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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission file number 1-5881
BROWN & SHARPE MANUFACTURING COMPANY
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(Exact name of Registrant as specified in its charter)
DELAWARE 050113140
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
PRECISION PARK, 200 FRENCHTOWN ROAD, NORTH KINGSTOWN, RHODE ISLAND 02852
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code 401-886-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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CLASS A COMMON STOCK-PAR VALUE $1.00 NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12 (g) of the Act:
CLASS B COMMON STOCK - PAR VALUE $1.00
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this form 10-K. [X]
The aggregate market value (as calculated under the rules) of the voting common
stock held by non-affiliates of the Registrant was approximately $136,000,000 as
of March 13, 1998.
There were 12,846,597 Shares of Class A Common Stock and 512,505 Shares of Class
B Common Stock, each having a par value of $1.00 per share, outstanding as of
March 13, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents have been incorporated by reference in the following
parts of the Form 10-K: (1) Definitive Proxy Statement for the May 1, 1998
Annual Meeting incorporated by reference (to the extent specified) in Part III.
Portions of the Annual Report for the year ended December 31, 1997 are
incorporated by reference into Parts I and II.
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BROWN & SHARPE MANUFACTURING COMPANY
INDEX
PART I Page
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Item 1 Business................................................... 3 - 13
General......................................................... 3
Repositioning Initiatives....................................... 3 - 4
Business Strategy............................................... 4 - 5
Metrology Industry.............................................. 5 - 7
MS Group........................................................ 7 - 8
PMI Division.................................................... 8
CM Division..................................................... 8
Sales and Distribution.......................................... 9
Engineering and Product Development............................. 9
Foreign Operations.............................................. 10
Raw Materials and Sources of Supply............................. 10
Patents, Licenses, Trademarks, and Proprietary Information...... 10
Environmental Matters........................................... 10 - 11
Employees....................................................... 11 - 12
Competition..................................................... 12
Backlog......................................................... 12 - 13
Significant Customers........................................... 13
Working Capital................................................. 13
Segment Information............................................. 13
Item 2 Properties................................................. 13 - 14
Item 3 Legal Proceedings.......................................... 14
Item 4A Executive Officers of the Registrant....................... 15 - 16
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder
Matters.................................................... 16
Item 6 Selected Financial Data.................................... 16
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 16
Item 8 Financial Statements and Supplementary Data................ 16
Item 9 Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure................................... 16
PART III
Item 10 Directors and Executive Officers of the Registrant......... 17
Item 11 Management Remuneration and Transactions................... 17
Item 12 Security Ownership of Certain Beneficial Owners
and Management............................................. 17
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K................................................ 17 - 18
Signatures........................................................... 19
Directors............................................................ 20
Officers............................................................. 20
Investor Information................................................. 20 - 21
Financial Statement Schedules........................................ 22
Exhibit Index........................................................ 23 - 29
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PART I
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ITEM 1 - BUSINESS
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General
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The Company, which was founded in 1833, is a leading designer, manufacturer and
marketer of metrology products worldwide under numerous internationally
recognized brand names. Metrology is the science of the physical measurement of
objects using various precision instruments and equipment. The Company's high
precision products measure physical dimensions of, and inspect and verify
conformance to specifications of, components and products and are used in
manufacturing, quality control and product development operations. The Company's
product line ranges from hand tools and instruments to customized
computer-controlled metrology systems which integrate hardware and software and
are augmented by service, training and aftermarket support. The Company markets
its metrology products and services in North America, Europe, Asia, South
America and the Middle East. Important end user markets for the Company's
products include the automotive, aerospace, industrial machinery, electronics
and computer industries, and the Company's customers include Ford Motor Co.,
Daimler Benz, Toyota, Chrysler, BMW, Boeing Co., Eastman Kodak Co. Inc.,
International Business Machines Corp., Hewlett-Packard Co., General Electric
Co., Caterpillar Inc., United Technologies Corp., Motorola Inc., Phillips,
Samsung and Xerox Corp.
The Company's operations are conducted through three management units:
Measuring Systems, Precision Measuring Instruments and Custom Metrology.
. The Measuring Systems Group, which accounted for approximately 69% of
the Company's sales in 1997, manufactures and markets a wide range of
manual and computer-controlled, high precision CMMs including
"in-process" measuring systems under the Brown & Sharpe and DEA brand
names. The Company believes it is the worldwide market leader for CMMs
as measured by net sales and installed base. The Company believes it
has an installed base of over 20,000 CMMs worldwide.
. The Precision Measuring Instruments Division, which accounted for
approximately 28% of the Company's sales in 1997, manufactures a wide
range of mechanical and electronic measuring and inspection tools
(including height gauges, calipers, dial indicators, micrometers and
gauge blocks) which are marketed under the Brown & Sharpe, Tesa,
Etalon, Interapid, Standard Gage, Select Gauge, Mauser, Mercer and
Roch brand names through more than 450 distributors and catalog houses
worldwide.
. The Custom Metrology Division designs and engineers, under the Tesa
brand name, specialty products and systems that provide customized
solutions for unique measurement or inspection problems primarily
utilizing non-contact technology. Technologies and custom applications
developed by the CM Division with customer funding have been directly
applied to the design of standard products or systems distributed by
the MS Group or the PMI Division.
Repositioning Initiatives
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Over the past several years, the Company has undertaken a series of
divestitures, acquisitions and other strategic initiatives which have
repositioned the Company from its historical origins as a machine tool
manufacturer into a leader in the field of metrology. These repositioning
initiatives included:
. Divestiture of Non-Core Operations. The divestiture of non-strategic
operations, including the machine tool, pump and hydraulics
businesses, and Technicomp, Inc. during 1997, which enabled the
Company to focus on its core metrology technologies and market
distribution strengths.
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. Strategic Metrology Acquisitions. Strategic acquisitions which enabled
the Company to increase greatly the breadth of its metrology product
offering and the strength of its distribution system. These
acquisitions included the 1994 acquisitions of DEA, Roch and certain
intellectual property and assets of Metronic Ltd. During 1997, the
Company acquired the remaining 50% of its equity investee ASI, which
develops measurement software and provides training and services and
other aftermarket support to manufacturing industries, and a 50%
ownership position in Metroptic Technologies Limited, a joint venture
located in Israel developing non-contact sensor technologies.
. Rationalization and Consolidation of Operations. Lowering the
Company's overhead cost structure by reducing duplicative functions
and associated headcount and by consolidating and rationalizing the
Company's manufacturing facilities and operations, which enabled the
Company to increase productivity and efficiency.
. Reorganization Plan. In the fourth quarter of 1997, management
implemented a Reorganization Plan ("the Plan") which included business
processing reengineering at certain of its European sites, as well as
selected product rationalization in preparation for new product
introductions. In addition, the MSG's marketing and service
organization was also reorganized. The Plan provided for a workforce
reduction of approximately 160 persons, primarily in its European
operations. The Plan also provided for inventory adjustments and the
write-down of fixed assets and certain intangible assets. (See
Management's Discussion and Analysis of Financial Condition and
Results of Operations.)
Business Strategy
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The Company is implementing its strategy based on the following elements:
. Continue Cost Improvements. The Company intends to continue to
implement measures designed to reduce its product costs through: (i)
standardizing product designs worldwide; (ii) increasing the
cost-effectiveness of product designs; (iii) outsourcing components
and products; (iv) increasing supplier partnering; and (v) focusing on
core manufacturing processes. The Company also intends to streamline
its sales, marketing and general and administrative processes in an
effort to reduce selling, general and administrative expenses as a
percentage of sales.
. Develop New Products and End User Markets. The Company's goal is to
increase net sales by expanding penetration of served industrial end
user markets and by capitalizing on high growth end user markets such
as the electronics, computer and medical industries where metrology
needs are growing rapidly. To expand in these high growth industries,
the Company intends to focus on development of software and emerging
non-contact metrology technologies through continued internal
development and through strategic acquisitions and technical
partnerships (such as the acquisition of certain intellectual property
and assets of Metronic Ltd. the 1997 acquisition of a 50% interest in
the Metroptic joint venture, and completion of the acquisition of
ASI). To expand its penetration of served industrial end user markets,
the Company expects to continue the introduction of new metrology
systems utilizing both contact and non-contact technologies, and to
develop sensors and other sophisticated products that can be imbedded
in a variety of manufacturing processes. The Company plans to form
technical and commercial alliances with manufacturers of process
equipment to provide enhanced combined manufacturing systems utilizing
the Company's sensors and other products.
. Enhance Existing and Develop New Software. The Company intends to
emphasize research and development of software systems and
applications designed to meet the evolving metrology needs of its end
users. To that end, the Company intends to leverage off its software
development team of software and applications engineers and
technicians (including engineers of ASI) in the following four areas:
(i) metrology software for inspection and verification of
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piece-part integrity and conformance to design specifications; (ii)
process control software designed to detect and correct drifts in part
tolerances before the manufacturing process produces scrap or
improperly configured components; (iii) enhanced management
information systems that report statistical and quality information
from the manufacturing process; and (iv) new software that will link
the Company's CMMs and, therefore, the manufacturing process with
computer-aided engineering and manufacturing systems that will provide
the means for real-time feedback, analysis and, ultimately, control of
manufacturing to design specifications. The Company believes that its
existing library of metrology software, together with newly developed
software, should enable it to respond to the growing demand in
manufacturing for on-line inspection and verification. The Company
also believes that its experience with CMM software and manufacturing
processes are critical to the successful development of software that
is linked with computer aided engineering systems. To meet the needs
of this growth market, the Company formed Brown & Sharpe Information
Systems, Inc. (BSIS) in 1997. This new subsidiary, with a common
Corporate vision, combines all the Company's software development
expertise under one roof. The Company's objective is to develop the
next generation of open architecture measurement software having more
power and ease of use than any product on the market. Incorporating
the most accurate metrology algorithms in the world, this new software
will work effortlessly with CAD/CAM systems to facilitate the
inspection process. It will also provide the user with powerful
analysis tools to ensure overall process control.
. Leverage Worldwide Distribution Capability. Through the acquisitions
of DEA and Roch, Brown & Sharpe has expanded its product lines and
strengthened its marketing and distribution capabilities in Europe,
South America, the Middle East, India and China. The Company plans to
continue to strengthen and expand its worldwide distribution
capability, principally by continuing to rationalize its existing
distribution network and by opening new demonstration centers and
adding direct sales capacity and distributors where cost effective.
The Company also intends to capitalize on the strength of its global
distribution network by increasing the number of Company-designed and
third-party sourced products sold through its distribution channels in
an effort to increase gross profit without a corresponding increase in
selling, general and administrative expenses.
. Increase Aftermarket Sales and Services. The Company intends to
increase its focus on higher margin aftermarket sales and services,
including calibration and rebuilding of CMMs, software upgrades, and
parts sales. The Company believes that the worldwide installed base of
CMMs, estimated at over 62,000 (including 20,000 of the Company's
CMMs), creates a significant demand for such aftermarket services.
The Company believes that the level of customer service it provides, as measured
by third-party surveys of its customers, is superior to that of its principal
competitors, and expects to further strengthen its customer relationships
through enhanced aftermarket support and increased partnering efforts. The
Company's sales attributable to aftermarket sales and service in 1997 were
estimated to be approximately 27% of MS Group net sales for the same period.
Metrology Industry
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General
Metrology products and systems range from hand tools for simple measuring tasks
to complex integrated systems of hardware and software that can measure,
digitize, inspect and verify manufactured parts and components to exacting
specifications. Manufacturers depend upon metrology hardware and software
products to monitor consistent product conformance to their exacting
specifications, thereby improving the reliability, fit and finish of their
products. In addition to these quality and performance benefits, metrology
products help manufacturers lower costs by reducing errors, scrap, rework and
warranty expense, improving the manufacturing process, lowering throughput time,
increasing capacity and reducing work-in-progress inventories. In recent years,
manufacturers have accelerated the integration of
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quality control functions directly into the production process by incorporating
the use of metrology products on the factory floor. In addition, manufacturers
are demanding more precise, capable and flexible metrology systems as their
products become smaller, more complex and/or must meet more stringent quality
and safety standards. Their exacting product specifications often require
measurement to an accuracy of less than one micron (one millionth of a meter or
approximately 1/100th of the thickness of a human hair) or, in some special
cases, measurement of nanometers (one billionth of a meter or the unit of
measurement for the wavelength of light). Increasingly, metrology systems must
incorporate a mix of traditional contact and newer non-contact technologies
because of reduced part sizes and the great diversity of new materials used in
manufactured products. Metrology systems are purchased by customers regardless
of their need for additional production capacity because of ever-increasing
quality requirements and the need to reduce product costs.
Metrology products serve a broad range of measurement requirements. The simplest
metrology products include devices such as calipers, dial gauges, micrometers,
surface plates and height gauges. These are generally inexpensive hand-held
tools that measure in one dimension to within an accuracy of between two (80
millionths of an inch) and 25 microns (1/100th of an inch). Fixed gauges are
often more expensive devices that inspect and verify in one to three dimensions
to within an accuracy of between one and 25 microns and are typically used where
manufacturers need to measure a single, uniform product at a high rate of speed.
Fixed gauges tend to make simple, comparative measurements of products in a
manufacturing process. CMMs are more sophisticated, complex machines that use a
variety of technologies to measure in three dimensions to an accuracy of between
0.5 and 100 microns. These technologies range from advanced probes that
physically "contact" the product being measured to highly sophisticated
non-contact vision, optical, laser and scanning probes that collect precise data
without touching the product being measured. While some CMMs are manually
operated, most are now controlled by software systems that not only compare the
product to a manufacturer's CAD/CAM models, but also provide the manufacturer
with dimensions of the product to be converted into the CAD/CAM model. CMMs are
highly flexible machines that can measure different products for a manufacturer
without re-tooling or other significant changes as opposed to fixed gauges that
may require expensive and time-consuming retooling. The price points of
metrology products range from $100 for a caliper to over $1.5 million for a
sophisticated CMM such as those used to measure car and truck bodies.
Markets
Participants in the metrology industry generally compete in one or more of six
broad product areas: (i) simple and relatively inexpensive tools that measure in
one dimension, such as calipers, dial gauges, micrometers, surface plates and
transfer gauges; (ii) digital electronic height gauges of varying accuracies and
sizes; (iii) sophisticated special purpose metrology systems including fixed
gauges; (iv) general purpose and application-specific CMMs; (v) alternative
technologies such as vision tunnels or surface finish and geometry measurement;
and (vi) customized metrology solutions to specific metrology problems. The
Company competes in all of the foregoing product areas other than fixed gauges
and most of the alternative technologies.
Sales of simple metrology products and less sophisticated height gauges are
driven by price, brand, product innovation, ease of purchase and effectiveness
of distribution. Products in this category are generally hand-held or relatively
small devices that permit a manufacturer to make measurements in one or
occasionally two dimensions. These products are generally inexpensive, providing
a cost-effective solution to simple metrology problems where the industrial
customer does not need the increased capabilities of fixed gauges, CMMs or
certain other sophisticated metrology systems. However, simple metrology
products are generally limited in terms of accuracy, flexibility and/or their
ability to collect data. Further, they are dependent upon skilled operators. The
market for simple metrology products is fragmented, with many regional
suppliers. End user markets for these products include most basic industries,
including the automotive, construction, industrial machinery, appliance and farm
equipment industries.
Sales of fixed gauges have traditionally been driven by manufacturers' needs for
one, two or three dimensional metrology on the factory floor. Products in this
category, typically more expensive than
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simple metrology products, compete directly with CMMs regarding inspection and
verification of manufactured parts. Fixed gauge systems are frequently a more
expensive investment than comparable CMM systems, but for the specific purpose
intended, may be less expensive over the long run. Fixed gauges can range from
simple one dimensional tools to semiand fully-automatic three dimensional
factory floor systems that quickly compare production parts to "master parts."
However, because these gauge systems are "fixed," they are inherently
inflexible. The fixed gauge must be reworked or a new gauge designed and built
every time manufacturers make dimensional changes in the part being measured.
The trend of the industry is away from fixed gauges and toward flexible gauges
because of the need to make costly changes to fixed gauges when the part they
measure changes.
Sales of CMMs and more sophisticated height gauges are driven by manufacturers'
needs for high accuracy, flexibility, speed and information. Products in this
category, while typically more expensive than simple metrology products and some
fixed gauges, are generally more versatile machines that can measure, digitize,
inspect and verify diverse manufactured parts. The accelerating use of more
sophisticated software has played an important role in the evolution of CMMs in
response to the marketplace. Improved software and linkage to CAD/CAM and
network technologies enable CMMs both to compensate automatically for the
position of the piece to be measured, eliminating the need for the time
consuming manual positioning necessary with less advanced metrology products,
such as surface plate gauges, and also to relay information to the
manufacturer's CAD/CAM model to facilitate production process adjustments.
Although CMM-type software can be added to on-machine gauging and a small
percentage of fixed gauges, CMMs are easier to use, more flexible, and generally
provide more analytical information than most products using competing
technologies. Presently, CMMs are installed at sites ranging from highly
controlled laboratory sites to hostile, factory floor industrial settings, and
can measure objects ranging in size from a semiconductor chip to an aircraft
exterior, and can provide accuracies with tolerances of 0.5 to 100 microns. CMMs
can achieve this through contact or non-contact probing methods, depending upon
the manufacturer's needs. The market for CMMs is dominated by five competitors,
including the Company.
Sales of customized metrology products are driven by specific needs in specific
industries and, in Brown & Sharpe's case, tend to focus on emerging metrology
technologies. Generally, custom metrology challenges arise where existing
metrology products and systems cannot adequately address a narrow yet important
manufacturing task. This product category requires research, development and
innovation and often includes the development of new applications for optical,
laser and scanning sensor probes.
MS Group
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The MS Group, the largest of Brown & Sharpe's three units, accounted for
approximately 69% of Brown & Sharpe's sales in 1997. The MS Group is
headquartered in North Kingstown, Rhode Island and manufactures and markets
CMMs. MS Group products sold under the Brown & Sharpe name are manufactured at
the Company's North Kingstown facility, and MS Group products sold under the DEA
name are manufactured in Turin, Italy. The primary end user markets for the
Company's CMM products include the automotive (including automotive suppliers),
heavy transport, aerospace, electronics, computer, industrial machinery and
medical industries.
MS Group products range from small, manually operated CMMs to large, high speed,
high precision automatic CMMs. In addition to these standard and
custom-configured CMMs, Brown & Sharpe also produces and sells high-speed
process control systems. The smallest machines can measure in a volume up to
16x14x12 inches and are priced at approximately $10 thousand, while the larger,
high speed, high accuracy CMMs with integrated software systems can cost over
$1.5 million. The MS Group also provides laser scanning and optically based
measuring machinery from microscopes to vision systems.
The Company believes that its "user-friendly" CMM application software gives it
a competitive advantage in the marketplace for CMMs. These proprietary software
products provide the MS Group's customers with an understandable, icon-based
inspection analysis capability, graphical user interfaces and outputs, and the
capability to network with manufacturing systems. The MS Group also provides its
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customers with special software and systems that integrate the MS Group's
products with the customer's host information and communications network. In
addition to sales of CMMs, the MS Group provides aftermarket sales and service,
including calibration and rebuilding of CMMs, software upgrades and parts sales,
for Brown & Sharpe CMMs and competing CMMs. The Company's sales attributable to
aftermarket sales and services in 1997 were estimated to be approximately 27% of
MS Group sales for the same period.
PMI Division
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The principal products of Brown & Sharpe's PMI Division are precision measuring
tools and related instruments such as micrometers, dial indicators, calipers,
electronic height gauges and gauge blocks. PMI Division products accounted for
approximately 28% of Brown & Sharpe's sales in 1997. The PMI Division's products
have broader applications and lower unit list prices (with a range of $100 to
approximately $13 thousand) than the prices of the MS Group's products. These
tools and instruments typically measure in one or two dimensions, and are often
used in comparative measuring where an unknown part or dimension is compared to
a previously measured part or dimension. Some PMI Division products also include
systems and application software for measuring and statistical process control.
The Company believes that the primary end user markets for the products of Brown
& Sharpe's PMI Division are the automotive, aerospace, metal processing and
defense industries, although Brown & Sharpe's PMI Division products are used in
virtually all types of industrial settings. Brown & Sharpe's PMI Division is
headquartered in Renens, Switzerland, and its products are manufactured at its
plants in Rolle and Renens, Switzerland; Poughkeepsie, New York; Leicester, St.
Albans, and Plymouth, England; and Luneville, France. The Company also purchases
components and products from third parties located in various countries.
CM Division
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The CM Division is an engineering division headquartered in Telford, England.
The CM Division designs and engineers specialty products primarily utilizing
non-contact technologies and systems to provide customized solutions for unique
customer measurement or inspection problems generally with customer funding.
Recent examples of CM Division products include a system for measuring the
thickness and shape of the metal top of a beverage can and the depth and contour
of the groove scored around the can's pop-up tab, so that the manufacturer could
ensure the consistency with which the can could be opened without rupture by the
end user, and an automatic multi-sensor (laser scanning, laser ranging, optical
and tactile) system to measure, inspect and verify the ceramic substrates on
which semiconductors are placed. The CM Division also manufactures laser
interferometers, measuring sensors and factory networks, contact and optical
measuring machines and fixtures aimed at specific niche markets. In 1997, the
Company formed a joint venture company to develop the next generation of
non-contact sensing technologies and products. This company, Metroptic
Technologies Limited, is headquartered in Israel. Products using the new sensors
will be designed and manufactured initially at the Company's Custom Metrology
facility in Telford, England and sold under the Brown & Sharpe brand name.
Currently, Metroptic is working on sensors designed for inspection of turbine
engine blades and electronic components - two growth markets for measurement and
inspection. This sensor technology is also scaleable for use in the measurement
of complex contours in the aerospace and automotive industries. Prices for CM
Division products range from approximately $20 thousand to $1.0 million.
The primary end user markets for the custom-designed products of the CM Division
are package and can manufacturing, oil drilling, standards laboratories,
semiconductors, aerospace and defense. Sales of these products typically involve
a close, highly technical relationship with the customer. This direct
relationship with the customer is reinforced by strong and continuing efforts to
provide superior customer service through ongoing customer training and
technical support.
The Company believes that the CM Division provides it with cost-effective access
to emerging applications and technologies as the technologies and custom
applications developed by the CM Division with customer funding have been
directly applied to the design of standard products or systems distributed by
the MS Group or the PMI Division.
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Sales and Distribution
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The MS Group distributes its products primarily through a 120-person worldwide
sales force directly to U.S. and European customers, and utilizes a network of
independent agents and distributors to cover the Pacific Rim, South American and
African markets. The typical MS Group sales process involves lengthy, technical,
one-on-one discussions between the salesperson or the distributor/sales agent
and customer and is often part of a competitive bid process. As an important
part of its marketing and distribution strategy, Brown & Sharpe provides
in-depth training to its customers at 31 support and demonstration centers
located throughout the United States, Europe and Asia. The Company's direct
sales force also provides the Company with important opportunities to cross-sell
the products of its PMI and CM Divisions.
In contrast to the MS Group, the PMI Division generally distributes its products
through international import companies, regional distributors and catalog houses
throughout the world. As of December 31, 1997, the PMI Division utilized in
excess of 450 distributors located in over 60 countries to market its products.
The Company believes that the PMI Division's established distribution network
provides it with a competitive advantage and intends to capitalize on this
network to increase sales of internally developed and third-party products.
The CM Division primarily designs and manufactures products and services in
response to specific customer inquiries. The CM Division maintains a staff of
approximately 15 sales/project engineers to respond to customer inquiries, and,
upon receipt of an order, to develop tailored solutions and manage projects to
completion. The CM Division typically targets sales to end user markets with a
small number of participants in which the Company has little or no competition.
As a result, the Company believes that the CM Division benefits from
comparatively lower selling expenses.
The Company has no single customer which accounts for 10% or more of its
consolidated net sales; however, several well recognized major automotive
manufacturers (without regard to their suppliers) account for a significant
portion of the Company's net sales. The loss of a few of these major customers
would have a substantial effect upon the Company.
Engineering and Product Development
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Brown & Sharpe's commercial success is dependent upon its ability to develop
products, enhancements, and applications that meet changing customer metrology
needs and anticipate and respond to technological changes. Brown & Sharpe
designs, develops and refines its products internally through engineering
departments within its product groups and divisions. When it is more
cost-effective to do so, Brown & Sharpe purchases product designs or portions of
product designs from engineering subcontractors or acquires rights to such
designs through licensing arrangements. Brown & Sharpe also benefits from
research and development efforts which are subsidized by customer funds and, in
certain countries, by government research grants. Brown & Sharpe research,
development and manufacturing engineering activities are conducted in the United
States, Italy, France, Switzerland, Germany, the United Kingdom and Lithuania.
Brown & Sharpe derived substantial sales in 1997 from the sale of products that
it introduced after 1993. Brown & Sharpe has introduced at least one major new
product every year since 1987. The Company's current design and engineering
focus is the continued integration of the DEA and Roch technologies with Brown &
Sharpe's previously existing technologies, software development and non-contact
metrology products. In 1997, Brown & Sharpe invested $15.5 million, or 4.8% of
its net sales during that period in product design and manufacturing
engineering. In 1995 and 1996, Brown & Sharpe expended $15.8 million and $13.9
million, respectively, for product design, development, refinement and
manufacturing engineering.
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Foreign Operations
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Brown & Sharpe manufactures and sells substantial amounts of its metrology
products in foreign countries. As of December 31, 1997, approximately 62.8%
(based on book values) of the Company's assets, 60.1% of the Company's sales
(based on customer location) and 70.3% of its employees were located outside the
United States. The Company's manufacturing operations are located in Italy,
Switzerland, Germany, England and France, as well as in the United States, and
Brown & Sharpe's products are sold in over 60 countries worldwide. The Company's
cost of sales for products manufactured and assembled in certain foreign
locations has been adversely impacted, as compared with some of its competitors,
by the appreciation of the respective local currencies of such locations
relative to the U.S. dollar. Nevertheless, the Company believes that the
geographic diversity of its end user markets helps to mitigate the adverse
effects of the cyclicality of the metrology industry, as an economic downturn in
any of the Company's geographic end user markets may be offset by relatively
healthy conditions in others.
Raw Materials and Sources of Supply
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Brown & Sharpe purchases raw materials, supplies and other components from a
variety of suppliers, and considers its sources of supply to be adequate. At
times, the Company depends upon various sole sources of supply for certain
components used by the Company (generally of items designed by Brown & Sharpe),
but has not experienced any significant difficulty in meeting delivery
obligations because of its reliance on such a supplier. In addition, the Company
currently purchases substantially all of its externally sourced low to medium
accuracy electronic touch trigger sensor probes and heads from a publicly held
United Kingdom company which is the dominant supplier of such sensor probes to
CMM manufacturers. No alternative supplier for this class of electronic sensor
probes, which are a key component of substantially all of the Company's lower
accuracy CMMs, is currently available and developing an alternative source for
the probes and heads could take more than a year. Brown & Sharpe continues to
explore means of lowering production costs through selective outsourcing in
situations where Brown & Sharpe can achieve its high quality standards via
subcontractors. The Company has established a corporate function to direct its
world-wide efforts to standardize product designs throughout its operations and
coordinate and direct its outsourcing efforts.
Patents, Licenses, Trademarks, and Proprietary Information
- ----------------------------------------------------------
The Company's business is not significantly affected by or dependent upon the
procurement or maintenance of patents covering the Company's products.
Nevertheless, the Company pursues, where appropriate, patent protection for
inventions, developments and improvements relating to its products both in the
United States and abroad. In addition, the Company relies on a combination of
copyrights, trade secret law and contracts to protect its proprietary
information (principally related to its software and software development).
Despite these precautions, it may be possible to copy or otherwise obtain and
use the Company's proprietary information without authorization. In addition,
effective copyright and trade secret protection may be unavailable or limited in
certain foreign countries.
Brown & Sharpe and its subsidiaries own, or have the right to use, a number of
trademarks which they believe are valuable in promoting the sale of certain of
their principal products. The Company and its subsidiaries have registered, or
have applied to register, the trademarks owned by them in the United States and
in some foreign countries. In addition, the Company uses the Mauser brand name
under royalty-free license agreements entered into in connection with the
Company's acquisition of these product lines. The license expires in 1999. The
Company believes it will be able to negotiate satisfactory extensions of this
license prior to its expiration and/or that the failure to renew this license
would not have a material adverse effect on the Company.
Environmental Matters
- ---------------------
The Company is not significantly affected by compliance with rules and
regulations promulgated under environmental laws since its manufacturing
processes do not produce, as a by-product, material amounts
Page 10
<PAGE>
of waste, water discharges or air emissions deemed hazardous under such laws.
However, the Company is subject from time to time to environmental claims. See
Note 13, "Contingencies" of Notes to Consolidated Financial Statements in Item 8
of this Annual Report.
Employees
- ---------
At December 31, 1997, Brown & Sharpe had 2,409 employees, (as compared with
2,383 at December 31, 1996), including approximately 1,693 employees located
outside the United States. Brown & Sharpe considers its relations with its
employees to be good, although there can be no assurance that Brown & Sharpe's
cost-cutting efforts or other factors will not cause a deterioration in these
relations.
Approximately 648 of Brown & Sharpe's employees located at sites in the United
States, Italy, Switzerland, England, and France are covered by collective
bargaining agreements which expire at various times between December 31, 1997
and June 30, 1998. Brown & Sharpe expects that these collective bargaining
agreements will be renegotiated successfully prior to their expiration. However,
there can be no assurance that successor collective bargaining agreements will
be successfully negotiated, that negotiations will not result in work stoppages,
or that a work stoppage would not materially interfere with Brown & Sharpe's
ability to produce the products manufactured at the affected location.
In addition to the collective bargaining agreements that cover workers at
certain of Brown & Sharpe's foreign subsidiaries, it is customary for these
employees to be represented by various works or shop councils. These councils
are governed by applicable labor laws and are comprised of members who are
elected or appointed by the work force. Except for the top level of management,
these councils represent the entire work force at their location in its dealings
with senior management on matters affecting the work force or arising under the
relevant labor contracts in effect at the location.
A collective bargaining agreement with the International Association of
Machinists and Aerospace Workers (the "IAM") relating to certain manufacturing
employees in North Kingstown, Rhode Island expired in October 1981. Brown &
Sharpe and the IAM failed to reach agreement on the terms of a successor
collective bargaining agreement, resulting in a strike by the IAM. See Item 3
"Legal Proceedings" in this Report. No successor collective bargaining agreement
was entered into, although the IAM remains the representative of the bargaining
unit. Brown & Sharpe continues to satisfy its obligation to bargain with respect
to, proposed changes to the terms and conditions of employment, although no
collective bargaining has occurred in recent years, and although the
manufacturing employees represented by the IAM remain technically on strike, no
work stoppage or picket activity has occurred since 1985 and management does not
anticipate that any such activities will occur in the future. Following the
strike in 1981, and the impasse reached in negotiations, Brown & Sharpe hired
new employees to replace striking employees. Since that time, many of the
striking employees have been rehired by Brown & Sharpe, but such employees are
not working under an IAM contract. The continuing strike by the IAM does not
have a material adverse effect on the operations of Brown & Sharpe. See Note 13,
"Contingencies" of Notes to Consolidated Financial Statements in Item 8 of this
Annual Report.
Page 11
<PAGE>
The following table sets forth the location of Brown & Sharpe's employees as of
December 31, 1997:
Country Employees (1)
------- -------------
France .............................................. 207
Germany ............................................. 262
Italy ............................................... 460
Japan ............................................... 25
Spain ............................................... 16
Switzerland ......................................... 317
United Kingdom ...................................... 396
United States ....................................... 716
------
TOTAL................................................ 2,409
======
- ----------------
(1) Part-time employees are included on a full-time equivalent basis. During
1997, 71 employees were added as a result of acquiring Automation
Software, Inc.
Competition
- -----------
The Company's MS Group currently has four principal direct domestic and foreign
competitors, some of which are owned by entities that have greater financial and
other resources than the Company. The MS Group also faces indirect competition
from other types of metrology firms such as manufacturers of fixed gauging
systems. The primary industries to which the MS Group sells its products are
characterized by a relatively small number of large participants with
significant purchasing power. In addition, the MS Group generally sells its
products through a competitive bid process in which at least one and frequently
several of the Company's competitors have submitted competing bids. As a result,
the Company experiences severe pricing competition in connection with sales by
its MS Group which can have an adverse impact on the Company's net sales and
margins. During periods when the metrology industry suffers from over capacity,
downward pricing pressure experienced by the MS Group is likely to be more
intense and the Company's margins may be more severely impacted. In addition,
certain of the Company's competitors that have access to greater financial
resources may be able to withstand such pricing pressure more effectively than
the Company. The MS Group competes with Mitutoyo/MTI Corp., a subsidiary of
Mitutoyo Solsakusho Co. Ltd., a Japan-based company, which is the largest
supplier of metrology equipment and products worldwide. In addition to Mitutoyo,
the MS Group's main competitors are Carl Zeiss, Inc., a subsidiary of Carl
Zeiss-Stiftung AG, the Sheffield Measurement Division of Giddings & Lewis, Inc.,
and LK Tool Co. Ltd., a subsidiary of TransTech Ltd.
The market for the PMI Division's products is fragmented and the PMI Division
competes with a large number of competitors, including the market leader in this
area, primarily on the basis of the strength of its third party distribution
network, price and product innovation. New competitors from emerging
industrialized countries with lower cost products than the Company's represent a
significant competitive challenge to the Company. As a result, the PMI
Division's continued success and profitability will be dependent on its ability
to continue to develop cost-effective and innovative products. The primary
competitors of the PMI Division are Mitutoyo, L.S. Starrett Co. and Federal
Products Co. (Inc.), a subsidiary of Esterline Technologies Corporation.
To date, the CM Division has sold its custom solutions to markets in which there
is little or no effective competition in custom metrology systems. However, in
certain niche markets where the Company does not generally sell, Marposs S.p.A.,
an Italian company, provides custom metrology products.
Backlog
- -------
The Company's backlog of product orders was approximately $60 million at
year-end 1997, compared to approximately $51 million and $59 million at year-end
1996 and 1995, respectively.
Page 12
<PAGE>
All of the orders included in the Company's year-end 1997 backlog were requested
to be filled and completed within one year and are, subject to possible customer
cancellation, expected to be completed in 1998.
Significant Customers
- ---------------------
The Company has no single customer which accounts for 10% or more of its
consolidated net sales; however, several well recognized major automotive
manufacturers (without regard to their suppliers) account for a significant
portion of the Company's net sales. The loss of a few of these major customers
would have a substantial effect upon the Company.
Working Capital
- ---------------
A substantial amount of working capital investment in inventory and accounts
receivable is required to operate the Company's businesses. Working capital was
approximately $113.2 million at year-end 1997 compared to approximately $108.0
million at year-end 1996. See the discussion of working capital in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7 of this Annual Report.
Segment Information
- -------------------
(Dollars in thousands)
The Company operates exclusively in the Metrology Business. See Note 1 for a
further description of the Company's business. Sales to unaffiliated customers
from Europe are defined as sales of products that are primarily assembled in a
foreign country. Refer to "Financial Information by Business Segment and
Geographic Area" included on Page F-24 of the Company's 1997 Annual Report,
filed as an exhibit hereto, which is incorporated by reference.
ITEM 2 - PROPERTIES
- -------------------
The following table sets forth certain information concerning Brown & Sharpe's
major operating facilities:
<TABLE>
<CAPTION>
Owned/ Approximate
Location Leased Principal Use Square Footage
-------- ------ ------------- --------------
<S> <C> <C> <C>
United States
N. Kingstown, Rhode Island Owned Manufacturing, Engineering, Sales,
and Administration 348,000 (1)
Poughkeepsie, New York Owned Manufacturing 58,000
Wixom, Michigan Leased Sales and Administration 37,600
Italy
Grugliasco Leased Assembly 107,000 (2)
Moncalleri Leased Manufacturing 70,000 (2)
Switzerland
Renens Owned Manufacturing, Engineering, Sales,
and Administration 139,000
Rolle Owned Manufacturing 51,000
Germany
Wetzlar Owned Manufacturing, Engineering, Sales,
and Administration 280,000
Ludwigsburg Leased Sales 15,000 (2)
</TABLE>
Page 13
<PAGE>
<TABLE>
<CAPTION>
Owned/ Approximate
Location Leased Principal Use Square Footage
-------- ------ ------------- --------------
<S> <C> <C> <C>
United Kingdom
St. Albans Owned Manufacturing and Sales 36,000
Telford Leased Manufacturing, Engineering, Sales,
and Administration 32,000
Leicester Owned Manufacturing 14,000
Torpoint Leased Manufacturing, Sales, and Administration 5,000 (2)
France
Luneville Leased Manufacturing, Engineering, and Sales 77,100 (2)
Villebon Leased Sales 18,000 (2)
Spain
Barcelona Leased Sales 16,000 (2)
</TABLE>
- -------------------
(1) Excludes approximately 412,000 square feet leased to unrelated parties.
(2) The leases in Grugliasco, Ludwigsburg, Torpoint, Luneville, Villebon and
Barcelona expire on December 31, 2002, September 30, 2003, August 18, 2001,
March 23, 2003, October 20, 2001, and July 31, 1998, respectively.
In addition, Brown & Sharpe leases smaller sales offices located in the United
States, Europe, and Asia. In the opinion of management, Brown & Sharpe's
properties are in good condition and adequate for Brown & Sharpe's business as
presently conducted.
ITEM 3 - LEGAL PROCEEDINGS
- ---------------------------
Other Environmental Matters
- ----------------------------
The nature of the Company's current operations are not significantly affected by
environmental laws, rules and regulations. However, because the Company and its
subsidiaries and predecessors have conducted heavy manufacturing operations in
the past, sometimes at facilities which have been divested or sold and often in
locations at which or adjacent to which, other industrial operations were
conducted, from time to time the Company is subject to environmental claims. As
with any such operations that involve the use, generation, and management of
hazardous materials, it is possible that practices, including practices that
were deemed acceptable by regulatory authorities in the past, may have created
conditions which could give rise to liability under current or future
environmental laws. Because the law in this area is developing rapidly,
including in many European countries, and such environmental laws are subject to
amendment and widely varying degrees of enforcement, the Company may be subject
to, and cannot predict with any certainty the nature and amount of, potential
environmental liability related to these operations or locations that it may
face in the future.
Litigation
- -----------
Refer to Note 13 "Contingencies" of Notes to Consolidated Financial Statements
in Item 8 of this Annual Report.
Page 14
<PAGE>
ITEM 4A - EXECUTIVE OFFICERS OF THE REGISTRANT
- ----------------------------------------------
The following table summarizes information regarding Executive Officers of the
Company as of March 13, 1998:
Name Age Positions Held During the Last Five Years
- ----- --- -----------------------------------------
Frank T. Curtin 63 President & Chief Executive Officer and a
Director of the Company since May 2, 1995;
from 1992 to May 1995, Vice President,
National Center for Manufacturing Sciences,
a research and development organization, Ann
Arbor, MI; from 1989 to May 1995, President,
Curtin & Associates, a software development
company, Santa Barbara, CA and Ann Arbor,
MI.
Charles A. Junkunc 55 Vice President & Chief Financial Officer
since May 1, 1992; previously self-employed
consultant since November 1990.
Antonio Aparicio 47 Vice President & General Manager - Precision
Measuring Instruments since September 1991;
previously Marketing Director - Precision
Measuring Instruments.
Marcus Burton 39 Vice President & General Manager - Custom
Metrology Division since January 1997;
previously Director of Strategic Planning -
Brown & Sharpe Manufacturing Co. since
July 1995; Managing Director - Thomas
Mercer Ltd. (a subsidiary) since June 1992;
Special Projects Manager - Thomas Mercer
Ltd. since October 1990.
Philip James 56 Group Vice President - Measuring Systems
since September 1997; previously Executive
Vice President - International, Ingersoll
Milling Machine Company since November 1993;
previously Vice President and General
Manager - Production Machinery Division,
Ingersoll Milling Machine Company, since
November 1989.
Edward D. DiLuigi 51 Vice President and General Manager -
Measuring Systems U.S.A. since June 1997;
previously General Manager, UNC Airwork,
Aircraft Engine Services Division since
July 1995; previously Vice President of
Operations, UNC Airwork since August 1992.
Brian Gaunt 59 Vice President and General Manager - Brown &
Sharpe DEA S.p.A. since February 1998;
previously Group Chief Executive, Automotive
Products Group Limited since 1995;
previously Chief Executive -Clutch Division
BBA PLC since 1991.
John Cooke 61 Vice President & Chief Technical Officer
since January 1997; previously Vice
President & General Manager - Custom
Metrology since 1992.
James W. Cooper 52 Vice President - Procurement since August
1996; previously Vice President -
Purchasing of Delco Remy America, an
automotive supplier, since March 1995.
From 1981 to march 1995, Mr. Cooper was
Vice President - Materials Management of
Simpson Industries, an automotive supplier.
Page 15
<PAGE>
Name Age Positions Held During the Last Five Years
- ---- --- -----------------------------------------
Christopher J. Garcia 41 Vice President - Software Product
Development since January 1998; previously
Vice President - Marketing since November
1996; previously Vice President Business
Development since January 1991; Vice
President - Research and Development of
Valisys Corporation since June 1994;
previously Vice President - Marketing of
Valisys Corporation since June 1990.
Alfred J. Corso 61 Controller and Principal Accounting Officer
since June 1, 1995; previously Partner with
Ernst & Young LLP.
To the best of the knowledge of the Registrant, none of the Executive Officers
has any family relationships with any of the others. Each Executive Officer
holds office until the first meeting of the Board of Directors following the
next Annual Stockholders' meeting and until his successor is elected or
appointed and qualified, unless he dies, resigns, is removed or replaced.
PART II
-------
ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
- -----------------------------------------------------------------------
MATTERS
-------
Refer to "Common Stock Market Prices and Dividends" included on Page F-28 of the
Company's 1997 Annual Report, filed as an exhibit hereto, which is incorporated
by reference.
ITEM 6 - SELECTED FINANCIAL DATA
- --------------------------------
Refer to "Selected Financial Data" on Page F-2 of the Company's 1997 Annual
Report, filed as an exhibit hereto, which is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ---------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Refer to "Management Discussion and Analysis of Financial Condition and Results
of Operations" on Pages F-3 through F-9 of the Company's 1997 Annual Report,
filed as an exhibit hereto, which is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Refer to Consolidated Financial Statements and Report of Independent Auditors on
Pages F-10 through F-27 of the Company's 1997 Annual Report, filed as an exhibit
hereto, which are incorporated herein by reference.
Quarterly results of operations on Page F-26 of the Company's 1997 Annual
Report, filed as an exhibit hereto, which is incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ---------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
Page 16
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
Refer to "Information With Respect to Nominees and Other Directors Continuing in
Office" on Pages 2 and 3 in the Company's definitive Proxy Statement for the May
1, 1998 Annual Meeting which is incorporated herein by reference.
ITEM 11 - MANAGEMENT REMUNERATION AND TRANSACTIONS
- --------------------------------------------------
Refer to "Executive Compensation" on Page 12 in the Company's Definitive Proxy
Statement for the May 1, 1998 Annual Meeting which is incorporated herein by
reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Refer to "Principal Shareholders" and "Stock Ownership of Directors and
Officers" on Pages 5-8 in the Company's Definitive Proxy Statement for the May
1, 1998 Annual Meeting which are incorporated herein by reference.
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) (1) and (2) List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Brown & Sharpe Manufacturing
Co., Inc. and subsidiaries, included in the annual report of the registrant to
its shareholders for the year ended December 31, 1997, are incorporated by
reference in Item 8:
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Operations - December 31, 1997, 1996, and
1995
Consolidated Statements of Shareowners' Equity - Year ended December
31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows - Year ended December 31, 1997,
1996, and 1995
Notes to Consolidated Financial Statements - December 31, 1997
The following consolidated financial statement schedule of Brown & Sharpe
Manufacturing Co., Inc. and subsidiaries is included in Item 14(d):
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(3) The response to this portion of Item 14 is submitted as a
separate section of this report.
(b) No reports on Form 8-K were filed during 1997
Page 17
<PAGE>
(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules - The response to this portion of Item 14
is submitted as a separate section of this report.
Page 18
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BROWN & SHARPE MANUFACTURING COMPANY
(Registrant)
Date: March 30, 1998 By: /s/ Charles A. Junkunc
--------------------------- -----------------------------------
Charles A. Junkunc
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Frank T. Curtin 3/30/98 /s/ Howard K. Fuguet 3/30/98
- ---------------------------------------------- -------------------------------
Frank T. Curtin Date Howard K. Fuguet Date
President, Chief Executive Officer Director
(Principal Executive Officer)
Chairman of the Board, and Director
/s/ J. Robert Held 3/30/98 /s/ John M. Nelson 3/30/98
- ---------------------------------------------- -------------------------------
J. Robert Held Date John M. Nelson Date
Director Director
/s/ Paul R. Tregurtha 3/30/98 /s/ Russell A. Boss 3/30/98
- ---------------------------------------------- -------------------------------
Paul R. Tregurtha Date Russell A. Boss Date
Director Director
/s/ Henry D. Sharpe, III 3/30/98 /s/ Roger E. Levien 3/30/98
- ---------------------------------------------- -------------------------------
Henry D. Sharpe, III Date Roger E. Levien Date
Director Director
/s/ Harry A. Hammerly 3/30/98 /s/ Charles A. Junkunc 3/30/98
- ---------------------------------------------- -------------------------------
Harry A. Hammerly Date Charles A. Junkunc Date
Director Vice President and Chief
Financial Officer (Principal
Financial Officer)
/s/ Alfred J. Corso 3/30/98
- ----------------------------------------------
Alfred J. Corso Date
Controller
(Principal Accounting Officer)
Page 19
<PAGE>
DIRECTORS
- ---------
Russell A. Boss, Director and President & Chief Executive Officer, A. T. Cross
Company
Frank T. Curtin, President & Chief Executive Officer, Brown & Sharpe
Manufacturing Company
Howard K. Fuguet, Partner, in the law firm of Ropes & Gray
Harry A. Hammerly, Former Executive Vice President, 3M Company
J. Robert Held, Consultant, Former President and Chief Executive Officer of
Chipcom Corporation
Roger E. Levien, Vice President, Strategy and Innovation, Xerox Corporation
John M. Nelson, Chairman & Chief Executive Officer, Wyman-Gordon Company
Henry D. Sharpe, III, Co-founder & Technical Director, Design Lab, Inc.
Paul R. Tregurtha, Chairman of the Board and Chief Executive Officer, Mormac
Marine Group, Inc.
OFFICERS
- --------
Frank T. Curtin, President, Chief Executive Officer, and Chairman of the Board
Charles A. Junkunc, Vice President & Chief Financial Officer
Antonio Aparicio, Vice President & General Manager - Precision Measuring
Instruments
Marcus Burton, Vice President & General Manager - Custom Metrology
Phil James, Group Vice President - Measuring Systems
Edward D. DiLuigi, Vice President & General Manager, Measuring Systems - U.S.A.
Brian Gaunt, Vice President & Managing Director - Brown & Sharpe - DEA S.p.A.
C. John Cooke, Vice President & Chief Technical Officer
James W. Cooper, Vice President - Procurement
Christopher J. Garcia, Vice President - Software Product Development
James W. Hayes, III, Secretary & Corporate Counsel
Alfred J. Corso, Controller
INVESTOR INFORMATION
- --------------------
Annual Meeting: The Annual Meeting of Stockholders will be held May 1, 1998 at
10:00a.m. at the Corporate Offices
Corporate Offices: Precision Park, 200 Frenchtown Road, North Kingstown, RI
02852; Telephone (401) 886-2000
Form 10-K Report: A copy of the Company's Annual Report as filed with the
Securities and Exchange Commission is available upon request to the Secretary.
Page 20
<PAGE>
Stock Listing: New York Stock Exchange; Symbol BNS
Transfer Agent and Registrar Common Stock: Bank of Boston, c/o Boston EquiServe,
L.P., Mail-Stop 45-02-64, P.O. Box 644, Boston, MA 02012-0644. They also can be
reached on the internet at the following address http://www.equiserve.com.
Page 21
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
Schedule II - Valuation and Qualifying Accounts
-----------------------------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Foreign Balance at
Beginning Costs and Currency End of
Year Ended of Period Expenses Deductions Translation Period
- ---------- --------- -------- ---------- ----------- ------
(2) (1)
<S> <C> <C> <C> <C> <C>
December 31, 1997
- -----------------
Allowance for doubtful accounts $ 3,226 $ 1,874 $ 1,358 $(286) $ 3,456
December 31, 1996
- -----------------
Allowance for doubtful accounts $ 3,030 $ 941 $ 761 $ 16 $ 3,226
December 31, 1995
- -----------------
Allowance for doubtful accounts $ 3,103 $ 2,124 $ 2,330 $ 133 $ 3,030
</TABLE>
(1) Adjustment resulting from translating allowance for doubtful accounts
of foreign subsidiaries at year-end exchange rates.
(2) Write-offs of uncollectible accounts.
Page 22
<PAGE>
Exhibit Index
-------------
Number
------
3.1 Joint Agreement of Merger between Brown & Sharpe Manufacturing
Company, incorporated in Rhode Island, and Brown & Sharpe
Manufacturing Company, the surviving corporation incorporated in
Delaware, filed as the only Exhibit to Form 8-K for the month of
January, 1969, and such is hereby incorporated by reference.
3.2 Amendment to Certificate of Incorporation, dated April 26, 1989,
filed as Exhibit 13 to Form 10-K for the period ending December
29, 1989, and such is hereby incorporated by reference.
3.3 Amendment to Certificate of Incorporation, Dated April 25, 1980,
filed as Exhibit 3.1 to Form 10-Q for the period ending June 28,
1980, and such is hereby incorporated by reference.
3.4 Amendment to Certificate of Incorporation dated April 24, 1987.
Exhibit 3.7 was filed as Exhibit 10.4 to Form 10-Q for the period
ended June 26, 1987, and such is hereby incorporated by reference.
3.5 Amendment to Certificate of Incorporation dated May 6, 1988 filed
as Exhibit 1 to Current Report on Form 8-K filed May 9, 1988 and
such is hereby incorporated by reference.
3.6 Certificate of Designation filed as Exhibit A to Exhibit 5 of
Amendment on Form 8 filed on March 6, 1989, and such is hereby
incorporated by reference.
3.7 Amendment to Certificate of Incorporation dated May 2, 1989.
Exhibit 3.7 was filed as Exhibit 3.7 to the Form 10-K for the year
ended December 30, 1989 and such is hereby incorporated by
reference.
3.8 By-laws of Brown & Sharpe Manufacturing Company, as amended
through July 29, 1994; previously filed as Exhibit 3.1 to the Form
10-Q for the quarter ended July 2, 1994 and such is hereby
incorporated by reference.
3.9 Amendments to By-laws of Brown & Sharpe Manufacturing Company, as
of September 28, 1994; previously filed as Exhibit 3 to the Form
10-Q for the quarter ended October 1, 1994 and such is hereby
incorporated by reference.
4.1 (Intentionally omitted)
+10.1 (Intentionally omitted)
+10.2 Amended 1983 Stock Option Plan, as amended through March 9, 1988.
Exhibit 10.2 was filed as Exhibit 10.2 to the Form 10-K for the
year ended December 31, 1988, and is hereby incorporated herein by
reference.
+10.3 Amendment dated December 29, 1990 to the Brown & Sharpe Amended
1983 Stock Option Plan. Exhibit 10.3 was filed as Exhibit 10.3 to
the Form 10-K for the year ended December 29, 1990 and such is
herein incorporated by reference.
+10.4 Amendment No. 4 of the Restated Brown & Sharpe Employee Stock
Ownership and Profit Participation Plan and Trust Agreement, as
amended through December 21, 1990. Exhibit 10.4 was filed as
Exhibit 10.4 to the Form 10-K for the year ended December 29,
1990; and is hereby incorporated herein by reference.
10.5 (Intentionally omitted)
Page 23
<PAGE>
10.6 (Intentionally omitted)
+10.7 (Intentionally omitted)
+10.8 (Intentionally omitted)
+10.9 The Brown & Sharpe Savings and Retirement Plan for Management
Employees dated October 7, 1987.
10.10 The Brown & Sharpe Savings and Retirement Plan dated October 7,
1987.
+10.11 Amendment and Restatement of the Brown & Sharpe Employee Stock
Ownership and Profit Participation Plan and Trust Agreement dated
October 7, 1987.
Exhibits 10.9 through 10.11 were filed as Exhibits 10.2 through
10.4 respectively, to Form 10-Q for the period ended September 26,
1987 and such are hereby incorporated by reference.
10.12 Preferred Stock Rights Agreement dated as of March 9, 1988,
between the Company and The First National Bank of Boston, as
Rights Agent. Exhibit 10.12 was filed as Exhibits 1-4 to the
Registration Statement on Form 8-A filed on April 28, 1988, and is
hereby incorporated herein by reference.
10.13 Amendment No. 1, dated as of May 2, 1988, to Preferred Stock
Rights Agreement. Exhibit 10.13 was filed as Exhibit 5 to
Amendment No. 1 on Form 8, filed on March 6, 1989, to the
Registration Statement on Form 8-A filed on April 28, 1988, and is
hereby incorporated herein by reference.
10.14 Amendment No. 2, dated as of February 24, 1989, to Preferred Stock
Rights Agreement. Exhibit 10.14 was filed as Exhibit 6 to
Amendment No. 1 on Form 8, filed on March 6, 1989, to the
Registration Statement on Form 8-A filed on April 28, 1988, and is
hereby incorporated herein by reference.
+10.15 Amendment dated February 23, 1989 to The Brown & Sharpe Savings
and Retirement Plan for Management Employees.
+10.16 Amendment No. 2, dated October 19, 1988, to The Brown & Sharpe
Management Employees.
+10.17 Amendment No. 3, dated February 23, 1989, to The Brown & Sharpe
Savings and Retirement Plan for Management Employees.
10.18 Amendment dated February 23, 1989 to The Brown & Sharpe Savings
and Retirement Plan.
10.19 Amendment No. 2, dated October 19, 1988, to The Brown & Sharpe
Savings and Retirement Plan.
10.20 Amendment No. 3, dated February 23, 1989, to The Brown & Sharpe
Savings and Retirement Plan.
+10.21 Amendment dated February 23, 1989, to the Restated Brown & Sharpe
Employee Stock Ownership and Profit Participation Plan and Trust
Agreement.
+10.22 Amendment No. 2, dated October 19, 1988 to the Restated Brown &
Sharpe Employee Stock Ownership and Profit Participation Plan and
Trust Agreement.
Page 24
<PAGE>
+10.23 Amendment No. 3, dated February 23, 1989 to the Restated Brown &
Sharpe Employee Stock Ownership and Profit Participation Plan and
Trust Agreement.
Exhibits 10.15 through 10.23 were filed as Exhibits 10.19 through
10.26, respectively, to the Form 10-K for the year ended December
31, 1988, and are hereby incorporated herein by reference.
+10.24 Amended 1989 Equity Incentive Plan as amended through February 21,
1992. Exhibit 10.24 was filed as Exhibit 10.24 to the Form 10-K
for the year ended December 28, 1991 and such is hereby
incorporated by reference.
+10.25 Deferred Stock Equivalent Unit Contract dated September 3, 1987
between Brown & Sharpe Manufacturing Company and Paul R.
Tregurtha. Exhibit 10.25 was filed as Exhibit 10.24 to the Form
10-K for the year ended December 30, 1989 and such is herein
incorporated by reference.
+10.26 (Intentionally omitted)
+10.27 Deferred Stock Equivalent Unit Contract dated November 30, 1989
between Brown & Sharpe Manufacturing Company and Herbert A. Beyer.
Exhibit 10.26 was filed as Exhibit 10.25 to the Form 10-K for the
year ended December 30, 1989 and such is hereby incorporated by
reference.
+10.28 (Intentionally omitted)
+10.29 Amendment No. 4, dated October 20, 1989, to Brown & Sharpe Savings
and Retirement Plan for Management Employees. Exhibit 10.29 was
filed as Exhibit 10.26 to the Form 10-K for the year ended
December 30, 1989 and such is hereby incorporated by reference.
10.30 Amendment No. 4, dated October 30, 1989, to Brown & Sharpe Savings
and Retirement Plan. Exhibit 10.30 was filed as Exhibit 10.26 to
the Form 10-K for the year ended December 30, 1989 and such is
hereby incorporated by reference.
10.31 Amendment No. 5, dated September 7, 1990, of the Brown & Sharpe
Savings and Retirement Plan. Exhibit 10.31 was filed as Exhibit
10.30 to the Form 10-K for the year ended December 29, 1990 and
such is hereby incorporated by reference.
+10.32 Amendment No. 5, dated September 7, 1990, of the Brown & Sharpe
Savings and Retirement Plan for Management Employees. Exhibit
10.32 was filed as Exhibit 10.31 to the Form 10-K for the year
ended December 29, 1990 and such is hereby incorporated by
reference.
10.33 (Intentionally omitted)
+10.34 (Intentionally omitted)
+10.35 (Intentionally omitted)
+10.36 (Intentionally omitted)
+10.37 (Intentionally omitted)
Page 25
<PAGE>
+10.38 The sales agreement pertaining to the sale of GageTalker
Corporation to P. Eric Berg by Brown & Sharpe Manufacturing
Company dated January, 1992. Exhibit 10.38 was filed as Exhibit
10.38 to the Form 10-K for the year ended December 28, 1991 and is
hereby incorporated by reference.
+10.39 (Intentionally omitted)
+10.40 Amendment No. 5 of the Restated Brown & Sharpe Employee Stock
Ownership and Profit Participation Plan and Trust Agreement, as
amended through March 23, 1991.
+10.41 Employment/Severance Agreement dated April 23, 1992 between Brown
& Sharpe Manufacturing Company and Charles A. Junkunc.
+10.42 Amendment dated July 24, 1992 to Employment/Severance Agreement
dated April 23, 1992 between Brown & Sharpe Manufacturing Company
and Charles A. Junkunc.
+10.43 Amendment dated November 11, 1992 to 1989 Equity Incentive Plan as
amended through November 6, 1992.
Exhibits 10.38 through 10.43 were filed as Exhibits 10.38 through
10.43, respectively, to the Form 10-K for the year ended December
26, 1992, and are hereby incorporated by reference.
10.44 The Share Purchase and Transfer agreement dated March 24, 1994 by
and between Diehl GmbH & Co. and Brown & Sharpe Manufacturing
Company was filed as Exhibit (c) to Form 8-K filed as of May 13,
1994, and is hereby incorporated by reference.
10.45 The Acquisition Agreement pertaining to the acquisition of DEA
dated as of June 10, 1994 between Brown & Sharpe Manufacturing
Company and Finmeccanica S.p.A.
10.46 The Form of Shareholders Agreement to be entered into between
Brown & Sharpe Manufacturing Company and Finmeccanica, S.p.A.
10.47 Amendment No. 3, dated June 16, 1994, to Rights Agreement, dated
March 9, 1988 between Brown & Sharpe Manufacturing Company and the
First National Bank of Boston, as Rights Agent.
Exhibits 10.45 through 10.47 were filed as Exhibits 1 through 3,
respectively, to the Form 8-K filed as of June 24, 1994, and are
hereby incorporated by reference.
10.48 Definitive acquisition Agreement providing for the combination of
the DEA metrology business of Finmeccanica (the "DEA Group") with
the Brown & Sharpe Measuring Systems Division dated as of June 10,
1994 between Brown & Sharpe Manufacturing Company and Finmeccanica
S.p.A., was filed as Exhibit 1 to Form 8-K dated June 24, 1994,
and is hereby incorporated by reference.
10.49 Amendment No. 1 dated July 31, 1994, to Acquisition Agreement,
amending certain debt provisions of the agreement was filed as
Exhibit 10.1.1 to Form 10-Q/A for the quarter ended July 2, 1994
and is hereby incorporated by reference.
10.50 Letter Agreement of Henry D. Sharpe, Jr. dated September 28, 1994
entered into pursuant to the DEA Acquisition Agreement (was filed
as Exhibit No. 3 to Report on Form 8-K as of September 28, 1994),
filed October 13, 1994 is hereby incorporated by reference.
10.51 Amendment No. 6, dated November 10, 1994, to Brown & Sharpe
Savings and Retirement Plan for Management Employees.
Page 26
<PAGE>
10.52 Amendment No. 6, dated November 10, 1994, to Brown & Sharpe
Savings and Retirement Plan.
10.53 Amended Profit Incentive Plan, as amended through February 14,
1994.
10.54 Restated Supplemental Executive Retirement Plan dated January 23,
1995, filed as Exhibit 10.54 to Form 10-Q for the quarter ended
March 31, 1995, and is hereby incorporated by reference.
10.55 Amendment to the Equity Incentive Plan as of February 15, 1995,
filed as Exhibit 10.55 to Form 10-Q for the quarter ended March
31, 1995, and is hereby incorporated by reference.
10.56 Amendment No. 1 dated May 31, 1995 to the Brown & Sharpe Savings
and Retirement Plan for Management Employees. (1994 Restatement)
10.57 Amendment No. 2 dated May 31, 1995 to the Brown & Sharpe Savings
and Retirement Plan for Management Employees. (1994 Restatement)
10.58 Amendment No. 1 dated May 31, 1995 to the Brown & Sharpe Savings
and Retirement Plan. (1994 Restatement)
10.59 (Intentionally omitted)
10.60 Employment Agreement with Frank T. Curtin dated May 17, 1995.
Exhibits 10.56 through 10.60 were filed as Exhibits 10.56 through
10.60, respectively, to the Form 10-Q for the quarter ended June
30, 1995, and are hereby incorporated by reference.
10.61 Indemnity Agreement with Frank T. Curtin dated May 3, 1995.
10.62 Indemnity Agreement with Alfred J. Corso dated May 3, 1995.
10.63 Indemnity Agreement with Enrico Albareto dated October 28, 1994.
10.64 Indemnity Agreement with Alberto de Benedictis dated October 28,
1994.
10.65 Indemnity Agreement with Vincenzo Cannatelli dated October 28,
1994.
Exhibits 10.61 through 10.65 were filed as Exhibits 10.61 through
10.65, respectively, to the Form 10-Q for the quarter ended
September 30, 1995, and are hereby incorporated by reference.
10.66 Indemnity Agreement with Robert D. Batting dated October 5, 1995.
10.67 Letter Agreement with Finmeccanica dated December 18, 1995
concerning Purchase Price Adjustment.
10.68 The Brown & Sharpe Key Employee Long-Term Deferred Cash Incentive
Plans dated February 23, 1996 effective January 1, 1995.
10.69 Amendment dated July 28, 1995 to Employment/Severance Agreement
dated March 14, 1988 between Brown & Sharpe Manufacturing Company
and Richard F. Paolino.
10.70 (Intentionally omitted)
10.71 Employment Agreement with Robert D. Batting dated September 26,
1995.
Page 27
<PAGE>
10.72 Employment Agreement with C. John Cooke dated November 26, 1991.
10.73 Employment Agreement with Antonio Aparicio dated October 17, 1995.
10.74 (Intentionally omitted)
10.75 Employment Agreement with James W. Cooper dated July 17, 1996, as
amended July 24, 1996 and August 1, 1996.
10.76 Amendment to Employment Agreement with Frank T. Curtin dated as of
January 1, 1996.
Exhibits 10.69 through 10.76 were filed as Exhibits 10.69 through
10.76, respectively, to the Form S-1 dated October 9, 1996, and
are hereby incorporated by reference.
10.77 (Intentionally omitted)
10.78 Indemnity Agreement with James W. Cooper dated August 19, 1996.
10.79 Indemnity Agreement with Harry A. Hammerly dated October 25, 1996.
10.80 Indemnity Agreement with John Robert Held dated October 25, 1996.
10.81 Indemnity Agreement with Roger E. Levien dated October 25, 1996.
10.82 Indemnity Agreement with Christopher J. Garcia dated January 1,
1998.
10.83 Indemnity Agreement with Marcus Burton dated January 1, 1998.
10.84 Employment Agreement dated May 29, 1997 with Edward D. DiLuigi.
10.85 Employment Agreement dated August 18, 1997 with Philip James.
Exhibits 10.84 and 10.85 were filed as Exhibits 10.84 through
10.85, respectively, to the Form 10-Q for the quarter ended
September 30, 1997, and are hereby incorporated by reference.
+*10.86 Indemnity Agreement with Edward D. DiLuigi dated June 16, 1997.
+*10.87 Indemnity Agreement with Philip James dated September 8, 1997.
+*10.88 Indemnity Agreement with Brian Gaunt dated February 13, 1998.
+*10.89 Supplemental Executive Retirement Plan dated February 13, 1998.
10.90 Rights Agreement dated as of February 13, 1998 ("Rights
Agreement") between the Company and BankBoston N.A., as Rights
Agent, filed as Exhibit 1 to Report on Form 8-K dated March 5,
1998, which is hereby incorporated by reference.
10.91 Form of Certificate of Designation with respect to the Series B
Participating Preferred Stock, par value $1.00 per share, of the
Company (filed as Exhibit A to the Rights Agreement, filed as
Exhibit A to Report on Form 8-K dated March 5, 1998), which is
hereby incorporated by reference.
*11. Computation of Per Share Data for the Three Years Ended
December 31, 1997.
Page 28
<PAGE>
*13. 1997 Annual Report to Shareowners, filed for information of the
Commission except for those portion thereof which are expressly
incorporated by reference in this report.
18. Letter of Coopers & Lybrand, independent accountants, regarding
preferability of change in accounting principles to conform
worldwide use of percent-of-completion basis accounting for
long-term large machinery construction contracts of the European
operations, filed as Exhibit 18 to Form 10-Q for the quarter ended
April 2, 1994, and is hereby incorporated by reference.
*22. Subsidiaries of the Registrant.
*23. Consent of Independent Auditors - Ernst & Young LLP.
27.1 Financial Data Schedule for Fiscal Year ended December 31, 1997.
27.2 Restated Financial Data Schedule for Nine Months ended September
30, 1997.
27.3 Restated Financial Data Schedule for Six Months ended June 30,
1997.
27.4 Restated Financial Data Schedule for Three Months ended
March 31, 1997.
27.5 Restated Financial Data Schedule for Fiscal Year ended
December 31, 1996.
27.6 Restated Financial Data Schedule for Nine Months ended September
30, 1996.
27.7 Restated Financial Data Schedule for Six Months ended June
30, 1996.
27.8 Restated Financial Data Schedule for Three Months ended
March 31, 1997.
27.9 Restated Financial Data Schedule for Fiscal Year ended December
31, 1995.
27.10 Restated Financial Data Schedule for Fiscal Year ended December
31, 1994.
* These current year Exhibits are located in Exhibit number sequence beneath the
attached blue paper.
+ This identifies management contracts or compensatory plans.
Page 29
<PAGE>
EXHIBIT 10.86
INDEMNITY AGREEMENT
---------------------
THIS AGREEMENT, made and entered into on and as of this 16th day of
June, 1997, (the "Agreement"), is by and between Brown & Sharpe Manufacturing
Company, a Delaware corporation, (the "Company", which term shall include any
one or more of its subsidiaries where appropriate), and Edward D. DiLuigi (the
"Indemnitee"):
RECITALS
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and,
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and,
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the difficulty in attracting and retaining such persons is
detrimental to the best interests of the Company's shareholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and,
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and,
WHEREAS, Indemnitee is willing to serve, continue to serve and/or to
take on additional service for or on behalf of the Company on the condition that
he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Services by Indemnitee. Indemnitee agrees to serve or continue to
serve as an officer of the Company. This Agreement shall not impose any
obligation on the Indemnitee or the Company to continue the Indemnitee's
position with the Company beyond any period otherwise applicable.
2. General. The Company shall indemnify and shall advance Expenses
(as hereinafter defined) to Indemnitee as provided in this Agreement and to the
fullest extent permitted by law.
3. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status, (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
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 Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
4. Proceedings by or in the Right of the Company. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 4, if, by
reason of his Corporate Status, he is, or is threatened to
<PAGE>
be made, a party to any threatened, pending or completed Proceeding brought by
or in the right of the Company to procure a judgment in its favor. Pursuant to
this Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such 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 Company. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been adjudged to be liable to
the Company if such indemnification is not permitted by Delaware law; provided,
however, that indemnification against Expenses shall nevertheless be made by the
Company in such event to the extent that the Court of Chancery of the State of
Delaware, or the court in which such Proceeding shall have been brought or is
pending, shall determine.
5. Indemnification for Expenses of a Party who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal or
withdrawal, with or without prejudice, shall be deemed to be a successful result
as to such claim, issue or matter.
6. Advance of Expenses. The Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
7. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to Section 7(a) hereof, a determination, if required by applicable law,
with respect to Indemnitee's entitlement thereto shall be made in the specific
case: (i) if a Change in Control (as hereinafter defined) shall have occurred,
by Independent Counsel (as hereinafter defined) in a written opinion to the
Board of Directors, a copy of which shall be delivered to Indemnitee (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the shareholders, in which case the determination shall be made in
the manner provided below in clauses (ii) or (iii); (ii) if a Change of Control
shall not have occurred, (A) by the Board of Directors by a majority vote of a
quorum consisting of Disinterested Directors (as hereinafter defined), or (B) if
a quorum of the Board of Directors consisting of Disinterested Directors is not
obtainable or, even if obtainable, such quorum of Disinterested Directors so
directs, by Independent Counsel in a written opinion to the Board of Directors,
a copy of which shall be delivered to Indemnitee or (C) by the shareholders of
the Company; or (iii) as provided in Section 8(b) of this Agreement; and, if it
is so determined that Indemnitee is entitled to indemnification, payment to
Indemnitee shall be made within ten (10) days after such determination.
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee's entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance
request any documentation or
<PAGE>
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs of expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating shall be borne by the
Company (irrespective of the determination), and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 7(b) of
this Agreement, the Independent Counsel shall be selected as provided in this
Section 7(c). If a Change of Control shall not have occurred, the Independent
Counsel shall be selected by the Board of Directors, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred, the Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board of Directors, in which event the preceding
sentence shall apply), and Indemnitee shall give written notice to the Company
advising it of the identity of the Independent Counsel so selected. In either
event, Indemnitee or the Company, as the case may be, may within 7 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection.
Such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 13 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court has determined that such objection is without merit.
If, within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 7(a) hereof, no Independent Counsel shall
have been selected or if selected, shall have been objected to, in accordance
with this Section 7(c), either the Company or Indemnitee may petition the Court
of Chancery of the State of Delaware or other court of competent jurisdiction
for resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the Court or by such
other person as the Court shall designate, and the person with respect to whom
an objection is favorably resolved or the person so appointed shall act as
Independent Counsel under Section 7(b) hereof. The Company shall pay any and all
reasonable fees and expenses of Independent Counsel incurred by such Independent
Counsel in connection with acting pursuant to Section 7(b) hereof, and the
Company shall pay all reasonable fees and expenses incident to the procedures of
this Section 7(c), regardless of the manner in which such Independent Counsel
was selected or appointed. Upon the due commencement of any judicial proceeding
or arbitration pursuant to Section 9(a)(iii) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in such
capacity (subject to the applicable standards of professional conduct then
prevailing).
8. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 7(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 7 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made such determination within 60 days after
receipt by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made, and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to
<PAGE>
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating
thereto; and provided, further, that the foregoing provisions of this Section
8(b) shall not apply (i) if the determination of entitlement to indemnification
is to be made by the shareholders pursuant to Section 7(b) of this Agreement and
if (A) within 15 days after receipt by the Company of the request for such
determination the Board of Directors has resolved to submit such determination
to the shareholders for their consideration at an annual meeting thereof to be
held within 75 days after such receipt and such determination is made thereat,
(B) a special meeting of shareholders is called within 15 days after such
receipt for the purpose of making such determination, such meeting is held for
such purpose within 60 days after having been so called and such determination
is made thereat, or (ii) if the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 7(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee 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 Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
9. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 7 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 6 of this Agreement, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 7(b) of
this Agreement and such determination shall not have been made and delivered in
a written opinion within 90 days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 of this Agreement within ten (10) days after receipt by the Company of a
written request therefor, or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 of this Agreement, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 9(a). The Company shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 7 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 9 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred in any
judicial proceeding or arbitration commenced pursuant to this Section 9, the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 7 or 8 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 9, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceedings or arbitration commenced pursuant to this Section 9 that the
procedures and presumptions of this Agreement are not
<PAGE>
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement.
(e) In the event that Indemnitee, pursuant to this Section 9,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 13 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
10. Security. To the extent requested by the Indemnitee and approved by
the Board, the Company may at any time and from time to time provide security to
the Indemnitee for the Company's obligations hereunder through an irrevocable
bank line of credit, funded trust, or other collateral. Any such security, once
provided to the Indemnitee, may not be revoked or released without the prior
written consent of Indemnitee.
11. Non-Exclusivity; Duration of Agreement, Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Company's certificate of incorporation or by-laws, any other agreement,
a vote of shareholders or a resolution of directors, or otherwise. This
Agreement shall continue until and terminate upon the later of: (a) 10 years
after the date that Indemnitee shall have ceased to serve as a director or
officer of the Company or fiduciary of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise on which Indemnitee
served at the request of the Company; or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 9 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and his heirs, executors
and administrators.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors and officers of the
Company or fiduciaries of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director or officer under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee who shall execute all papers required and take all action
necessary to secure such rights including execution of such documents as are
necessary to enable the Company to bring suit to enforce such rights.
<PAGE>
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
12. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, each portion of any Section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
13. Exception to Right of Indemnification or Advancement of Expenses.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding, or any claim therein, brought or made by him against
the Company.
14. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Company
of a nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not the Company is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities without the prior approval of at
least two-thirds of the members of the Board of Directors in office immediately
prior to such person attaining such percentage interest; (ii) the Company is a
party to a merger, consolidation, sale of assets or other reorganization, or a
proxy contest, as a consequence of which members of the Board of Directors in
office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (including for this purpose any new director whose
election or nomination for election by the Company's shareholders was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute at
least a majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or
was or has agreed to become a director of the Company, or is or was an officer
or fiduciary of the Company or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which such person is
or was serving at the request of the Company.
(c) "Disinterested Directors" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend or investigating a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to
<PAGE>
represent: (i) the Company or Indemnitee in any matter material to either such
party, or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(f) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, arising on
or after the date of this Agreement (and regardless of when the Indemnitee's act
or failure to act occurred), except one initiated by an Indemnitee pursuant to
Section 9 of this Agreement to enforce his rights under this Agreement.
15. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
16. Modification and Waiver. This Agreement may be amended from time to
time to reflect changes in Delaware law or for other reasons. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
17. Notice by Indemnitee. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder, provided, however, that the failure to give any such notice
shall not disqualify the Indemnitee from indemnification hereunder.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
Edward D. DiLuigi
c/o Brown & Sharpe Manufacturing Company
Precision Park
200 Frenchtown Road
North Kingstown, RI 02852-1700
(b) If to the Company, to:
Secretary
Brown & Sharpe Manufacturing Company
Precision Park
200 Frenchtown Road
North Kingstown, RI 02852-1700
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
19. Governing Law. The parties agree that this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
Attest: Brown & Sharpe Manufacturing Company
By: By:
----------------------- -----------------------
Secretary Frank T. Curtin
Chairman of the Board
President & Chief Executive
Officer
Indemnitee
---------------------------
Edward D. DiLuigi
<PAGE>
EXHIBIT 10.87
INDEMNITY AGREEMENT
---------------------
THIS AGREEMENT, made and entered into on and as of this 8th day of
September, 1997, (the "Agreement"), is by and between Brown & Sharpe
Manufacturing Company, a Delaware corporation, (the "Company", which term shall
include any one or more of its subsidiaries where appropriate), and Philip James
(the "Indemnitee"):
RECITALS
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and,
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and,
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the difficulty in attracting and retaining such persons is
detrimental to the best interests of the Company's shareholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and,
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and,
WHEREAS, Indemnitee is willing to serve, continue to serve and/or to
take on additional service for or on behalf of the Company on the condition that
he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Services by Indemnitee. Indemnitee agrees to serve or continue to
serve as an officer of the Company. This Agreement shall not impose any
obligation on the Indemnitee or the Company to continue the Indemnitee's
position with the Company beyond any period otherwise applicable.
2. General. The Company shall indemnify and shall advance Expenses
(as hereinafter defined) to Indemnitee as provided in this Agreement and to the
fullest extent permitted by law.
3. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status, (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
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 Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
4. Proceedings by or in the Right of the Company. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 4, if, by
reason of his Corporate Status, he is, or is threatened to
<PAGE>
be made, a party to any threatened, pending or completed Proceeding brought by
or in the right of the Company to procure a judgment in its favor. Pursuant to
this Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such 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 Company. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been adjudged to be liable to
the Company if such indemnification is not permitted by Delaware law; provided,
however, that indemnification against Expenses shall nevertheless be made by the
Company in such event to the extent that the Court of Chancery of the State of
Delaware, or the court in which such Proceeding shall have been brought or is
pending, shall determine.
5. Indemnification for Expenses of a Party who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal or
withdrawal, with or without prejudice, shall be deemed to be a successful result
as to such claim, issue or matter.
6. Advance of Expenses. The Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
7. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to Section 7(a) hereof, a determination, if required by applicable law,
with respect to Indemnitee's entitlement thereto shall be made in the specific
case: (i) if a Change in Control (as hereinafter defined) shall have occurred,
by Independent Counsel (as hereinafter defined) in a written opinion to the
Board of Directors, a copy of which shall be delivered to Indemnitee (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the shareholders, in which case the determination shall be made in
the manner provided below in clauses (ii) or (iii); (ii) if a Change of Control
shall not have occurred, (A) by the Board of Directors by a majority vote of a
quorum consisting of Disinterested Directors (as hereinafter defined), or (B) if
a quorum of the Board of Directors consisting of Disinterested Directors is not
obtainable or, even if obtainable, such quorum of Disinterested Directors so
directs, by Independent Counsel in a written opinion to the Board of Directors,
a copy of which shall be delivered to Indemnitee or (C) by the shareholders of
the Company; or (iii) as provided in Section 8(b) of this Agreement; and, if it
is so determined that Indemnitee is entitled to indemnification, payment to
Indemnitee shall be made within ten (10) days after such determination.
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee's entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance
request any documentation or
<PAGE>
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs of expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating shall be borne by the
Company (irrespective of the determination), and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 7(b) of
this Agreement, the Independent Counsel shall be selected as provided in this
Section 7(c). If a Change of Control shall not have occurred, the Independent
Counsel shall be selected by the Board of Directors, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred, the Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board of Directors, in which event the preceding
sentence shall apply), and Indemnitee shall give written notice to the Company
advising it of the identity of the Independent Counsel so selected. In either
event, Indemnitee or the Company, as the case may be, may within 7 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection.
Such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 13 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court has determined that such objection is without merit.
If, within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 7(a) hereof, no Independent Counsel shall
have been selected or if selected, shall have been objected to, in accordance
with this Section 7(c), either the Company or Indemnitee may petition the Court
of Chancery of the State of Delaware or other court of competent jurisdiction
for resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the Court or by such
other person as the Court shall designate, and the person with respect to whom
an objection is favorably resolved or the person so appointed shall act as
Independent Counsel under Section 7(b) hereof. The Company shall pay any and all
reasonable fees and expenses of Independent Counsel incurred by such Independent
Counsel in connection with acting pursuant to Section 7(b) hereof, and the
Company shall pay all reasonable fees and expenses incident to the procedures of
this Section 7(c), regardless of the manner in which such Independent Counsel
was selected or appointed. Upon the due commencement of any judicial proceeding
or arbitration pursuant to Section 9(a)(iii) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in such
capacity (subject to the applicable standards of professional conduct then
prevailing).
8. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 7(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 7 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made such determination within 60 days after
receipt by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made, and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to
<PAGE>
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating
thereto; and provided, further, that the foregoing provisions of this Section
8(b) shall not apply (i) if the determination of entitlement to indemnification
is to be made by the shareholders pursuant to Section 7(b) of this Agreement and
if (A) within 15 days after receipt by the Company of the request for such
determination the Board of Directors has resolved to submit such determination
to the shareholders for their consideration at an annual meeting thereof to be
held within 75 days after such receipt and such determination is made thereat,
(B) a special meeting of shareholders is called within 15 days after such
receipt for the purpose of making such determination, such meeting is held for
such purpose within 60 days after having been so called and such determination
is made thereat, or (ii) if the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 7(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee 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 Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
9. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 7 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 6 of this Agreement, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 7(b) of
this Agreement and such determination shall not have been made and delivered in
a written opinion within 90 days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 of this Agreement within ten (10) days after receipt by the Company of a
written request therefor, or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 of this Agreement, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 9(a). The Company shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 7 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 9 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred in any
judicial proceeding or arbitration commenced pursuant to this Section 9, the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 7 or 8 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 9, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceedings or arbitration commenced pursuant to this Section 9 that the
procedures and presumptions of this Agreement are not
<PAGE>
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement.
(e) In the event that Indemnitee, pursuant to this Section 9,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 13 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
10. Security. To the extent requested by the Indemnitee and approved by
the Board, the Company may at any time and from time to time provide security to
the Indemnitee for the Company's obligations hereunder through an irrevocable
bank line of credit, funded trust, or other collateral. Any such security, once
provided to the Indemnitee, may not be revoked or released without the prior
written consent of Indemnitee.
11. Non-Exclusivity; Duration of Agreement, Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Company's certificate of incorporation or by-laws, any other agreement,
a vote of shareholders or a resolution of directors, or otherwise. This
Agreement shall continue until and terminate upon the later of: (a) 10 years
after the date that Indemnitee shall have ceased to serve as a director or
officer of the Company or fiduciary of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise on which Indemnitee
served at the request of the Company; or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 9 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and his heirs, executors
and administrators.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors and officers of the
Company or fiduciaries of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director or officer under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee who shall execute all papers required and take all action
necessary to secure such rights including execution of such documents as are
necessary to enable the Company to bring suit to enforce such rights.
<PAGE>
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
12. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, each portion of any Section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
13. Exception to Right of Indemnification or Advancement of Expenses.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding, or any claim therein, brought or made by him against
the Company.
14. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Company
of a nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not the Company is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities without the prior approval of at
least two-thirds of the members of the Board of Directors in office immediately
prior to such person attaining such percentage interest; (ii) the Company is a
party to a merger, consolidation, sale of assets or other reorganization, or a
proxy contest, as a consequence of which members of the Board of Directors in
office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (including for this purpose any new director whose
election or nomination for election by the Company's shareholders was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute at
least a majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or
was or has agreed to become a director of the Company, or is or was an officer
or fiduciary of the Company or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which such person is
or was serving at the request of the Company.
(c) "Disinterested Directors" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend or investigating a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to
<PAGE>
represent: (i) the Company or Indemnitee in any matter material to either such
party, or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(f) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, arising on
or after the date of this Agreement (and regardless of when the Indemnitee's act
or failure to act occurred), except one initiated by an Indemnitee pursuant to
Section 9 of this Agreement to enforce his rights under this Agreement.
15. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
16. Modification and Waiver. This Agreement may be amended from time to
time to reflect changes in Delaware law or for other reasons. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
17. Notice by Indemnitee. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder, provided, however, that the failure to give any such notice
shall not disqualify the Indemnitee from indemnification hereunder.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
Philip James
c/o Brown & Sharpe Manufacturing Company
Precision Park
200 Frenchtown Road
North Kingstown, RI 02852
(b) If to the Company, to:
Secretary
Brown & Sharpe Manufacturing Company
Precision Park
200 Frenchtown Road
North Kingstown, RI 02852-1700
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
19. Governing Law. The parties agree that this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
Attest: Brown & Sharpe Manufacturing Company
By: By:
----------------------- -----------------------
Secretary Frank T. Curtin
Chairman of the Board
President & Chief Executive Officer
Indemnitee
---------------------------
Philip James
<PAGE>
EXHIBIT 10.88
INDEMNITY AGREEMENT
---------------------
THIS AGREEMENT, made and entered into on and as of this 13th day of
February, 1998, (the "Agreement"), is by and between Brown & Sharpe
Manufacturing Company, a Delaware corporation, (the "Company", which term shall
include any one or more of its subsidiaries where appropriate), and Brian Gaunt
(the "Indemnitee"):
RECITALS
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and,
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and,
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the difficulty in attracting and retaining such persons is
detrimental to the best interests of the Company's shareholders and that the
Company should act to assure such persons that there will be increased certainty
of such protection in the future; and,
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and,
WHEREAS, Indemnitee is willing to serve, continue to serve and/or to
take on additional service for or on behalf of the Company on the condition that
he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Services by Indemnitee. Indemnitee agrees to serve or continue to
serve as an officer of the Company. This Agreement shall not impose any
obligation on the Indemnitee or the Company to continue the Indemnitee's
position with the Company beyond any period otherwise applicable.
2. General. The Company shall indemnify and shall advance Expenses
(as hereinafter defined) to Indemnitee as provided in this Agreement and to the
fullest extent permitted by law.
3. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status, (as hereinafter
defined), he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding (as hereinafter defined), other than a
Proceeding by or in the right of the Company. Pursuant to this Section 3,
Indemnitee shall be indemnified against expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
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 Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
4. Proceedings by or in the Right of the Company. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 4, if, by
reason of his Corporate Status, he is, or is threatened to
<PAGE>
be made, a party to any threatened, pending or completed Proceeding brought by
or in the right of the Company to procure a judgment in its favor. Pursuant to
this Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with such 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 Company. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter as to which Indemnitee shall have been adjudged to be liable to
the Company if such indemnification is not permitted by Delaware law; provided,
however, that indemnification against Expenses shall nevertheless be made by the
Company in such event to the extent that the Court of Chancery of the State of
Delaware, or the court in which such Proceeding shall have been brought or is
pending, shall determine.
5. Indemnification for Expenses of a Party who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal or
withdrawal, with or without prejudice, shall be deemed to be a successful result
as to such claim, issue or matter.
6. Advance of Expenses. The Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
7. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to Section 7(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in the specific case:
(i) if a Change in Control (as hereinafter defined) shall have occurred, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board
of Directors, a copy of which shall be delivered to Indemnitee (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the shareholders, in which case the determination shall be made in
the manner provided below in clauses (ii) or (iii); (ii) if a Change of Control
shall not have occurred, (A) by the Board of Directors by a majority vote of a
quorum consisting of Disinterested Directors (as hereinafter defined), or (B) if
a quorum of the Board of Directors consisting of Disinterested Directors is not
obtainable or, even if obtainable, such quorum of Disinterested Directors so
directs, by Independent Counsel in a written opinion to the Board of Directors,
a copy of which shall be delivered to Indemnitee or (C) by the shareholders of
the Company; or (iii) as provided in Section 8(b) of this Agreement; and, if it
is so determined that Indemnitee is entitled to indemnification, payment to
Indemnitee shall be made within ten (10) days after such determination.
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee's entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance
request any documentation or
<PAGE>
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs of expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating shall be borne by the
Company (irrespective of the determination), and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 7(b) of
this Agreement, the Independent Counsel shall be selected as provided in this
Section 7(c). If a Change of Control shall not have occurred, the Independent
Counsel shall be selected by the Board of Directors, and the Company shall give
written notice to Indemnitee advising him of the identity of the Independent
Counsel so selected. If a Change of Control shall have occurred, the Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board of Directors, in which event the preceding
sentence shall apply), and Indemnitee shall give written notice to the Company
advising it of the identity of the Independent Counsel so selected. In either
event, Indemnitee or the Company, as the case may be, may within 7 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection.
Such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 13 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court has determined that such objection is without merit.
If, within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 7(a) hereof, no Independent Counsel shall
have been selected or if selected, shall have been objected to, in accordance
with this Section 7(c), either the Company or Indemnitee may petition the Court
of Chancery of the State of Delaware or other court of competent jurisdiction
for resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the Court or by such
other person as the Court shall designate, and the person with respect to whom
an objection is favorably resolved or the person so appointed shall act as
Independent Counsel under Section 7(b) hereof. The Company shall pay any and all
reasonable fees and expenses of Independent Counsel incurred by such Independent
Counsel in connection with acting pursuant to Section 7(b) hereof, and the
Company shall pay all reasonable fees and expenses incident to the procedures of
this Section 7(c), regardless of the manner in which such Independent Counsel
was selected or appointed. Upon the due commencement of any judicial proceeding
or arbitration pursuant to Section 9(a)(iii) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in such
capacity (subject to the applicable standards of professional conduct then
prevailing).
8. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 7(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 7 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made such determination within 60 days after
receipt by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made, and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to
<PAGE>
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating
thereto; and provided, further, that the foregoing provisions of this Section
8(b) shall not apply (i) if the determination of entitlement to indemnification
is to be made by the shareholders pursuant to Section 7(b) of this Agreement and
if (A) within 15 days after receipt by the Company of the request for such
determination the Board of Directors has resolved to submit such determination
to the shareholders for their consideration at an annual meeting thereof to be
held within 75 days after such receipt and such determination is made thereat,
(B) a special meeting of shareholders is called within 15 days after such
receipt for the purpose of making such determination, such meeting is held for
such purpose within 60 days after having been so called and such determination
is made thereat, or (ii) if the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 7(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee 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 Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
9. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 7 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 6 of this Agreement, (iii) the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 7(b) of
this Agreement and such determination shall not have been made and delivered in
a written opinion within 90 days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
5 of this Agreement within ten (10) days after receipt by the Company of a
written request therefor, or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 8 of this Agreement, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 9(a). The Company shall not oppose
Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 7 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 9 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred in any
judicial proceeding or arbitration commenced pursuant to this Section 9, the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 7 or 8 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 9, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceedings or arbitration commenced pursuant to this Section 9 that the
procedures and presumptions of this Agreement are not
<PAGE>
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement.
(e) In the event that Indemnitee, pursuant to this Section 9,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 13 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
or advancement of expenses sought, the expenses incurred by Indemnitee in
connection with such judicial adjudication or arbitration shall be appropriately
prorated.
10. Security. To the extent requested by the Indemnitee and approved by
the Board, the Company may at any time and from time to time provide security to
the Indemnitee for the Company's obligations hereunder through an irrevocable
bank line of credit, funded trust, or other collateral. Any such security, once
provided to the Indemnitee, may not be revoked or released without the prior
written consent of Indemnitee.
11. Non-Exclusivity; Duration of Agreement, Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Company's certificate of incorporation or by-laws, any other agreement,
a vote of shareholders or a resolution of directors, or otherwise. This
Agreement shall continue until and terminate upon the later of: (a) 10 years
after the date that Indemnitee shall have ceased to serve as a director or
officer of the Company or fiduciary of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise on which Indemnitee
served at the request of the Company; or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Section 9 of this Agreement relating
thereto. This Agreement shall be binding upon the Company and its successors and
assigns and shall inure to the benefit of Indemnitee and his heirs, executors
and administrators.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors and officers of the
Company or fiduciaries of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director or officer under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee who shall execute all papers required and take all action
necessary to secure such rights including execution of such documents as are
necessary to enable the Company to bring suit to enforce such rights.
<PAGE>
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
12. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including, without limitation, each portion of any Section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
13. Exception to Right of Indemnification or Advancement of Expenses.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding, or any claim therein, brought or made by him against
the Company.
14. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Company
of a nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934
(the "Act"), whether or not the Company is then subject to such reporting
requirement; provided, however, that, without limitation, such a Change in
Control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities without the prior approval of at
least two-thirds of the members of the Board of Directors in office immediately
prior to such person attaining such percentage interest; (ii) the Company is a
party to a merger, consolidation, sale of assets or other reorganization, or a
proxy contest, as a consequence of which members of the Board of Directors in
office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (including for this purpose any new director whose
election or nomination for election by the Company's shareholders was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period) cease for any reason to constitute at
least a majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or
was or has agreed to become a director of the Company, or is or was an officer
or fiduciary of the Company or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which such person is
or was serving at the request of the Company.
(c) "Disinterested Directors" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend or investigating a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to
<PAGE>
represent: (i) the Company or Indemnitee in any matter material to either such
party, or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(f) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, arising on
or after the date of this Agreement (and regardless of when the Indemnitee's act
or failure to act occurred), except one initiated by an Indemnitee pursuant to
Section 9 of this Agreement to enforce his rights under this Agreement.
15. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
16. Modification and Waiver. This Agreement may be amended from time to
time to reflect changes in Delaware law or for other reasons. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
17. Notice by Indemnitee. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder, provided, however, that the failure to give any such notice
shall not disqualify the Indemnitee from indemnification hereunder.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
Brian Gaunt
DEA - Brown & Sharpe S.p.A.
Strada del Portone 113
10095 Grugliasco - TO
Italy
(b) If to the Company, to:
Secretary
Brown & Sharpe Manufacturing Company
Precision Park
200 Frenchtown Road
North Kingstown, RI 02852-1700
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
19. Governing Law. The parties agree that this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Delaware.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
Attest: Brown & Sharpe Manufacturing Company
By: By:
----------------------- -----------------------
Secretary Frank T. Curtin
Chairman of the Board
President & Chief Executive Officer
Indemnitee
---------------------------
Brian Gaunt
<PAGE>
EXHIBIT 10.89
BROWN & SHARPE MANUFACTURING COMPANY
Supplemental Executive Retirement Plan
---------------------------------------
(February 13, 1998)
1. Purpose and Nature of Plan. This Plan is intended to provide
--------------------------
supplemental retirement benefits to certain key employees and former employees
of Brown & Sharpe Manufacturing Company (the "Company"). The Plan is not
intended to be a tax-qualified plan. Although the Company reserves the right to
establish a so-called grantor trust or another funding medium or investment
vehicle to provide for the payment of benefits hereunder, nothing in the Plan
will be construed to create a trust or to obligate the Company or any other
person to segregate a fund, purchase an insurance contract, or in any other way
currently to fund the future payment of any benefits hereunder, nor will
anything herein be construed to give any employee or any other person rights to
any specific assets of the Company or of any other person.
2. Meaning of Terms. Except as may otherwise be clearly indicated by
----------------
the context, for purposes of the Plan the following terms shall have the
following meanings:
. "Administrator" has the meaning given it in Section 3.
. "Board" means the Board of Directors of the Company.
. "Change in Control" means a change in control of the
Company as defined in Exhibit A.
. "Code" means the Internal Revenue Code of 1986, as
from time to time amended.
. "Committee" means the Compensation and Nominating
Committee of the Board.
. "Company" means Brown & Sharpe Manufacturing Company
and any successor to all or a major portion of its business or assets.
. "Eligible Employee" means an individual who (i) is employed
by the Company or a subsidiary of the Company, (ii) is a U.S. citizen
or resident, (iii) is individually designated (or is a member of a
classification of persons designated) by the Committee as eligible to
participate in the Plan, and (iv) satisfies the requirements of the
following sentence. No person shall be eligible to participate in the
Plan unless he or she (A) is the Chief Executive Officer of the
Company, or (B) reports directly to the Chief Executive Officer of the
Company, or (C) in the case of a division or group general manager,
reports directly to an individual described in (B), or (D) reports
directly to an individual described in (B) or (C).
. "ESOP" means the Brown & Sharpe Employee Stock Ownership
Plan as from time to time in effect.
. "Investment Alternative" means any of the mutual funds or
other market-based investments, including common stock of the Company,
designated from time to time by the Committee as notional investment
options for that portion of a Participant's Plan account attributable
to credits under Section 5. The Committee may at any time and from time
to time change the Investment Alternatives available under the Plan,
including as to amounts already accrued or deferred hereunder.
. "Investment Date" means the date fixed by the Committee for
initiating the use of Investment Alternatives to adjust the balances of
Section 5 Accounts.
<PAGE>
. "Non-Directed Account" has the meaning given it in
Section 7.
. "Nondiscretionary Fund" means, from and after the Investment
Date, the investment fund or funds designated by the Committee as the
measure of notional investment return for the Non-Directed Account. It
is anticipated that upon and after the establishment of a "rabbi trust"
or similar fund permissible under Section 1, the Nondiscretionary Fund
shall consist of the investments of that portion of the assets of such
trust or fund accumulated to help meet the Company's obligations
hereunder with respect to the Non-Directed Account.
. "Plan" means the Brown & Sharpe Manufacturing Company
Supplemental Executive Retirement Plan as set forth herein, together
with any and all amendments hereto.
. "Participant" means an Eligible Employee who participates in
deferrals under the Plan or for whom one or more accounts are
maintained under the Plan.
. "Salary" has the same meaning as the term "Salary" under the
Savings Plan, determined without regard to the limitations described in
Section 401(a)(17) of the Code and any corresponding limitation
language in the Savings Plan and without regard to any deferrals
hereunder.
. "Savings Plan" means the Brown & Sharpe Savings and
Retirement Plan for Management Employees as from time to time in
effect.
. "Section 5 Account" has the meaning given it in Section 7.
. "Subject Rate" means, for any period prior to the Investment
Date, the rate credited for that year with respect to amounts invested
in the Guaranteed Interest Fund within the Savings Plan; provided, that
if for any period the Guaranteed Interest Fund (or a comparable fund
investing in guaranteed interest contracts) shall no longer be
maintained within the Savings Plan, the Subject Rate shall be the prime
rate as in effect at Rhode Island Hospital Trust National Bank; and
further provided, that the Committee may at any time prior to the
beginning of a year fix a Subject Rate for such year different than the
rate determined in accordance with the foregoing.
3. Administration. The Plan shall be administered by the Committee,
--------------
which shall serve as "plan administrator" for purposes of ERISA, and by such
person or persons, if any, as the Committee may appoint to assist it in such
administration (the Committee and such persons being hereinafter referred to as
the "Administrator"). The Administrator shall have the discretionary authority
to construe the Plan, determine all questions relating to eligibility for or the
amount of benefits payable under the Plan, prescribe such forms and procedures
as it or they deem necessary or appropriate for the administration of the Plan,
and generally to determine all matters pertaining to the administration of the
Plan. The Committee's determination in any such matter shall be final and
binding on all parties.
If any person claims any benefit hereunder, the Administrator shall
make and communicate its decision with respect to the claim within 90 days from
the date the claim was received. Where special circumstances require additional
time for processing the claim, the ninety-day response period may be extended by
the plan administrator to 180 days. If the Administrator does not render a
written determination prior to the expiration of such 90-day (or 180-day)
period, the claim will be deemed denied. If a claim hereunder is denied, the
claimant may, within 60 days of such denial, appeal the denial by written
request for review delivered to the Committee, which request may include a
request to review pertinent documents and to submit issues and comments in
writing. The Committee shall render a decision on the appeal within 60 days (or,
if special circumstances require an extension of the time for processing, 120
days) after receipt of the request for review; but if no written decision is
rendered within such period(s), the appeal will be deemed denied.
<PAGE>
4. Participation. Each Eligible Employee shall be notified of his or
-------------
her eligibility to participate in the Plan as soon as practicable after
designation by the Committee. In order to elect deferrals under the Plan, a
Participant must enter into an agreement with the Company, in such form as the
Administrator shall approve or prescribe, providing for deferral of future
Salary in accordance with the rules set forth in Section 5 below. Any
Participant with amounts deferred under the Plan (or his or her surviving
beneficiary, in the event of the Participant's death), shall remain a
Participant until all amounts credited to his or her account have been paid out,
or until the termination of the Plan if earlier.
5. Deferral Elections. For any year commencing on or after January 1,
------------------
1988 a Participant may elect to defer any number of whole percentage points
between 1 and 50 (or such other percentage limit, if any, as the Administrator
may specify for such year) of his or her Salary payable in such year (including
bonuses that may be attributable in part to services in prior periods). The
Participant may also elect that, in the event the aggregate of elective
contributions to the Savings Plan for his or her benefit for such year are
prospectively reduced by the plan administrator under the Savings Plan on
account of the nondiscrimination requirements of section 401(k) of the Code or
the limitations of sections 402(g) or 415 of the Code (including the
corresponding provisions of the Savings Plan), an amount equal to such reduction
shall be automatically deferred hereunder rather than paid currently to the
Participant. Each election hereunder shall be made in writing prior to the
commencement of the year of reference and shall be effective beginning with the
first pay period in such year, except that a person who becomes an Eligible
Employee prior to December 1 of a given year may elect to participate hereunder
for the remainder of such year by submitting a properly executed election within
thirty (30) days of becoming eligible to participate, such election to take
effect with the first pay period following the receipt of such election by the
Company. An election once made hereunder shall continue in force from year to
year unless revoked or altered as to Salary to be earned in a subsequent year.
6. Additional Credits. For each year in which an Eligible Employee
------------------
is a participant in either the Savings Plan or the ESOP, or both, there shall be
credited to the Eligible Employee's account hereunder an amount equal to the
excess, if any, of (a) over (b), where
(a) is the aggregate for such year of all Company contributions,
other than elective contributions under the Savings Plan but including
allocations from the ESOP supplemental suspense account (such ESOP
allocations to be valued for purposes of this paragraph in the same manner
as for purposes of determining "annual additions" under paragraph (b)
below), that would have been allocated to the Eligible Employee's accounts
under the Savings Plan or the ESOP but for the limitations of section 415
or section 401(a)(17) of the Code and the corresponding limitation language
of those plans, and
(b) is the aggregate of the "annual additions" (as defined in
section 415(c) of the Code) actually made to or allocated under the Savings
Plan and the ESOP for such year for the benefit of the Eligible Employee,
other than elective contributions for his or her benefit for such year
under the Savings Plan.
7. Accounts. For each Participant there shall be maintained hereunder
--------
memorandum accounts to which shall be credited amounts deferred under Section 5
and any other credits made under the Plan (including credits, if any, under
Section 6). Amounts deferred under Section 5 shall be allocated to accounts as
of the end of the calendar quarter in which the corresponding Salary, if paid in
cash, would have been paid. Amounts credited under Section 6 or Section 9 shall
be allocated as of the end of the year or at such other time or times as the
Administrator may determine. From and after the Investment Date there shall be
separate accounting for amounts described in Section 5 and related notional
investment experience (the "Section 5 Account") and other balances under the
Plan (the "Non-Directed Account").
Effective as of the Investment Date, each Participant's Section 5
Account, if any, adjusted for interest at the Subject Rate through the
immediately preceding day, shall be treated (solely for purposes of the Plan) as
having been invested in such Investment Alternative or Investment Alternatives
as the Participant shall have selected from among those made available under the
Plan, or in the absence of
<PAGE>
such a Participant selection in such Investment Alternative or Alternatives as
the Administrator may determine. Each Participant with a Section 5 Account shall
be entitled thereafter, by written notice to the Company, to reallocate the
notional investment of such Account (as the same may be adjusted for additional
credits, distributions, or notional investment experience under this paragraph)
among the Investment Alternative or Alternatives made available under the Plan,
any such change to take effect as of the beginning of the calendar quarter
(i.e., January 1, April 1, July 1 or October 1) next following receipt by the
Company of such change notice. All Participant selections of or changes in
notional investments under this paragraph shall be made by written notice
delivered to the Company. The Administrator may prescribe such additional rules
and procedures for the notional investment of Section 5 Accounts as it deems
advisable.
As of the end of each calendar quarter (i.e., March 31, June 30,
September 30 and December 31) and as of the Investment Date there shall be
allocated to each Non-Directed Account notional interest at an annual rate equal
to the Subject Rate. Thereafter, each Non-Directed Account shall be adjusted for
notional investment experience as though invested (as of the Investment Date) in
the Nondiscretionary Fund.
A Participant's account or accounts shall continue to be maintained and
adjusted for notional interest or other notional investment experience until
distributed in full.
8. Distribution. Subject to such restrictions and limitations as the
------------
Administrator may impose, benefits under the Plan shall be distributed as
follows. In connection with his or her initial participation in the Plan (or by
March 31, 1998, if later), each Participant shall elect, in such manner and form
as the Administrator may determine and separately as to the Participant's
Section 5 Account and vested Non-Directed Account under the Plan, how such
Accounts (as the same may accumulate and be adjusted in the future) shall be
paid from among the following options:
(a) A lump sum payment within 20 days of termination of
employment.
(b) Three annual installments, the first such installment (equal
to one-third of the Participant's vested Account) being paid within 20 days
of termination of employment, the second installment (equal to one-half of
the vested Account remaining after the first installment, as adjusted for
notional investment experience) being paid on the first anniversary of the
termination of employment, and the third and final installment (equal to
the entirety of the vested Account remaining after the first and second
installments, as adjusted for notional investment experience) being paid on
the second anniversary of the termination of employment.
(c) A single life annuity, payable monthly for the Participant's
life commencing with the first day of the month coinciding with or next
following the Participant's termination of employment and ending with the
month of the Participant's death, that is the actuarial equivalent of the
Participant's vested Account hereunder at termination of employment
determined by the Administrator using the actuarial assumptions set forth
in Exhibit B.
(d) A 50% joint and survivor annuity (that is actuarially
equivalent to the Participant's vested Account hereunder at termination of
employment determined by the Administrator using the actuarial assumptions
set forth in Exhibit B) providing monthly payments to the Participant
commencing with the first day of the month coinciding with or next
following the Participant's termination of employment, with 50% of such
monthly amount being paid thereafter to the person to whom the Participant
was married at the date annuity payments to the Participant commenced or to
such other person as the Participant may designate with the consent of the
Administrator (the "contingent annuitant"), provided the contingent
annuitant survives the Eligible Employee, with the last such payment being
made for the month in which the contingent annuitant dies.
A Participant who has made an initial election as described above may
change such election by delivering a notice of such change, in such form and
manner as the Administrator may determine, to the Administrator not later than
December 31 of the second calendar year preceding the calendar year in
<PAGE>
which termination of employment occurs. Any change in form of payment with
respect to a Participant's Section 5 Account or vested Non-Directed Account, as
the case may be, upon becoming effective shall apply to the entirety of such
Account, including future accumulations, if any, unless later changed again in
accordance with this Section. If a Participant's employment terminates prior to
January 1 of the second year following the year in which he or she has made a
change in election described above, his or her vested Accounts, if any, shall be
distributed in accordance with the most recent distribution elections applicable
to such Accounts. In the absence of an effective election with respect to a
Participant's Section 5 Account or vested Non-Directed Account, as the case may
be, the entirety of such vested Account, if any, shall be distributed in
accordance with the election, if any, in effect with respect to the remainder of
the Participant's vested interest in the Plan, and in the absence of any such
election in three annual installments as described at (b) above. Notwithstanding
the foregoing, the distribution alternatives described at (c) and (d) above
shall not be available with respect to any Account if the totality of the
Participant's vested Accounts at termination of employment have a balance of
$50,000 or less. In the event any Participant has made an otherwise effective
election to have his or her Section 5 Account or vested Non-Directed Account
distributed under an alternative described at (c) or (d) above, but the totality
of the Participant's vested Accounts at termination of employment have a balance
of $50,000 or less, distribution shall be made in three annual installments as
described at (b) above. If a Participant effectively elects the form of
distribution described in (b) above and dies or becomes disabled (as determined
by the Administrator) during the installment distribution period, the
Administrator may provide for immediate payment of the remaining balance in the
Participant's Account.
Notwithstanding the foregoing, the Company prior to a Change in Control
may defer distributions hereunder (but not beyond a Change in Control) to the
extent it determines that the distributable amount, if not deferred, would
(together with other compensation paid to the Eligible Employee) result in
amounts that are not deductible to the Company by reason of Section 162(m) of
the Code. Any distributable amount deferred under the preceding sentence shall
continue to earn notional interest at the Subject Rate pursuant to Section 7
above until actually paid.
9. Additional Accounts. In addition to credits under Section 5 or
-------------------
Section 6 above, the Committee in its sole discretion may provide for
discretionary credits hereunder with respect to any employee or former employee
of the Company who is designated by the Committee, whether or not such employee
is otherwise designated an Eligible Employee with rights of participation under
the Plan. Any credits under this Section 9 shall be allocated to the
Participant's Non-Directed Account and, if there are other amounts allocated to
such Account, shall be separately accounted for as a sub-account of such
Account. The Committee may impose such vesting rules as it may determine on an
individual's right to receive a distribution in respect of any amounts described
in this Section. Subject to such vesting rules, the balance of any account
maintained under this Section 9 shall be distributed at such time or times and
in such manner as the Committee shall determine, subject, however, to the
provisions of Section 15 below.
10. Death. In the event a Participant hereunder should die prior to
-----
complete distribution of his or her accounts, the remaining balance of such
accounts shall be distributed as soon as practicable thereafter in a lump-sum
payment to the Participant's designated beneficiary or beneficiaries. A
Participant may at any time specify or add a beneficiary, or revoke an existing
beneficiary designation, by notice in writing delivered to the Secretary of the
Company. If the Participant dies without a beneficiary designation in effect,
the death benefit payable hereunder shall be paid to the Participant's estate.
11. No Assignment. No Participant and no beneficiary of a Participant
-------------
shall have any right to assign or otherwise alienate the right to receive
payments hereunder, in whole or in part.
12. Taxes. All distributions from the Plan shall be subject to, and
-----
reduced by, applicable tax withholding. To the extent amounts deferred under the
Plan are determined by the Company to be subject to FICA or Medicare tax at time
of deferral or at any later time prior to distribution, the Company in its
discretion may withhold the required taxes from other amounts payable to the
Eligible Employee or may require the Eligible Employee to pay the required taxes
by separate check; but if the required taxes
<PAGE>
are not so paid or withheld, the Eligible Employee's account balance hereunder
shall be appropriately reduced.
13. Amendment; Termination. The Committee or the Board may terminate
----------------------
and the Board may at any time and from time to time amend the Plan; provided,
that no such amendment to the definition of "Change in Control" shall be
effective as to any Participant without his or her consent; further provided,
that no amendment or termination following a Change in Control shall affect the
rights of Participants to an immediate payment of amounts deferred or credited
under the Plan prior to the Change in Control; and further provided, that
accounts maintained under the Plan shall continue to be adjusted for notional
interest or other notional earnings until distributed in full. If the Committee
in its sole discretion should at any time deem it necessary to preserve the
qualification of the plan under Title I of the Employee Retirement Income
Security Act of 1974, as amended, as a plan maintained primarily for the purpose
of providing deferred compensation for a select group of management or highly
compensated employees, it may terminate the Plan solely as to those Participants
whose continued participation in the Plan would or, in the determination of the
Committee, might cause the Plan to fail to be so qualified. Upon termination of
the Plan as to any individual, no further deferrals or credit under Section 5 or
6 shall be made in respect of such individual, and the Committee in its sole
discretion may elect to accelerate the payment of any or all of such
individual's remaining benefits under the Plan.
14. No Employment Rights. Nothing in this Plan shall be construed as
--------------------
giving any person rights to be employed or remain employed by the Company or to
receive any remuneration from the Company, except payment of deferrals and
credits as described above. Nothing in this Plan shall be construed as
obligating the Company in any way to maintain either the Savings Plan or the
ESOP. By participating in the Plan, each Eligible Employee affirms and
acknowledges the Company's absolute right, subject only to the limitations of
law, to make such changes in the Saving Plan and the ESOP as the Company may
from time to time see fit, or to terminate one or both of those plans if it so
chooses.
15. Acceleration Upon Change in Control. In the event of a Change in
-----------------------------------
Control, all amounts theretofore deferred or credited under the Plan shall
become immediately due and payable and shall be distributed in a lump sum not
later than by the 60th day following the Change in Control.
16. Governing law. The Plan shall be construed under the laws of the
-------------
State of Delaware.
<PAGE>
Exhibit A
Change in Control
---------------------
A "Change in Control" shall be deemed to have occurred if:
(a) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "1934 Act") (other than (i)
the Company; (ii) any subsidiary of the Company; (iii) any trustee or other
fiduciary holding securities under an employee benefit plan of the Company or of
any subsidiary of the Company; or (iv) any company owned, directly or
indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of Stock of the Company), is or becomes the
"beneficial owner" (as defined in Section 13(d) of the 1934 Act), together with
all Affiliates and Associates (as such terms are used in Rule 12b-2 of the
General Rules and Regulations under the 1934 Act) of such person, directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; or
(b) the shareholders of the Company approve a merger or consolidation
of the Company with any other company, other than (i) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity), in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any
subsidiary of the Company, at least 65% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or (ii) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no "person" (with the exception given and the
method of determining 'beneficial ownership' used in clause (a) of this
definition) acquires more than 30% of the combined voting power of the Company's
then outstanding securities; or
(c) during any period of two consecutive years (not including any
period prior to the execution of the Plan), individuals who, at the beginning of
such period, constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (a), (b), or (d) of this definition)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved
cease for any reason to constitute at least a majority thereof; or
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
<PAGE>
Exhibit B
Actuarial Assumptions
---------------------
Interest rate: 7.5%
Mortality: 1983 Group Annuity Mortality Table (male rates)
<PAGE>
EXHIBIT 11
BROWN & SHARPE MANUFACTURING COMPANY
----------------------------------------
STATEMENT REGARDING COMPUTATION OF PER SHARE DATA*
----------------------------------------------------
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Dec. 31, Dec. 31, Dec. 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic
Average shares outstanding 13,257 9,670 8,773
--------- --------- --------
Total 13,257 9,670 8,773
========= ========= ========
Net (loss) income $ (10,530) $ 7,805 $ 1,926
========= ========= ========
Per share amount $ (0.79) $ 0.81 $ 0.22
========= ========= ========
Diluted
Average shares outstanding 13,257 9,670 8,773
Net effect of dilutive stock options -- based on the
treasury stock method using the year-end market
price, if higher than average market price 134 266 143
--------- ---------- ---------
Total 13,391 9,936 8,916
========= ========== =========
Net (loss) income $ (10,530) $ 7,805 $ 1,926
========= ========= ========
Per share amount $ (0.79) $ 0.79 $ 0.22
========= ========= ========
</TABLE>
<PAGE>
EXHIBIT 13
FINANCIAL SECTION
- --------------------------------------------------------------------------------
Brown & Sharpe Manufacturing Company
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Selected Financial Data............................................... F-2
Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... F-3
Consolidated Statements of Operations................................. F-10
Consolidated Balance Sheets........................................... F-11
Consolidated Statements of Cash Flows................................. F-12
Consolidated Statements of Shareowners' Equity........................ F-13
Notes to Consolidated Financial Statements............................ F-14
Report of Independent Auditors........................................ F-27
Common Stock Market Prices and Dividends.............................. F-28
</TABLE>
F-1
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(dollars in thousands, except per share data,
number of shareowners, and employees) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
OPERATIONS FOR THE YEAR:
Sales $322,513 $344,877 $328,031 $209,369 $159,518
Operating (loss) profit $ (3,644) $ 16,588 $ 11,064 $ (6,049) $ 604
Percent (1.1)% 4.8% 3.4% (2.9)% 0.4%
Net (loss) income $(10,530) $ 7,805 $ 1,926 $(14,335) $ (2,416)
Average shares outstanding
(thousands) 13,257 9,670 8,773 6,057 4,969
Per common share:
Basic $ (0.79) $ 0.81 $ 0.22 $ (2.37) $ (0.49)
Diluted $ (0.79) $ 0.79 $ 0.22 $ (2.37) $ (0.49)
AT YEAR-END:
Backlog $ 60,000 $ 51,000 $ 59,000 $ 61,000 $ 26,000
Assets $300,074 $314,448 $295,400 $272,274 $165,871
Current ratio 2.2:1 1.93:1 1.59:1 1.95:1 1.73:1
Long-term debt, including
current maturity $ 76,062 $ 68,497 $ 74,007 $ 73,420 $ 34,357
Total notes payable
and long-term debt $ 76,062 $ 69,206 $102,068 $ 92,613 $ 64,500
Equity $116,498 $140,400 $ 85,857 $ 78,925 $ 63,520
Per share $ 8.74 $ 10.63 $ 9.85 $ 9.12 $ 12.78
Long-term debt ratio .395 .328 .463 .482 .351
Shareowners of record 1,943 2,104 4,400 4,100 4,900
Employees 2,409 2,383 2,373 2,370 1,543
</TABLE>
(1) The 1997 operating loss includes a $16,220 restructuring charge. See Note 2
to the Consolidated Financial Statements for additional information. In
addition to the restructuring charge, the 1997 net loss includes a $1,346
loss arising from the sale of the Company's wholly-owned subsidiary,
Technicomp, Inc., and a $1,224 gain resulting from an exchange of shares of
common stock, which were held for investment.
(2) The consolidated financial data for the periods from 1997 to 1994 include
the results of operations and year-end data of DEA and Roch acquisitions.
(3) Net income for 1995 includes a $640 adjustment relating to a revaluation of
a 1994 foreign denominated liability recorded at an incorrect foreign
exchange rate. See Note 1 to Consolidated Financial Statements for further
information.
(4) In 1995, the Company changed its accounting period from a fiscal year ending
on the last Saturday in December to a calendar year ending on the last day
in December. All periods presented above contain 52 weeks, except 1993,
which contains 53 weeks.
F-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
In the fourth quarter of 1997, management implemented a Reorganization Plan
("the Plan") which included business processing reengineering at certain of its
European sites, as well as selected product rationalization in preparation for
new product introductions. In addition, the Measuring Systems Division's
marketing and service organization was also reorganized. The Plan provided for
a workforce reduction of approximately 160 persons, primarily in its European
operations. The Plan also provided for inventory adjustments and the write-down
of fixed assets and certain intangible assets. Management expects, based on its
analysis, that the Plan will generate approximately $5.0 million in pretax
savings in 1998, increasing to $9.0 million annually thereafter. Restructuring
expenses were recorded in the fourth quarter of 1997, due to the Plan, amounting
to $16.2 million ($1.22 per share), of which $5.4 million was recorded in cost
of goods sold with the balance recorded as a separate restructuring charge line
item as part of operating profit. $7.3 million of the $16.2 million charge will
require cash outlays in 1998, while the balance reflects asset write-downs.
Also during 1997, the Company disposed of certain non-strategic assets. In
the third quarter of 1997, the Company disposed of its wholly-owned subsidiary,
Technicomp, Inc., and recognized a loss of $1.3 million ($0.10 per share).
Technicomp was in the business of providing video training materials to the
manufacturing and services industries. During the fourth quarter of 1997, the
Company exchanged its shares of common stock held for investment in an unrelated
business for shares of common stock of a publicly traded company, which resulted
in a gain of $1.2 million ($0.09 per share). These shares were in turn sold
early in 1998 for an amount approximating the carrying value at December 31,
1997.
Excluding the effect of the restructuring expenses totaling $16.2 million and
the disposal of the two non-strategic assets discussed above, which resulted in
a net loss of $0.1 million, the 1997 results of operations would have resulted
in net income of $5.8 million ($0.44 per share). See Footnote 2 to the
Consolidated Financial Statements for further information regarding the
restructuring and other reorganization activities.
The Company currently operates entirely in the metrology industry through
three management units: the MS Division, which manufactures and markets manual
and computer-controlled, high precision CMMs and accounted for approximately 69%
of the Company's sales in 1997; the PMI Division, which manufactures mechanical
and electronic measuring and inspection tools and accounted for approximately
28% of the Company's sales in 1997; and the CM Division, which designs and
engineers specialty metrology products and systems primarily utilizing non-
contact technologies and accounted for approximately 3% of the Company's sales
in 1997. MS Division sales include revenue from aftermarket sales and service
for CMMs which the Company estimates, during 1997, comprised approximately 27%
of total MS Division sales. Approximately 60% of the Company's sales in 1997
were located outside the United States (based on customer location).
FORWARD LOOKING STATEMENTS
This "Management's Discussion and Analysis of Financial Condition and Results
of Operations" as well as other portions of this document contains forward
looking statements concerning the Company's operations, economic performance and
financial condition. Such statements are subject to various risks and
uncertainties, including those set forth in "Risk Factors," and actual
performance could differ materially from that currently anticipated by the
Company. In addition, this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Annual Report.
F-3
<PAGE>
RESULTS OF OPERATIONS
Sales.
Sales for 1997 were $322.5 million compared with 1996 sales of $344.9 million,
which is 6.5% below the 1996 level. The continuing strength of the U.S. dollar
caused $18.2 million of the $22.4 million decrease in 1997, because foreign
denominated sales, when translated to U.S. Dollars using lower exchange rates,
resulted in lower U.S. Dollar value sales for 1997 compared with 1996 sales.
When 1997 sales are translated at 1996 exchange rates, such 1997 sales amount to
$340.7 million. The $4.2 million sales decrease, determined by comparing 1997
and 1996 sales at the same exchange rate levels, was caused by a $2.9 million
and $2.6 million decrease in the MS and CM Divisions' sales, respectively,
offset by a $1.3 million increase in PMI Division sales.
The $2.9 million decrease for the MS Division was due to a decrease in machine
sales of approximately $7.0 million offset by an increase of approximately $4.1
million in service and software related revenue. The increase in service and
software revenue was due, primarily, to the inclusion of the sales of Automation
Software, Incorporated ("ASI") in the consolidated results of operations
beginning in August 1997, after the Company acquired the remaining 50% interest
in ASI in July 1997 (See Note 2 for further information). The $7.0 million
decrease in the MS Division machine sales was due to decreased unit sales in
1997, which were partially offset by increased unit selling prices. A
substantial portion of the reduced unit sales was due to problems and delays
with certain product introductions in early 1997 that impacted sales for much of
1997.
Sales for the CM Division decreased $2.6 million due to lower volume of sales
of can gauging machines. Offsetting decreased sales in MS and CM were increased
sales in PMI amounting to $1.3 million. The increased PMI sales resulted from
several new product offerings as well as additional sales in new market areas.
Sales increased $16.9 million to $344.9 million in 1996 from $328.0 million in
1995. Foreign currency exchange rate fluctuations caused a decrease in sales of
$4.9 million during 1996 as compared to an increase of $12.1 million in 1995.
Excluding these foreign currency effects, sales for 1996 increased 6.6%, or
$21.8 million, over 1995. The MS Group was responsible for approximately $19.8
million of the $21.8 million increase and the PMI and CM Divisions were
responsible for the remaining $2.0 million. The improvement in MS Group sales
was due to increased sales of more fully configured CMMs with higher sales
prices, along with an increase in unit volumes of lower priced CMMs. New
products and service revenue also contributed to the increase. The increase in
PMI Division sales was attributable to the U.S. catalog and distribution
business.
(Loss) Earnings.
The Company incurred a $10.5 million net loss in 1997. As discussed above,
the 1997 net loss included $16.2 million of restructuring expenses, as well as
$0.1 million loss due to the disposition of certain non-strategic assets.
Excluding the effect of the restructuring expenses and non-strategic asset
disposition, 1997 would have realized $5.8 million of net income, which compares
with $7.8 million in 1996.
The Company incurred a $3.6 million operating loss in 1997, which included
$16.2 million of restructuring expenses discussed above. Excluding the effect
of the restructuring charge, 1997 operating profit would have been $12.6 million
which is $4.0 million below the 1996 operating profit of $16.6 million. The
gross margin for 1997 was $103.7 million, which included $5.3 million of the
$16.2 million restructuring expenses. The $5.3 million charge was a result of
adjustments for inventory levels that exceed expected requirements resulting
from the Company's Reorganization Plan discussed above. When the $5.3 million
inventory adjustment is excluded from cost of goods sold, the 1997 gross margin
is $109.0 million, which is 33.8% of 1997 sales. This compares with a 1996
gross margin of $118.6 million, which was 34.4% of 1996 sales. The $9.6 million
decrease in 1997 gross margin is due, in part, to the use of lower 1997 foreign
exchange translation rates than in 1996, arising from the stronger U.S. Dollar,
which amounted to approximately $2.2 million. The remaining $7.4 million
decrease is due to lower gross margins amounting to $7.8 million and $1.2
million for the MS and CM Divisions, respectively, offset by an increased margin
of $1.6 million for the PMI Division. The reduced margin for the MS Division
was due to lower overhead absorption for certain more highly configured CMMs
produced by the Company's European
F-4
<PAGE>
operations, as well as increased costs for certain of its new products
introduced early in 1997. The lower gross margin for the CM Division was due to
unabsorbed overhead costs arising from reduced shipments. The $1.6 million
improvement in the PMI Division gross margins was primarily due to sales in the
United States of products produced outside of the United States where Dollar
denominated costs were lower in 1997 than in 1996, due to weaker European
currencies.
Selling, general, and administrative expenses ("SG&A") in 1997 were $5.6
million lower than 1996. After excluding the effect of the lower foreign
exchange rates in 1997, which amounted to $4.7 million, SG&A expenses in 1997
were slightly lower than 1996. Interest expense in 1997 was $1.9 million lower
than 1996 due to reduced level of borrowings in 1997, and other income in 1997
was $0.6 million higher than 1996 due, primarily, to increased interest income
of $0.5 million generated on average cash balances that were higher in 1997 than
in 1996.
Results in 1997 included a $1.6 million tax provision, although the Company
incurred a pretax loss of $9.0 million, because nearly all of the restructuring
expenses and loss on non-strategic asset dispositions receive no tax benefits.
There were no tax benefits for these special charges because most of the charges
are in tax jurisdictions with net operating loss carryforwards that, together
with circumstances specific to our entities there, prohibit recognition of the
benefits under generally accepted accounting principles. At the same time, the
Company has provided tax for income earned in certain jurisdictions which have
no available net operating losses. After adjusting for the restructuring
expenses and the non-strategic asset disposition, the 1997 effective tax rate
was 21.1%. In 1996 the Company was able to utilize substantially more net
operating losses to reduce its 1996 tax provision, which resulted in a lower
effective tax rate in 1996. See Note 2 to the Consolidated Financial Statements
for further information.
1996 net income amounted to $7.8 million, which compared with 1995 net income
of $1.9 million. The 1996 operating profit of $16.6 million was $5.5 million
higher than 1995. The improved operating profit was due to increased sales
volume and its positive impact on overhead absorption and gross margins, as well
as a better product mix. The stronger 1996 gross margin resulted from improved
gross margins for the MS Division arising from increased unit volumes of more
fully configured higher price CMMs offset only partially by increased unit
volumes of lower priced CMMs. The gross margin improvement of the MS Division
was offset partially by decreased gross margins in the PMI and CM Divisions of
4.5% and 4.1%, respectively. PMI's lower gross margin was due to less
absorption of fixed costs as the division reduced its inventory level and
production requirements and incurred some start up costs for new products. CM's
lower gross margin was due to unfavorable volume variances.
SG&A decreased $2.0 million in 1996 from 1995 levels. There was a $1.8
million loss from foreign currency transactions in 1996, which compared with a
$0.6 million gain in 1995, and agents' commissions increased $0.6 million in
1996 from the 1995 level of $7.7 million. These increased 1996 costs were
offset by reductions in certain duplicative distribution, management and
administrative functions in the MS and PMI Divisions. Interest expense
decreased $0.8 million in 1996 compared with 1995 amounts due to decreased
average borrowings in 1996. The decrease in borrowings in 1996 occurred after
an equity offering in October 1996. The effective tax for 1996 was
significantly lower than the 1995 effective tax rate because of a $4.7 million
reduction in 1996 of a previously recorded deferred income tax valuation
allowance, which resulted in a lower effective tax rate in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Over the last several years, prior to the 1996 equity offering, the Company
has funded its working capital, capital expenditure, research and development
and other cash needs from operating cash flows, sales proceeds from discontinued
businesses, borrowings under short-term credit facilities, and an aggregate of
$33.5 million of term and mortgage indebtedness incurred in 1994. In October
1996, the Company completed a $48.0 million public equity offering of 4.4
million new shares of common stock. In November 1997, the final phase of the
planned restructuring of the Company's balance sheet was completed when the
Company entered into two financing arrangements to refinance certain existing
debt obligations of about $45.0 million and provide additional financing for
future needs of the Company. One of the borrowings was a $50.0 million private
placement of senior
F-5
<PAGE>
notes with a 10 year maturity and an interest rate of 7.29%. The other
arrangement was a $30.0 million three year syndicated multi-currency revolving
credit facility with four banks. 65% of the shares of certain of the Company's
foreign subsidiaries are pledged as security under the 1997 financings.
$11.7 million of the private placement was used to repay a bridge loan
incurred two months earlier to pay a portion of the $25.0 million notes payable
due September 28, 1997, the balance of which was paid with internally generated
funds. $13.0 million of the private placement was used to retire the 9 1/4%
convertible subordinated debentures, and the remaining balance is cash available
for payment of the $6.8 million mortgage when it matures in 1999 and to fund
certain of the Company's development plans and for other general corporate
purposes. As of December 31, 1997, the Company has not borrowed any amount
under the revolving credit facility described above. At December 31, 1997, the
Company's outstanding indebtedness was $76.1 million (including the current
portion) of long-term debt. There was no short-term debt outstanding at
December 31, 1997. The Company's cash and cash equivalents at December 31, 1997
were $20.5 million.
At December 31, 1997, the annual maturities of the Company's long-term debt
were $4.0 million, $9.0 million, $3.8 million, $12.1 million and $7.8 million
for 1998, 1999, 2000, 2001 and 2002, respectively, and $39.4 million thereafter.
Management believes that the two 1997 financing arrangements and the 1996
public equity offering and the further additional borrowing capacity the
offering allows along with the available existing short- and long-term
borrowings, cash on hand and future cash flow from operations will be sufficient
to meet foreseeable cash requirements of the Company for the next three to four
years. Significant acquisitions or strategic partnerings could, however,
increase the Company's capital requirements, and in such event the Company might
seek to raise additional debt or equity.
Cash Flow. Net cash provided by operations in 1997 was $17.4 million, as
compared to net cash provided by operations of $7.8 million in 1996. For the
year ended December 31, 1997, net loss of $10.5 million decreased by
depreciation and other non-cash items of $31.7 million was partially offset by
increases in working capital of $3.8 million. For the year ended December 31,
1996, net income of $7.8 million, increased by depreciation and other non-cash
items of $12.3 million was partially offset by increases in working capital of
$12.3 million.
Net cash used in investment transactions in 1997 was $23.1 million as compared
to net cash used in investment transactions during 1996 of $13.1 million.
During 1997, investment transactions included capital expenditures of $9.6
million. The Company also invested $3.0 million to acquire the remaining 50% of
its equity investee, ASI, and used other funds to acquire a 50% ownership
position in Metroptic Technology Limited, a sensor technology development
company, as well as certain other assets. During 1996, investment transactions
included capital expenditures of $11.6 million.
Cash provided by financing transactions was $7.6 million during 1997 compared
with $16.1 million for the same period in 1996. Financing transactions during
1997 consisted of a decrease of $0.7 million in short-term borrowings, proceeds
from long-term debt of $27.8 million offset by principal payments of long-term
debt of $18.3 million. Financing transactions during 1996 consisted of $48.0
million of funds arising from the equity offering described above, a $33.1
million decrease in short-term borrowings, a $3.8 million increase of long-term
debt to finance the new CM facility in Telford, England, and the repayment of
$5.2 million of long-term debt.
Working Capital. Working capital of $113.2 million at December 31, 1997
increased from $108.0 million at December 31, 1996 principally due to the
decrease in short-term debt partially offset by the reduction of inventories and
receivables. Inventories decreased to $73.4 million at December 31, 1997, a
decrease of $4.2 million from the end of 1996, and accounts receivable decreased
$12.6 million from December 31, 1996 primarily due to reduced sales level and
the translation effect on the account balances of lower foreign currency
exchange rates. In addition, total short- and long-term borrowing of $76.1
million at December 31, 1997 compared to $69.2 million at December 31, 1996.
F-6
<PAGE>
Product Design and Manufacturing Engineering. The Company invested $15.5
million, or 4.8% of sales, $13.9 million, or 4.0% of sales, and $15.8 million,
or 4.8% of sales, in 1997, 1996 and 1995, respectively, for product design and
manufacturing engineering.
RISK FACTORS
COMPETITION
The Company's MS Group currently has four principal direct domestic and
foreign competitors, some of which are owned by entities that have greater
financial and other resources than the Company. The MS Group also faces
indirect competition from other types of metrology firms such as manufacturers
of fixed gauging systems. The primary industries to which the MS Group sells
its products are characterized by a relatively small number of large
participants with significant purchasing power. In addition, the MS Group
generally sells its products through a competitive bid process in which at least
one and frequently several of the Company's competitors submit competing bids.
As a result, the Company experiences significant pricing competition in
connection with sales by its MS Group which can have an adverse impact on the
Company's sales and margins. During periods when the metrology industry suffers
from over capacity, downward pricing pressure experienced by the MS Group is
likely to be more intense and the Company's margins may be more severely
impacted. In addition, certain of the Company's competitors have access to
greater financial resources and may be able to withstand such pricing pressure
more effectively than the Company. Accordingly, there can be no assurance that
the MS Group will be able to continue to compete effectively against existing
competitors or new competitors, especially during periods of over capacity.
The market for the PMI Division's products is fragmented and the PMI Division
competes with a large number of competitors, including the market leader in this
area, primarily on the basis of the strength of its third-party distribution
network, price and product innovation. New competitors from emerging
industrialized countries with lower production costs than the Company's
represent a significant competitive challenge to the Company. As a result, the
PMI Division's continued success and profitability will be dependent on its
ability to continue to develop cost-effective sourcing and innovative products.
CYCLICALITY OF END USER MARKETS
The primary end user markets for the Company's products, which include the
aerospace, heavy transport and automotive (including automotive suppliers)
industries, experience cyclicality in connection with recessionary periods.
As a consequence, the price of and margins for the Company's products have
been and are likely to continue to be adversely impacted by decreases in capital
spending by such end user markets during recessionary periods. In addition,
because the PMI Division sells primarily through distributors, the PMI Division
is likely to experience significant declines in sales volumes during
recessionary periods because catalog houses and distributors typically reduce
purchases of the Company's products at the onset of such recessionary periods
even more than the decline in their end user markets' demands would dictate, in
order to reduce their inventories. There can be no assurance that the Company
will be able to operate profitably during any recessionary downturn.
FOREIGN OPERATIONS
As of December 31, 1997, approximately 62.8% (based on book values) of the
Company's assets, 60.1% of the Company's sales (based on customer location) and
70.3% of its employees were located outside the United States. Foreign
operations are subject to special risks that can materially affect the sales,
profits, cash flows and financial position of the Company, including taxes on
distributions or deemed distributions to the Company or any U.S. subsidiary,
currency exchange rate fluctuations, inflation, maintenance of minimum capital
requirements, import and export controls, exchange controls and social (labor)
programs.
F-7
<PAGE>
In addition, the wide-spread geographic locations of the Company's facilities
and operations make it more difficult for the Company to coordinate its
financial and operating reporting and oversee its operations and employees. In
response to these difficulties, the Company has taken various personnel and
procedural actions to improve its reporting and operating procedures. While the
Company believes that these actions have resulted in satisfactory financial and
operational reporting and oversight for its present business, additional system
revisions may be needed if the Company should experience a further increase in
the number of foreign facilities.
RESTRUCTURING PLAN
Although the Restructuring Plan is expected to generate approximately $5.0
million in pretax savings for the year 1998, (with the savings starting
primarily in the fourth quarter), increasing to an expected $9.0 million savings
thereafter, there can be no assurance that these levels of savings will be
reached, or reached on this timetable.
DEPENDENCE ON KEY SUPPLIER
The Company currently purchases the vast majority of its externally sourced
low to medium accuracy electronic touch trigger sensor probes and heads from a
publicly held United Kingdom company (the "Supplier") which is the dominant
supplier of such sensor probes to CMM manufacturers. No alternative supplier
for this class of electronic sensor probes, which are a key component of
substantially all of the Company's lower accuracy CMMs, is currently available
and developing an alternative source for the probes and heads could take more
than a year. Although adequate supplies of such probes and heads for at least
several months is potentially available from current inventories of the Company
and its customers, any reductions or interruptions in supply or material
increases in the price of electronic sensor probes purchased from the Supplier
could cause the Company to suffer disruptions in the operation of its business
or incur higher than expected costs, which could have a material adverse effect
on the Company.
TECHNOLOGY
As the size of some components measured by metrology products decreases and
the required speed and precision of such measurements increases, the Company's
products may become obsolete unless the Company develops more sophisticated
software and metrology systems. Although the Company's strategy is to focus
research and development in the area of software development and non-contact
technologies, there can be no assurance that the Company will be successful in
competing against new technologies or competitors, some of whom may not now
participate in the metrology industry.
DEPENDENCE ON LIMITED NUMBER OF KEY PERSONNEL
The success of the Company is dependent to a significant extent upon the
continuing services of a limited number of key executives of the senior
management team. Loss of the services of one or more of these senior executives
could have a material adverse effect on the Company.
YEAR 2000
The Company is in the process of reviewing its Year 2000 product compliance
policy to ensure that its products are Year 2000 compliant. During 1997, the
Company modified its software, which is included in many of its products, so
that the software has no inherent date dependencies. The Company is in the
process of assessing how it will address older products sold prior to 1997 that
may be affected by Year 2000 requirements.
The Company has completed an assessment of its computer systems and software
purchased from vendors, which support the Company's management information
systems, for Year 2000 compliance and has developed action plans for the
Company. By the end of 1998, the Company expects that its internal reporting
systems will be able to function with respect to dates in the year 2000 and
thereafter. The Company expects to incur internal staff costs, which they
believe are immaterial, as well as consulting and other expenses related to
enhancements
F-8
<PAGE>
necessary to prepare the systems for the Year 2000. Consulting fees and other
expenses to resolve the Year 2000 problem are expected to be less than $0.5
million.
EUROPEAN MONETARY UNION
Beginning on January 1, 1999, a new currency (the Euro) will be created. All
companies in the yet-to-be determined participating European countries will
conduct transactions in either the Euro or one of the national currencies until
June 30, 2002. Beginning July 1, 2002, the national currencies in the
participating countries will cease to exist and all transactions will be settled
in the Euro. In 1998, there will be an official designation of which European
countries will become members of the European Monetary Union ("EMU").
More than 60% of the Company's product is produced or sourced in Europe. The
Company has significant sales and a number of business operations in the
countries invited to participate in the EMU. The Company must be able to
transact and account for business in the Euro as well as the various national
currencies during the three and one half year transition period, and thereafter,
exclusively in the Euro, or potentially lose business or risk violating
contractual arrangements. Although it is expected that some translation
software programs to make the change to the Euro will be necessary, management
believes that it has the necessary systems and business processes to deal with
the new currency during the three and one half year transition period. The
Company is undertaking a multi-functional project to manage the changeover to
the Euro with a completion date for the project of January 2000.
F-9
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996, and 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Sales $322,513 $344,877 $328,031
Cost of goods sold (Note 2) 218,842 226,235 212,733
Research and development expense 9,180 9,125 8,996
Selling, general and administrative expense 87,288 92,929 94,902
Restructuring charge (Note 2) 10,847 - 336
-------- -------- --------
Operating (loss) profit (3,644) 16,588 11,064
Interest expense 6,380 8,280 9,129
Other income, net 1,044 462 688
-------- -------- --------
(Loss) income before income taxes (8,980) 8,770 2,623
Income tax provision 1,550 965 697
-------- -------- --------
Net (loss) income $(10,530) $ 7,805 $ 1,926
======== ======== ========
Net (loss) income per common share (Note 1):
Basic $ (0.79) $ 0.81 $ 0.22
======== ======== ========
Diluted $ (0.79) $ 0.79 $ 0.22
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,458 $ 20,158
Accounts receivable, net of allowances for doubtful accounts
of $3,456 and $3,226 106,072 118,685
Inventories 73,430 77,572
Deferred income taxes 1,274 2,217
Prepaid expenses and other current assets 5,176 5,585
-------- --------
Total current assets 206,410 224,217
Property, plant and equipment:
Land 6,627 7,094
Buildings and improvements 41,211 41,840
Machinery and equipment 85,405 90,337
-------- --------
133,243 139,271
Less-accumulated depreciation 82,470 84,865
-------- --------
50,773 54,406
Goodwill, net 9,211 10,806
Other assets (Note 7) 33,680 25,019
-------- --------
$300,074 $314,448
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Notes payable and current installments of long-term debt $ 3,995 $ 32,481
Accounts payable 44,532 45,507
Accrued expenses and income taxes 44,699 38,217
-------- --------
Total current liabilities 93,226 116,205
Long-term debt (Note 8) 72,067 36,725
Long-term liabilities (Note 9) 18,283 21,118
Commitments and Contingencies (Notes 6 and 13)
Shareowners' Equity:
Preferred stock, $1 par value; authorized 1,000,000 shares; none issued - -
Common stock:
Class A, par value $1; authorized 30,000,000 shares; issued 12,821,867
shares in 1997 and 12,689,234 in 1996 12,822 12,689
Class B, par value $1; authorized 2,000,000 shares; issued 513,065
shares in 1997 and 517,604 in 1996 513 518
Additional paid-in capital 111,772 110,737
(Deficit) earnings employed in the business (10,757) (227)
Cumulative foreign currency translation adjustment 2,603 17,175
Treasury stock; 42,592 shares in 1997 and 1996, at cost (455) (455)
Unearned compensation - (37)
-------- --------
Total shareowners' equity 116,498 140,400
-------- --------
$300,074 $314,448
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996, and 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash Provided By (Used In) Operations:
Net (Loss) Income $(10,530) $ 7,805 $ 1,926
Adjustment for Noncash Items:
Provision for restructuring 16,220 - -
Depreciation and amortization 12,346 9,957 11,010
Pension credits and charges 959 1,609 1,369
Deferred income taxes 1,283 (208) 376
Termination indemnities 865 590 331
Deferred compensation 37 312 216
Changes in Working Capital:
(Increase) decrease in accounts receivable 4,643 (7,121) (4,324)
(Increase) decrease in inventories (10,181) (4,019) (7,389)
(Increase) decrease in prepaid expenses
and other current assets 982 (224) 1,208
Increase (decrease) in accounts payable
and accrued expenses 761 (914) (4,798)
-------- -------- --------
Net Cash Provided by (Used in) Operations 17,385 7,787 (75)
INVESTMENT TRANSACTIONS:
Acquisition of equity investee, net of cash acquired (Note 2) (3,000) - -
Capital expenditures (9,559) (11,632) (12,054)
Proceeds from dispositions - 785 2,096
Other investing activities (10,503) (2,273) (445)
-------- -------- --------
Net Cash Used in Investment Transactions (23,062) (13,120) (10,403)
Financing Transactions:
Increase (decrease) in short-term debt (709) (33,082) 10,915
Proceeds from issuance of long-term debt 27,810 3,811 -
Principal payments of long-term debt (18,260) (5,144) (3,444)
Issuance of common stock - 47,968 -
Other financing transactions (1,211) 2,533 (600)
-------- -------- --------
Net Cash Provided by Financing Transactions 7,630 16,086 6,871
Effect Of Exchange Rate Changes on Cash (1,653) 3,143 3,193
-------- -------- --------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year 300 13,896 (414)
Beginning balance 20,158 6,262 6,676
-------- -------- --------
Ending balance $ 20,458 $ 20,158 $ 6,262
======== ======== ========
Supplementary Cash Flow Information:
Interest paid $ 4,887 $ 8,222 $ 8,004
======== ======== ========
Taxes paid $ 1,241 $ 579 $ 2,598
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
For the Years Ended December 31, 1997, 1996, and 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(DEFICIT) CUMULATIVE
COMMON EARNINGS FOREIGN
STOCK ADDITIONAL EMPLOYED CURRENCY
$1 PAR PAID-IN IN THE TRANSLATION TREASURY UNEARNED
Value CAPITAL BUSINESS ADJUSTMENT STOCK COMPENSATION
------- ----------- --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 $ 8,657 $ 66,412 $ (9,958) $ 14,530 $ (151) $ (565)
Net Income - - 1,926 - - -
Treasury Stock Transactions - - - - (119) -
Restricted Stock Transactions - 153 - - - 216
ESOP Contribution 62 298 - - - -
Foreign Currency Translation
Adjustment - - - 4,396 - -
------- -------- -------- -------- -------- --------
Balance December 31, 1995 8,719 66,863 (8,032) 18,926 (270) (349)
------- -------- -------- -------- -------- --------
Net Income - - 7,805 - - -
Treasury Stock Transactions - - - - (185) -
Restricted Stock Transactions - (187) - - - 312
ESOP Contribution 44 385 - - - -
Stock Options Exercised 20 132 - - - -
Issuance of Common Stock 4,424 43,544 - - - -
Foreign Currency Translation
Adjustment - - - (1,751) - -
------- -------- -------- -------- -------- --------
Balance December 31, 1996 13,207 110,737 (227) 17,175 (455) (37)
------- -------- -------- -------- -------- --------
Net Loss - - (10,530) - - -
Restricted Stock Transactions - - - - - 37
ESOP Contribution 32 416 - - - -
Stock Options Exercised 96 619 - - - -
Foreign Currency Translation
Adjustment - - - (14,572) - -
------- -------- -------- -------- -------- --------
Balance December 31, 1997 $13,335 $111,772 $(10,757) $ 2,603 $ (455) $ 0
======= ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Brown & Sharpe Manufacturing Company is a multinational manufacturer of
metrology products, which include manual and computer-controlled, high precision
machines; mechanical and electronic measuring and inspection tools; and
specialty products and systems. The principal markets for its products are
North America, Europe, Asia, South America and the Middle East. The primary end
user markets for its products are the automotive, aerospace, industrial
machinery, electronics and computer industries.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
all subsidiaries. Intercompany transactions have been eliminated from the
consolidated financial statements. Investments in 20% to 50% part-owned
affiliates are accounted for on the equity method.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
principally on a last-in, first-out (LIFO) basis for all domestic inventories
and principally on a first-in, first-out (FIFO) basis for inventories outside
the United States. Provision is made to reduce slow-moving and obsolete
inventories to net realizable values. Current FIFO cost exceeds the LIFO value
of inventories by approximately $11,031 and $11,431 at December 31, 1997 and
1996, respectively. Year-end inventories valued under the LIFO method were
$17,051 in 1997 and $14,380 in 1996. During 1996, quantities for certain
segments of the LIFO inventories were reduced. The reductions resulted in
liquidation of LIFO quantities carried at lower costs prevailing in prior years
compared with the cost of current purchases, the effect of which increased net
income by $241 in 1996.
The composition of inventory at year-end was as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Parts, raw materials and supplies $29,760 $35,897
Work in progress 17,341 17,116
Finished goods 26,329 24,559
------- -------
$73,430 $77,572
======= =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost and are being depreciated
principally on a straight-line basis over the estimated useful lives of the
assets which generally range from 20 to 40 years for buildings and improvements
and from 3 to 12 years for machinery and equipment. Depreciation expense was
$8,864, $7,120, and $8,980 in 1997, 1996, and 1995, respectively. Repair and
maintenance costs are charged against income while renewals and betterments are
capitalized as additions to the related assets. Retirements, sales and
disposals of assets are recorded by removing the cost and accumulated
depreciation from the asset and
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
accumulated depreciation accounts with any resulting gain or loss reflected in
income. At December 31, 1997, land and buildings with a net book value of
$22,572 were pledged as collateral for mortgage loans of $21,306.
GOODWILL AND OTHER ASSETS
Goodwill, which is net of accumulated amortization of $3,500 in 1997 and $1,407
in 1996, is being amortized on a straight-line basis over periods ranging from 7
to 20 years. In 1997, the Company reduced goodwill $700 to reflect a reduction
of a deferred tax liability recorded as part of a purchase price adjustment for
a business combination occurring in prior years.
Other assets consisting of software and software development costs are amortized
on a straight-line basis over periods ranging from 3 to 5 years.
REVENUE RECOGNITION
The Company records revenue upon shipment, other than for long-term contracts,
upon rendering of service for installation and training, and ratably over the
contract period for service contracts. Sales under long-term contracts are
recorded using the percentage of completion method, wherein costs and estimated
gross margin are recorded as sales during the period the work is being
performed. Estimated gross margin is based on the total contract sales value
and the most recent estimate of total costs. If the current contract estimate
indicates a loss, a provision is made for the total anticipated loss.
FOREIGN CURRENCY
Assets and liabilities of those subsidiaries located outside the United States
whose cash flows are primarily in local currencies are translated at year-end
exchange rates, and income and expense items are translated at average monthly
rates. Translation gains and losses are accounted for in a separate
shareowners' equity account "cumulative foreign currency translation
adjustment".
There were no forward exchange contracts outstanding at December 31, 1997 and
1996. Transaction losses of $443 and $1,801 were recorded in 1997 and 1996,
respectively, and transaction gains were recorded in 1995 of $601. Transaction
gains in 1995 include an adjustment, which increased the gain, amounting to $640
($0.07 per share), after taxes, relating to a revaluation of a 1994 foreign
denominated liability that was incorrectly recorded at historical, rather than
current, foreign exchange rate in the Company's consolidated financial
statements issued in prior years.
CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high credit
quality financial institutions which invest primarily in U.S. Government
instrumentalities, commercial paper of prime quality, certificates of deposit,
and bankers acceptances guaranteed by banks or savings and loan associations
which are members of the FDIC. Concentrations of credit risk with respect to
trade receivables are limited due to the Company's large number of customers and
their dispersion across many different industries and countries worldwide. At
December 31, 1997, the Company had no significant concentrations of credit risk.
STOCK INCENTIVE PLANS
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees" (see Footnote
3 for further details).
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
INCOME TAXES
The Company provides for income taxes under the provisions of SFAS No. 109
"Accounting for Income Taxes". SFAS No. 109 requires an asset and liability
based approach in accounting for income taxes.
Deferred income tax assets and liabilities are recorded to reflect the tax
consequences on future years of temporary differences of revenue and expense
items for financial statement and income tax purposes. Valuation allowances are
provided against assets which are not likely to be realized. Federal income
taxes are not provided on the unremitted earnings of foreign subsidiaries since
it has been the practice and is the intention of the Company to continue to
reinvest these earnings in the business outside the United States.
NET (LOSS) INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and fully
- ------------------
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. Weighted average shares used to calculate basic earnings per share for
1997, 1996, and 1995 were 13,256,993, 9,669,923, and 8,772,748, respectively.
Weighted average shares and dilutive stock options used to calculate diluted
earnings per share for 1997, 1996, and 1995 were 13,256,993, 9,945,998, and
8,772,748, respectively. All earnings per share amounts for all periods have
been presented, and where appropriate, restated to conform to the Statement 128
requirements.
CASH AND CASH EQUIVALENTS AND OTHER INVESTMENTS
Cash and cash equivalents are comprised of cash on hand, deposits in banks, and
short-term marketable securities with a maturity at acquisition of three months
or less.
The fair value of investments available for sale which are classified as other
current assets are based on quoted market prices for the investment. The
carrying value and fair value of investments available for sale at December 31,
1997 was $1,119 which is classified as an other current asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents and long-term fixed rate debt
approximates fair value.
ADVERTISING COST
The Company expenses advertising costs as incurred. Advertising expense for the
three years ended December 31, 1997 was $3.2 million, $3.6 million, and $3.8
million, respectively.
RECLASSIFICATIONS
Certain other amounts reported in 1995 and 1996 have been reclassified to
conform with the 1997 presentation.
2. RESTRUCTURING CHARGE AND REORGANIZATION ACTIVITIES
During 1997, management entered into several transactions as part of a
Reorganization Plan ("The Plan") to restructure and reorganize certain of its
key business units. A portion of the strategy included a comprehensive study of
its European production and distribution structure in order to gain greater
efficiencies in its European operations. Based upon the results of this review,
it was decided to reengineer certain distribution processes and manufacturing
operations, including outsourcing certain production activities where
appropriate, as well as adjusting inventory levels to correspond with the new
strategic objectives resulting from the study.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As a result of the Plan to restructure its European operations, along with other
less significant changes in other parts of the world, in the fourth quarter of
1997, the Company recorded restructuring expenses totalling $16,220 ($1.22 per
share). The charge provided for costs associated with involuntary employee
termination benefits for approximately 160 employees, write-down of inventory to
net realizable value, write-down of impaired fixed assets and certain intangible
assets to fair value, and other restructuring costs. The inventory adjustment
of $5,373 has been classified in the 1997 results in cost of goods sold. The
remainder of the restructuring expenses were recorded as a separate
restructuring charge line item also as part of operating profit.
The following is an analysis of the restructuring charge and reserves at
December 31, 1997.
<TABLE>
<S> <C>
Employee Termination Benefit $ 7,550
Inventory Write-Downs 5,373
Fixed Asset and Intangible Write-Down 1,647
Other 1,650
-------
$16,220
=======
</TABLE>
Results of operations for 1995 include restructuring charges of $336 ($0.03 per
share) which consist principally of Brown & Sharpe employee severance and Brown
& Sharpe sales offices closing costs associated with integrating Brown &
Sharpe's existing operations with those of DEA mainly outside the U.S.
Management also increased its investment in its 50% owned joint venture,
Automation Software, Incorporated ("ASI") acquiring the remaining 50% interest
for $3 million. This investment was accounted for using the purchase method of
accounting, and the financial statements of ASI were included in the Company's
consolidated financial statements beginning July 21, 1997, which was the date of
the acquisition of the remaining 50% interest in ASI. The Company had
previously accounted for its interest in ASI, prior to July 21, 1997, using the
equity method of accounting. Pro forma results of operations for the period
before July 21, 1997 were not presented because they are not materially
different from the actual results for that period.
As a further part of management's reorganization strategy, in the third quarter
of 1997, the Company disposed of its investment of its wholly-owned subsidiary,
Technicomp, Inc., a loss amounting to $1,346, and, in the fourth quarter of
1997, the Company exchanged shares of common stock held for investment in an
unrelated business for shares of common stock of a publicly traded company,
which resulted in a gain amounting to $1,224.
3. INCENTIVE AND RETIREMENT PLANS
STOCK INCENTIVE PLANS
Under the provisions of the Company's 1989 Equity Incentive Plan (the "89
Plan"), as amended on April 25, 1997 a variety of stock and stock based
incentive awards, including stock options and restricted and unrestricted stock,
are available to be granted to eligible key employees of the Company and its
subsidiaries. The `89 Plan permits the granting of stock options which qualify
as incentive stock options under the Internal Revenue Code and non-statutory
options which do not so qualify. There were no awards of restricted stock
during 1997 and 1996. Since the inception of the `89 Plan, 102,300 restricted
Class A shares have been awarded net of forfeitures. The awards of restricted
stock vest over a five year period with 25% of the award vesting at the end of
the 2nd and 3rd years and 50% at the end of the 5th year with the unvested
shares being subject to forfeiture if the recipient's employment is terminated.
In 1997 and 1996, options were granted to purchase a total of 406,000 and 70,000
shares, respectively, for ten year option terms of Class A Common Stock granted
at exercise prices between $11.88 and $14.125 per share. The majority of
options granted in 1997 become exerciseable 50% of the award after 1 year and
50% after year 2 from the date of the award. The options granted in 1996 become
exerciseable either with respect to 50% of the award after 2 years and 25% after
3 and 4 years from the date of the award or 50% of the award after 1 year and
50% after year 2 from the date of the award. The exercise price for shares
covered by options awarded under the `89 Plan has been 100% of the market value
on the date such options are granted. The aggregate amount of shares of Class A
Common Stock, including options, which may be awarded under the `89 Plan is
1,525,000 shares and the amount of shares of Class A Common Stock including
forfeitures
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
remaining available, at December 31, 1997, for issuance under the `89 Plan in
connection with future awards is 409,000 shares.
No further options or other awards may be granted under the Company's Amended
1973 Stock Option Plan (the "`73 Plan"). The exercise price for shares of Class
A Common Stock covered by outstanding options under the `73 Plan is 100% of the
market value on the dates such options were granted. Options granted under the
`73 Plan became exerciseable one year after the date of grant and expire at the
end of ten years. At December 31, 1997, there were no options outstanding for
the '73 Plan. Option activity under both the `89 Plan and `73 Plan during the
past three years is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- --------------------------
Options Weighted-Average Options Weighted-Average Options Weighted-Average
(000) Exercise Price (000) Exercise Price (000) Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding -
beginning of year 714 $ 7.92 666 $ 7.40 218 $8.36
Granted 406 12.58 70 12.68 528 7.25
Exercised (96) 7.43 (21) 7.00 - -
Forfeited or canceled (120) 9.54 (1) 13.22 (80) 8.99
---- ---- ----
Outstanding -
end of year 904 $ 9.69 714 $ 7.92 666 $7.40
==== ==== ====
Exerciseable at
end of year 380 $ 7.14 166 $ 7.77 138 $7.99
Weighted-average
fair value of
options granted
during the year $ 4.65 $ 4.62 $2.90
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged from
$6.50 to $14.125. The weighted-average remaining contractual life of those
options is 8.38 years.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1997,
1996, and 1995, respectively: risk-free interest rates of 6.0%, 6.2%, and 6.4%;
volatility factors of the expected market price of the Company's common stock of
34%, 33%, and 38%; and a weighted-average expected life of the option of 4.25
years. No dividend yield was utilized due to the fact that the Company does not
anticipate that it will pay dividends in the foreseeable future.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------ ------
<S> <C> <C> <C>
Pro forma net (loss) income $(11,235) $7,278 $1,723
Pro forma (loss) earnings per share:
Basic and diluted $ (0.84) $ 0.75 $ 0.20
</TABLE>
PROFIT INCENTIVE PLAN
Under the provisions of the Company's Amended Profit Incentive Plan as
originally approved in 1979, awards of cash could be made as bonuses to certain
management employees. Plan awards provisions under the Plan in the amounts of
$2,293, $1,682 and $1,157 were made in 1997, 1996, and 1995, respectively, based
on performance objectives for the respective year.
LONG-TERM DEFERRED CASH INCENTIVE PLAN
In February 1996, the Board of Directors approved "The Brown & Sharpe Key
Employee Long-Term Deferred (unfunded) Cash Incentive Plan" (the "LTDCIP"),
which was effective for 1995. The LTDCIP provides for deferred cash payments
upon retirement or termination of employment, subject to vesting three years
after the end of the year for which it is earned. Annual total plan awards are
calculated at 6% of adjusted pretax income (as defined in the plan) and shared
by the plan participants (eleven key executives of the Company for 1997) pro
rata based on annual salary paid. The 1997, 1996 and 1995 consolidated
financial statements contain a provision resulting from this plan amounting to
$462, $596, and $200, respectively.
SAVINGS PLANS
The Company has 401(K) stock bonus and thrift savings plans for U.S. employees,
which include retirement income features consisting of employer contributions
and employee tax deferred contributions. Contributions under all plans are
invested in professionally managed portfolios and Company stock. The savings
plans' expense for the three years ended December 31, 1997 was $1,468, $1,335,
and $941, respectively.
STOCK OWNERSHIP PLAN
Under the provisions of the Company's Employee Stock Ownership Plan (ESOP), the
Company may make contributions of common stock or cash to purchase common stock
from the Company or otherwise, to be held in trust for employees meeting certain
eligibility requirements until the employees reach retirement age. The ESOP may
also borrow funds to purchase common shares, in which event the Company would
contribute amounts as necessary to pay down the indebtedness. ESOP expense was
$510 in 1997, $458 in 1996, and $433 in 1995. At December 31, 1997, there were
no unallocated shares of Class A Common Stock and Class B Common Stock held in
the ESOP as all shares were allocated to participants' accounts.
RETIREMENT PLANS
The Company's subsidiaries have a defined contribution retirement plan covering
employees in Switzerland and two defined benefit retirement plans covering
employees in the U.K. and Germany, which includes substantially all employees.
Retirement plan expense net of pension income for the three years ended December
31, 1997 was $959, $1,609, and $1,369, respectively.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The defined benefit plans which cover employees in the U.K. and Germany,
respectively, provide benefits based on years of service and employee
compensation. Retirement costs under both plans are compiled based on the
projected unit credit actuarial method.
The U.K. plan's actuarial assumptions used settlement rates of 7.0% and 8.0% at
the end of 1997 and 1996, respectively, a long-term return on assets of 8.0% in
1997 and 9.0% in 1996 and 1995, respectively, and annual wage increases of 5.5%
and 6.5% at the end of 1997 and 1996, respectively. Retirement costs accrued
are funded.
The German plan's actuarial assumptions used a settlement rate of 7.5% at the
end of 1997 and 1996, and an annual wage increase of 4.5% at the end of 1997 and
1996. Retirement costs accrued are not funded.
The following items are the components of net periodic pension income for the
U.K. plan for the years ended December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned $ 787 $ 921 $ 823
Interest cost on projected benefit obligations 1,335 1,196 1,263
Return on plan assets, net (3,678) (2,387) (3,049)
Net amortization and deferral 1,171 129 909
------- ------- -------
Net periodic pension income $ (385) $ (141) $ (54)
======= ======= =======
</TABLE>
The plan has assets in excess of the accumulated benefit obligations. Plan
assets include investments in equity securities, corporate and government debt
securities, and cash equivalents. The following table presents a reconciliation
of the funded status of the plan at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Vested and accumulated benefit obligation $(17,786) $(14,152)
======== ========
Projected benefit obligation $(18,945) $(16,339)
Plan assets at fair value 26,437 22,510
-------- --------
Funded status 7,492 6,171
Unrecognized portion of net assets (2,047) (1,336)
-------- --------
Prepaid pension $ 5,445 $ 4,835
======== ========
</TABLE>
The following items are the components of net periodic pension cost for the
unfunded German plan for the years ended December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Service cost-benefits earned $ 107 $ 115 $ 107
Interest cost on projected benefit obligations 363 383 372
-------- ------- -------
Net periodic pension cost $ 470 $ 498 $ 479
======== ======= =======
Vested and accumulated benefit obligation $ (4,548) $(4,759) $(4,700)
======== ======= =======
Projected benefit obligation $ (5,166) $(5,472) $(5,519)
Unrecognized net gain (367) (329) (304)
-------- ------- -------
Unfunded accrued pension cost $ (5,533) $(5,801) $(5,823)
======== ======= =======
</TABLE>
4. INCOME TAXES
(Loss) income before income taxes consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Domestic $ 1,757 $(1,323) $(4,850)
Foreign (10,737) 10,093 7,473
-------- ------- -------
(Loss) income before income taxes $ (8,980) $ 8,770 $ 2,623
======== ======= =======
</TABLE>
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table reconciles the income tax provision (benefit) at the U.S.
statutory rate to that in the financial statements:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Taxes computed at 34% $(3,053) $ 2,982 $ 892
Goodwill amortization 68 182 158
Additional tax on foreign income 191 676 113
State taxes (net) 123 104 31
Net operating losses and other losses (1,204) (3,143) (636)
Restructuring reserve 5,117 - -
Other (net) 308 164 139
------- ------- ------
Income tax provision $ 1,550 $ 965 $ 697
======= ======= ======
</TABLE>
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal $ 578 $ 686 $ (996)
State 186 157 31
Foreign (497) 330 1,286
------- ------- ------
267 1,173 321
Deferred:
Federal 960 (495) 996
Foreign 323 287 (620)
------- ------- ------
1,283 (208) 376
------- ------- ------
Income tax provision $ 1,550 $ 965 $ 697
======= ======= ======
</TABLE>
Provision has not been made for U.S. taxes on $47,300 of cumulative
undistributed earnings of foreign subsidiaries as those earnings are intended to
be permanently reinvested.
The components of the Company's deferred tax assets and liabilities as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Inventory reserves $ 4,463 $ 7,656
Warranty expense 789 1,103
Provision for doubtful accounts 574 401
Depreciation 817 999
Tax credit and loss carryforwards 36,377 44,531
Other 3,693 4,049
------- -------
Gross deferred assets 46,713 58,739
Less valuation allowance 38,204 48,925
------- -------
Deferred tax asset $ 8,509 $ 9,814
======= =======
Deferred tax liabilities:
Pension expense $ 1,920 $ 1,673
Inventory reserves 1,075 1,276
Depreciation 1,912 2,568
Other 4,329 3,500
------- -------
Deferred tax liability $ 9,236 $ 9,017
======= =======
</TABLE>
A valuation allowance has been established due to the uncertainty of realizing
certain tax credit and loss carryforwards and a portion of the other deferred
tax assets. The valuation allowance has been decreased by $10,721 during 1997
of which $6,600 was attributable to changes in foreign exchange rates and has
been
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
recorded in equity as a component of cumulative foreign currency
translation adjustments. The recognition of any future tax benefits resulting
from the reduction of $8,207 of the valuation allowance will reduce any goodwill
related to the DEA acquisition remaining at the time of such reduction.
For income tax purposes, the Company has operating loss and capital loss
carryforwards of $2,100 and $1,200, respectively, in the U.K. and net operating
loss carryforwards of $9,300, $34,000, $5,600, $3,700, and $22,700,
respectively, in Switzerland, Germany, France, Japan, and Italy. The Swiss,
French, Japanese, and Italian carryforwards expire between 1998 and 2002. There
is no time limit for the U.K. and German carryforwards.
During the year, the Internal Revenue Service completed the examination of the
Company's domestic income tax returns for the 1993 and 1994 fiscal years. The
Company's provision for the assessments which resulted from this examination was
adequate.
5. OTHER INCOME AND EXPENSE
Other income (expense), net includes:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Interest income $ 928 $ 414 $ 540
Gain (loss) on sale of fixed assets 21 34 (90)
Other income 95 14 238
------ ----- -----
$1,044 $ 462 $ 688
====== ===== =====
</TABLE>
6. RENTAL EXPENSE AND LEASE COMMITMENTS
At December 31, 1997, the Company was obligated under operating leases expiring
on various dates. Rental expense for the three years ended December 31, 1997
was $6,347, $8,309, and $9,767, respectively. Annual rental commitments under
noncancelable leases pertaining principally to buildings and equipment at
December 31, 1997 are $6,344, $2,202, $1,533, $845, and $713 for the years 1998
through 2002, and aggregate to $3,379 for all years subsequent to 2002.
7. OTHER ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
------- -------
Prepaid pension $ 5,445 $ 4,835
Equity investments 4,554 2,562
Demonstration equipment 10,877 10,890
Other 12,804 6,732
------- -------
$33,680 $25,019
======= =======
</TABLE>
Other assets, which are net of accumulated amortization of $8,836 in 1997 and
$6,088 in 1996, are being amortized on a straight-line basis over periods
ranging three to twenty years.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
7.29% term loan payable in annual installments of $7,143 from
November 2001 to November 2006 and final installment
of $7,142 in November 2007 $50,000 $ -
9 1/4% convertible subordinated debentures due December 2005 - 13,000
Mortgages at rates ranging from 5.00% to 9.22% 21,306 25,982
Notes payable, due September 28, 1997 with quarterly interest of LIBOR plus 0.60% - 25,000
Notes payable, due various dates with interest rates ranging from 7.72% to 12.39% 4,756 4,515
------- -------
76,062 68,497
Less: current installments 3,995 31,772
------- -------
Total long-term debt $72,067 $36,725
======= =======
</TABLE>
In November 1997, the Company entered into two financing arrangements which were
and will be used to refinance certain existing debt obligations and are
available to provide additional financing for future needs of the Company. One
of the borrowings was a $50,000 private placement of senior notes with a 10 year
maturity and an interest rate of 7.29%. The other arrangement was a $30,000
three year syndicated multi-currency revolving credit facility with four banks.
65% of the shares of certain of the Company's foreign subsidiaries is pledged as
security under the 1997 financings.
$11,700 of the private placement was used to pay a bridge loan used to pay a
portion of the $25,000 notes payable due September 28, 1997, the balance of
which was paid with internally generated funds. $13,000 of the private
placement was used to pay the 9 1/4% convertible subordinated debentures, and
the remaining balance is available to pay the $6,800 mortgage when it matures in
1999 and to fund certain of the Company's development plans and for general
corporate purposes. As of December 31, 1997, the Company has not used any of
the revolving credit facility described above.
Annual maturities of long-term debt are as follows: 1998--$3,995; 1999--$9,010;
2000--$3,756; 2001--$12,117; 2002--$7,778; and $39,406 thereafter. Interest
rates on long-term debt average approximately 8.10% in 1997.
The revolving credit facility and the 7.29% senior notes require the Company to
comply with certain covenants, the most restrictive of which is debt to EBITDA
ratio.
9. LONG-TERM LIABILITIES
Long-term liabilities consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Other long-term liabilities $ 2,270 $ 4,700
Deferred income taxes 2,001 1,420
Unfunded accrued pension cost 5,297 5,801
Termination indemnities 8,715 9,197
------- -------
$18,283 $21,118
======= =======
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
10. FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA
Segment Information
The Company operates exclusively in the Metrology Business. See Note 1 for a
further description of the Company's business. European sales to unaffiliated
customers are defined as sales of products that are primarily assembled in a
foreign country.
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
GEOGRAPHIC AREA:
Sales to Unaffiliated Customers From:
United States $148,037 $132,956 $128,482
Europe 174,476 211,921 199,549
-------- -------- --------
$322,513 $344,877 $328,031
======== ======== ========
Transfers Between Geographic Areas:
From United States $ 7,216 $ 8,066 $ 3,870
From Europe 33,697 34,630 33,713
-------- -------- --------
$ 40,913 $ 42,696 $ 37,583
======== ======== ========
Operating Profit (Loss):
United States $ 4,994 $ 5,237 $ 492
Europe (8,638) 11,351 10,572
-------- -------- --------
$ (3,644) $ 16,588 $ 11,064
======== ======== ========
Identifiable Assets:
United States $ 91,225 $ 78,374 $ 77,726
Europe 188,391 215,916 211,412
Corporate 20,458 20,158 6,262
-------- -------- --------
$300,074 $314,448 $295,400
======== ======== ========
</TABLE>
During 1997, the FASB issued Statement of Financial Accounting Standards Number
131, "Disclosures about Segments of an Enterprise and Related Information". The
Company is in the process of evaluating this pronouncement and preliminarily
believes that it will be required to report its business in more than one
segment.
11. COMMON STOCK
Both classes of common stock have equal rights upon liquidation. Class A Common
Stock may not receive less cash dividends per share than Class B Common Stock,
nor may such dividends be less frequent. The Class A Common Stock has one vote
per share. Except as otherwise provided by the Certificate of Incorporation and
by law, the Class B Common Stock has ten votes per share, and the Class B Common
Stock is convertible into Class A Common Stock on a one-for-one basis, and can
be transferred in Class B form only to specified transferees, generally members
of a shareowner's family and certain others affiliated with a shareowner.
During 1997 and 1996, 4,539 shares and 4,971 shares, respectively, were
converted from Class B Common Stock to Class A Common Stock.
During 1996, 19,000 shares were put into the treasury from a reimbursement of
expenses that resulted from the 1994 acquisition of the Roch business from Diehl
as provided for in the warranty provision of the Acquisition Agreement between
the Company and Diehl.
The Company has reserved a total of 1,865,101 shares of Class A Common Stock for
future issuance under certain benefit and stock incentive plans.
12. PREFERRED STOCK PURCHASE RIGHTS
The Company distributed a dividend on March 23, 1988 pursuant to a Shareholder
Rights Plan adopted by the Board of Directors on March 9, 1988 of one purchase
right for each outstanding share of common stock. Until the
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
occurrence of certain specified events, the rights are represented by the
associated common stock certificates. Following reclassification of the common
stock to Class A Common Stock and distribution of the Class B Common Stock on
June 10, 1988, and until the occurrence of certain events, each certificate
representing a share of Class A Common Stock or Class B Common Stock also
represents three-quarters of a right. Each right entitles the shareowner to buy
from the Company one-hundredth of a share of Series A Participating Preferred
Stock at an exercise price of $55 per right. The rights become exercisable ten
days after a person acquires 20% of the Company's common stock. The rights,
which are subject to adjustment, are redeemable by the Company at a price of
$0.03 per right at any time prior to the fifteenth day after a person acquires
20% of the Company's common stock and expire on March 23, 1998.
In the event the Company is involved in certain business combination
transactions with a 20% shareowner, each right will entitle its holder (other
than a 20% shareowner) to purchase, at the right's then exercise price, an
equity interest in the acquiring person having a market value of two times the
exercise price. In the event a 20% shareholder engages in certain other
transactions with the Company or any person becomes a 20% shareowner, each right
will entitle its holder (other than a 20% shareowner) to purchase, at the
right's then exercise price, shares of Company Class A Common Stock having a
market value of two times the exercise price.
On February 13, 1998, the Board of Directors approved a new Shareholder Rights
Plan to replace the Rights Plan expiring on March 23, 1998. Stockholders of
record on March 9, 1998 will receive a dividend of one right for each share of
Class A and Class B common stock held by them on the record date. Shares of
Class A or Class B common stock issued after that date will be issued with one
right attaching to each share of such stock. The new Rights Plan operates
substantially the same as the Plan expiring March 23, 1998 except that the
exercise price of the rights has been set by the Board at $40.00 per right and a
majority of the Board may elect to redeem the rights at a redemption price of
$.01 per right. The new Rights Plan expires ten years after its effective date
or earlier upon a redemption of the rights.
13. CONTINGENCIES
Labor Relations
The Company is involved in litigation which arose out of a strike by production
employees represented by the International Association of Machinists and
Aerospace Workers ("IAM") at the Company's Rhode Island operations which began
in 1981. After commencement of the strike, the IAM filed charges with the
National Labor Relations Board ("NLRB") alleging that the Company engaged in
unfair labor practices during contract negotiations and precipitated the strike.
On August 28, 1990, the NLRB dismissed the IAM's charges. The IAM appealed this
decision to the U.S. Court of Appeals for the District of Columbia Circuit. On
November 29, 1991, the Court accepted the legal reasoning advanced by the NLRB
and the Company in support of the NLRB's 1990 decision, but ordered the NLRB to
further clarify and support its decision. The NLRB reaffirmed its original
dismissal of the IAM's charges, and the IAM appealed that decision. On April 7,
1995, the Court vacated the NLRB's earlier decision favorable to the Company and
remanded the case to the NLRB for a decision on whether the charges should be
dismissed or a trial on the merits should proceed. On August 16, 1996, the NLRB
issued a second supplemental decision and order finding in favor of the Company
and dismissed the IAM complaint. Following an unsuccessful request for a re-
hearing and reconsideration of the NLRB's ruling, the IAM once again appealed
the NLRB's decision to the U.S. Court of Appeals. On December 12, 1997, the
Court denied the IAM's petition for a review of the NLRB's decision dismissing
the charges against the Company. The IAM has informed the Company it intends to
appeal the denial of its petition for review by the U.S. Court of Appeals for
the District of Columbia to the United States Supreme Court. The Company will
continue to defend this case vigorously, and management continues to believe
that the possibility of an adverse decision in this matter is remote. If the
case were ultimately decided against the Company and the strike converted to an
unfair labor practice strike, the Company could be liable for back wages for
those striking employees, subject to mitigation for certain statutory offsets,
whose strike action is determined to be based on the unfair labor practices.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
ENVIRONMENTAL
On March 1, 1995, the Company received a notice from the State of New York
asserting a claim against it, along with a group of approximately ten other
companies, to recover costs incurred by the New York State Department of
Environmental Conservation to clean up a waste disposal site in Poughkeepsie,
New York. The State has alleged that the Company's former subsidiary, Standard
Gage Company, Poughkeepsie, New York, acquired in 1987 and merged with and into
the Company in 1991, contributed hazardous waste to the site for disposal and
that the Company is a PRP as the surviving corporation to the merger. The total
claim asserted by the State against all parties is approximately $500, and it
has expressed a willingness to settle its claim with all PRPs receiving the
notice. The Company is continuing efforts to settle this claim and estimates
that any potential loss it might incur as a result of any involvement or
settlement at this site would not be material.
PRODUCT LIABILITY AND OTHER LITIGATION INCIDENTAL TO THE BUSINESS
The Company is involved in a number of product liability claims and lawsuits by
plaintiffs seeking monetary damages for personal injury which arose out of and
were incidental to the sale of products manufactured by the Company in its
discontinued metal cutting machine tool and hydraulic businesses and certain
other litigation and claims incidental to the conduct of its business. The
potential liability of the Company for these claims and suits is adequately
covered by insurance or reserves established for such contingencies. The
Company is contesting or defending these claims and suits and management
believes that the ultimate liability, if any, resulting from these matters will
not have a material effect on the Company's financial position.
14. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997
---------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Sales $70,802 $78,094 $78,555 $ 95,062
Gross profit 24,545 26,644 25,673 26,809
Net income (loss) 757 1,209 290 (12,786)
Earnings (loss) per common share $ 0.06 $ 0.09 $ 0.02 $ (0.96)
1996
--------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
Sales $76,278 $89,835 $83,791 $ 94,973
Gross profit 26,890 30,070 28,157 33,525
Net income 550 1,854 1,257 4,144
Earnings per common share $ 0.06 $ 0.21 $ 0.14 $ 0.33
</TABLE>
The results of operations for the fourth quarter of 1997 include a restructuring
charge of $16,220 and a $1,224 gain arising from the exchange of common stock of
an unrelated business for common stock of a publicly traded company. See Note 2
for additional information.
In the third quarter of 1997, the Company sold its wholly-owned subsidiary,
Technicomp, Inc., at a loss of $1,346.
The 1997 and 1996 earnings per share amounts were not restated because primary
earnings per share and basic earnings per share are the same.
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Directors
of Brown & Sharpe Manufacturing Company
We have audited the accompanying consolidated balance sheets of Brown & Sharpe
Manufacturing Company as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareowners' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brown & Sharpe
Manufacturing Company at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Providence, Rhode Island
February 6, 1998, except for Note 12, as
to which the date is February 13, 1998
F-27
<PAGE>
COMMON STOCK MARKET PRICES AND DIVIDENDS
The Class A Common Stock is listed on the New York Stock Exchange with a symbol
"BNS". At December 31, 1997, the Company had approximately 1,943 shareowners
of record of its Class A Common Stock including shareowners of record of its
Class B Common Stock.
<TABLE>
<CAPTION>
Fiscal Year High Low
- ------------------ ------ ------
<S> <C> <C>
1997
4TH QUARTER $14.44 $ 9.13
3RD QUARTER 15.00 12.75
2ND QUARTER 15.13 12.13
1ST QUARTER 15.63 12.25
1996
4th Quarter $15.38 $11.50
3rd Quarter 13.63 9.25
2nd Quarter 10.38 9.50
1st Quarter 10.13 8.63
</TABLE>
No dividends have been paid by the Company since 1990. Dividend payments have
been suspended in order to conserve cash. Also, payment of dividends are
currently permitted, but the Company has to meet certain covenants under an
existing loan agreement. Dividend payments prior to September 30, 1997 were not
permitted due to an existing loan facility.
F-28
<PAGE>
EXHIBIT 22
BROWN & SHARPE MANUFACTURING COMPANY
---------------------------------------
SUBSIDIARIES OF THE REGISTRANT
-------------------------------
Subsidiaries of the Registrant as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Percentage of
Jurisdiction Voting Power
of Owned by the
Name of Subsidiary Incorporation Registrant
------------------- --------------- --------------
<S> <C> <C>
Borel & Dunner, Inc. Michigan 100%
Automation Software Inc. Delaware 100%
Roch - Brown & Sharpe S.A. France 100%
Mauser Prazisions Messmittel GmbH Germany 100%
DEA - Brown & Sharpe S.p.A. ** and its subsidiaries: Italy 100%
DEA - Brown & Sharpe S.A. Spain 100%
DEA - Brown & Sharpe S.A. France 100%
DEA - Brown & Sharpe KK Japan 100%
Brown & Sharpe International Capital
Corporation and its subsidiaries: Delaware 100%
Leitz - Brown & Sharpe Messtechnik G.m.b.H. Germany 100%
Tesa - Brown & Sharpe S.A. and its subsidiaries: Switzerland 100%
P. Roch, S.a.R.L. Switzerland 100%
Tesa - Brown & Sharpe S.A. France 100%
Tesa - Brown & Sharpe KK Japan 100%
Brown & Sharpe Group Ltd.* and its subsidiaries: United Kingdom 100%
White Lodge Financial Limited United Kingdom 100%
Brown & Sharpe Ltd. United Kingdom 100%
Mercer - Brown & Sharpe Ltd. United Kingdom 100%
</TABLE>
* Owned 71.3% by Brown & Sharpe International Capital Corporation and
28.7% by Tesa, S.A.
** Owned 85.0% by Brown & Sharpe Manufacturing Company and 15.0% by
Brown & Sharpe International Capital Corporation.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Brown & Sharpe Manufacturing Company of our report dated February 6, 1998,
except for Note 12, as to which the date is February 13, 1998, included in the
1997 Annual Report of Brown & Sharpe Manufacturing Company.
Our audits also included the financial statement schedule of Brown & Sharpe
Manufacturing Company listed in Item 14(a). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in Registration Statements
(Form S-8 Nos. 2-33676, 2-56821, 2-60398, 2-77219, 2-77575, 2-83637, 2-97935,
33-17831, 33-23601, 33-23603, 33-30927, and 33-54496) pertaining to employee
benefit plans, of Brown & Sharpe Manufacturing Company of our report dated
February 6,1998, except for Note 12, as to which the date is February 13, 1998,
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) for
the year ended December 31, 1997.
ERNST & YOUNG LLP
Providence, Rhode Island
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> DEC-31-1997
<CASH> 20,458
<SECURITIES> 0
<RECEIVABLES> 109,528
<ALLOWANCES> (3,456)
<INVENTORY> 73,430
<CURRENT-ASSETS> 6,450
<PP&E> 133,243
<DEPRECIATION> (82,470)
<TOTAL-ASSETS> 300,074
<CURRENT-LIABILITIES> 93,226
<BONDS> 0
0
0
<COMMON> 13,335
<OTHER-SE> 103,163
<TOTAL-LIABILITY-AND-EQUITY> 300,074
<SALES> 322,513
<TOTAL-REVENUES> 322,513
<CGS> 218,842
<TOTAL-COSTS> 218,842
<OTHER-EXPENSES> 106,271
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,380
<INCOME-PRETAX> (8,980)
<INCOME-TAX> 1,550
<INCOME-CONTINUING> (10,530)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,530)
<EPS-PRIMARY> (.79)
<EPS-DILUTED> (.79)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 16,513
<SECURITIES> 0
<RECEIVABLES> 100,438
<ALLOWANCES> (2,144)
<INVENTORY> 79,027
<CURRENT-ASSETS> 202,944
<PP&E> 135,924
<DEPRECIATION> 84,263
<TOTAL-ASSETS> 289,274
<CURRENT-LIABILITIES> 107,586
<BONDS> 12,000
0
0
<COMMON> 13,335
<OTHER-SE> 114,598
<TOTAL-LIABILITY-AND-EQUITY> 289,274
<SALES> 227,451
<TOTAL-REVENUES> 227,451
<CGS> 149,198
<TOTAL-COSTS> 149,198
<OTHER-EXPENSES> 70,572
<LOSS-PROVISION> 7,681
<INTEREST-EXPENSE> 4,286
<INCOME-PRETAX> 2,820
<INCOME-TAX> 564
<INCOME-CONTINUING> 2,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,256
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 16,525
<SECURITIES> 0
<RECEIVABLES> 100,656
<ALLOWANCES> (2,972)
<INVENTORY> 82,973
<CURRENT-ASSETS> 202,944
<PP&E> 133,409
<DEPRECIATION> 81,926
<TOTAL-ASSETS> 290,840
<CURRENT-LIABILITIES> 104,581
<BONDS> 12,000
0
0
<COMMON> 13,303
<OTHER-SE> 120,086
<TOTAL-LIABILITY-AND-EQUITY> 290,840
<SALES> 148,896
<TOTAL-REVENUES> 148,896
<CGS> 96,251
<TOTAL-COSTS> 96,251
<OTHER-EXPENSES> 47,313
<LOSS-PROVISION> 4,775
<INTEREST-EXPENSE> 2,933
<INCOME-PRETAX> 2,458
<INCOME-TAX> 492
<INCOME-CONTINUING> 1,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,966
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 23,684
<SECURITIES> 0
<RECEIVABLES> 103,771
<ALLOWANCES> 2,839
<INVENTORY> 82,782
<CURRENT-ASSETS> 213,566
<PP&E> 132,067
<DEPRECIATION> 81,057
<TOTAL-ASSETS> 296,755
<CURRENT-LIABILITIES> 109,273
<BONDS> 0
0
0
<COMMON> 13,248
<OTHER-SE> 119,211
<TOTAL-LIABILITY-AND-EQUITY> 296,755
<SALES> 70,802
<TOTAL-REVENUES> 70,802
<CGS> 45,770
<TOTAL-COSTS> 48,883
<OTHER-EXPENSES> 19,860
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,434
<INCOME-PRETAX> 947
<INCOME-TAX> 190
<INCOME-CONTINUING> 757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 757
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-31-1996
<CASH> 20,158
<SECURITIES> 0
<RECEIVABLES> 121,911
<ALLOWANCES> (3,226)
<INVENTORY> 77,572
<CURRENT-ASSETS> 7,802
<PP&E> 139,271
<DEPRECIATION> 84,865
<TOTAL-ASSETS> 314,448
<CURRENT-LIABILITIES> 116,205
<BONDS> 0
0
0
<COMMON> 13,207
<OTHER-SE> 127,193
<TOTAL-LIABILITY-AND-EQUITY> 314,448
<SALES> 344,877
<TOTAL-REVENUES> 344,877
<CGS> 224,542
<TOTAL-COSTS> 224,542
<OTHER-EXPENSES> 103,747
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,280
<INCOME-PRETAX> 8,770
<INCOME-TAX> 965
<INCOME-CONTINUING> 7,805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,805
<EPS-PRIMARY> .81
<EPS-DILUTED> .79
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 5,387
<SECURITIES> 0
<RECEIVABLES> 125,675
<ALLOWANCES> (2,947)
<INVENTORY> 94,398
<CURRENT-ASSETS> 9,586
<PP&E> 141,884
<DEPRECIATION> 87,796
<TOTAL-ASSETS> 311,121
<CURRENT-LIABILITIES> 155,946
<BONDS> 0
0
0
<COMMON> 8,763
<OTHER-SE> 81,379
<TOTAL-LIABILITY-AND-EQUITY> 311,121
<SALES> 249,904
<TOTAL-REVENUES> 249,904
<CGS> 171,452
<TOTAL-COSTS> 171,452
<OTHER-EXPENSES> 67,755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,584
<INCOME-PRETAX> 4,113
<INCOME-TAX> 452
<INCOME-CONTINUING> 3,661
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,661
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 4,226
<SECURITIES> 0
<RECEIVABLES> 117,426
<ALLOWANCES> (3,175)
<INVENTORY> 96,983
<CURRENT-ASSETS> 224,769
<PP&E> 140,546
<DEPRECIATION> 86,946
<TOTAL-ASSETS> 302,652
<CURRENT-LIABILITIES> 126,924
<BONDS> 0
0
0
<COMMON> 8,762
<OTHER-SE> 76,108
<TOTAL-LIABILITY-AND-EQUITY> 302,652
<SALES> 165,456
<TOTAL-REVENUES> 165,456
<CGS> 113,693
<TOTAL-COSTS> 113,693
<OTHER-EXPENSES> 44,447
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