit been taken into account in computing
the payments due under this Section 9.f.
g. Straddle Periods. For purposes of Sections 9.d and 9.f
hereof, (i) a Straddle Period shall be deemed to consist of two taxable periods,
the first of which shall end on the Distribution Date, and (ii) any net
operating loss or other Tax Attribute which is deemed to have been generated in
either of such hypothetical taxable periods shall be treated as having been
carried to the other such hypothetical taxable period, to the extent such net
operating loss or other Tax Attribute actually reduced the Income Tax Liability
for such Straddle Period.
10. Cooperation and Exchange of Information.
a. Cooperation and Exchange of Information. Networks, on
behalf of itself and each of its Affiliates, agrees to provide General Signal
(or its designee) with such cooperation or information as General Signal (or its
designee) reasonably shall request in connection with the determination and
payment of estimated Income Taxes, Timing Differences, Reverse Timing
Differences, or the determination of any other calculations described in this
Agreement, the preparation or filing of any Income Tax Return or claim for
Refund, or the conduct of any Proceeding. Such cooperation and information shall
include, without limitation, upon reasonable notice (i) promptly forwarding
copies of appropriate notices and forms or other communications (including,
without limitation, information document requests, revenue agent's reports and
similar reports, notices of proposed adjustments and notices of deficiency)
received from or sent to any taxing authority or any other administrative,
judicial or governmental authority, (ii) providing copies of all relevant Income
Tax Returns, together with accompanying schedules and related workpapers,
documents relating to rulings or other determinations by taxing authorities, and
such other records concerning the ownership and tax basis of property, or other
relevant information that Networks or its Affiliates may possess, (iii) the
provision of such additional information and explanations of documents and
information provided under this Agreement (including statements, certificates
and schedules delivered by either party) as shall be reasonably requested by
General Signal (or its designee), (iv) the execution of any document that may be
necessary or reasonably helpful in connection with the filing of an Income Tax
Return, a claim for a Refund, or in connection with any Proceeding, including
such waivers, consents or powers of attorney as may be necessary for General
Signal to exercise its rights under this Agreement, and (v) the use of Networks'
reasonable efforts to obtain any documentation from a governmental authority or
a third party that may be necessary or reasonably helpful in connection with any
of the foregoing. It is expressly the intention of the parties to this Agreement
to take all actions that shall be necessary to establish General Signal as the
sole agent for Income Tax purposes of each member of the Networks Group with
respect to all Combined Returns. Upon reasonable notice, Networks shall make
its, or shall cause its Affiliates to make their, employees and facilities
available on a mutually convenient basis to provide explanation of any documents
or information provided hereunder. Any information obtained under this Section
10 shall be kept confidential, except as otherwise reasonably may be necessary
in connection with the filing of Income Tax Returns or claims for Refund or in
conducting any Proceeding. Notwithstanding any other provision of this
Agreement, neither Networks, nor any of its Affiliates nor any other Person
shall have any right to receive or obtain any information relating to Taxes of
General
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Signal or any of its Affiliates other than information relating solely to the
Networks Legal Entities and members of the Networks Group.
b. Retention of Records. Networks agrees to retain all Income
Tax Returns, related schedules and workpapers, and all material records and
other documents as required under Section 6001 of the Code and the regulations
promulgated thereunder (and any similar provision of state, local, or foreign
Income Tax law) existing on the date hereof or created in respect of (i) any
taxable period that ends on or before or includes the Distribution Date or (ii)
any taxable period that may be subject to a claim hereunder (including by reason
of a Timing Difference or a Reverse Timing Difference), until the later of (x)
the expiration of the statute of limitations (including extensions) for the
taxable periods to which such Income Tax Returns and other documents relate and
(y) the Final Determination of any payments that may be required in respect of
such taxable periods under this Agreement. From and after the end of the period
described in the preceding sentence of this Section 10.b, if a member of the
Networks Group wishes to dispose of any such records and documents, then
Networks shall provide written notice thereof to General Signal and shall
provide General Signal the opportunity to take possession of any such records
and documents within 90 days after such notice is delivered; provided, however,
that if General Signal does not, within such 90-day period, confirm its
intention to take possession of such records and documents, Networks may destroy
or otherwise dispose of such records and documents.
c. Remedies.
(i) Networks hereby acknowledges and agrees that (A) the
failure of any member of the Networks Group to comply with the provisions of
this Section 10 may result in substantial harm to the General Signal Group,
including the inability to determine or appropriately substantiate an Income Tax
Liability (or a position in respect thereof) for which the General Signal Group
(or a member thereof) would be responsible under this Agreement or appropriately
defend against an adjustment thereto by a taxing authority, and (B) the remedies
available to the General Signal Group for the breach by a member of the Networks
Group of its obligations hereunder shall include (without limitation) the
indemnification by Networks of the General Signal Group for any Income Tax
Liabilities incurred or any Income Tax benefit lost or postponed by reason of
such breach and the forfeiture by the Networks Group of any related rights to
indemnification by General Signal. In addition, if any member of the Networks
Group fails to provide any cooperation or information requested pursuant to this
Agreement (x) within the specified time or (y) in the absence of such specified
time, within a reasonable period (as determined in good faith by the party
requesting such information), then, without limiting any other remedy available
to any member of the General Signal Group for breach of Networks' obligations
under this Agreement, General Signal shall have the right to engage a nationally
recognized accounting firm of its choice to gather such information. Networks
agrees to permit any such nationally recognized accounting firm full access to
all appropriate records or other information in the possession of any member of
the Networks Group during normal business hours, and promptly to reimburse or
pay directly all costs and expenses in connection with the engagement of such
accountants.
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d. Reliance. If any member of the Networks Group supplies
information to a member of the General Signal Group in connection with an Income
Tax Liability and an officer of a member of the General Signal Group signs a
statement or other document under penalties of perjury in reliance upon the
accuracy of such information, then upon the written request of such member of
the General Signal Group identifying the information being so relied upon, the
chief financial officer of Networks shall certify in writing the accuracy and
completeness of the information so supplied. Networks agrees to indemnify and
hold harmless each member of the General Signal Group and its directors,
officers and employees from and against any fine, penalty, or other cost or
expense of any kind (other than a liability for Income Tax) attributable to a
member of the Networks Group having supplied a member of the General Signal
Group with inaccurate or incomplete information in connection with an Income Tax
Liability.
11. Resolution of Disputes The provisions of Article VI of the
Distribution Agreement shall apply to any dispute arising in connection with
this Agreement; provided, however, that (i) no provision in this Section 11 or
such Article VI shall be construed to extend the time periods set forth in this
Agreement during which any party may make a payment, deliver a notice, provide
information, grant or withhold approval or consent or take any other action,
(ii) General Signal shall select the arbitrator, who shall be an attorney or
accountant who is generally recognized in the tax community as a qualified and
competent tax practitioner with experience in the tax area involved in the issue
or issues to be resolved, (iii) (A) in connection with such arbitration, each
party shall present an overall settlement proposal to the arbitrator that shall
encompass all issues to be resolved, (B) the two proposals shall set the outer
limits of the range within which the arbitrator may make a determination as to
the appropriate settlement result, (iv) except as provided in clauses (v) or
(vi) below, all costs of the arbitration process shall be borne by the party
determined by the arbitrator to have lost the arbitration, (v) in the event the
arbitrator makes a determination that reflects a 50-50 settlement, General
Signal and Networks shall share equally the costs of the arbitration, and (vi)
in the event the arbitrator makes a determination that reflects a divided
settlement, the arbitrator shall determine the proportion in which the parties
shall share the costs of arbitration.
12. Payments.
a. Method of Payment. All payments required by this Agreement
shall be made by (i) wire transfer to the appropriate bank account as may from
time to time be designated by the parties for such purpose; provided that, on
the date of such wire transfer, notice of the transfer is given to the recipient
thereof in accordance with Section 13 hereof, or (ii) any other method agreed to
by the parties. All payments due under this Agreement shall be deemed to be paid
when available funds are actually received by the payee.
b. Interest. Any payment required by this Agreement that is
not made on or before the date required hereunder shall bear interest, from and
after such date through the date of payment, at the Underpayment Rate.
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c. Characterization of Payments. For all tax purposes, the
parties hereto agree to treat, and to cause their respective Affiliates to
treat, (i) any payment required by this Agreement, as either a contribution by
General Signal to Networks or a distribution by Networks to General Signal, as
the case may be, occurring immediately prior to the Distribution and (ii) any
payment of interest or non-federal Income Taxes by or to a taxing authority, as
taxable or deductible, as the case may be, to the party entitled under this
Agreement to retain such payment or required under this Agreement to make such
payment, in either case except as otherwise mandated by applicable law; provided
that in the event it is determined as a result of a Final Determination that any
such treatment is not permissible, the payment in question shall be adjusted to
place the parties in the same after-tax position they would have enjoyed absent
such Final Determination.
13. Notices. Notices, requests, permissions, waivers, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given upon (a) a transmitter's confirmation of a receipt of a facsimile
transmission (but only if followed by confirmed delivery of a standard overnight
courier the following Business Day or if delivered by hand the following
Business Day), or (b) confirmed delivery of a standard overnight courier or
delivered by hand, to the parties at the following addresses (or at such other
addresses for a party as shall be specified by like notice):
If to General Signal, to:
General Signal Corporation
High Ridge Park
Box 10010
Stamford, CT 06904-2010
Attention: General Counsel
Telecopy No.: 203-329-4396
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Eric S. Robinson, Esq.
Telecopy No: (212) 403-2000
If to Networks, to:
[Networks]
13000 Midlantic Drive
Mt. Laurel, NJ 08054
Attention:
Telecopy No.: (609)
Such names and addresses may be changed by notice given in accordance with this
Section 13.
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14. Designation of Affiliate. General Signal may assign any of its
rights or obligations under this Agreement to any member of the General Signal
Group as it shall designate; provided, however, that no such assignment shall
relieve General Signal of any obligation to make a payment hereunder to Networks
to the extent such designee fails to make such payment.
15. Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein, and supersedes and cancels all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written,
respecting such subject matter.
16. Amendment. This Agreement may be amended, modified or
supplemented only by a written agreement signed by both of the parties hereto.
17. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
reference to choice of law principles, including matters of construction,
validity and performance.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same original.
19. Titles and Headings. Titles and headings to sections herein are
included for convenience of reference only and are not intended to be a part, or
to affect the meaning or interpretation, of this Agreement.
20. Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns.
21. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner.
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IN WITNESS WHEREOF, each of the parties has caused this Tax Sharing
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first written above.
GENERAL SIGNAL CORPORATION
By: ________________________________
Name:
Title:
GENERAL SIGNAL NETWORKS, INC.
By: ________________________________
Name:
Title:
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<PAGE> 1
EXHIBIT 10.4
FORM OF
GENERAL SIGNAL NETWORKS, INC.
1998 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Company a competitive advantage in
attracting, retaining and motivating officers and employees and to provide the
Company and its Affiliates with a stock plan providing incentives directly
linked to the profitability of the Company's businesses and increases in
shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "Affiliate" means a corporation or other entity controlled by the
Company and designated by the Committee from time to time as such.
b. "Award" means a Stock Appreciation Right, Stock Option, Restricted
Stock or Performance Units.
c. "Award Cycle" shall mean a period of consecutive fiscal years or
portions thereof designated by the Committee over which Performance Units are to
be earned.
d. "Board" means the Board of Directors of the Company.
e. "Cause" means (1) conviction of a participant for committing a felony
under federal law or the law of the state in which such action occurred, (2)
dishonesty in the course of fulfilling a participant's employment duties or (3)
willful and deliberate failure on the part of a participant to perform his
employment duties in any material respect, or such other events as shall be
determined by the Committee. The Committee shall have the sole discretion to
determine whether "Cause" exists, and its determination shall be final.
f. "Change in Control" and "Change in Control Price" have the meanings set
forth in Sections 10(b) and (c), respectively.
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g. "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
h. "Commission" means the Securities and Exchange Commission or any
successor agency.
i. "Committee" means the Committee referred to in Section 2.
j. "Common Stock" means common stock, par value $_____ per share, of the
Company.
k. "Company" means General Signal Networks, Inc., a Delaware corporation.
l. "Covered Employee" means a participant designated prior to the grant of
shares of Restricted Stock or Performance Units by the Committee who is or may
be a "covered employee" within the meaning of Section 162(m)(3) of the Code in
the year in which Restricted Stock or Performance Units are expected to be
taxable to such participant.
m. "Disability" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
n. "Early Retirement" means retirement from active employment with the
Company, a subsidiary or Affiliate pursuant to the early retirement provisions
of the applicable pension plan of such employer.
o. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
p. "Fair Market Value" means, as of any given date, the mean between the
highest and lowest reported sales prices of the Common Stock on NASDAQ or such
other national securities exchange on which the Common Stock is regularly traded
or, if there is no regular public trading market for such Common Stock, as
determined by the Committee in good faith.
q. "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422 of
the Code.
r. "Non-Employee Director" means a member of the Board who qualifies as a
Non-Employee Director as defined in Rule 16b-
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3(b)(3), as promulgated by the Commission under the Exchange Act, or any
successor definition adopted by the Commission.
s. "NonQualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
t. "Normal Retirement" means retirement from active employment with the
Company, a subsidiary or Affiliate at or after age 65.
u. "Qualified Performance-Based Award" means an Award of Restricted Stock
or Performance Units designated as such by the Committee at the time of grant,
based upon a determination that (i) the recipient is or may be a "covered
employee" within the meaning of Section 162(m)(3) of the Code in the year in
which the Company would expect to be able to claim a tax deduction with respect
to such Restricted Stock or Performance Units and (ii) the Committee wishes such
Award to qualify for the Section 162(m) Exemption.
v. "Performance Goals" means the performance goals established by the
Committee in connection with the grant of Restricted Stock or Performance Units.
In the case of Qualified Performance-Based Awards, (i) such goals shall be based
on the attainment of specified levels of one or more of the following measures:
revenue growth, earnings growth, total shareholder return, economic value added,
earnings per share, sales, net profit after tax, gross profit, operating profit,
cash generation, unit volume, return on equity, change in working capital, or
return on capital, and (ii) such Performance Goals shall be set by the Committee
within the time period prescribed by Section 162(m) of the Code and related
regulations.
w. "Performance Units" means an award made pursuant to Section 8.
x. "Plan" means the General Signal Networks, Inc. 1998 Stock Incentive
Plan, as set forth herein and as hereinafter amended from time to time.
y. "Restricted Stock" means an Award granted under Section 7.
z. "Retirement" means Normal or Early Retirement.
aa. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
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bb. "Section 162(m) Exemption" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in Section
162(m)(4)(C) of the Code.
cc. "Stock Appreciation Right" means an Award granted under Section 6.
dd. "Stock Option" means an Award granted under Section 5.
ee. "Termination of Employment" means the termination of the participant's
employment with the Company and any subsidiary or Affiliate. A participant
employed by a subsidiary or an Affiliate shall also be deemed to incur a
Termination of Employment if the subsidiary or Affiliate ceases to be such a
subsidiary or an Affiliate, as the case may be, and the participant does not
immediately thereafter become an employee of the Company or another subsidiary
or Affiliate. Temporary absences from employment because of illness, vacation or
leave of absence and transfers among the Company and its subsidiaries and
Affiliates shall not be considered Terminations of Employment.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Human Resources Committee or such
other committee of the Board as the Board may from time to time designate (the
"Committee"), which shall be composed of not less than two Non-Employee
Directors, each of whom shall be an "outside director" for purposes of Section
162(m)(4) of the Code, and shall be appointed by and serve at the pleasure of
the Board.
The Committee shall have plenary authority to grant Awards pursuant to the
terms of the Plan to officers and employees of the Company and its subsidiaries
and Affiliates.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) To select the officers and employees to whom Awards may from time to
time be granted;
(b) To determine whether and to what extent Incentive Stock Options,
NonQualified Stock Options, Stock Appreciation Rights,
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Restricted Stock and Performance Units or any combination thereof are to be
granted hereunder;
(c) To determine the number of shares of Common Stock to be covered by
each Award granted hereunder;
(d) To determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price (subject to Section 5(a)), any
vesting condition, restriction or limitation (which may be related to the
performance of the participant, the Company or any subsidiary or Affiliate) and
any vesting acceleration or forfeiture waiver regarding any Award and the shares
of Common Stock relating thereto, based on such factors as the Committee shall
determine;
(e) To modify, amend or adjust the terms and conditions of any Award, at
any time or from time to time, including but not limited to Performance Goals;
provided, however, that the Committee may not adjust upwards the amount payable
with respect to a Qualified Performance-Based Award or waive or alter the
Performance Goals associated therewith;
(f) To determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to an Award shall be deferred; and
(g) To determine under what circumstances an Award may be settled in cash
or Common Stock under Sections 5(j), 6(b)(ii) and 8(b)(v).
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may authorize any one or more of their number or
any officer of the Company to execute and deliver documents on behalf of the
Committee.
Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Committee or such delegate at the time of the
grant of the Award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Committee or any
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appropriately delegated officer pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Plan participants.
Any authority granted to the Committee may also be exercised by the full
Board, except to the extent that the grant or exercise of such authority would
cause any Award or transaction to become subject to (or lose an exemption under)
the short-swing profit recovery provisions of Section 16 of the Exchange Act or
cause an award designated as a Qualified Performance-Based Award not to qualify
for, or to cease to qualify for, the Section 162(m) Exemption. To the extent
that any permitted action taken by the Board conflicts with action taken by the
Committee, the Board action shall control.
SECTION 3. COMMON STOCK SUBJECT TO PLAN
The total number of shares of Common Stock reserved and available for
grant under the Plan shall be _____________. No participant may be granted
Awards covering in excess of __________ shares of Common Stock over the life of
the Plan] [in any fiscal year]. Shares subject to an Award under the Plan may be
authorized and unissued shares or may be treasury shares.
If any shares of Restricted Stock are forfeited, or if any Stock Option
(and related Stock Appreciation Right, if any) terminates without being
exercised, or if any Stock Appreciation Right is exercised for cash, shares
subject to such Awards shall again be available for distribution in connection
with Awards under the Plan.
In the event of any change in corporate capitalization, such as a stock
split or a corporate transaction, such as any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property of the Company,
any reorganization (whether or not such reorganization comes within the
definition of such term in Section 368 of the Code) or any partial or complete
liquidation of the Company, the Committee or Board may make such substitution or
adjustments in the aggregate number and kind of shares reserved for issuance
under the Plan, in the number, kind and option price of shares subject to
outstanding Stock Options and Stock Appreciation Rights, in the number and kind
of shares subject to other outstanding Awards granted under the Plan and/or such
other equitable substitution or adjustments as it may determine to be
appropriate in its sole discretion; provided, however, that the number of shares
subject to any Award shall always be a whole number. Such adjusted option price
shall
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also be used to determine the amount payable by the Company upon the exercise of
any Stock Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY
Directors, officers and employees of the Company, its subsidiaries and
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Company, its subsidiaries and Affiliates
are eligible to be granted Awards under the Plan.
SECTION 5. STOCK OPTIONS
Stock Options may be granted alone or in addition to other Awards granted
under the Plan and may be of two types: Incentive Stock Options and NonQualified
Stock Options. Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, NonQualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided, however, that
grants hereunder are subject to the aggregate limit on grants to individual
participants set forth in Section 3. Incentive Stock Options may be granted only
to employees of the Company and its subsidiaries (within the meaning of Section
424(f) of the Code). To the extent that any Stock Option is not designated as an
Incentive Stock Option or even if so designated does not qualify as an Incentive
Stock Option, it shall constitute a NonQualified Stock Option.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
NonQualified Stock Option. The grant of a Stock Option shall occur on the date
the Committee by resolution selects an individual to be a participant in any
grant of a Stock Option, determines the number of shares of Common Stock to be
subject to such Stock Option to be granted to such individual and specifies the
terms and provisions of the Stock Option. The Company shall notify a participant
of any grant of a Stock Option, and a written option agreement or agreements
shall be duly executed and delivered by the Company to the participant. Such
agreement or agreements shall become effective upon execution by the Company and
the participant.
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Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422 of the Code or, without the consent of the
optionee affected, to disqualify any Incentive Stock Option under such Section
422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee and set forth in the
option agreement, but in no event shall the Option Price be less than the Fair
Market Value of the Common Stock subject to the Stock Option on the date of
grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than 10 years
after the date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5, Stock
Options may be exercised, in whole or in part, at any time during the option
term by giving written notice of exercise to the Company specifying the number
of shares of Common Stock subject to the Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase price
by certified or bank check or such other instrument as the Company may accept.
If approved by the Committee, payment, in full or in part, may also be made in
the form of unrestricted Common Stock already owned by the optionee of the same
class as the Common Stock subject to the Stock Option (based on the Fair Market
Value of the Common Stock on the date the Stock Option is exercised); provided,
however, that, in the case
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of an Incentive Stock Option, the right to make a payment in the form of already
owned shares of Common Stock of the same class as the Common Stock subject to
the Stock Option may be authorized only at the time the Stock Option is granted
and provided, further, that such already owned shares have been held by the
optionee for at least six months at the time of exercise.
In the discretion of the Committee, payment for any shares subject to a
Stock Option may also be made by delivering a properly executed exercise notice
to the Company, together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds necessary to
pay the purchase price, and, if requested, by the amount of any federal, state,
local or foreign withholding taxes. To facilitate the foregoing, the Company may
enter into agreements for coordinated procedures with one or more brokerage
firms.
In addition, in the discretion of the Committee, payment for any shares
subject to a Stock Option may also be made by instructing the Committee to
withhold a number of such shares having a Fair Market Value on the date of
exercise equal to the aggregate exercise price of such Stock Option.
No shares of Common Stock shall be issued until full payment therefor has
been made. Except as otherwise provided in Section 5(l) below, an optionee shall
have all of the rights of a shareholder of the Company holding the class or
series of Common Stock that is subject to such Stock Option (including, if
applicable, the right to vote the shares and the right to receive dividends),
when the optionee has given written notice of exercise, has paid in full for
such shares and, if requested, has given the representation described in Section
13(a).
(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of descent
and distribution; or (ii) in the case of a NonQualified Stock Option, as
otherwise expressly permitted under the applicable option agreement including,
if so permitted, pursuant to a gift to members of such optionee's family,
whether directly or indirectly or by means of a trust or partnership or
otherwise. All Stock Options shall be exercisable, subject to the terms of this
Plan, only by the optionee, the guardian or legal representative of the
optionee, or any person to whom such option is transferred pursuant to the
preceding sentence, it being understood that the term "holder" and "optionee"
include such guardian, legal representative and other transferee.
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(f) Termination by Death. Unless otherwise determined by the Committee, if
an optionee's employment terminates by reason of death, any Stock Option held by
such optionee may thereafter be exercised, to the extent then exercisable, or on
such accelerated basis as the Committee may determine, for a period of one year
(or such other period as the Committee may specify in the option agreement) from
the date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter.
(g) Termination by Reason of Disability. Unless otherwise determined by
the Committee, if an optionee's employment terminates by reason of Disability,
any Stock Option held by such optionee may thereafter be exercised by the
optionee, to the extent it was exercisable at the time of termination, or on
such accelerated basis as the Committee may determine, for a period of two years
(or such other period as the Committee may specify in the option agreement) from
the date of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter; provided, however,
that if the optionee dies within such period, any unexercised Stock Option held
by such optionee shall, notwithstanding the expiration of such period, continue
to be exercisable to the extent to which it was exercisable at the time of death
for a period of 12 months from the date of such death or until the expiration of
the stated term of such Stock Option, whichever period is the shorter. In the
event of termination of employment by reason of Disability, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will thereafter
be treated as a NonQualified Stock Option.
(h) Termination by Reason of Retirement. Unless otherwise determined by
the Committee, if an optionee's employment terminates by reason of Retirement,
any Stock Option held by such optionee may thereafter be exercised by the
optionee, to the extent it was exercisable at the time of such Retirement, or on
such accelerated basis as the Committee may determine, for a period of three
years (or such other period as the Committee may specify in the option
agreement) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter; provided, however, that if the optionee dies within such period any
unexercised Stock Option held by such optionee shall, notwithstanding the
expiration of such period, continue to be exercisable to the extent to which it
was exercisable at the time of death for a period of 12 months from the date of
such death or until the
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expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of termination of employment by reason of Retirement, if
an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code, such Stock Option
will thereafter be treated as a NonQualified Stock Option.
(i) Other Terminations. Unless otherwise determined by the Committee: (A)
if an optionee incurs a Termination of Employment for Cause, all Stock Options
held by such optionee shall thereupon terminate; and (B) if an optionee incurs a
Termination of Employment for any reason other than death, Disability or
Retirement or for Cause, any Stock Option held by such optionee, to the extent
then exercisable, or on such accelerated basis as the Committee may determine,
may be exercised for the lesser of three months from the date of such
Termination of Employment or the balance of such Stock Option's term; provided,
however, that if the optionee dies within such three-month period, any
unexercised Stock Option held by such optionee shall, notwithstanding the
expiration of such three-month period, continue to be exercisable to the extent
to which it was exercisable at the time of death for a period of 12 months from
the date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of Termination of
Employment, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a NonQualified Stock Option.
(j) Cashing Out of Stock Option. On receipt of written notice of exercise,
the Committee may elect to cash out all or part of the portion of the shares of
Common Stock for which a Stock Option is being exercised by paying the optionee
an amount, in cash or Common Stock, equal to the excess of the Fair Market Value
of the Common Stock over the option price times the number of shares of Common
Stock for which the Option is being exercised on the effective date of such
cash-out.
(k) Change in Control Cash-Out. Notwithstanding any other provision of the
Plan, during the 60-day period from and after a Change in Control (the "Exercise
Period"), unless the Committee shall determine otherwise at the time of grant,
an optionee shall have the right, whether or not the Stock Option is fully
exercisable and in lieu of the payment of the exercise price for the shares of
Common Stock being purchased under the Stock Option and by giving notice to the
Company, to elect (within the Exercise Period) to surrender all or part of the
Stock Option to the
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Company and to receive cash, within 30 days of such notice, in an amount equal
to the amount by which the Change in Control Price per share of Common Stock on
the date of such election shall exceed the exercise price per share of Common
Stock under the Stock Option (the "Spread") multiplied by the number of shares
of Common Stock granted under the Stock Option as to which the right granted
under this Section 5(k) shall have been exercised. Notwithstanding the
foregoing, if any right granted pursuant to this Section 5(k) would make a
Change in Control transaction ineligible for pooling-of-interests accounting
under APB No. 16 that but for the nature of such grant would otherwise be
eligible for such accounting treatment, the Committee shall have the ability to
substitute for the cash payable pursuant to such right Common Stock with a Fair
Market Value equal to the cash that would otherwise be payable hereunder.
(l) Deferral of Option Shares. The Committee may from time to time
establish procedures pursuant to which an optionee may elect to defer, until a
time or times later than the exercise of an Option, receipt of all or a portion
of the Shares subject to such Option and/or to receive cash at such later time
or times in lieu of such deferred Shares, all on such terms and conditions as
the Committee shall determine. If any such deferrals are permitted, then
notwithstanding Section 5(d) above, an optionee who elects such deferral shall
not have any rights as a stockholder with respect to such deferred Shares unless
and until Shares are actually delivered to the optionee with respect thereto,
except to the extent otherwise determined by the Committee.
SECTION 6. STOCK APPRECIATION RIGHTS
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a NonQualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an optionee in accordance
with Section 6(b) by surrendering the applicable portion of the related Stock
Option in accordance with procedures established by the Committee. Upon such
exercise and surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock Options which have
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been so surrendered shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that the Stock Options to which they relate are
exercisable in accordance with the provisions of Section 5 and this
Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive an amount in cash, shares of Common Stock or
both, in value equal to the excess of the Fair Market Value of one share
of Common Stock over the option price per share specified in the related
Stock Option multiplied by the number of shares in respect of which the
Stock Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only to
permitted transferees of the underlying Stock Option in accordance with
Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the purpose of the limitation
set forth in Section 3 on the number of shares of Common Stock to be
issued under the Plan, but only to the extent of the number of shares
covered by the Stock Appreciation Right at the time of exercise based on
the value of the Stock Appreciation Right at such time.
SECTION 7. RESTRICTED STOCK
(a) Administration. Shares of Restricted Stock may be awarded either alone
or in addition to other Awards granted under the Plan. The Committee shall
determine the directors, officers and employees to whom and the time or times at
which grants of Restricted Stock will be awarded, the number of shares to be
awarded to any participant (subject to the aggregate limit on grants to
individual participants set forth in Section 3), the conditions for vesting, the
time or times within which such Awards may be subject to forfeiture and any
other terms and
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conditions of the Awards, in addition to those contained in Section 7(c).
(b) Awards and Certificates. Shares of Restricted Stock shall be evidenced
in such manner as the Committee may deem appropriate, including book-entry
registration or issuance of one or more stock certificates. Any certificate
issued in respect of shares of Restricted Stock shall be registered in the name
of such participant and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award, substantially in the
following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the _________________, Inc. 1996 Stock
Incentive Plan and a Restricted Stock Agreement. Copies of such
Plan and Agreement are on file at the offices of _____________,
Inc., _____________ ________________."
The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(i) The Committee may, prior to or at the time of grant, designate
an Award of Restricted Stock as a Qualified Performance-Based Award, in
which event it shall condition the grant or vesting, as applicable, of
such Restricted Stock upon the attainment of Performance Goals. If the
Committee does not designate an Award of Restricted Stock as a Qualified
Performance-Based Award, it may also condition the grant or vesting
thereof upon the attainment of Performance Goals. Regardless of whether an
Award of Restricted Stock is a Qualified Performance-Based Award, the
Committee may also condition the grant or vesting thereof upon the
continued service of the participant. The conditions for grant or vesting
and the other provisions of Restricted Stock Awards (including without
limitation any applicable Performance Goals) need not be the same with
respect to each recipient. The Committee may at any time, in its sole
discretion, accelerate or waive, in whole or in part, any of the fore-
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going restrictions; provided, however, that in the case of Restricted
Stock that is a Qualified Performance-Based Award, the applicable
Performance Goals have been satisfied.
(ii) Subject to the provisions of the Plan and the Restricted Stock
Agreement referred to in Section 7(c)(vi), during the period, if any, set
by the Committee, commencing with the date of such Award for which such
participant's continued service is required (the "Restriction Period"),
and until the later of (i) the expiration of the Restriction Period and
(ii) the date the applicable Performance Goals (if any) are satisfied, the
participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber shares of Restricted Stock; provided that the foregoing
shall not prevent a participant from pledging Restricted Stock as security
for a loan, the sole purpose of which is to provide funds to pay the
option price for Stock Options.
(iii) Except as provided in this paragraph (iii) and Sections
7(c)(i) and 7(c)(ii) and the Restricted Stock Agreement, the participant
shall have, with respect to the shares of Restricted Stock, all of the
rights of a stockholder of the Company holding the class or series of
Common Stock that is the subject of the Restricted Stock, including, if
applicable, the right to vote the shares and the right to receive any cash
dividends. If so determined by the Committee in the applicable Restricted
Stock Agreement and subject to Section 13(e) of the Plan, (A) cash
dividends on the class or series of Common Stock that is the subject of
the Restricted Stock Award shall be automatically deferred and reinvested
in additional Restricted Stock, held subject to the vesting of the
underlying Restricted Stock, or held subject to meeting Performance Goals
applicable only to dividends, and (B) dividends payable in Common Stock
shall be paid in the form of Restricted Stock of the same class as the
Common Stock with which such dividend was paid, held subject to the
vesting of the underlying Restricted Stock, or held subject to meeting
Performance Goals applicable only to dividends.
(iv) Except to the extent otherwise provided in the applicable
Restricted Stock Agreement and Sections 7(c)(i), 7(c)(ii), 7(c)(v) and
10(a)(ii), upon a participant's Termination of Employment for any reason
during the Restriction Period or before the applicable Performance Goals
are satisfied, all shares still subject to restriction shall be forfeited
by the participant.
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(v) Except to the extent otherwise provided in Section 10(a)(ii), in
the event that a participant retires or such participant's employment is
involuntarily terminated (other than for Cause), the Committee shall have
the discretion to waive, in whole or in part, any or all remaining
restrictions (other than, in the case of Restricted Stock with respect to
which a participant is a Covered Employee, satisfaction of the applicable
Performance Goals unless the participant's employment is terminated by
reason of death or Disability) with respect to any or all of such
participant's shares of Restricted Stock.
(vi) If and when any applicable Performance Goals are satisfied and
the Restriction Period expires without a prior forfeiture of the
Restricted Stock, unlegended certificates for such shares shall be
delivered to the participant upon surrender of the legended certificates.
(vii) Each Award shall be confirmed by, and be subject to, the terms
of a Restricted Stock Agreement.
SECTION 8. PERFORMANCE UNITS
(a) Administration. Performance Units may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the officers and employees to whom and the time or times at which Performance
Units shall be awarded, the number of Performance Units to be awarded to any
participant (subject to the aggregate limit on grants to individual participants
set forth in Section 3), the duration of the Award Cycle and any other terms and
conditions of the Award, in addition to those contained in Section 8(b).
(b) Terms and Conditions. Performance Units Awards shall be subject to the
following terms and conditions:
(i) The Committee may, prior to or at the time of the grant,
designate Performance Units as Qualified Performance-Based Awards, in
which event it shall condition the settlement thereof upon the attainment
of Performance Goals. If the Committee does not designate Performance
Units as Performance-Based Awards, it may also condition the settlement
thereof upon the attainment of Performance Goals. Regardless of whether
Performance Units are Qualified Performance-Based Awards, the Committee
may also condition the settlement thereof upon the continued service of
the participant. The provisions of such Awards (including without
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limitation any applicable Performance Goals) need not be the same with
respect to each recipient. Subject to the provisions of the Plan and the
Performance Units Agreement referred to in Section 8(b)(vi), Performance
Units may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Award Cycle.
(ii) Except to the extent otherwise provided in the applicable
Performance Unit Agreement and Sections 8(b)(iii) and 10(a)(iii), upon a
participant's Termination of Employment for any reason during the Award
Cycle or before any applicable Performance Goals are satisfied, all rights
to receive cash or stock in settlement of the Performance Units shall be
forfeited by the participant.
(iii) Except to the extent otherwise provided in Section 10(a)(iii),
in the event that a participant's employment is terminated (other than for
Cause), or in the event a participant retires, the Committee shall have
the discretion to waive, in whole or in part, any or all remaining payment
limitations (other than, in the case of Performance Units that are
Qualified Performance-Based Awards, satisfaction of the applicable
Performance Goals unless the participant's employment is terminated by
reason of death or Disability) with respect to any or all of such
participant's Performance Units.
(iv) A participant may elect to further defer receipt of cash or
shares in settlement of Performance Units for a specified period or until
a specified event, subject in each case to the Committee's approval and to
such terms as are determined by the Committee (the "Elective Deferral
Period"). Subject to any exceptions adopted by the Committee, such
election must generally be made prior to commencement of the Award Cycle
for the Performance Units in question.
(v) At the expiration of the Award Cycle, the Committee shall
evaluate the Company's performance in light of any Performance Goals for
such Award, and shall determine the number of Performance Units granted to
the participant which have been earned, and the Committee shall then cause
to be delivered (A) a number of shares of Common Stock equal to the number
of Performance Units determined by the Committee to have been earned, or
(B) cash equal to the Fair Market Value of such number of shares of Common
Stock to the
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participant, as the Committee shall elect (subject to any deferral
pursuant to Section 8(b)(iv)).
(vi) Each Award shall be confirmed by, and be subject to, the terms
of a Performance Unit Agreement.
SECTION 9. TAX OFFSET BONUSES
At the time an Award is made hereunder or at any time thereafter, the
Committee may grant to the participant receiving such Award the right to receive
a cash payment in an amount specified by the Committee, to be paid at such time
or times (if ever) as the Award results in compensation income to the
participant, for the purpose of assisting the participant to pay the resulting
taxes, all as determined by the Committee and on such other terms and conditions
as the Committee shall determine.
SECTION 10. CHANGE IN CONTROL PROVISIONS
(a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control:
(i) Any Stock Options and Stock Appreciation Rights outstanding as
of the date such Change in Control is determined to have occurred, and
which are not then exercisable and vested, shall become fully exercisable
and vested to the full extent of the original grant.
(ii) The restrictions and deferral limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall become free
of all restrictions and become fully vested and transferable to the full
extent of the original grant.
(iii) All Performance Units shall be considered to be earned and
payable in full, and any deferral or other restriction shall lapse and
such Performance Units shall be settled in cash as promptly as is
practicable; provided, that if such settlement in cash would make a Change
in Control transaction ineligible for pooling-of-interests accounting
under APB No. 16 that but for the nature of such grant would otherwise be
eligible for such accounting treatment, the Committee shall have the
ability to settle such Performance Units in exchange for Common Stock with
a Fair Market Value equal to the cash that would otherwise be payable
hereunder.
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(b) Definition of Change in Control. For purposes of the Plan, a "Change
in Control" shall mean the happening 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 Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% 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: (1) 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, (2) Any acquisition by the Company, (3) Any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any entity controlled by the Company, or (4)
Any acquisition pursuant to a transaction which complies with clauses (1),
(2) and (3) of subsection (iii) of this Section 9(b); or
(ii) A change in the composition of the Board such that the
individuals who, as of the effective date of the Plan, constitute the
Board (such Board shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board; provided, however, for purposes of this Section 9(b), that any
individual who becomes a member of the Board subsequent to the effective
date of the Plan, whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of
those individuals who are members of the Board and who were also members
of the Incumbent Board (or deemed to be such pursuant to this proviso)
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
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(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 ("Corporate
Transaction") or, if consummation of such Corporate Transaction 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
Corporate Transaction 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 Corporate Transaction will
beneficially own, directly or indirectly, more than 60% 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 Corporate Transaction (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 Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (2) no Person (other than the Company, any
employee benefit plan (or related trust) of the Company or such
corporation resulting from such Corporate Transaction) will beneficially
own, directly or indirectly, 20% or more of, respectively, the outstanding
shares of common stock of the corporation resulting from such Corporate
Transaction 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
Corporate Transaction, and (3) individuals who were members of the
Incumbent Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such Corporate
Transaction; or
(iv) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(c) Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (i)the highest reported sales price, regular way, of
a share of Common Stock in any transaction reported on the New York Stock
Exchange Composite
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Tape or other national exchange on which such shares are listed or on NASDAQ
during the 60-day period prior to and including the date of a Change in Control
or (ii) if the Change in Control is the result of a tender or exchange offer or
a Corporate Transaction, the highest price per share of Common Stock paid in
such tender or exchange offer or Corporate Transaction; provided, however, that
in the case of Incentive Stock Options and Stock Appreciation Rights relating to
Incentive Stock Options, the Change in Control Price shall be in all cases the
Fair Market Value of the Common Stock on the date such Incentive Stock Option or
Stock Appreciation Right is exercised. To the extent that the consideration paid
in any such transaction described above consists all or in part of securities or
other noncash consideration, the value of such securities or other noncash
consideration shall be determined in the sole discretion of the Board.
SECTION 11. TERM, AMENDMENT AND TERMINATION
The Plan will terminate 10 years after the effective date of the Plan.
Under the Plan, Awards outstanding as of such date shall not be affected or
impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under a Stock Option or a recipient of a Stock Appreciation Right,
Restricted Stock Award or Performance Unit Award theretofore granted without the
optionee's or recipient's consent, except such an amendment made to cause the
Plan to qualify for any exemption provided by Rule 16b-3. In addition, no such
amendment shall be made without the approval of the Company's shareholders to
the extent such approval is required by law or agreement.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
cause a Qualified Performance-Based Award to cease to qualify for the Section
162(m) Exemption or impair the rights of any holder without the holder's consent
except such an amendment made to cause the Plan or Award to qualify for any
exemption provided by Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
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SECTION 12. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or make payments; provided, however, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 13. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Company in writing that
such person is acquiring the shares without a view to the distribution thereof.
The certificates for such shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or agreements made
pursuant thereto, the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such
shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of the
Company under any state or federal law or regulation, or the maintaining
in effect of any such registration or other qualification which the
Committee shall, in its absolute discretion upon the advice of counsel,
deem necessary or advisable; and
(3) Obtaining any other consent, approval, or permit from any state
or federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be
necessary or advisable.
(b) Nothing contained in the Plan shall prevent the Company or any
subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
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(c) Adoption of the Plan shall not confer upon any employee any right to
continued employment, nor shall it interfere in any way with the right of the
Company or any subsidiary or Affiliate to terminate the employment of any
employee at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the Company,
or make arrangements satisfactory to the Company regarding the payment of, any
federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the
Company, withholding obligations may be settled with Common Stock, including
Common Stock that is part of the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be conditional
on such payment or arrangements, and the Company and its Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the participant. The Committee may establish such
procedures as it deems appropriate, including making irrevocable elections, for
the settlement of withholding obligations with Common Stock.
(e) Reinvestment of dividends in additional Restricted Stock at the time
of any dividend payment shall only be permissible if sufficient shares of Common
Stock are available under Section 3 for such reinvestment (taking into account
then outstanding Stock Options and other Awards).
(f) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable in the
event of the participant's death are to be paid or by whom any rights of the
participant, after the participant's death, may be exercised.
(g) In the case of a grant of an Award to any employee of a subsidiary of
the Company, the Company may, if the Committee so directs, issue or transfer the
shares of Common Stock, if any, covered by the Award to the subsidiary, for such
lawful consideration as the Committee may specify, upon the condition or
understanding that the subsidiary will transfer the shares of Common Stock to
the employee in accordance with the terms of the Award specified by the
Committee pursuant to the provisions of the Plan.
(h) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the
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laws of the State of Delaware, without reference to principles of conflict of
laws.
SECTION 14. EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date it is approved by at least a
majority of the outstanding shares of Common Stock of the Company.
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