<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ---------------------
Commission file number 0 -19703
------------
Farrel Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2689245
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 Main Street, Ansonia, Connecticut, 06401
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 736-5500
--------------
(Registrant's telephone number, including area code)
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT May 9, 1996
- - --------------------------------------------------------------------------------
Common Stock (Voting), $.01 par value 5,972,757
<PAGE> 2
Farrel Corporation
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1996
and April 2, 1995 4
Consolidated Statements of Cash Flows -
Three Months ended March 31, 1996
and April 2, 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
Exhibit 11 - Computation of Earnings Per Share 9
Part II. Other Information 10
</TABLE>
Page 2 of 24
<PAGE> 3
Part I - Financial Information
FARREL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
1996 1995
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,177 $ 4,066
Accounts receivable, net of allowance for
doubtful accounts of $104 and $102,
respectively 13,992 23,536
Inventory 15,079 12,836
Other current assets 2,267 1,553
-------- --------
Total current assets 34,515 41,991
Property, plant and equipment - net
of accumulated depreciation of $7,457 and
$7,136, respectively 9,658 9,676
Other Assets 1,587 1,745
-------- --------
Total Assets $ 45,760 $ 53,412
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 9,105 $ 14,303
Accrued expenses & taxes payable 1,252 2,822
Advances from customers 3,603 3,936
Accrued installation & warranty costs 1,486 1,623
Short - term debt 191 194
-------- --------
Total current liabilities 15,637 22,878
Long - term debt 382 388
Postretirement benefit obligation 1,319 1,332
Other long-term obligations 696 696
Deferred income taxes 286 304
Commitments and contingencies -- --
-------- --------
Total Liabilities 18,320 25,598
-------- --------
Stockholders' Equity:
Preferred stock, par value $100, 1,000,000
shares authorized, no shares issued -- --
Common stock, par value $.01,
10,000,000 shares authorized,
6,142,806 shares issued 61 61
Paid in capital 19,295 19,295
Cumulative translation adjustment (782) (646)
Treasury stock 170,800 and 151,349 shares at March
31, 1996 and December 31, 1995, respectively (896) (837)
Retained earnings 10,108 10,287
Minimum pension liability (346) (346)
-------- --------
Total Stockholders' Equity 27,440 27,814
-------- --------
Total Liabilities and Stockholders' Equity $ 45,760 $ 53,412
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 3 of 24
<PAGE> 4
FARREL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share and share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, April 2,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Net Sales $ 17,865 $ 10,038
Cost of sales 13,506 7,770
----------- -----------
Gross margin 4,359 2,268
Operating expenses:
Selling 1,537 1,765
General & administrative 1,911 2,036
Research & development 523 524
----------- -----------
Total operating expenses 3,971 4,325
----------- -----------
Operating income/(loss) 388 (2,057)
Interest income, net 43 103
Other (expense), net (91) (52)
----------- -----------
Income/(loss) before income taxes 340 (2,006)
Provision/(benefit) for income taxes 159 (762)
----------- -----------
Net Income/(loss) $ 181 ($ 1,244)
=========== ===========
Per share data:
Net Income/(loss) per common share $ 0.03 ($ 0.21)
=========== ===========
Average shares outstanding 5,985,177 6,045,684
=========== ===========
Dividends per share $ 0.06 $ 0.20
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 4 of 24
<PAGE> 5
FARREL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, April 2,
--------- --------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income/loss $ 181 ($ 1,244)
Adjustments to reconcile net income/(loss) to net
cash (used in)/provided by operating activities:
Depreciation and amortization 414 356
Decrease in accounts receivable 9,423 10,850
(Increase) in inventory (2,312) (4,113)
(Decrease) in accounts payable (5,120) (1,240)
(Decrease)/increase in customer advances (317) 4,754
(Decrease) in accrued expenses & taxes (1,864) (1,593)
(Decrease) in accrued installation and warranty costs (122) (533)
(Decrease) in deferred income taxes (100) (435)
Other (213) (359)
------- --------
Total adjustments (211) 7,687
------- --------
Net cash (used in)/provided by operating activities (30) 6,443
------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (430) (264)
------- --------
Net cash (used in) investing activities (430) (264)
Cash flows from financing activities:
Repayment of short term borrowings -- (1,064)
Used for repurchase of common stock (59) (76)
Used for dividends paid (360) (1,209)
------- --------
Net cash (used in) financing activities (419) (2,349)
Effect of foreign currency exchange rate changes on cash (10) 77
------- --------
Net (decrease)/increase in cash and cash equivalents (889) 3,907
Cash and cash equivalents - Beginning of period 4,066 9,384
------- --------
Cash and cash equivalents - End of period $ 3,177 $ 13,291
======= ========
Income taxes paid $ 481 $ 1,024
======= ========
Interest paid $ 15 $ 15
======= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 5 of 24
<PAGE> 6
FARREL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly, in accordance with generally
accepted accounting principles, the consolidated financial position of Farrel
Corporation ("Farrel" or "the Company") as of March 31, 1996, and the
consolidated results of its operations and cash flows for the three months ended
March 31, 1996 and April 2, 1995. These results are not necessarily indicative
of results to be expected for the full fiscal year. These statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report and Form 10-K for the year ended December 31, 1995.
NOTE 2 - INVENTORY
Inventory is comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Stock and raw materials .................... $ 6,465 $ 4,485
Work-in process ............................ 8,614 8,351
------- -------
Total ...................................... $15,079 $12,836
======= =======
</TABLE>
Page 6 of 24
<PAGE> 7
PART I - ITEM 2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED APRIL 2,
1995
Net sales for the first quarter of fiscal 1996 were $17.9 million
compared to $10.0 million during the first quarter of 1995. The increase in net
sales is the primary reason for the increase in income in the first quarter of
1996 compared to the first quarter of 1995. The increase in net sales is largely
attributed to the timing of when customer orders shipped in each respective
period. Management continues to believe the markets served by the Company's
products remain extremely competitive. Management further believes the Company
operates, at least to some extent, in markets still experiencing the
after-effects of recessions in the United States and Western Europe and to
ongoing political and economic instability in Eastern Europe and the Middle
East. Far Eastern markets remain extremely competitive and difficult to
penetrate. Management anticipates these market conditions to continue to prevail
during the remainder of 1996.
Order intake has remained slow in the first quarter of 1996 when the
Company received $17.6 million in orders compared to $20.6 million during the
first quarter of fiscal 1995. In the case of major equipment orders, up to 12
months are required to complete the manufacturing process. Accordingly, revenues
may be recognized in a later accounting period than the one in which the order
was received. In addition, the cyclical nature of industry demand and, therefore
order intake, may effect the Company's quarterly results of operations. Firm
backlog at the end of the first quarter of 1996 was $29.4 million compared to
$29.7 million at December 31, 1995 and $49.7 million at the end of the first
quarter of 1995. Firm backlog as of May 9, 1996 and 1995 was $50.0 million and
$51.7 million, respectively. The Company's ability to increase net sales depends
upon a strengthening in the Company's traditional markets. There can be no
assurance that such an improvement will lead to increased orders for the
Company's products.
Gross margin in the first quarter of 1996 approximated $4.4 million,
approximately $2.1 million greater than the $2.3 million reported for the first
quarter of 1995, while the margin percentage increased to 24.4 % from 22.6%. The
improved gross margin is attributed to higher first quarter 1996 sales compared
to 1995 as well as the mix of products sold. The extremely competitive
conditions previously discussed continue to exert pressure on the levels of
margin percentages achieved, a situation which is expected to continue in the
foreseeable future.
As previously reported, the Company announced a plan to cease component
manufacturing operations in the United States and to consolidate all component
manufacturing in its Rochdale, England facility. The Company's U.K. facility was
selected for this cost-effective consolidation into one facility because of its
overall greater efficiency. The change in component manufacturing was
substantially completed by the end April, 1996. Assembly operations will
continue to be performed in both the United States and England.
Operating expenses in the first quarter of 1996 and 1995 approximated
$4.0 million and $4.3 million, respectively. The reduction of operating costs is
largely attributed to elimination of selected executive positions and to
continuing efforts to strictly control expenses. The Company has capitalized
approximately $.7 million and $.8 million, respectively of third party costs as
of March 31, 1996 and December 31, 1995, respectively. These costs were incurred
to identify, negotiate and contract with several acquisition candidates
primarily outside the United States. It is possible that efforts related to
individual acquisition candidates may prove unsuccessful in the near term, at
which point the capitalized costs would be charged to current operations.
Page 7 of 24
<PAGE> 8
The income tax rate in the first quarter of 1996 and 1995, as a
percentage of pre-tax income/(loss), was 46.8% and 38.0%, respectively. The
unusually high 1996 rate is due to the consolidation of domestic income with a
foreign loss. Management does not anticipate the effective income tax rate to
approximate this level for the full fiscal year.
MATERIAL CONTINGENCIES
In 1995 the Company settled litigation against USM Corporation, Emhart
Corporation and certain of their affiliates regarding responsibility for
environmental conditions at the Ansonia and Derby, CT facilities ("Facilities")
at the time of the Company's acquisition of the business from USM in May 1986.
Pursuant to the 1995 settlement agreement with the Company, The Black and Decker
Corporation, a Fortune 150 company, which acquired USM in 1989, has assumed full
responsibility for all investigation and any remediation of pre-1986
contamination at the Facilities in accordance with a consent decree entered into
between Black and Decker and the Connecticut Department of Environmental
Protection. An environmental assessment of the Facilities is currently being
conducted. Although this assessment is not complete, on the basis of preliminary
data now available there is no reason to believe that any activities which might
be required as a result of the findings of the assessment will have a material
effect upon the capital expenditures, earnings or the competitive position of
the Company.
LIQUIDITY AND CAPITAL RESOURCES; CAPITAL EXPENDITURES
Working capital and the working capital ratio at March 31, 1996 were
$18.9 million and 2.2 to 1, respectively, compared to $ 19.1 million and 1.8 to
1 at December 31, 1995, respectively. The Company paid a dividend of $.06 per
share in the first quarter of 1996 from 1995 earnings. The Company's ability to
pay dividends in the future is limited under its credit facility.
Due to the nature of the Company's business, many sales are of a large
dollar amount. Consequently, the timing of recording such sales may cause the
balances in accounts receivable and/or inventory to fluctuate dramatically
between quarters and may result in significant fluctuations in cash provided by
operations. Historically, the Company has not experienced significant problems
regarding the collection of accounts receivable. The Company has also generally
financed its operations with cash generated by operations, with progress
payments from customers and with borrowings under its bank credit facilities.
Management anticipates that its cash balances, operating cash flows and
available credit line will be adequate to fund anticipated capital commitments
and working capital requirements for at least the next twelve months. The
Company made capital expenditures of $.4 and $.3 million during the first
quarter of fiscal 1996 and 1995, respectively.
The Company has a worldwide multi-currency credit facility with a major
U.S. bank in an amount of $20.0 million for direct borrowings and letters of
credit and up to (pound)3.0 million for foreign exchange contracts. The facility
contains limitations on direct borrowings and letters of credit combined based
upon stipulated levels of accounts receivable, inventory and backlog. The
facility also contains covenants specifying minimum and maximum thresholds for
operating results and selected financial ratios. There were $4.3 million and
$8.3 million of letters of credit outstanding at March 31, 1996 and December 31,
1995, respectively. The facility expires on December 31, 1999.
Page 8 of 24
<PAGE> 9
Exhibit 11
FARREL CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share and share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31, April 2,
1996 1995
---- ----
<S> <C> <C>
Primary
- - -------
Net income (loss) applicable to common stock $ 181 ($ 1,244)
========== ===========
Weighted average number of common
shares outstanding during the period 5,982,669 6,045,684
Stock option and purchase plans 2,508 --
---------- -----------
Total common and common equivalent
shares outstanding 5,985,177 6,045,684
Net income (loss) per common and common
equivalent share - primary $ 0.03 ($ 0.21)
========== ===========
Fully Diluted
- - -------------
Net income (loss) applicable to common stock $ 181 ($ 1,244)
========== ===========
Weighted average number of common
shares outstanding during the period 5,982,669 6,045,684
Stock option and purchase plans 2,508 --
---------- -----------
Total common and common equivalent
shares outstanding 5,985,177 6,045,684
========== ===========
Net income (loss) per common and common
equivalent share - fully diluted $ 0.03 ($ 0.21)
========== ===========
</TABLE>
Page 9 of 24
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 10(a) Amendment (April 17, 1996) to Employment Agreement between
Rolf. K. Liebergesell and the Company, dated November 1, 1991
Exhibit 10(b) Employment Agreement between Harold J. Wilson and the Company,
dated March 18, 1996.
Exhibit 10(c) Amendments (April 10, 1996) to the Secondment Agreements
between Karl N. Svensson and the Company dated March 3, 1995,
also attached.
Exhibit 11 - (Regulation S-K) Computation of Earnings Per Share.
See Page 9.
Reports on Form 8-K
No Reports on Form 8-K were filed by the registrant during the periods
covered by this report.
Page 10 of 24
<PAGE> 11
SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
FARREL CORPORATION
------------------
REGISTRANT
DATE: May 13, 1996 /s/ Rolf K. Liebergesell
------------ -----------------------------
ROLF K. LIEBERGESELL
CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
DATE: May 13, 1996 /s/ Catherine M. Boisvert
------------ -----------------------------
CATHERINE M. BOISVERT
VICE PRESIDENT AND CONTROLLER
(CHIEF ACCOUNTING OFFICER)
Page 11 of 24
<PAGE> 1
EXHIBIT 10(a)
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT TO EMPLOYMENT AGREEMENT dated as of April 17, 1996, by and
between FARREL CORPORATION, a Delaware corporation (the "Company") and ROLF K.
LIEBERGESELL (the "Executive").
WHEREAS, the Company and the Executive are parties to an Employment
Agreement dated as of November 1, 1991; and
WHEREAS, the appointment of Harold J. Wilson as President of the
Company makes it necessary to amend the Agreement to reflect that appointment;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements set forth herein, and intending to be legally bound
hereby, the Company and the Executive agree as follows.
1. The recital on page 1 of the Agreement is deleted and the following is
substituted therefor.
WHEREAS, the Board of Directors of the Company (the "Board") desires to
provide for the employment of Executive in the capacity of Chief
Executive Officer and Chairman of the Board and Executive desires to
commit himself to serve the Company on the terms and conditions herein
provided;
2. The Article of the Agreement entitled "3. Position and Duties" is
deleted and the following is substituted therefor.
3. Position and Duties. Executive shall serve as Chief Executive
Officer of the Company and shall faithfully perform such duties and
responsibilities as the Board may from time to time direct provided
such duties and responsibilities are of a nature customarily assigned
to and performed by a Chief Executive Officer of a corporation which is
similar in size and nature to the Company. Executive shall devote his
entire working time and efforts to the business and
Page 12 of 24
<PAGE> 2
EXHIBIT 10(a)
affairs of the Company, however, the Executive may engage in charitable
and public activities so long as such activities do not interfere with
the performance of his duties and responsibilities under this
Agreement. In addition to serving as Chief Executive Officer, the
Executive shall also serve in the capacity of Chairman of the Board,
subject to the discretion of the Board of Directors.
3. In Section 5(a) of the Agreement, the sixth and seventh sentences are
deleted and the following are substituted therefor.
In the event the Executive challenges any such termination, pending
final resolution by the Arbitrator, the Executive shall be relieved of
his duties and responsibilities as Chief Executive Officer, however,
Executive shall be entitled to receive all of his compensation and
benefits payable hereunder without giving effect to such termination.
In the event the arbitrator appointed pursuant to Section 6 determines
that the purported termination for Cause was in fact without proper
Cause, the termination, will not be effective and the Executive shall
be reinstated as Chief Executive Officer.
Page 13 of 24
<PAGE> 3
EXHIBIT 10(a)
4. Except as expressly changed by the foregoing, the Agreement remains in
effect as originally written.
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Employment Agreement effective as of the date first written above.
FARREL CORPORATION
By /s/ Charles S. Jones
------------------------------------
Name: Charles S. Jones
Title: Chairman, Executive Committee
EXECUTIVE
/s/ Rolf K. Liebergesell
--------------------------------------
Rolf K. Liebergesell
Page 14 of 24
<PAGE> 1
EXHIBIT 10(b)
March 18, 1996
Mr. Harold J. Wilson
1064 Rambling Way
Fairlawn, Ohio 44333
Dear Hal:
I am pleased to summarize all the understandings we have reached in connection
with your appointment to the position of President and Chief Operating Officer
of Farrel Corporation. As you know, the Farrel Board of Directors agreed to your
appointment in its meeting on March 8, 1996.
1. Farrel is a meritocracy; financial performance dictates financial
rewards.
2. The base salary will be $250,000 and will be subject to annual review
by the Compensation Committee of the Board, based on my
recommendations.
3. You will be granted stock options for 120,000 Farrel shares at
$4.00/share and 80,000 shares at $6.00/share on 3/25/96. Subsequent
stock option awards will be determined annually by the Compensation
Committee of the Board, again based on my recommendations. I will see
to it that you are provided with a copy of Farrel's Stock Option
Program.
4. Farrel's bonus scheme is entirely discretionary and not based on a
formula. As mentioned in my letter of February 27, 1996, we envision a
range of $0 - 100,000 depending on achievement of pre-determined
operating objectives. We will need to agree on the specific targets to
be achieved and the bonus awards which would be triggered by meeting
such targets. The major threshold targets we wish to achieve are as
follows:
- Return to pre-IPO levels of net income, i.e. $5-6 million, in
1997.
- Gross margin improvement over, say, a 3-year period by 8-10
percentage points with the greatest improvements in fiscal `97,
but clearly important to achieve 2 1/2 percentage points in fiscal
`96.
- Reduction of operating expense by at least 4% per year for the
next 3 years.
- Growth in our top line has been elusive in recent years. We would
welcome organic growth in our core business to meet and exceed
these thresholds for profit improvement, but organic profit growth
even without top line growth is essential.
Page 15 of 24
<PAGE> 2
EXHIBIT 10(b)
Mr. Harold J. Wilson
March 18, 1996
Page 2
5. Farrel will arrange for a life insurance policy in an amount twice your
annual salary with your wife as beneficiary.
6. You will be provided with a company car in either the Cadillac or
Lincoln class.
7. You will participate in the Farrel salaried employee benefit program.
Description material is enclosed.
8. a) The initial duration of our agreement is for two years and will be
automatically renewed for subsequent one-year periods unless six
months' notice of termination is given by you or us.
b) In case you wish to terminate the agreement, you would need to give
Farrel four months' notice.
c) If Farrel wishes to terminate the agreement for reasons other than
"cause", it could do so at any time, with a compensation payment of 14
months' salary.
d) Termination for "cause" would be without compensation beyond the date
of termination. The term "cause" is defined on the attached page.
9. Transitional Matters
Farrel will pay your expenses for relocating from Ohio to Connecticut
which shall consist of packing, moving, and insuring of household
goods.
Farrel will pay for a suitable apartment for you and your wife for up
to four months while you are securing a permanent residence in
Connecticut.
As discussed, you will be responsible for all day-to-day operational matters of
the Polymer Machinery and related business and the senior operational executives
will report to you on a "solid line". The Finance and Legal Departments will
continue to report to me.
During the necessary transition period, I look forward to working together
closely to support you in taking operational control. I will be mindful of the
necessity of chain of command. Once completed, I expect to be able to devote a
large portion of my time designing, developing and executing a diversification
program which will concentrate on profitable growth. I will see to it that you
are invested with the appropriate authority to run the Company's operations
efficiently and effectively.
Page 16 of 24
<PAGE> 3
EXHIBIT 10(b)
Mr. Harold J. Wilson
March 18, 1996
Page 3
If you agree with the above, please counter sign a copy of this letter and
return it to me. I look forward to seeing you and having you start on March
25/26.
Sincerely,
/s/ Rolf K. Liebergesell
Agreed and Accepted:
/s/ Harold J. Wilson
- - --------------------------
Harold J. Wilson
Date: 3/18/96
---------------------
Page 17 of 24
<PAGE> 4
EXHIBIT 10(b)
Attachment to agreement letter between Harold Wilson and Farrel Corporation
As used in this Agreement, the term "cause" shall include, but not be limited
to, willful and repeated violation of the conditions of employment, failure or
refusal to carry out the instructions of the Board of Directors or its Chairman,
or acts of insubordination, engaging in activities which constitute fraud or
other crime against the company or creating a conflict of interest, conviction
of a crime involving moral turpitude or the misuse of funds, or any other
conduct inimical to the best interests of the company. In the event of failure
or refusal to carry out the instructions of the Board of Directors or its
Chairman, the Board or the Chairman may advise you of such and grant a
reasonable period of time, not to exceed thirty (30) days, to correct same,
failing which the failure or refusal shall constitute "cause".
Page 18 of 24
<PAGE> 1
EXHIBIT 10(c)
April 10, 1996
Mr. Karl N. Svensson
60 Broadway
Bramhall, Stockport
SK7-3BU
Dear Karl:
The purpose of this letter is to clarify the attached letter dated March 3,
1995, regarding your secondment to Farrel Limited.
The second paragraph of the attached letter is deleted and the following is
substituted in its place:
In the event the Company terminates your employment for any reason
other than a health-related incapacity to work lasting more than 9
months, gross misconduct, malfeasance or conviction of a felony, you
will be paid, on a monthly schedule, your salary and benefits at the
time of initial secondment or your then current salary and benefits,
whichever is higher, until your normal retirement at age 65 in 2000,
less any salary received from substitute employment during the period
between your termination and such retirement.
Except as modified by the substituted paragraph, the attached March 3, 1995,
letter remains in effect as originally written.
Sincerely,
FARREL CORPORATION
By /s/ R. K. Liebergesell
------------------------------------
R. K. Liebergesell
Chairman and Chief Executive Officer
Acknowledged and Accepted
/s/ Karl N. Svensson
- - --------------------------------------
Karl N. Svensson
Page 19 of 24
<PAGE> 2
EXHIBIT 10(c)
March 3, 1995
Mr. Karl N. Svensson
20 Abrams Road
Cheshire, CT 06410
Dear Karl:
This letter sets forth your secondment to Farrel Limited as Managing Director
effective April 1, 1995. During your tenure as Managing Director, you will
remain Senior Vice President of Farrel Corporation responsible for worldwide
manufacturing. At the expiration of the initial term, we shall decide whether to
extend your assignment for an additional period of time on terms equivalent to
those embodied here.
In the event the Company terminates your employment for any reason other than a
health-related incapacity to work lasting more than 9 months, gross misconduct,
malfeasance or conviction of a felony, you will be paid, on a monthly schedule,
your then current salary and benefits until your normal retirement in 2000 less
any salary received in subsequent employment during the period.
Sincerely,
/s/ Rolf K. Liebergesell
ACKNOWLEDGED & ACCEPTED:
/s/ Karl N. Svensson
- - -------------------------
Karl N. Svensson
Page 20 of 24
<PAGE> 3
EXHIBIT 10(c)
April 10, 1996
Mr. Karl N. Svensson
60 Broadway
Bramhall, Stockport
SK7-3BU
Dear Karl:
The purpose of this letter is to clarify the terms contained in the fifth
paragraph of the attached letter dated March 3, 1995, regarding your secondment
to Farrel Limited.
The Company currently pays, and will until the sale of your house in the U.S.
and the permanent relocation of your wife to the U.K. continue to pay, your
housing costs and other miscellaneous costs in the U.K. Commencing upon the sale
of your house in the U.S. and the permanent relocation of your wife to the U.K.,
the Company will pay you: (a) a housing allowance at the rate of $12,000 per
year, which amount shall be reviewed for potential adjustment at the time of
each renewal of your lease for housing in the U.K.; and (b) a cost of living
allowance at the rate of $12,000 per year, which amount shall be reviewed
periodically for potential adjustment. Both allowances will be paid in equal
monthly installments of 1/12 of the annual amount.
If your employment is terminated during the term of any lease for your housing
in the U.K., the Company agrees to assume responsibility for all remaining lease
payments, provided the remaining term of the lease does not exceed one year. The
Company requires that a copy of any lease for which Farrel might become
responsible be provided to us before it is signed and that you endeavor to have
included in any such lease a termination clause which would allow you to
terminate the lease with no cost or liability provided a specified amount of
notice is given.
Page 21 of 24
<PAGE> 4
EXHIBIT 10(c)
Mr. Karl N. Svensson
April 10, 1996
Page 2
Upon your return to the U.S., the Company will provide you with reasonable and
suitable housing for up to 4 months. In addition, the Company will pay
transportation of your goods from the U.K. to the U.S. and storage of those
goods in the U.S. until you secure a new residence.
Except as clarified by the foregoing provisions, the attached March 3, 1995,
letter remains in effect as originally written.
Sincerely,
FARREL CORPORATION
By /s/ R.K. Liebergesell
-------------------------------------
R. K. Liebergesell
Chairman and Chief Executive Officer
Acknowledged and Accepted
/s/ Karl N. Svensson
- - ---------------------------------------
Karl N. Svensson
Page 22 of 24
<PAGE> 5
EXHIBIT 10(c)
March 3, 1995
Mr. Karl N. Svensson
20 Abrams Road
Cheshire, CT 06410
Dear Karl:
This memorandum sets forth our understanding concerning your secondment to
Farrel Limited as Managing Director effective, pending approval of your work
permit, April 1, 1995. During your tenure as Managing Director, you will
continue in your position as Senior Vice President of Farrel Corporation,
responsible for US and worldwide manufacturing. Our intention is that the
initial secondment shall be for a period of two and one half years.
While seconded to Farrel Limited, we shall adjust your income and benefits for
purposes of tax equalization. Ernst & Young will advise you in this regard as
well as assist you in obtaining a work permit.
During your secondment as Managing Director, your benefits will be essentially
the same as those currently held as an employee of Farrel Corporation. Although
you can avail yourself of Farrel Limited's health scheme, you will remain
covered by Farrel Corporation's health and welfare plan, as well as the 401(k)
plan. We will fund the employer share of your US social security payments as you
will remain an employee of Farrel Corporation.
As long as you are primarily based in the UK, we will permit you three family
visits to the US per year, coach air fare paid, for you and your spouse. In the
UK, you will be entitled to an automobile similar to the automobile provided to
you at Farrel Corporation.
Page 23 of 24
<PAGE> 6
EXHIBIT 10(c)
Mr. Karl N. Svensson
March 3, 1995
Page 2
In further consideration of the appointment, the Company will assure you that
temporary housing moving, storage and transportation will be paid in relocating
to the Manchester, England area and when you eventually return. While you reside
overseas, we shall provide a housing allowance, including a stipend to purchase
household goods, and shall store the household effects remaining in the US.
Sincerely,
/s/ Rolf K. Liebergesell
ACKNOWLEDGED AND ACCEPTED:
/s/ Karl N. Svensson
- - ------------------------------
Karl N. Svensson
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FARREL CORPORATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,177
<SECURITIES> 0
<RECEIVABLES> 14,096
<ALLOWANCES> 104
<INVENTORY> 15,079
<CURRENT-ASSETS> 34,515
<PP&E> 17,115
<DEPRECIATION> 7,457
<TOTAL-ASSETS> 45,760
<CURRENT-LIABILITIES> 15,637
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0
0
<COMMON> 61
<OTHER-SE> 27,379
<TOTAL-LIABILITY-AND-EQUITY> 45,760
<SALES> 17,865
<TOTAL-REVENUES> 17,865
<CGS> 13,506
<TOTAL-COSTS> 13,506
<OTHER-EXPENSES> 3,968
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> 340
<INCOME-TAX> 159
<INCOME-CONTINUING> 181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 181
<EPS-PRIMARY> 0.03
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</TABLE>
