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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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GOULDS PUMPS, INCORPORATED
(NAME OF SUBJECT COMPANY)
GOULDS PUMPS, INCORPORATED
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS OF SECURITIES)
385550100
(CUSIP NUMBER OF CLASS OF SECURITIES)
MICHAEL T. TOMAINO
GENERAL COUNSEL
GOULDS PUMPS, INCORPORATED
300 WILLOWBROOK OFFICE PARK
FAIRPORT, NY 14450-4285
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATION ON BEHALF OF THE PERSON(S) FILING STATEMENT).
With copies to:
<TABLE>
<S> <C>
JAMES C. MORPHY, ESQ. JUSTIN DOYLE, ESQ.
SULLIVAN & CROMWELL NIXON, HARGRAVE, DEVANS & DOYLE
125 BROAD STREET CLINTON SQUARE
NEW YORK, NEW YORK 10004 ROCHESTER, NEW YORK 14603
(212) 558-3988 (716) 263-1359
</TABLE>
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Goulds Pumps, Incorporated, a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 300 WillowBrook Office Park, Fairport, NY 14450-4285. The
title of the class of equity securities to which this statement relates is the
common stock, par value $1.00 per share, of the Company (the "Common Stock" or
the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
The statement relates to the tender offer by George Acquisition, Inc., a
Delaware corporation (the "Purchaser"), which is a wholly owned subsidiary of
ITT Industries Inc., an Indiana corporation ("ITT Industries"), to purchase all
outstanding Shares at a price of $37.00 per share net to the seller in cash,
upon the terms and subject to the conditions set forth in the Offer to Purchase,
dated April 25, 1997 (the "Offer to Purchase"), and the related Letter of
Transmittal (which, together with the Offer to Purchase, as it may be amended,
constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of April 20, 1997 (the "Merger Agreement"), among the Purchaser, ITT
Industries and the Company. The Merger Agreement provides, among other things,
that as soon as practicable after the satisfaction or waiver of the conditions
set forth in the Merger Agreement, the Purchaser will be merged with and into
the Company (the "Merger"), and the Company will continue as the surviving
corporation (the "Surviving Corporation"). A copy of the Merger Agreement is
filed as Exhibit 1 hereto and is incorporated herein by reference in its
entirety.
As set forth in the Tender Offer Statement on Schedule 14D-1 of the
Purchaser enclosed herewith (the "Schedule 14D-1"), the principal executive
offices of ITT Industries and the Purchaser are at Four West Red Oak Lane, White
Plains, New York 10604.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as set forth in this Item 3(b), to the knowledge of the Company,
as of the date hereof, there are no material contracts, agreements, arrangements
or understandings and actual or potential conflicts of interest between the
Company or its affiliates and: (i) its executive officers, directors or
affiliates; or (ii) the Purchaser, its executive officers, directors or
affiliates.
The Company has entered into certain employment agreements, termination of
employment and change of control arrangements, as described on pages 9, 12 and
13 of the Proxy Statement dated March 24, 1997 for the Company's Annual Meeting
of Stockholders (the "1997 Proxy Statement"), a copy of which is filed as
Exhibit 2 hereto and is incorporated herein by reference.
On April 4, 1997, in connection with the review by the Company of executive
compensation and employee benefits in the event of a change of control and upon
the recommendation of the Human Resources Committee of the Board of Directors,
the Board of Directors of the Company resolved to take the following actions
with respect to various employment agreements, termination and change of control
arrangements of the Company (each described more fully below).
Revised Change of Control Agreements. The Company has entered into revised
change of control agreements (the "Revised Agreements") with all officers other
than assistant officers and other than members of the Management Executive
Committee. The Revised Agreements provide substantially similar benefits to
those provided by the previous change in control agreements to which each such
officer was a party, with the following exceptions: (i) the cash severance
payment of three times the highest annual compensation awarded, paid or payable
with respect to any 12 consecutive month period, as selected by such officer,
during the three years ending with the date of termination, is paid in a lump
sum, and the computation of such lump sum payment takes into account only base
salary and bonus; (ii) payments under the Revised Agreements will not be subject
to reduction upon subsequent employment; (iii) payments under the Revised
Agreements will
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not be limited by reason of being "excess parachute payments" as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"); and
(iv) the Revised Agreements provide for a gross-up payment for excise taxes
imposed by Section 4999 of the Code on excess parachute payments and any taxes
imposed in respect of such gross-up payment. A copy of the form of the Revised
Agreements is filed as Exhibit 4 hereto and is incorporated herein by reference
in its entirety.
Amendment of Change of Control Agreements. The Company has amended the
Senior Executive Change of Control Agreements in effect for members of the
Management Executive Committee (the "Senior Executive Agreements") to provide
that at the expiration of the three-year period following a qualifying
termination, covered officers will be eligible to participate (until such
officers become eligible for Medicare) in any group health insurance plan
offered by the Company, its parent or successor from time to time to its senior
executives, which plan is at least comparable to the coverage provided
immediately prior to termination of employment, at a cost to such covered
officer equal to the cost such officer paid for health insurance coverage
immediately prior to such change of control. A similar provision is also
included in the Revised Agreements. In addition, for purposes of the Senior
Executive Agreements, the cash value of incentive compensation awarded as stock
options is based upon the value, as of the date of grant, using the
Black-Scholes pricing model. A copy of the form of the Senior Executive
Agreements, as amended, is filed as Exhibit 5 hereto and is incorporated herein
by reference.
Amendment of Supplemental Executive Pension Plan. The Company has amended
its Supplemental Executive Pension Plan (the "SEPP") to provide that (i)
credited service shall include only service as a member of the Company's
Management Executive Committee (plus any additional service to the extent
specified in the Senior Executive Agreements), and (ii) the gross benefit
(before offsets) payable under the plan shall be an amount equal to a percentage
(as determined below) of the participant's final compensation. The percentage is
determined as the sum of (i) 4.00% for each of the participant's first five
years of credited service, (ii) 3.25% for each of the participant's next five
years of credited service, (iii) 1.375% for each of the participant's next ten
years of credited service, and (iv) 1.00% for each of the participant's next ten
years of credited service, for a maximum percentage of 60% after thirty years of
credited service. Notwithstanding the foregoing, any participant having more
than 30 years of service with the Company on April 4, 1997 shall have a gross
benefit percentage of 60%. A copy of such amendment is filed as Exhibit 6 hereto
and is incorporated herein by reference.
Amendment of the Executive Incentive Plan. The Company has amended the
Executive Incentive Plan (the "EIP") to provide that in the event of a change of
control, (i) the EIP shall terminate at the end of the calendar year in which
the change of control occurs, and each participant employed as of year-end will
receive a payment based upon the higher of such participant's target incentive
percentage or actual business performance at year-end, multiplied by full year
eligible earnings, and (ii) in the event of the termination of an EIP
participant following a change of control of the Company, a prorated payment
shall be made to such participant, based upon year-to-date eligible earnings as
of the date of termination. A copy of the EIP, as amended, is filed as Exhibit 7
hereto and is incorporated herein by reference.
Amendment of the Severance Plan. The Company has amended its Severance
Plan for U.S. Salaried Employees (the "Severance Plan") to provide that in the
event of an involuntary termination which occurs as a direct result of a change
of control, each non-bargaining unit employee shall receive a severance benefit
equal to a minimum of 13 weeks of such employee's weekly pay, in each case
commencing on the termination date, or the severance benefit otherwise
applicable under the Severance Plan, whichever is greater. A copy of such
amendment is filed as Exhibit 8 hereto and is incorporated herein by reference.
The Merger Agreement. The following is a summary of the Merger Agreement,
which summary is qualified in its entirety by reference to the Merger Agreement
which is filed as Exhibit 1 hereto.
--The Offer. The Merger Agreement provides for the commencement of the
Offer as soon as reasonably practicable after the date of the Merger Agreement,
but in no event later than five business days from the date of public
announcement of the execution of the Merger Agreement. The obligation of the
Purchaser to accept for payment Shares tendered pursuant to the Offer is subject
only to the satisfaction or waiver by the Purchaser of the conditions described
in Section 15 of the Schedule 14D-1 (the "Offer
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Conditions"). Under the Merger Agreement, the Purchaser expressly reserves the
right, in its sole discretion, to waive any such condition (other than the
condition that a number of Shares which, together with any Shares owned by ITT
Industries or Purchaser, constitutes more than 50% of the voting power
(determined on a fully-diluted basis), on the date of purchase of all the
securities of the Company entitled to vote generally in the election of
directors or in a merger be validly rendered and not withdrawn prior to the
expiration of the Offer (the "Minimum Condition") and make any other changes in
the terms and conditions of the Offer; provided, that, unless previously
approved by the Company in writing, no change may be made which (a) changes the
Minimum Condition, (b) decreases the price per Share payable in the Offer, (c)
changes the form of consideration payable in the Offer (other than by adding
consideration), (d) reduces the maximum number of Shares to be purchased in the
Offer, or (e) amends the terms or Offer Conditions or imposes conditions or
terms to the Offer in addition to those set forth in the Merger Agreement which,
in either case, are adverse to holders of the Shares. Pursuant to the Merger
Agreement, the Purchaser agrees that, unless it is permitted to terminate the
Merger Agreement pursuant to certain applicable termination provisions in the
Merger Agreement, it can terminate the Offer only on a scheduled expiration
date. The Purchaser further agrees that: (A) in the event it would otherwise be
entitled to terminate the Offer at any scheduled expiration thereof due to the
failure of one or more of the conditions set forth in paragraphs (a), (b), (c),
(d)(i), (e) or (h) of the Offer Conditions to be satisfied or waived, it shall
give the Company notice thereof and, at the request of the Company, extend the
Offer until the earlier of (1) such time as such condition is or conditions are
satisfied or waived and (2) the date chosen by the Company which shall not be
later than (x) the Outside Date applicable to the condition or conditions with
respect to which the extension is requested or (y) the earliest date on which
the Company reasonably believes such condition or conditions will be satisfied;
provided that if such condition is not or conditions are not satisfied by any
date chosen by the Company pursuant to clause (y), the Company may request
further extensions of the Offer in accordance with the terms of this paragraph;
and (B) in the event that it would otherwise be entitled to terminate the Offer
at the initial scheduled expiration date thereof due solely to the failure of
the Minimum Condition to be satisfied or waived, it shall, at the request of the
Company (which request may be made by the Company only on one occasion), extend
the Offer for up to five business days from such initial scheduled expiration
date. The Merger Agreement provides that, subject to the terms and conditions of
the Merger Agreement, including but not limited to the Offer Conditions, the
Purchaser will accept for payment and pay for Shares as soon as it is permitted
to do so under applicable law.
--The Merger. The Merger Agreement provides that, upon the terms and
subject to the conditions thereof and in accordance with the General Corporation
Law of the State of Delaware (the "DGCL"), at the effective time of the Merger
(the "Effective Time"), the Purchaser shall be merged with and into the Company
(the "Surviving Corporation"). As a result of the Merger, the separate corporate
existence of the Purchaser will cease and the Company will continue as the
surviving corporation. At ITT Industries' election, any direct or indirect
subsidiary of ITT Industries other than the Purchaser may be merged with and
into the Company instead of the Purchaser.
At the Effective Time, each Share issued and outstanding immediately prior
to the Effective Time (unless otherwise provided for) will be cancelled,
extinguished and converted into the right to receive $37 in cash or any higher
price that may be paid pursuant to the Offer (the "Merger Consideration"),
payable to the holder thereof, without interest, upon surrender of the
certificate formerly representing such Share in the manner described in the
Merger Agreement, less any required withholding taxes.
The Merger Agreement provides that, immediately prior to the Effective
Time, each outstanding stock option and any related stock appreciation right
granted to employees and non-employee directors of the Company and its
subsidiaries (together, an "Option"), whether or not then exercisable, will be
cancelled by the Company, and the holder thereof will be entitled to receive at
the Effective Time or as soon as practicable thereafter from the Company in
consideration for such cancellation an amount in cash equal to the product of
(a) the number of Shares previously subject to such Option and (b) the excess,
if any, of the Merger Consideration over the exercise price per Share previously
subject to such Option.
The Merger Agreement provides that Shares that are issued and outstanding
immediately prior to the Effective Time and which are held by stockholders who
have not voted in favor of or consented to the Merger
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and shall have delivered a written demand for appraisal of such Shares in the
time and manner provided in Section 262 of the DGCL and shall not have failed to
perfect or shall not have effectively withdrawn or lost their rights to
appraisal and payment under the DGCL shall not be converted into the right to
receive the Merger Consideration, but shall be entitled to receive the
consideration as shall be determined pursuant to Section 262 of the DGCL;
provided, however, that if such holder shall have failed to perfect or shall
have effectively withdrawn or lost his, her or its right to appraisal and
payment under the DGCL, such holder's Shares shall thereupon be deemed to have
been converted, at the Effective Time, into the right to receive the Merger
Consideration as described above.
The Merger Agreement also provides that at the Effective Time and without
any further action on the part of the Company and the Purchaser, the Restated
Certificate of Incorporation (the "Certificate of Incorporation") of the
Company, as in effect immediately prior to the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation until thereafter and
further amended as provided therein and under the DGCL. At the Effective Time
and without any further action on the part of the Company and the Purchaser, the
By-Laws of the Purchaser shall be the By-Laws of the Surviving Corporation and
thereafter may be amended or repealed in accordance with their terms or the
Certificate of Incorporation of the Purchaser and as provided by law. The Merger
Agreement provides that the directors of the Purchaser immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and By-Laws
of the Surviving Corporation, and the officers of the Company immediately prior
to the Effective Time shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed (as the case may be) and qualified.
Agreements of ITT Industries, the Purchaser and the Company.
-- Stockholders Meeting. Pursuant to the Merger Agreement, the Company, if
required, shall, in accordance with and subject to applicable law and the
Company's Certificate of Incorporation and By-Laws, (i) duly call, give notice
of, convene and hold a meeting of its stockholders as soon as practicable
following consummation of the Offer for the purpose of considering and taking
action on the Merger Agreement and the transactions contemplated thereby (the
"Stockholders Meeting") and (ii) subject to the fiduciary duties of the
Company's Board of Directors under applicable law, (A) include in the Proxy
Statement (as defined below) the unanimous recommendation of the Board of
Directors that the stockholders of the Company vote in favor of the approval of
the Merger Agreement and the transactions contemplated thereby and the written
opinion of the Financial Adviser (as defined in the Merger Agreement) that the
consideration to be received by the stockholders of the Company pursuant to the
Offer and the Merger is fair to such stockholders and (B) use its reasonable
best efforts to obtain the necessary approval of the Merger Agreement and the
transactions contemplated thereby by its stockholders. At the Stockholders
Meeting, ITT Industries and the Purchaser shall cause all Shares then owned by
them and their subsidiaries to be voted in favor of approval of the Merger
Agreement and the transactions contemplated thereby.
The Merger Agreement provides that, notwithstanding the foregoing, in the
event that the Purchaser shall acquire at least 90% of the outstanding Shares,
the Company agrees, at the request of the Purchaser, subject to the Merger
Agreement, to take all necessary and appropriate action to cause the Merger to
become effective as soon as reasonably practicable after such acquisition,
without a meeting of the Company's stockholders, in accordance with Section 253
of the DGCL.
-- Proxy Statement. The Merger Agreement provides that, if required by
applicable law, as soon as practicable following ITT Industries' request, the
Company will file with the Commission under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the rules and regulations promulgated
thereunder, and will use its reasonable best efforts to have cleared by the
Securities and Exchange Commission (the "Commission") the proxy statement with
respect to the Stockholders Meeting (the "Proxy Statement").
-- Company Board Representation. The Merger Agreement provides that,
promptly upon the purchase by the Purchaser of Shares pursuant to the Offer, and
from time to time thereafter, the Purchaser will be
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entitled to designate up to such number of directors, rounded up to the next
whole number, on the Board of Directors of the Company as will give the
Purchaser representation on the Board of Directors equal to the product of the
total number of directors on such Board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of Shares beneficially owned by the Purchaser or any affiliate of the
Purchaser bears to the total number of Shares then outstanding, and the Company
shall, at such time, promptly take all action necessary to cause the Purchaser's
designees to be so elected, including either increasing the size of the Board of
Directors or securing the resignations of incumbent directors or both. At such
times, the Company will use its reasonable best efforts to cause persons
designated by the Purchaser to constitute the same percentage as is on the board
of (i) each committee of the Board of Directors, (ii) each board of directors of
each subsidiary of the Company and (iii) each committee of each such board, in
each case only to the extent permitted by law. The Company's obligations to
appoint designees to its Board of Directors shall be subject to Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder.
Following the election or appointment of the Purchaser's designees pursuant
to the Merger Agreement and prior to the Effective Time, any amendment, or
waiver of any term or condition, of the Merger Agreement or the Certificate of
Incorporation or By-Laws of the Company, any termination of the Merger Agreement
by the Company, any extension by the Company of the time for the performance of
any of the obligations or other acts of the Purchaser or waiver or assertion of
any of the Company's rights thereunder, and any other consent or action by the
Board of Directors with respect to the Merger Agreement, will require only the
concurrence of a majority of the directors of the Company then in office who are
neither designated by the Purchaser nor are employees of the Company (the
"Disinterested Directors") and such concurrence shall constitute the
authorization of the Board of Directors of the Company and no other action by
the Company, including any action by any other director of the Company, shall be
required for purposes of the Merger Agreement. The number of Disinterested
Directors shall be not less than two.
-- Access to Information; Confidentiality. Pursuant to the Merger
Agreement, from the date thereof to the Effective Time, the Company shall, and
shall cause its subsidiaries, officers, directors, employees, auditors and other
agents to, afford the officers, employees, auditors and other agents of ITT
Industries, and financing sources who shall agree to be bound by the provisions
of such section of the Merger Agreement as though a party thereto, complete
access, consistent with applicable law, at all reasonable times to its officers,
employees, agents, properties, offices, plants and other facilities and to all
books and records, and will furnish ITT Industries and such financing sources
with all financial, operating and other data and information as ITT Industries,
through its officers, employees or agents, or such financing sources may from
time to time reasonably request.
The Merger Agreement further provides that each of ITT Industries and the
Purchaser will hold and will cause its officers, employees, auditors and other
agents to hold in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all documents and
information concerning the Company and its subsidiaries furnished to ITT
Industries or the Purchaser in connection with the transactions contemplated in
the Merger Agreement (except to the extent that such information can be shown to
have been generally available to ITT Industries or the Purchaser on a
non-confidential basis prior to the date thereof; provided that the source of
such information was not known by ITT Industries or the Purchaser to be bound by
a confidentiality agreement and will not release or disclose such information to
any other person, except (1) the officers, directors, employees, counsel,
investment bankers and other representatives of ITT Industries and the Purchaser
who need to know such information for the purposes of evaluating the Merger and
the other transactions contemplated by the Merger Agreement and (2) any other
person after the Company has provided written consent to such disclosure). If
the transactions contemplated by the Merger Agreement are not consummated, such
confidence will be maintained for a period of two years from the date thereof
and, if requested by or on behalf of the Company, ITT Industries and the
Purchaser will, and will use all reasonable efforts to cause their auditors and
other agents to, return to the Company or destroy all copies of written
information furnished by the Company to ITT Industries and the Purchaser or
their agents, representatives or advisors. It is understood that ITT Industries
and Purchaser shall be deemed to have
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satisfied their obligation to hold such information confidential if they
exercise the same care as they take to preserve confidentiality for their own
similar information.
-- No Solicitation of Transactions. The Merger Agreement provides that the
Company, its affiliates and their respective officers, directors, employees,
representatives and agents will immediately cease any existing discussions or
negotiations, if any, with any parties conducted theretofore with respect to any
acquisition or exchange of all or any material portion of the assets of, or more
than 20% of the equity interest in, the Company or any business combination with
the Company. Except as set forth in the Merger Agreement, neither the Company or
any of its affiliates, nor any of its or their respective officers, directors,
employees, representatives or agents, will, directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with, or provide
any information to, any corporation, partnership, person or other entity or
group (other than ITT Industries and the Purchaser, any affiliate or associate
of ITT Industries and the Purchaser or any designees of ITT Industries or the
Purchaser) concerning any merger, sale of any material portion or assets, sale
of more than 20% of the shares of capital stock or similar transactions
(including an exchange of stock or assets) involving the Company or any
subsidiary of the Company. The Company may, directly or indirectly, furnish
information and access, in each case only in response to a request for such
information or access to any person made after the date of the Merger Agreement
which was not encouraged, solicited or initiated by the Company or any of its
affiliates or any of its or their respective officers, directors, employees,
representatives or agents after the date thereof, pursuant to appropriate
confidentiality agreements, and may participate in discussions and negotiate
with such person concerning any merger, sale of assets, sale of shares of
capital stock or similar transaction (including an exchange of stock or assets)
involving the Company or any subsidiary or division of the Company, if such
person has submitted a written proposal to the Board of Directors of the Company
relating to any such transaction and the Board determines in good faith, based
upon the advice of outside counsel to the Company, that failing to take such
action would constitute a breach of the Board's fiduciary duty under applicable
law. The Board will notify ITT Industries immediately if any such proposal is
made and will in such notice, indicate in reasonable detail the identity of the
offeror and the terms and conditions of any proposal and shall keep ITT
Industries promptly advised of all developments which could reasonably be
expected to culminate in the Board of Directors withdrawing, modifying or
amending its recommendation of the Offer, the Merger and the other transactions
contemplated by the Merger Agreement. The Company has also agreed not to release
any third party from, or waive any provisions of, any confidentiality or
standstill agreement to which the Company is a party, unless the Board shall
have determined in good faith, based upon the advice of outside counsel, that
failing to release such third party or waive such provisions would constitute a
breach of the fiduciary duties of the Board of Directors under applicable law.
-- Directors' and Officers' Indemnification and Insurance. The Merger
Agreement provides that the By-Laws of the Surviving Corporation will contain
provisions no less favorable with respect to indemnification than are set forth
in Article 12 of the By-laws of the Company, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at the Effective Time were directors, officers or employees
of the Company.
Pursuant to the Merger Agreement ITT Industries will use its reasonable
best efforts to cause to be maintained in effect for six years from the
Effective Time the current policies of the directors' and officers' liability
insurance maintained by the Company (provided that ITT Industries may substitute
therefor policies of at least the same coverage containing terms and conditions
which are not materially less advantageous) with respect to matters occurring
prior to the Effective Time to the extent available; provided, however, that in
no event shall ITT Industries or the Company be required to expend more than an
amount per year equal to 150% of current annual premiums paid by the Company
(which the Company represented to be not more than $250,000) to maintain or
procure insurance coverage pursuant to the Merger Agreement.
The Merger Agreement also provides that for six years after the Effective
Time, ITT Industries agrees that it will or will cause the Surviving Corporation
to indemnify and hold harmless each present and former director and officer of
the Company, determined as of the Effective Time (the "Indemnified Parties"),
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or
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liabilities (collectively, the "Costs") (but only to the extent such Costs are
not otherwise covered by insurance and paid) incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent
permitted under applicable law (and ITT Industries will, or will cause the
Surviving Corporation to, also advance expenses as incurred to the fullest
extent permitted under applicable law provided the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification).
-- Further Action; Reasonable Best Efforts. The Merger Agreement provides
that, upon the terms and subject to the conditions thereof, each of the parties
thereto shall use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by the Merger Agreement as soon as
practicable, including but not limited to (i) cooperation in the preparation and
filing of the Offer Documents (as defined in the Merger Agreement), the Schedule
14D-9, the Proxy Statement, any required filings under the HSR Act or other
foreign filings and any amendments to any thereof and (ii) using its reasonable
best efforts to promptly make all required regulatory filings and applications
including, without limitation, responding promptly to requests for further
information and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts with the Company and its subsidiaries as are necessary for
the consummation of the transactions contemplated by the Merger Agreement and to
fulfill the conditions to the Offer and the Merger. The Merger Agreement also
provides that the Company and ITT Industries each shall keep the other apprised
of the status of matters relating to completion of the transactions contemplated
by the Merger Agreement, including promptly furnishing the other with copies of
notices or other communications received by ITT Industries or the Company, as
the case may be, or any of their subsidiaries, from any Governmental Authority
(as defined in the Merger Agreement) with respect to the Offer or the Merger or
any of the other transactions contemplated by the Merger Agreement. The parties
also agree to consult and cooperate with one another, and consider in good faith
the views of one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party thereto in connection with proceedings
under or relating to the HSR Act or any other antitrust law.
Without limiting the generality of the foregoing undertakings, in the
Merger Agreement: (i) ITT Industries agrees to, if necessary to prevent any
Governmental Authority from taking steps to obtain, or from issuing, any order,
injunction, decree, judgment or ruling or the taking of any other action
restraining, enjoining or otherwise prohibiting the Offer or the Merger, offer
to accept an order to divest (or enter into a consent decree or other agreement
giving effect thereto) such of the Company's or ITT Industries' assets and
business as may be necessary to forestall such order, decree, ruling or action
and to hold separate such assets and business pending such divestiture, but only
if the amount of such assets and businesses would not be material (measured in
relation to the combined assets or revenues of the Company and its subsidiaries
and ITT Industries' fluid technology business, taken as a whole); and (ii) the
Company and ITT Industries each agree to contest and resist any action seeking
to have imposed any order, decree, judgment, injunction, ruling or other order
(whether temporary, preliminary or permanent) (an "Order") that would delay,
restrain, enjoin or otherwise prohibit consummation of the Offer or the Merger
and in the event that any such temporary or preliminary Order is entered in any
proceeding that would make consummation of the Offer or the Merger in accordance
with the terms of the Merger Agreement unlawful or that would prevent or delay
consummation of the Offer or the Merger or the other transactions contemplated
by the Merger Agreement, to use its reasonable best efforts to take promptly any
and all steps (including the appeal thereof, the posting of a bond or the taking
of the steps contemplated by clause (i) of this paragraph) necessary to vacate,
modify or suspend such Order so as to permit such consummation as promptly as
practicable after the date of the Merger Agreement.
-- Conduct of Business Pending the Merger. Pursuant to the Merger
Agreement, the Company has covenanted and agreed that, during the period from
the date of the Merger Agreement to the Effective Time,
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unless ITT Industries shall otherwise agree in writing, (1)the businesses of the
Company and its subsidiaries shall be conducted only in, and the Company and its
subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice, (2) the Company and its
subsidiaries shall each use its reasonable best efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations and (3) neither the Company nor any of its subsidiaries
shall, between the date of the Merger Agreement and the Effective Time, directly
or indirectly do, or commit to do, any of the following without the prior
written consent of ITT Industries: (i) amend or otherwise change its certificate
of incorporation or by-laws or equivalent organizational documents; (ii) issue,
deliver, sell, pledge, dispose of or encumber, or authorize or commit to the
issuance, sale, pledge, disposition or encumbrance of, (A) any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including but not limited to stock appreciation rights or
phantom stock), of the Company or any of its subsidiaries (except for the
issuance of up to 1,749,829 shares of Company Common Stock required to be issued
pursuant to (x) the terms of Options outstanding as of April 16, 1997, (y) the
employment agreement effective July 1, 1996 between the Company and Thomas C.
McDermott, and (z) the plan under which non-employee directors are paid one-half
of their annual retainer in shares of Company Common Stock) or (B) any assets of
the Company or any of its subsidiaries, except for sales of products in the
ordinary course of business and in a manner consistent with past practice; (iii)
declare, set aside, make or pay any dividend or other distribution, payable in
cash, stock, property or otherwise, with respect to any of its capital stock
(other than (A) regular quarterly dividends consistent with past practice, in an
amount not to exceed $.20 per share and (B) the distribution of Rights (as
defined below) pursuant to the Rights Plan (as defined below)); (iv) reclassify,
combine, split, subdivide or redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock; (v) (A) acquire (by merger, consolidation,
or acquisition of stock or assets) any corporation, partnership or other
business organization or division thereof; (B) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or endorse, or
otherwise as an accommodation become responsible for, the obligations of any
person, or make any loans, advances or capital contributions to, or investments
in, any other person (other than in the ordinary course of business consistent
with past practice); (C) enter into any contract or agreement other than in the
ordinary course of business consistent with past practice; or (D) authorize any
single capital expenditure which is in excess of $1,500,000 or capital
expenditures (during any three month period) which are, in the aggregate, in
excess of $7,500,000 for the Company and its subsidiaries taken as a whole; (vi)
except to the extent required under existing employee and director benefit
plans, agreements or arrangements as in effect on the date of the Merger
Agreement, increase the compensation or fringe benefits of any of its directors,
officers or employees, except for increases in salary or wages of employees of
the Company or its subsidiaries who are not officers of the Company in the
ordinary course of business in accordance with past practice, or grant any
severance or termination pay not currently required to be paid under existing
severance plans to or enter into any employment, consulting or severance
agreement or arrangement with any present or former director, officer or other
employee of the Company or any of its subsidiaries, or establish, adopt, enter
into or amend or terminate any collective bargaining agreement or Company Plan
(as defined in the Merger Agreement), including, but not limited to, bonus,
profit sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees; (vii) except as may be required as a result of
a change in law or in generally accepted accounting principles, change any of
the accounting practices or principles used by it; (viii) make any material tax
election or settle or compromise any material federal, state, local or foreign
tax liability; (ix) settle or compromise any pending or threatened suit, action
or claim which is material or which relates to the transactions contemplated by
the Merger Agreement; (x) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries not constituting an
inactive subsidiary (other than the Merger); (xi) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction (A)
in the ordinary course of business and
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consistent with past practice of liabilities reflected or reserved against in
the financial statements of the Company or incurred in the ordinary course of
business and consistent with past practice and (B) of liabilities required to be
paid, discharged or satisfied pursuant to the terms of any contract in existence
on the date of the Merger Agreement (including, without limitation, benefit
plans relating to directors); or (xii) take, or offer or propose to take, or
agree to take in writing or otherwise, any of the actions described here above
or any action which would make any of the representations or warranties of the
Company contained in the Merger Agreement untrue and incorrect as of the date
when made if such action had then been taken, or would result in any of the
conditions set forth in Annex A of the Merger Agreement not being satisfied.
-- Employee Benefits Matters. The Merger Agreement provides that on and
after the Effective Time, ITT Industries shall cause the Surviving Corporation
and its subsidiaries to promptly pay or provide when due all compensation and
benefits earned through or prior to the Effective Time as provided pursuant to
the terms of any compensation arrangements, employment agreements and employee
or director benefit plans (including, without limitation, deferred compensation
plans), programs and policies in existence as of the date thereof for all
employees (and former employees) and directors (and former directors) of the
Company and its subsidiaries. ITT Industries and the Company have agreed that
the Surviving Corporation and its subsidiaries shall pay promptly or provide
when due all compensation and benefits required to be paid pursuant to the terms
of any individual agreement with any employee, former employee, director or
former director in effect as of the date thereof.
Pursuant to the Merger Agreement ITT Industries has agreed to cause the
Surviving Corporation, for the period commencing at the Effective Time and
ending on the first anniversary thereof, to provide employee benefits under
plans, programs and arrangements which, in the aggregate, will provide benefits
to the employees of the Surviving Corporation and its subsidiaries (other than
employees covered by a collective bargaining agreement) which are no less
favorable in the aggregate than those provided pursuant to the plans, programs
and arrangements (other than those related to the equity securities of the
Company) of the Company and its subsidiaries in effect on the date thereof and
employees covered by collective bargaining agreements shall be provided with
such benefits as shall be required under the terms of any applicable collective
bargaining agreement; provided, however, that nothing in the Merger Agreement
shall prevent the amendment or termination of any specific plan, program or
arrangement, require that the Surviving Corporation provide or permit investment
in the securities of ITT Industries, the Company or the Surviving Corporation or
interfere with the Surviving Corporation's right or obligation to make such
changes as are necessary to conform with applicable law. Employees of the
Surviving Corporation shall be given credit for all service with the Company and
its subsidiaries, to the same extent as such service was credited for such
purpose by the Company, under each employee benefit plan, program, or
arrangement of ITT Industries in which such employees are eligible to
participate for purposes of eligibility and vesting; provided, however, that in
no event shall the employees be entitled to any credit to the extent that it
would result in a duplication of benefits with respect to the same period of
service.
-- Disposition of Litigation. The Merger Agreement provides that the
Company agrees that it will not settle any litigation currently pending, or
commenced after the date thereof, against the Company or any of its directors by
any stockholder of the Company relating to the Offer or the Merger Agreement,
without the prior written consent of ITT Industries (which shall not be
unreasonably withheld).
-- Rights. The Company also agreed in the Merger Agreement to promptly
adopt a Stockholder Rights Plan (the "Rights Plan") in the form delivered to ITT
Industries on or prior to the date of the Merger Agreement and that immediately
prior to the purchase of Shares pursuant to the Offer, the Board of Directors of
the Company will take all necessary action to terminate all of the outstanding
Rights (as defined in the Rights Plan), effective immediately prior thereto. The
Company has taken all necessary action so that none of the execution of the
Merger Agreement, the making of the Offer, the acquisition of Shares pursuant to
the Offer or the consummation of the Merger will (i) cause the Rights issued
pursuant to such Rights Plan to become exercisable, (ii) cause any person to
become an Acquiring Person (as defined in the Rights Plan) or (iii) give rise to
a Separation Time (as defined in the Rights Plan) or a Flip-In Date (as defined
in the Rights Plan). The Company has also agreed in the Merger Agreement that it
will not amend the Rights Plan.
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-- Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including,
without limitation, representations and warranties by the Company as to the
Company's capitalization, the absence of any required filings and consents, the
absence of conflicts with charter documents and contracts, SEC filings and
financial statements, absence of certain changes or events, business, compliance
with law, the absence of litigation, employee benefit plans, the filing and
compliance of reports with the requirements of the Commission, environmental
matters, brokers and taxes.
-- Conditions of the Merger. Under the Merger Agreement, the respective
obligations of ITT Industries, Purchaser and the Company to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions: (a) if required by the DGCL, the Merger Agreement shall
have been approved by the affirmative vote of the stockholders of the Company by
the requisite vote in accordance with the Company's Certificate of Incorporation
and the DGCL (which the Company has represented shall be solely the affirmative
vote of a majority of the outstanding Shares); (b) no statute, rule, regulation,
executive order, decree, ruling, injunction or other order (whether temporary,
preliminary or permanent) shall have been enacted, entered, promulgated or
enforced by any United States, foreign, federal or state court or governmental
authority which prohibits, restrains, enjoins or restricts the consummation of
the Merger; and (c) the Purchaser shall have purchased Shares pursuant to the
Offer.
-- Termination; Fees and Expenses. The Merger Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company as follows:
(a) by mutual written consent of ITT Industries, the Purchaser and the
Company;
(b) by ITT Industries or the Company if any court of competent
jurisdiction or other governmental body located or having jurisdiction
within the United States or any country or economic region in which either
the Company or ITT Industries, directly or indirectly, has material assets
or operations, shall have issued a final order, injunction, decree,
judgment or ruling or taken any other final action restraining, enjoining
or otherwise prohibiting the Offer or the Merger and such order,
injunction, decree, judgment, ruling or other action is or shall have
become final and nonappealable;
(c) by ITT Industries (only following the Outside Date (as defined
below), in the case of clause (ii) below) if due to an occurrence or
circumstance which resulted in a failure to satisfy any of the Offer
Conditions, the Purchaser shall have (i) terminated the Offer in accordance
with the terms of the Merger Agreement or (ii) failed to pay for Shares
pursuant to the Offer on or prior to the Outside Date;
(d) by the Company (only following the Outside Date, in the case of
clause (ii)(B) below) if (i) there shall have been a material breach of any
covenant or agreement on the part of ITT Industries or the Purchaser
contained in the Merger Agreement which materially adversely affects ITT
Industries' or the Purchaser's ability to consummate (or materially delays
commencement or consummation of) the Offer, and which shall not have been
cured prior to the earlier of (A) 10 business days following notice of such
breach and (B) two business days prior to the date on which the Offer
expires, (ii) the Purchaser shall have (A) terminated the Offer or (B)
failed to pay for Shares pursuant to the Offer on or prior to the Outside
Date (unless such failure is caused by or results from the failure of any
representation or warranty of the Company to be true and correct in any
material respect or the failure of the Company to perform in any material
respect any of its covenants or agreements contained in the Merger
Agreement) or (iii) prior to the purchase of Shares pursuant to the Offer,
any person shall have made a bona fide offer to acquire the Company (A)
that the Board of Directors of the Company determines in its good faith
judgment is more favorable to the Company's stockholders than the Offer and
the Merger and (B) as a result of which the Board of Directors determines
in good faith, based upon the advice of outside counsel, that it is
obligated by its fiduciary obligations under applicable law to terminate
the Merger Agreement, provided that such termination under this clause
(iii) shall not be effective until the Company has made payment of the full
fee and expense reimbursement in accordance with the Merger Agreement as
described below; or
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(e) by ITT Industries prior to the purchase of Shares pursuant to the
Offer if (i) there shall have been a breach of any covenant or agreement on
the part of the Company contained in the Merger Agreement which is
reasonably likely to have a Material Adverse Effect (as defined in the
Merger Agreement) on the Company or which materially adversely affects (or
materially delays) the consummation of the Offer, which shall not have been
cured prior to the earlier of (A) 10 business days following notice of such
breach and (B) two business days prior to the date on which the Offer
expires, (ii) the Board shall have withdrawn or modified (including by
amendment of the Schedule 14D-9) in a manner adverse to the Purchaser its
approval or recommendation of the Offer, Merger Agreement or the Merger or
shall have recommended another offer or transaction, or shall have resolved
to effect any of the foregoing, or (iii) the Minimum Condition shall not
have been satisfied by the expiration date of the Offer as it may have been
extended pursuant to the Merger Agreement and on or prior to such date (A)
any person (including the Company but not including ITT Industries or the
Purchaser) shall have made a public announcement with respect to a Third
Party Acquisition that contemplates a direct or indirect consideration (or
implicit valuation) for Shares (including the value of any stub equity) in
excess of the per Share Merger Consideration or (B) any person (including
the Company or any of its affiliates or subsidiaries), other than ITT
Industries or any of its affiliates shall have become (and remain at the
time of termination) the beneficial owner of 19.9% or more of the Shares
(unless such person shall have tendered and not withdrawn such person's
Shares pursuant to the Offer). As used in the Merger Agreement, the
"Outside Date" means the latest of (A) 70 days following the date thereof,
(B) the date that all conditions to the Offer set forth in paragraph (a)
and (h) of the Offer Conditions, the satisfaction of which involve
compliance with or otherwise relate to any United States antitrust or
competition laws or regulations (including any enforcement thereof), have
been satisfied for a period of 10 business days, or (C) 10 business days
following the conclusion of any ongoing proceedings before any foreign
Governmental Authority (as defined in the Merger Agreement) in connection
with its review of the transactions contemplated by the Merger Agreement
pursuant to any foreign antitrust or competition law or regulation;
provided that in no event shall the Outside Date be later than December 31,
1997.
The Merger Agreement provides that in the event of the termination of the
Merger Agreement pursuant to the above paragraph, the Merger Agreement shall
forthwith become void and there shall be no liability on the part of any party
thereto except as set forth in the Merger Agreement; provided, however, that
nothing therein shall relieve any party from liability for any wilful breach
thereof.
The Merger Agreement further provides that if:
(i) ITT Industries terminates the Merger Agreement pursuant to (e)(i)
above, or if the Company terminates the Merger Agreement pursuant to (d)(ii)
above under circumstances that would have permitted ITT Industries to terminate
the Merger Agreement pursuant to (e)(i) above, and within 15 months thereafter,
the Company enters into an agreement with respect to a Third Party Acquisition
(as defined below), or a Third Party Acquisition occurs, involving any party (or
any affiliate or associate thereof) (x) with whom the Company (or its agents)
had any discussions with respect to a Third Party Acquisition, (y) to whom the
Company (or its agents) furnished information with respect to or with a view to
a Third Party Acquisition or (z) who had submitted a proposal or expressed any
interest publicly or to the Company in a Third Party Acquisition, in the case of
each of clauses (x), (y) and (z) prior to such termination; or
(ii) ITT Industries terminates the Merger Agreement pursuant to (e)(i)
above, or if the Company terminates the Merger Agreement pursuant to (d)(ii)
above under circumstances that would have permitted ITT Industries to terminate
the Merger Agreement pursuant to (e)(i) above and within 15 months thereafter
the Company enters into an agreement with respect to a Third Party Acquisition
that contemplates a direct or indirect consideration (or implicit valuation) for
Shares (including the value of any stub equity) in excess of the per Share
Merger Consideration; or
(iii) (1) the Company terminates the Merger Agreement pursuant to (d)(iii)
above or (2) the Company terminates the Merger Agreement pursuant to (d)(ii)(B)
above and at such time ITT Industries would have been permitted to terminate the
Merger Agreement according to (e)(ii) or (iii) above or (3) ITT Industries
terminates the Merger Agreement pursuant to (e)(ii) or (iii) above;
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then the Company shall according to the Merger Agreement pay to ITT Industries
and the Purchaser, within one business day following the execution and delivery
of such agreement or such occurrence, as the case may be, or simultaneously with
any termination contemplated by the immediately preceding paragraph, a fee, in
cash, of $22 million (less any amounts previously paid pursuant to the next
paragraph), provided, however, that the Company in no event shall be obligated
to pay more than one such fee with respect to all such agreements and
occurrences and such termination.
ITEM 4.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors has unanimously approved the Merger Agreement and
the transactions contemplated thereby and determined that the Offer and the
Merger are fair to, and in the best interests of, stockholders of the Company,
and recommends that stockholders accept the Offer and tender their Shares to the
Purchaser pursuant to the Offer.
(b) BACKGROUND OF THE OFFER.
For more than one year prior to the Offer, members of ITT Industries'
senior management have considered potential transactions which could enhance the
value of ITT Industries for its stockholders, including the possibility of a
strategic acquisition of another industrial company or business such as the
Company. ITT Industries developed an extensive list of potential acquisition
candidates and then gradually narrowed the list of potential candidates by
applying various acquisition criteria. Detailed analysis was then performed on a
select group of companies to help narrow the list of potential acquisition
candidates even further. In December 1996, ITT Industries' discussions regarding
possible acquisitions began to focus particularly on the Company and actions
were taken to effect a more formal analysis of the Company. In March 1997, after
a presentation by management to the Board of Directors of ITT Industries, the
Board of Directors of ITT Industries approved the initiation of contact with the
Company to discuss the possibility of a negotiated transaction.
On March 19, 1997, Richard Labrecque, President of ITT Fluid Technology
Corporation, contacted Thomas C. McDermott, Chairman, President and Chief
Executive Officer of the Company, to suggest in general terms the possibility of
an acquisition of the Company by ITT Industries. After some discussion, Mr.
McDermott indicated that the Company currently planned to carry out its existing
"Goulds 2000" strategic plan as an independent company.
On March 25, 1997, Travis Engen, Chairman, President and Chief Executive
Officer of ITT Industries, called Mr. McDermott to reiterate ITT Industries'
interest in acquiring the Company and to express his willingness to meet and
discuss the specific terms of ITT Industries' proposal. Mr. McDermott restated
his view that the Company wished to carry out its strategic plan and declined to
meet with Mr. Engen. Mr. Engen then informed Mr. McDermott that he would send
Mr. McDermott a letter containing ITT Industries' proposal. Later that day, Mr.
Engen sent the following letter to Mr. McDermott.
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March 25, 1997
Mr. Thomas C. McDermott
Chairman, President and Chief Executive Officer
Goulds Pumps, Incorporated
300 WillowBrook Office Park
Fairport, New York 14450
Dear Mr. McDermott:
I enjoyed talking to you earlier today but I was disappointed that you have
continued your unwillingness to meet with us to discuss our proposal. Since we
are not able to meet with you in person to explain our thinking, I am sending
this letter.
ITT Industries, Inc. proposes to acquire Goulds Pumps, Incorporated
("Goulds") through a negotiated merger transaction in which Goulds' stockholders
would receive $34.00 in cash for each share of outstanding common stock. This
price is based on our review of public information and our assessment of the
benefits of combining our organizations. This proposal represents what we
believe is an excellent opportunity for you and ITT Industries to maximize value
for your stockholders at a price which represents a premium of approximately 48%
over the closing market price of Goulds' common stock yesterday. We are
confident that this price is at a level which your stockholders would
enthusiastically support.
As I am sure you are aware, ITT Industries is a leading supplier of pumps,
valves, heat exchangers, mixers, instruments and controls for the management of
fluids with annual sales in these areas in excess of $1.3 billion. ITT
Industries has, as Goulds does, an enviable reputation for the quality of its
products and service. We have been studying the benefits of a combination with
Goulds for some time. We strongly believe the complementary aspects of our
products, our production capabilities and technologies would be a perfect
strategic fit and would enable the combined operation to compete more
effectively in the global marketplace. For these reasons, a combination of
Goulds with our current fluid technology business has become a leading interest
of our management and the ITT Industries Board of Directors.
We envision that we would negotiate a mutually acceptable definitive merger
agreement on appropriate and customary terms and conditions. Our antitrust
counsel has conducted a preliminary review of the two businesses and we do not
believe that our proposal gives rise to any meaningful antitrust concerns.
Obviously given our financial strength, financing would not pose a problem for
the consummation of the transaction, and Morgan Stanley, our financial advisor,
concurs.
We hope that you will view this proposal as we do -- a unique opportunity
for Goulds' stockholders to realize full value for their shares in a transaction
that can quickly be consummated. We are prepared to meet with you and your
advisors to answer any questions that you may have about our proposal and to
proceed expeditiously to negotiate a definitive merger agreement with you.
My purpose in sending this letter is to provide you with more information
about our proposal and to express our sincere desire to work together with you
to reach agreement on a consensual basis. At this point, we are hoping that our
discussions can remain a private matter between us, although we would expect you
to share this proposal with the members of your Board of Directors. We seek to
move quickly on our proposal and would like to hear back from you as soon as
possible. Accordingly, unless we hear back from you before then, we will contact
you on Monday, March 31st to discuss the timing of your Board's response to our
proposal.
Sincerely,
Travis Engen
Chairman, President and Chief
Executive
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On March 31, 1997, Mr. Engen called Mr. McDermott to discuss the proposal
contained in the letter. Mr. McDermott informed Mr. Engen that the Board of
Directors of the Company would be meeting on April 4, 1997 and would consider
the proposal at that meeting. Mr. Engen requested that Mr. McDermott promptly
respond to the proposal after the Board of Directors meeting on April 4th.
On April 4, 1997, the Board of Directors of the Company held a meeting with
management and its legal and financial advisors to consider ITT Industries'
proposal. Legal counsel advised the Board of Directors regarding its fiduciary
duties. Mr. McDermott outlined the chronology of events leading to the proposal.
Goldman, Sachs & Co. ("Goldman Sachs") then made a presentation to the Board of
Directors concerning the proposal, including background information on ITT
Industries and various financial analyses. The Board, recognizing the strategic
fit between the Company and ITT Industries' fluid technology business and taking
into account the advice and presentation of legal counsel and Goldman Sachs,
concluded by asking Mr. McDermott to schedule a meeting with Mr. Engen to
further discuss the proposal. The Board also authorized management and Goldman
Sachs to contact one other party that had previously contacted the Company to
determine their level of interest. The Board also considered the adoption of the
Rights Plan.
On April 7, 1997, Mr. McDermott called Mr. Engen to inform him that the
Board of Directors of the Company had considered the proposal and that he was
available to discuss the proposal and the two agreed to meet on April 9th.
On April 8, 1997, a representative of Morgan Stanley, Inc. ("Morgan
Stanley") discussed the proposal contained in Mr. Engen's March 25 letter with a
representative of Goldman Sachs. Goldman Sachs indicated that the $34.00 per
share price level included in the letter was not at a level that would justify
commencing a process that could result in a sale of the Company.
On April 9, 1997, Mr. Engen, Mr. Labrecque, Mr. McDermott and John Murphy,
Vice President and Chief Financial Officer of the Company, met to discuss ITT
Industries' proposal. Mr. McDermott informed Mr. Engen and Mr. Labrecque that
the Company's preference was to remain independent but that he would be willing
to discuss with the Company's Board of Directors a possible acquisition by ITT
Industries at a price which the Board of Directors of the Company believed to be
in the best interests of the Company's stockholders. Mr. McDermott stated that
he thought the $34 per share price level indicated in the letter was too low but
did not indicate the specific price level he considered to be an adequate basis
for continued discussions with ITT Industries. After further discussion, Mr.
McDermott agreed with Mr. Engen that the Company's financial advisors be
available to discuss the valuation of the Company with ITT Industries' financial
advisors. In telephone calls on April 10 and April 11, 1997 a representative
from Morgan Stanley and a representative from Goldman Sachs discussed their
respective methodologies for valuing the Company, but were unable to reach any
agreements in furtherance of the discussions between the principals.
On April 14, 1997, Mr. Engen again spoke to Mr. McDermott. Mr. McDermott
continued to decline to specify a per share price for the Company and reiterated
that the Company was not for sale, but indicated that if the parties could come
to a preliminary understanding concerning a valuation range for the Company, he
believed that the Company would be willing to have discussions with ITT
Industries regarding the terms of a possible transaction, and, in that regard,
to permit ITT Industries to commence a due diligence review of the Company
subject to entering into an appropriate confidentiality agreement. Later that
day, a representative of Morgan Stanley indicated in a telephone conversation
with a representative of Goldman Sachs that ITT Industries would be willing to
consider, subject to due diligence and an acceptable process for discussing
definitive terms of an acquisition, an increase in the price included in the
March 25 letter by up to 5%.
On April 15, 1997, the Board of Directors of the Company had a telephone
meeting with Company management and its legal and financial advisors to update
the directors on developments. After discussion, the Board authorized management
and its advisors (subject to further approval by the Board in the event that a
definitive agreement could be concluded with ITT Industries) to proceed with
negotiations, including the provision of confidential information, if ITT
Industries indicated its willingness to pay a price of not less than $37.00 per
Share. Representatives of Goldman Sachs thereafter contacted representatives of
Morgan Stanley and stated that the Company would be willing to provide ITT
Industries with access to the Company for due
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diligence purposes and to have discussions with ITT Industries for a short time
period if ITT Industries would be willing to consider a price level of not less
than $37.00 per Share.
On April 16, 1997, Morgan Stanley advised Goldman Sachs that ITT Industries
was prepared to move forward on the bases suggested by the Company. On April 17,
1997, ITT Industries and the Company executed a confidentiality letter and ITT
Industries began its due diligence review of the Company, which it completed on
April 19, 1997.
Negotiations of the terms of the merger agreement were conducted in a
series of meetings and telephone conversations held between April 18 and April
20, 1997.
On April 20, 1997, the Board of Directors of the Company met to consider
the results of that negotiation process and, after considering reports from
management and the Company's financial and legal advisors, unanimously voted to
enter into the Merger Agreement and to recommend that stockholders accept the
Offer and tender their Shares. The Board also decided to adopt the Rights Plan
in order to prevent any stockholder or group of stockholders from accumulating
sufficient shares to trigger a condition under the Offer or payments to
employees by causing a change in control (as defined in various employee plans
and arrangements) to occur. The Board of Directors of ITT Industries also had a
telephonic meeting to approve the Merger Agreement on April 20th.
Following the approval of the Board of Directors of the Company and ITT
Industries, on April 20, 1997, the Company, ITT Industries and the Purchaser
entered into the Merger Agreement.
(c) REASONS FOR THE TRANSACTION; FACTORS CONSIDERED BY THE BOARD
In approving the Merger Agreement and the transactions contemplated thereby
and recommending that stockholders of the Company tender their Shares pursuant
to the Offer, the Board of Directors considered a number of factors, including:
1. The familiarity of the Board of Directors with the financial
condition, results of operations, competitive position, business and
prospects of the Company, as reflected in the Company's historical and
projected financial information, current economic and market conditions and
the nature of the industry in which it operates.
2. The presentation of Goldman Sachs at the April 20, 1997 Board of
Directors' meeting and the opinion of Goldman Sachs (the "Opinion") to the
effect that, as of the date of such Opinion, the $37.00 in cash per Share
to be received by the holders of Shares in the Offer and the Merger is fair
to such holders. The full text of the written opinion of Goldman Sachs,
which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the Opinion, is attached hereto as
Exhibit 3 and is incorporated herein by reference. Holders of Shares are
urged to, and should, read such Opinion in its entirety.
3. The historical market prices of, and recent trading activity in,
the Shares, particularly the fact that the Offer and the Merger will enable
the stockholders of the Company to realize a premium of approximately 62%
over the closing price of the Shares on the last trading day prior to the
public announcement on April 21, 1997 of the Merger Agreement; and a
premium of approximately 44% over the highest price at which the Shares
have been traded in the past year.
4. The financial and other terms and conditions of the Offer, the
Merger and the Merger Agreement including, without limitation, the fact
that the terms of the Merger Agreement should not unduly discourage other
third parties from making bona fide proposals subsequent to signing the
Merger Agreement and, if any such proposal were made, the Company, in the
exercise of its fiduciary duties in accordance with the Merger Agreement,
could determine to provide information to, engage in negotiations and,
subject to payment of the termination fee, enter into a transaction with
another party.
5. The fact that the obligations of ITT Industries and Purchaser to
consummate the Offer and the Merger pursuant to the terms of the Merger
Agreement are not conditioned upon financing.
15
<PAGE> 17
The Board of Directors did not assign relative weights to the factors or
determine that any factor was of particular importance. Rather, the Board of
Directors viewed their position and recommendation as being based on the
totality of the information presented to and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement dated April 15, 1997 (the "Engagement
Letter"), the Company engaged Goldman Sachs to undertake a study to enable it to
render its opinion with respect to the cash consideration to be received for
each Share in connection with the proposed transaction. Pursuant to the terms of
the Engagement Letter, the Company paid Goldman Sachs a fee of $150,000 upon
signing the Engagement Letter and will pay Goldman Sachs a fee of approximately
$5,700,000 upon consummation of the Offer, against which the prior payment or
$150,000 will be credited. The Company has agreed to reimburse Goldman Sachs for
its reasonable out-of-pocket expenses, including attorney's fees, and to
indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
Except as disclosed herein, neither the Company nor any person acting on
its behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60
days by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company, except for purchases
by the following persons pursuant to the Company's divided reinvestment plan and
401(k) plan in the amounts indicated: Barbara Lucas (12.7 Shares); Thomas C.
McDermott (180.3 Shares); John P. Murphy (18 Shares); Michael T. Tomaino (2
Shares); Eric L. Steenburgh (8.9 Shares).
(b) To the best of the Company's knowledge, except for Shares the sale of
which may trigger liability for the holder(s) under Section 16(b) of the
Exchange Act of 1934, each executive officer, director and affiliate of the
Company currently intends to tender all Shares to the Purchaser over which he or
she has sole dispositive power as of the expiration date of the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described in Item 3(b) and Item 4 above (the provisions of
which are hereby incorporated by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred to
in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Rights Agreement.
On April 20, 1997, the Board of Directors of the Company declared a
dividend of one right (a "Right") for each outstanding Share held of record at
the close of business on April 21, 1997 or issued thereafter and prior to the
Separation Time (as hereinafter defined). The Rights were issued pursuant to a
Stockholder Protection Rights Agreement, dated as of April 21, 1997 (the "Rights
Agreement"), between the Company and The Bank of New York (the "Rights Agent").
Each Right entitles its registered holder to purchase from the Company, after
the Separation Time, one one-hundredth of a share of Participating Preferred
Stock, par value $20.00 per share (the "Participating Preferred Stock"), for
$80.00 (the "Exercise Price"), subject to
16
<PAGE> 18
adjustment or, in certain circumstances, one Share for each one one-hundredth of
a share of Participating Preferred Stock.
The Rights will be evidenced by the Common Stock certificates until the
close of business on the earlier of (either, the "Separation Time") (i) the
tenth business day (or such later date as the Board of Directors of the Company
may from time to time fix by resolution adopted prior to the Separation Time
that would otherwise have occurred) after the date on which any Person (as
defined in the Rights Agreement) commences a tender or exchange offer (other
than the Approved Offer as defined below) which, if consummated, would result in
such Person becoming an Acquiring Person (as defined below) and (ii) the first
date (the "Stock Acquisition Date") of public announcement by the Company (by
any means) that any Person has become an Acquiring Person. An Acquiring Person
is any Person having Beneficial Ownership (as defined in the Rights Agreement)
of 20% or more of the outstanding Shares, which term shall not include (i) the
Company, any wholly-owned subsidiary of the Company or any employee stock
ownership or other employee benefit plan of the Company or a wholly-owned
subsidiary of the Company, (ii) any person who is the Beneficial Owner of 20% or
more of the outstanding Common Stock on the date of the Rights Agreement or who
shall become the Beneficial Owner of 20% or more of the outstanding Shares
solely as a result of an acquisition of Shares by the Company, until such time
as such Person acquires additional Shares, other than through a dividend or
stock split, (iii) any Person who becomes an Acquiring Person without any plan
or intent to seek or affect control of the Company if such Person promptly
divests sufficient securities such that such 20% or greater Beneficial Ownership
ceases or (iv) any Person who Beneficially Owns Shares consisting solely of (A)
Shares acquired pursuant to the grant or exercise of an option granted by the
Company in connection with an agreement to merge with, or acquire, the Company
at a time at which there is no Acquiring Person, (B) Shares owned by such Person
and its Affiliates and Associates (as such terms are defined in the Rights
Agreement) at the time of such grant, and (C) Shares, amounting to less than 1%
of the outstanding Shares, acquired by Affiliates and Associates of such Person
after the time of such grant. An "Approved Offer" means a tender offer pursuant
to and on the terms and conditions set forth in the Merger Agreement. The Rights
will not be exercisable until the Separation Time. The Rights Agreement provides
that, until the Separation Time, the Rights will be transferred with and only
with the Shares.
In the event that prior to the Expiration Time a Flip-in Date (as defined
below) occurs, each Right (other than Rights Beneficially Owned by the Acquiring
Person or any Affiliate or Associate thereof, which Rights shall become void)
shall constitute the right to purchase from the Company, upon the exercise
thereof in accordance with the terms of the Rights Agreement, that number of
Shares having an aggregate Market Price (as defined in the Rights Agreement)
equal to twice the Exercise Price for an amount in cash equal to the then
current Exercise Price. In addition, the Board of Directors of the Company may,
at its option, at any time after a Flip-in Date and prior to the time that an
Acquiring Person becomes the Beneficial Owner of more than 50% of the
outstanding Shares, elect to exchange all (but not less than all) the then
outstanding Rights (other than Rights Beneficially Owned by the Acquiring Person
or any Affiliate or Associate thereof, which Rights become void) for Shares at
an exchange ratio (the "Exchange Ratio") of one Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date of the Separation Time. Immediately upon such action by
the Board of Directors (the "Exchange Time"), the right to exercise the Rights
will terminate and each Right will thereafter represent only the right to
receive a number of Shares equal to the Exchange Ratio. A "Flip-in Date" is
defined in the Rights Agreement as any Stock Acquisition Date or such later date
as the Board of Directors of the Company may from time to time fix by resolution
adopted prior to the Flip-in Date that would otherwise have occurred.
In the event that prior to the Expiration Time the Company enters into,
consummates or permits to occur a transaction or series of transactions after
the time an Acquiring Person has become such in which, directly or indirectly,
(i) the Company shall consolidate or merge or participate in a share exchange
with any other Person if, at the time of the consolidation, merger or share
exchange or at the time the Company enters into any agreement with respect to
any such consolidation, merger or share exchange, the Acquiring Person controls
the Board of Directors of the Company and either (A) any term of or arrangement
concerning the treatment of shares of capital stock in such consolidation,
merger or share exchange relating to the Acquiring Person is not identical to
the terms and arrangements relating to other holders of the Common Stock or
17
<PAGE> 19
(B) the Person with whom the transaction or series of transactions occurs is the
Acquiring Person or an Affiliate or Associate of the Acquiring Person, or (ii)
the Company shall sell or otherwise transfer (or one or more of its subsidiaries
shall sell or otherwise transfer) assets (A) aggregating more than 50% of the
assets (measured by either book value or fair market value) or (B) generating
more than 50% of the operating income or cash flow, of the Company and its
subsidiaries (taken as a whole) to any other Person (other than the Company or
one or more of its wholly owned subsidiaries) or to two or more such Persons
which are affiliated or otherwise acting in concert, if, at the time of such
sale or transfer of assets or at the time the Company (or any such subsidiary)
enters into an agreement with respect to such sale or transfer, the Acquiring
Person controls the Board of Directors of the Company (a "Flip-over Transaction
or Event"), the Company shall take such action as shall be necessary to ensure,
and shall not enter into, consummate or permit to occur such Flip-over
Transaction or Event until it shall have entered into a supplemental agreement
with the Person engaging in such Flip-over Transaction or Event or the parent
corporation thereof, for the benefit of the holders of the Rights, providing,
that upon consummation or occurrence of the Flip-over Transaction or Event (i)
each Right shall thereafter constitute the right to purchase from the Flip-over
Entity, upon exercise thereof in accordance with the terms of the Rights
Agreement, that number of shares of common stock of the Flip-over Entity having
an aggregate Market Price on the date of consummation or occurrence of such
Flip-over Transaction or Event equal to twice the Exercise Price for an amount
in cash equal to the then current Exercise Price and (ii) the Flip-over Entity
shall thereafter be liable for, and shall assume, by virtue of such Flip-over
Transaction or Event and such supplemental agreement, all the obligations and
duties of the Company pursuant to the Rights Agreement.
The right to exercise the Rights shall terminate, without any payment to
any holder thereof and without any further action by the Company or its Board of
Directors immediately prior to the purchase of any Shares pursuant to the
Approved Offer. In addition, the Board of Directors of the Company may, at its
option, at any time prior to the Flip-in Date, elect to terminate the Rights
without any payment to any holder thereof. Immediately upon (i) the action of
the Board of Directors of the Company electing to terminate the Rights (or, if
the resolution of the Board of Directors electing to terminate the Rights states
that the termination will not be effective until the occurrence of a specified
future time or event, upon the occurrence of such future time or event), or (ii)
immediately prior to the purchase of any shares pursuant to the Approved Offer,
without any further action and without any notice, the right to exercise the
Rights will terminate and each Right will thereafter be null and void (either,
the "Termination Time"). The holders of Rights will, solely by reason of their
ownership of Rights, have no rights as stockholders of the Company, including,
without limitation, the right to vote or to receive dividends.
The Rights will expire and no longer be exerciseable at the earliest of (i)
the Exchange Time, (ii) the Termination Time, (iii) the close of business on the
tenth anniversary of the date of the Rights Agreement and (iv) immediately prior
to the effective time of a consolidation, merger or share exchange of the
Company (A) into another corporation or (B) with another corporation in which
the Company is the surviving corporation but Shares are converted into cash
and/or securities of another corporation, in either case pursuant to an
agreement entered into by the Company prior to a Stock Acquisition Date (the
"Expiration Time").
18
<PAGE> 20
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit 1. Agreement and Plan of Merger among ITT Industries, Inc., George Acquisition
Inc., and Goulds Pumps, Incorporated, dated as of April 20, 1997.
Exhibit 2. 1997 Proxy Statement, dated as of March 24, 1997.
Exhibit 3. Opinion of Goldman, Sachs & Co., dated April 20, 1997.*
Exhibit 4. Form of Revised Change of Control Agreements.
Exhibit 5. Form of Senior Executive Change of Control Agreements.
Exhibit 6. Amendment to Supplemental Executive Pension Plan, dated as of April 16, 1997.
Exhibit 7. Amendment to Executive Incentive Plan, dated as of April 4, 1997.
Exhibit 8. Amendment to Severance Plan for U.S. Salaried Employees, dated as of April 4,
1997.
Exhibit 9. Letter to Shareholders, dated as of April 25, 1997.*
</TABLE>
- ---------------
* Included in the Schedule 14D-9 mailed to the Company's stockholders.
19
<PAGE> 21
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: April 25, 1997
GOULDS PUMPS, INCORPORATED
By: /s/ MICHAEL T. TOMAINO
------------------------------------
Name: Michael T. Tomaino
Title: General Counsel,
Secretary and Vice President
20
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------------ ---------------------------------------------------------------------- ------------
<S> <C> <C>
Exhibit 1. Agreement and Plan of Merger among ITT Industries, Inc., George
Acquisition Inc., and Goulds Pumps, Incorporated, dated as of April
20, 1997..............................................................
Exhibit 2. 1997 Proxy Statement, dated as of March 24, 1997......................
Exhibit 3. Opinion of Goldman, Sachs & Co., dated April 20, 1997.*...............
Exhibit 4. Form of Revised Change of Control Agreements..........................
Exhibit 5. Form of Senior Executive Change of Control Agreements.................
Exhibit 6. Amendment to Supplemental Executive Pension Plan, dated as of April
16, 1997..............................................................
Exhibit 7. Amendment to Executive Incentive Plan, dated as of April 4, 1997......
Exhibit 8. Amendment to Severance Plan for U.S. Salaried Employees, dated as of
April 4, 1997.........................................................
Exhibit 9. Letter to Shareholders, dated as of April 25, 1997.*..................
</TABLE>
- ---------------
* Included in the Schedule 14D-9 mailed to the Company's stockholders.
21
<PAGE> 1
Exhibit 1
CONFORMED COPY
----------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Among
ITT INDUSTRIES, INC.,
GEORGE ACQUISITION, INC.
and
GOULDS PUMPS, INCORPORATED
Dated as of April 20, 1997
----------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I
THE OFFER
SECTION 1.1 The Offer............................................... 1
SECTION 1.2 Company Action.......................................... 3
ARTICLE II
THE MERGER
SECTION 2.1 The Merger.............................................. 4
SECTION 2.2 Effective Time.......................................... 4
SECTION 2.3 Effects of the Merger................................... 5
SECTION 2.4 Certificate of Incorporation; By-Laws................... 5
SECTION 2.5 Directors and Officers.................................. 5
SECTION 2.6 Conversion of Securities................................ 5
SECTION 2.7 Treatment of Options.................................... 6
SECTION 2.8 Dissenting Shares and Section 262 Shares................ 6
SECTION 2.9 Surrender of Shares; Stock Transfer Books............... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization and Qualification;
Subsidiaries....................................... 8
SECTION 3.2 Certificate of Incorporation and By-Laws................ 9
SECTION 3.3 Capitalization.......................................... 9
SECTION 3.4 Authority Relative to This Agreement.................... 10
SECTION 3.5 No Conflict; Required Filings and
Consents........................................... 11
SECTION 3.6 Compliance.............................................. 12
SECTION 3.7 SEC Filings; Financial Statements....................... 12
SECTION 3.8 Absence of Certain Changes or Events.................... 13
SECTION 3.9 Absence of Litigation................................... 14
SECTION 3.10 Employee Benefit Plans................................. 14
SECTION 3.11 Tax Matters............................................ 16
SECTION 3.12 Offer Documents; Proxy Statement....................... 17
SECTION 3.13 Environmental Matters.................................. 17
SECTION 3.14 Brokers................................................ 20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
SECTION 4.1 Corporate Organization.................................. 21
SECTION 4.2 Authority Relative to This Agreement.................... 21
SECTION 4.3 No Conflict; Required Filings and
Consents........................................... 21
SECTION 4.4 Offer Documents; Proxy Statement........................ 22
SECTION 4.5 Brokers................................................. 22
SECTION 4.6 Funds................................................... 23
-i-
<PAGE> 3
Page
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business of the Company Pending
the Merger......................................... 23
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders Meeting.................................... 25
SECTION 6.2 Proxy Statement......................................... 26
SECTION 6.3 Company Board Representation; Section
14(f).............................................. 26
SECTION 6.4 Access to Information; Confidentiality.................. 27
SECTION 6.5 No Solicitation of Transactions......................... 28
SECTION 6.6 Employee Benefits Matters............................... 30
SECTION 6.7 Directors' and Officers' Indemnification
and Insurance...................................... 31
SECTION 6.8 Delivery of Schedules................................... 32
SECTION 6.9 Notification of Certain Matters......................... 33
SECTION 6.10 Further Action; Reasonable Best Efforts................ 33
SECTION 6.11 Public Announcements................................... 34
SECTION 6.12 Disposition of Litigation.............................. 34
SECTION 6.13 Rights................................................. 34
ARTICLE VII
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to
Effect the Merger.................................. 35
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination............................................. 35
SECTION 8.2 Effect of Termination................................... 37
SECTION 8.3 Fees and Expenses....................................... 37
SECTION 8.4 Amendment............................................... 39
SECTION 8.5 Waiver.................................................. 40
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations,
Warranties and Agreements.......................... 40
SECTION 9.2 Notices................................................. 40
SECTION 9.3 Certain Definitions..................................... 41
-ii-
<PAGE> 4
Page
SECTION 9.4 Severability............................................ 42
SECTION 9.5 Entire Agreement; Assignment............................ 42
SECTION 9.6 Parties in Interest..................................... 43
SECTION 9.7 Governing Law........................................... 43
SECTION 9.8 Headings................................................ 43
SECTION 9.9 Counterparts............................................ 43
Annex A - Offer Conditions
-iii-
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 20, 1997 (the
"Agreement"), among ITT INDUSTRIES, INC., an Indiana corporation ("Parent"),
GEORGE ACQUISITION, INC., a Delaware corporation and a wholly owned subsidiary
of Parent ("Purchaser"), and GOULDS PUMPS, INCORPORATED, a Delaware corporation
(the "Company").
WHEREAS, the Board of Directors of the Company has determined that it
is in the best interests of the Company and the stockholders of the Company to
enter into this Agreement with Parent and Purchaser, providing for the merger
(the "Merger") of Purchaser with the Company in accordance with the General
Corporation Law of the State of Delaware ("DGCL"), upon the terms and subject to
the conditions set forth herein; and
WHEREAS, the Board of Directors of Parent and Purchaser have each
approved the Merger of Purchaser with the Company in accordance with the DGCL
upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.1 The Offer. (a) Provided that this Agreement shall not have
been terminated in accordance with Section 8.1 and no event shall have occurred
and no circumstance shall exist which would result in a failure to satisfy any
of the conditions or events set forth in Annex A hereto (the "Offer
Conditions"), Purchaser shall, as soon as reasonably practicable after the date
hereof (and in any event within five business days from the date of public
announcement of the execution hereof), commence an offer (the "Offer") to
purchase for cash all of the issued and outstanding shares of Common Stock, par
value $1.00 per share (referred to herein as either the "Shares" or "Company
Common Stock"), of the Company at a price of $37.00 per Share, net to the seller
in cash. The obligation of Purchaser to accept for payment Shares tendered
pursuant to the Offer shall be subject only to the satisfaction or waiver by
Purchaser of the Offer Conditions. Purchaser expressly reserves the right, in
its sole discretion, to waive any such condition (other than the Minimum
Condition as defined in the Offer Conditions) and make any other changes in the
terms and conditions of the Offer, provided that, unless previously approved by
the Company in writing, no change may be made which changes the Minimum
Condition or decreases the price per Share payable in the Offer,
<PAGE> 6
2
changes the form of consideration payable in the Offer (other than by adding
consideration), reduces the maximum number of Shares to be purchased in the
Offer, or amends the terms or Offer Conditions or imposes conditions or terms to
the Offer in addition to those set forth herein which, in either case, are
adverse to holders of the Shares. Purchaser agrees that, unless it is permitted
to terminate this Agreement pursuant to Section 8.1(a), 8.1(b), 8.1(c)(ii) or
8.1(e), it can terminate the Offer only on a scheduled expiration date.
Purchaser further agrees that: (A) in the event it would otherwise be entitled
to terminate the Offer at any scheduled expiration thereof due to the failure of
one or more of the conditions set forth in paragraphs (a), (b), (c), (d)(i), (e)
or (h) of the Offer Conditions to be satisfied or waived, it shall give the
Company notice thereof and, at the request of the Company, extend the Offer
until the earlier of (1) such time as such condition is or conditions are
satisfied or waived and (2) the date chosen by the Company which shall not be
later than (x) the Outside Date (as defined in Section 8.1) applicable to the
condition or conditions with respect to which the extension is requested or (y)
the earliest date on which the Company reasonably believes such condition or
conditions will be satisfied; provided that if such condition is not or
conditions are not satisfied by any date chosen by the Company pursuant to this
clause (y), the Company may request further extensions of the Offer in
accordance with the terms of this Section 1.2(a); and (B) in the event that it
would otherwise be entitled to terminate the Offer at the initial scheduled
expiration date thereof due solely to the failure of the Minimum Condition to be
satisfied or waived, it shall, at the request of the Company (which request may
be made by the Company only on one occasion), extend the Offer for up to five
business days from such initial scheduled expiration date. Purchaser covenants
and agrees that, subject to the terms and conditions of this Agreement,
including but not limited to the Offer Conditions, it will accept for payment
and pay for Shares as soon as it is permitted to do so under applicable law. It
is agreed that the Offer Conditions are for the benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition (except for any action or inaction by Purchaser or Parent constituting
a breach of this Agreement) or, except with respect to the Minimum Condition,
may be waived by Purchaser, in whole or in part at any time and from time to
time, in its sole discretion.
(b) As soon as reasonably practicable on the date the Offer is
commenced, Purchaser shall file a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") with respect to the Offer with the Securities and Exchange
Commission (the "SEC"). The Schedule 14D-1 shall contain an Offer to Purchase
and forms of the related letter of transmittal (which Schedule 14D-1, Offer to
Purchase and other documents, together with any supplements or amendments
thereto, are referred to herein collectively as the "Offer Documents"). Parent
and Purchaser agree that the Company and its counsel shall be given an
opportunity to review the
<PAGE> 7
3
Schedule 14D-1 before it is filed with the SEC. Parent, Purchaser and the
Company each agrees promptly to correct any information provided by it for use
in the Offer Documents that shall have become false or misleading in any
material respect, and Parent and Purchaser further agree to take all steps
necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC
and the other Offer Documents as so corrected to be disseminated to holders of
Shares, in each case as and to the extent required by applicable federal
securities laws.
SECTION 1.2 Company Action. (a) The Company hereby approves of and
consents to the Offer and represents and warrants that: (i) its Board of
Directors, at a meeting duly called and held on April 20, 1997, has unanimously
(A) determined that this Agreement and the transactions contemplated hereby,
including the Offer and the Merger, are fair to and in the best interests of the
holders of Shares, (B) approved this Agreement and the transactions contemplated
hereby, including each of the Offer and the Merger, and (C) resolved to
recommend that the stockholders of the Company accept the Offer, tender their
Shares to Purchaser thereunder and approve this Agreement and the transactions
contemplated hereby (it being understood that, notwithstanding anything in this
Agreement to the contrary, if the Company's Board of Directors determines in
good faith, based upon the advice of outside counsel, that failure to modify or
withdraw its recommendation would constitute a breach of their fiduciary duties
under applicable law, the Board of Directors may so modify or withdraw its
recommendation and such modification or withdrawal shall not constitute a breach
of this Agreement); and (ii) Goldman, Sachs & Co. (the "Financial Adviser") has
delivered to the Board of Directors of the Company its written opinion that the
consideration to be received by holders of Shares, other than Parent and
Purchaser, pursuant to each of the Offer and the Merger is fair to such holders.
The Company hereby consents to the inclusion in the Offer Documents of the
recommendations of the Company's Board of Directors described in this Section
1.2(a).
(b) The Company shall file with the SEC, contemporaneously with the
commencement of the Offer pursuant to Section 1.1, a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "Schedule 14D-9"), containing the recommendations of the Company's
Board of Directors described in Section 1.2(a)(i) and shall promptly mail the
Schedule 14D-9 to the stockholders of the Company. The Schedule 14D-9 and all
amendments thereto will comply in all material respects with the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder. The Company, Parent and Purchaser each
agrees promptly to correct any information provided by it for use in the
Schedule 14D-9 that shall have become false or misleading in any material
respect, and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and
<PAGE> 8
4
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws.
(c) In connection with the Offer, if requested by Purchaser, the
Company shall promptly furnish Purchaser with mailing labels, security position
listings, any non-objecting beneficial owner lists and any available listings or
computer files containing the names and addresses of the record holders of
Shares, each as of a recent date, and shall promptly furnish Purchaser with such
additional information (including but not limited to updated lists of
stockholders, mailing labels, security position listings and non-objecting
beneficial owner lists) and such other assistance as Parent, Purchaser or their
agents may reasonably require in communicating the Offer to the record and
beneficial holders of Shares. Subject to the requirements of law, and except for
such steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer and the Merger, Parent and each of
their affiliates and associates shall hold in confidence the information
contained in any of such lists, labels or additional information and, if this
Agreement is terminated, shall promptly deliver to the Company all copies of
such information then in their possession.
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the conditions of
this Agreement and in accordance with the DGCL, at the Effective Time (as
defined in Section 2.2), Purchaser shall be merged with and into the Company. As
a result of the Merger, the separate corporate existence of Purchaser shall
cease and the Company shall continue as the surviving corporation of the Merger
(the "Surviving Corporation"). At Parent's election, any direct or indirect
subsidiary of Parent other than Purchaser may be merged with and into the
Company instead of the Purchaser. In the event of such an election, the parties
agree to execute an appropriate amendment to this Agreement in order to reflect
such election.
SECTION 2.2 Effective Time. As soon as practicable after the
satisfaction or waiver of the conditions set forth in Article VII, the parties
hereto shall cause the Merger to be consummated by filing this Agreement or a
certificate of merger or a certificate of ownership and merger (the "Certificate
of Merger") with the Secretary of State of the State of Delaware, in such form
as required by and executed in accordance with the relevant provisions of the
DGCL (the date and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (or such later time as is specified
in the Certificate of Merger) being the "Effective Time").
<PAGE> 9
5
SECTION 2.3 Effects of the Merger. The Merger shall have the effects
set forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Purchaser shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Purchaser shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 2.4 Certificate of Incorporation; By-Laws. (a) At the Effective
Time and without any further action on the part of the Company and Purchaser,
the Restated Certificate of Incorporation of the Company (as amended, the
"Certificate of Incorporation"), as in effect immediately prior to the Effective
Time, shall be the certificate of incorporation of the Surviving Corporation
until thereafter and further amended as provided therein and under the DGCL.
(b) At the Effective Time and without any further action on the part
of the Company and Purchaser, the By-Laws of Purchaser shall be the By-Laws of
the Surviving Corporation and thereafter may be amended or repealed in
accordance with their terms or the Certificate of Incorporation of the Purchaser
and as provided by law.
SECTION 2.5 Directors and Officers. The directors of Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed (as the case may be) and qualified.
SECTION 2.6 Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Purchaser, the Company or
the holders of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be cancelled pursuant to Section
2.6(b) and any Dissenting Shares (as defined in Section 2.8(a))) shall be
cancelled, extinguished and converted into the right to receive $37.00 in
cash or any higher price that may be paid pursuant to the Offer (the
"Merger Consideration") payable to the holder thereof, without interest,
upon surrender of the certificate formerly representing such Share in the
manner provided in Section 2.9, less any required withholding taxes.
(b) Each share of Company Common Stock held in the treasury of the
Company and each Share owned by Parent, Purchaser or any other direct or
indirect subsidiary of
<PAGE> 10
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Parent or of the Company, in each case immediately prior to the Effective
Time, shall be cancelled and retired without any conversion thereof and
no payment or distribution shall be made with respect thereto.
(c) Each share of common, preferred or other capital stock of Purchaser
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one validly issued, fully paid and nonassessable
share of identical common, preferred or other capital stock of the
Surviving Corporation.
SECTION 2.7 Treatment of Options. Immediately prior to the Effective
Time, each outstanding stock option and any related stock appreciation right
granted to employees and non-employee directors of the Company and its
subsidiaries (together, an "Option"), whether or not then exercisable, shall be
cancelled by the Company, and the holder thereof shall be entitled to receive at
the Effective Time or as soon as practicable thereafter from the Company in
consideration for such cancellation an amount in cash equal to the product of
(a) the number of Shares previously subject to such Option and (b) the excess,
if any, of the Merger Consideration over the exercise price per Share previously
subject to such Option.
SECTION 2.8 Dissenting Shares and Section 262 Shares. (a)
Notwithstanding anything in this Agreement to the contrary, shares of Company
Common Stock that are issued and outstanding immediately prior to the Effective
Time and which are held by stockholders who have not voted in favor of or
consented to the Merger and shall have delivered a written demand for appraisal
of such shares of Company Common Stock in the time and manner provided in
Section 262 of the DGCL and shall not have failed to perfect or shall not have
effectively withdrawn or lost their rights to appraisal and payment under the
DGCL (the "Dissenting Shares") shall not be converted into the right to receive
the Merger Consideration, but shall be entitled to receive the consideration as
shall be determined pursuant to Section 262 of the DGCL; provided, however, that
if such holder shall have failed to perfect or shall have effectively withdrawn
or lost his, her or its right to appraisal and payment under the DGCL, such
holder's shares of Company Common Stock shall thereupon be deemed to have been
converted, at the Effective Time, into the right to receive the Merger
Consideration set forth in Section 2.6(a) of this Agreement, without any
interest thereon.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal pursuant to Section 262 received by the Company, withdrawals of such
demands, and any other instruments served pursuant to the DGCL and received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the DGCL. The Company shall not,
except with the prior written consent of Parent, make
<PAGE> 11
7
any payment with respect to any such demands for appraisal or offer to settle or
settle any such demands.
SECTION 2.9 Surrender of Shares; Stock Transfer Books. (a) Prior to the
Effective Time, Purchaser shall designate a bank or trust company to act as
agent for the holders of Shares in connection with the Merger (the "Paying
Agent") to receive the Merger Consideration to which holders of Shares shall
become entitled pursuant to Section 2.6(a). When and as needed, Parent or
Purchaser will make available to the Paying Agent sufficient funds to make all
payments pursuant to Section 2.9(b). Such funds shall be invested by the Paying
Agent as directed by Purchaser or, after the Effective Time, the Surviving
Corporation, provided that such investments shall be in obligations of or
guaranteed by the United States of America, in commercial paper obligations
rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, or in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital exceeding
$500 million. Any net profit resulting from, or interest or income produced by,
such investments will be payable to the Surviving Corporation or Parent, as
Parent directs.
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented Shares (the "Certificates"), a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the Certificates to
the Paying Agent) and instructions for use in effecting the surrender of the
Certificates for payment of the Merger Consideration therefor. Upon surrender to
the Paying Agent of a Certificate, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for each Share formerly represented by such Certificate,
and such Certificate shall then be cancelled. No interest shall be paid or
accrued for the benefit of holders of the Certificates on the Merger
Consideration payable upon the surrender of the Certificates. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the
<PAGE> 12
8
satisfaction of the Surviving Corporation that such tax either has been paid or
is not applicable.
(c) At any time following six months after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds (including any interest received with respect thereto) which had
been made available to the Paying Agent and which have not been disbursed to
holders of Certificates, and thereafter such holders shall be entitled to look
to the Surviving Corporation (subject to abandoned property, escheat or other
similar laws) only as general creditors thereof with respect to the Merger
Consideration payable upon due surrender of their Certificates. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Paying Agent shall be
liable to any holder of a Certificate for Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(d) At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Shares except as otherwise provided for
herein or by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser
that, except as set forth in the disclosure schedule delivered by the Company to
Purchaser on or prior to the date of execution of this Agreement:
SECTION 3.1 Organization and Qualification; Subsidiaries. Each of the
Company and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and any
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority
and governmental approvals is not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect (as defined below) or prevent or
materially delay the consummation of the Offer or the Merger. Each of the
Company and each of its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased
<PAGE> 13
9
or operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing as are not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect or prevent or materially delay
the consummation of the Offer or the Merger. When used in connection with the
Company or any of its subsidiaries, the term "Material Adverse Effect" means any
change or effect that would be materially adverse to the business, assets,
financial condition, or results of operations of the Company and its
subsidiaries taken as a whole.
SECTION 3.2 Certificate of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of the Certificate of
Incorporation and the By-Laws of the Company as currently in effect. Such
Certificate of Incorporation and By-Laws are in full force and effect and no
other organizational documents are applicable to or binding upon the Company.
The Company is not in violation of any of the provisions of its Certificate of
Incorporation or By-Laws.
SECTION 3.3 Capitalization. The authorized capital stock of the Company
consists of 90,000,000 shares of Company Common Stock and 750,000 shares of
Preferred Stock, par value $20.00 per share ("Company Preferred Stock"). As of
April 16, 1997, (i) 21,381,593 shares of Company Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable and
were issued free of preemptive (or similar) rights, (ii) no shares of Company
Common Stock were held in the treasury of the Company and (iii) an aggregate of
1,689,829 shares of Company Common Stock were reserved for issuance and issuable
upon or otherwise deliverable in connection with the exercise of outstanding
Options issued pursuant to the Company Plans (as defined in Section 3.10) and
the 1994 Stock Option Plan for Non-Employee Directors. Since April 16, 1997, no
options to purchase shares of Company Common Stock have been granted and no
shares of Company Common Stock have been issued except for shares issued
pursuant to the exercise of Options outstanding as of April 16, 1997. As of the
date hereof, no shares of Company Preferred Stock are issued and outstanding.
Except (i) as set forth above, (ii) as a result of the exercise of Options
outstanding as of April 16, 1997 and (iii) Rights issued pursuant to the Rights
Plan referred to in Section 6.13, there are outstanding (a) no shares of capital
stock or other voting securities of the Company, (b) no securities of the
Company convertible into or exchangeable for shares of capital stock or voting
securities of the Company, (c) no options or other rights to acquire from the
Company, and no obligation of the Company to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company and (d) no equity equivalents, interests in the
ownership or earnings of the Company or other similar rights (collectively,
"Company Securities"). There are no outstanding obligations of the Company or
any of its
<PAGE> 14
10
subsidiaries to repurchase, redeem or otherwise acquire any Company Securities.
There are no other options, calls, warrants or other rights (other than Rights
issued pursuant to the Rights Plan), agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of the Company or
any of its subsidiaries to which the Company or any of its subsidiaries is a
party. All shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable and free of preemptive (or similar) rights. There are no
outstanding contractual obligations of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
the capital stock of any subsidiary or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such subsidiary or any other entity. Each of the outstanding shares of capital
stock of each of the Company's subsidiaries is duly authorized, validly issued,
fully paid and nonassessable and all such shares are owned by the Company or
another wholly owned subsidiary of the Company and are owned free and clear of
all security interests, liens, claims, pledges, agreements, limitations in
voting rights, charges or other encumbrances of any nature whatsoever, except
where the failure to own such shares free and clear is not, individually or in
the aggregate, reasonably likely to have a Material Adverse Effect. The Company
has delivered to Parent prior to the date hereof a list of the subsidiaries and
associated entities of the Company which evidences, among other things, the
percentage of capital stock or other equity interests owned by the Company,
directly or indirectly, in such subsidiaries or associated entities. No entity
in which the Company owns, directly or indirectly, less than a 50% equity
interest is, individually or when taken together with all such other entities,
material to the business of the Company and its subsidiaries taken as a whole.
SECTION 3.4 Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than, with respect to the Merger, the approval of this
Agreement by the holders of a majority of the outstanding shares of Company
Common Stock if and to the extent required by applicable law, and the filing of
appropriate merger documents as required by the DGCL). This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Parent and Purchaser,
constitutes a legal, valid and binding obligation of the Company enforceable
against
<PAGE> 15
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the Company in accordance with its terms. The Board of Directors of the Company
has approved this Agreement and the transactions contemplated hereby (including
but not limited to the Offer and the Merger) so as to render inapplicable hereto
and thereto (a) the limitation on business combinations contained in Section 203
of the DGCL (or any similar provision) and (b) the supermajority stockholder
voting requirements of Article VII of the Certificate of Incorporation. As a
result of the foregoing actions, the only vote required to authorize the Merger
is the affirmative vote of a majority of the outstanding Shares.
SECTION 3.5 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement by the Company do not and
will not: (i) conflict with or violate the Certificate of Incorporation or
By-Laws of the Company or the equivalent organizational documents of any of its
subsidiaries; (ii) assuming that all consents, approvals and authorizations
contemplated by clauses (i), (ii) and (iii) of subsection (b) below have been
obtained and all filings described in such clauses have been made, conflict with
or violate any law, rule, regulation, order, judgment or decree applicable to
the Company or any of its subsidiaries or by which its or any of their
respective properties are bound or affected; or (iii) result in any breach or
violation of or constitute a default (or an event which with notice or lapse of
time or both could become a default) or result in the loss of a material benefit
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of the Company or any of its subsidiaries pursuant to,
any note, bond, mortgage, indenture, contract (other than contracts terminable
at will or upon 90 days' or less notice by the terminating party), agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or its or any of their respective properties are bound or
affected, except, in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which are not, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect or
prevent or materially delay consummation of the Offer or the Merger.
(b) The execution, delivery and performance of this Agreement by the
Company and the consummation of the Merger by the Company do not and will not
require any consent, approval, authorization or permit of, action by, filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except for (i) applicable requirements, if any, of the Exchange Act and
the rules and regulations promulgated thereunder, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), or other foreign
filings or approvals, state securities, takeover and "blue sky" laws, (ii) the
filing and recordation of appropriate merger or other documents as required by
the DGCL and (iii) such
<PAGE> 16
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consents, approvals, authorizations, permits, actions, filings or notifications
the failure of which to make or obtain are not, individually or in the
aggregate, reasonably likely to (x) prevent or materially delay consummation of
the Offer or the Merger, (y) otherwise prevent or materially delay the Company
from performing its obligations under this Agreement or (z) have a Material
Adverse Effect.
SECTION 3.6 Compliance. Neither the Company nor any of its subsidiaries
is in conflict with, or in default or violation of, (i) any law, rule,
regulation, order, judgment or decree applicable to the Company or any of its
subsidiaries or by which its or any of their respective properties are bound or
affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or its or any of their respective properties are bound or
affected, except for any such conflicts, defaults or violations which are not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect or prevent or materially delay consummation of the Offer or the Merger.
SECTION 3.7 SEC Filings; Financial Statements. (a) The Company and, to
the extent applicable, each of its then or current subsidiaries, has filed all
forms, reports, statements and documents required to be filed with the SEC since
January 1, 1995 (collectively, the "SEC Reports"), each of which has complied in
all material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, or the Exchange Act, and the rules and regulations
promulgated thereunder, each as in effect on the date so filed. None of the SEC
Reports (including but not limited to any financial statements or schedules
included or incorporated by reference therein) contained when filed, or (except
to the extent revised or superseded by a subsequent filing with the SEC)
contains, any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the audited and unaudited consolidated financial
statements of the Company (including any related notes thereto) included in its
Annual Reports on Form 10-K for each of the two fiscal years ended December 31,
1995 and 1996 filed with the Commission has been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly presents the consolidated financial position of the Company
and its subsidiaries at the respective date thereof and the consolidated results
of its operations and changes in cash flows for the periods indicated.
<PAGE> 17
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(c) Except as and to the extent set forth on the consolidated balance
sheet of the Company and its subsidiaries at December 31, 1996, including the
notes thereto, neither the Company nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) which would be required to be reflected on a balance sheet or in
the notes thereto prepared in accordance with generally accepted accounting
principles, except for liabilities or obligations incurred since December 31,
1996 which are not, individually or in the aggregate, reasonably likely to have
a Material Adverse Effect.
(d) The Company has heretofore furnished or made available to Parent a
complete and correct copy of any amendments or modifications which have not yet
been filed with the SEC to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to the Securities
Act and the rules and regulations promulgated thereunder or the Exchange Act and
the rules and regulations promulgated thereunder.
SECTION 3.8 Absence of Certain Changes or Events. Since December 31,
1996, except as contemplated by this Agreement, disclosed in the SEC Reports
filed and publicly available prior to the date of this Agreement, the Company
and its subsidiaries have conducted their businesses only in the ordinary course
and in a manner consistent with past practice and, since such date, there has
not been: (i) any changes in the financial condition, results of operations,
assets, business or operations of the Company or any of its subsidiaries having
or reasonably likely to have a Material Adverse Effect; (ii) any condition,
event or occurrence which, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect; (iii) any damage, destruction or loss
(whether or not covered by insurance) with respect to any assets of the Company
or any of its subsidiaries which is reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect; (iv) any change by the Company in
its accounting methods, principles or practices; (v) any revaluation by the
Company of any of its material assets, including but not limited to writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business; (vi) any entry by the Company or any of its
subsidiaries into any commitment or transactions material to the Company and its
subsidiaries taken as a whole (other than commitments or transactions entered
into in the ordinary course of business); (vii) any declaration, setting aside
or payment of any dividends or distributions in respect of the Shares other than
the regular quarterly dividend in the amount of $.20 per share; or (viii) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including
without limitation the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee
<PAGE> 18
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benefit plan or agreement or arrangement, or any other increase in the
compensation payable or to become payable to any present or former directors,
officers or key employees of the Company or any of its subsidiaries, except for
increases in base compensation in the ordinary course of business consistent
with past practice, or any employment, consulting or severance agreement or
arrangement entered into with any such present or former directors, officers or
key employees.
SECTION 3.9 Absence of Litigation. Except as disclosed in the SEC
Reports filed and publicly available prior to the date of this Agreement, there
are no suits, claims, actions, proceedings or investigations pending or, to the
best knowledge of the Company, threatened against the Company or any of its
subsidiaries, or any properties or rights of the Company or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect. As of the
date hereof, neither the Company nor any of its subsidiaries nor any of their
respective properties is or are subject to any order, writ, judgment,
injunction, decree, determination or award having, or which, insofar as can be
reasonably foreseen, is reasonably likely to have a Material Adverse Effect or
prevent or materially delay consummation of the transactions contemplated
hereby.
SECTION 3.10 Employee Benefit Plans. Except (i) as set forth in the SEC
Reports filed and publicly available prior to the date of this Agreement or (ii)
as is not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect or prevent or materially delay the consummation of the
Offer or the Merger:
(a) Schedule 3.10 to this Agreement contains a true and complete list
of each "employee benefit plan" (within the meaning of section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, without limitation, multiemployer plans within the meaning of
ERISA section 3(37)), stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA
(including any funding mechanism therefor now in effect or required in the
future as a result of the transaction contemplated by this Agreement or
otherwise), whether formal or informal, oral or written, legally binding or
not, under which any employee or former employee of the Company or any of
its subsidiaries, has any present or future right to benefits or under
which the Company or any of its subsidiaries has any present or future
liability. All such plans, agreements, programs, policies and arrangements
shall be collectively referred to
<PAGE> 19
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as the "Company Plans". Company Plans which provide benefits to or which
are participated in by, non-U.S. employees and former employees ("Foreign
Company Plans") shall be listed in a separate schedule to be delivered as
set forth in Section 6.8.
(b) With respect to each Company Plan (other than Foreign Company
Plans), the Company has delivered or made available to Parent a current,
accurate and complete copy (or, to the extent no such copy exists, an
accurate description) thereof and, to the extent applicable: (i) any
related trust agreement or other funding instrument; (ii) the most recent
determination letter, if applicable; (iii) any summary plan description and
other written communications by the Company or any of its subsidiaries to
their employees concerning the extent of the benefits provided under a
Company Plan; and (iv) for the three most recent years (A) the Form 5500
and attached schedules, (B) audited financial statements and (C) actuarial
valuation reports.
(c) (i) Each Company Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions
of ERISA, the Internal Revenue Code of 1986, as amended (the "Code"), and
other applicable laws, rules and regulations; (ii) each Company Plan which
is intended to be qualified within the meaning of Code section 401(a) is so
qualified and has received a favorable determination letter as to its
qualification, and nothing has occurred, whether by action or failure to
act, that would cause the loss of such qualification; (iii) no event has
occurred and no condition exists that would subject the Company or any of
its subsidiaries, either directly or by reason of their affiliation with
any member of their "Controlled Group" (defined as any organization which
is a member of a controlled group of organizations within the meaning of
Code sections 414(b), (c), (m) or (o)), to any tax, fine, lien or penalty
imposed by ERISA, the Code or other applicable laws, rules and regulations;
(iv) for each Company Plan with respect to which a Form 5500 has been
filed, no material change has occurred with respect to the matters covered
by the most recent Form since the date thereof; and (v) no "reportable
event" (as such term is defined in ERISA section 4043), "prohibited
transaction" (as such term is defined in ERISA section 406 and Code section
4975) or "accumulated funding deficiency" (as such term is defined in ERISA
section 302 and Code section 412 (whether or not waived)) has occurred with
respect to any Company Plan.
(d) With respect to each of the Company Plans that is not a
multiemployer plan within the meaning of section 4001(a)(3) of ERISA but is
subject to Title IV of ERISA, as of the Effective Time, the assets of each
such Company Plan
<PAGE> 20
16
are at least equal in value to the present value of the accrued benefits
(vested and unvested) of the participants in such Company Plan on a
termination basis, based on the actuarial methods and assumptions indicated
in the most recent actuarial valuation reports.
(e) With respect to any multiemployer plan (within the meaning of ERISA
section 4001(a)(3)): (i) none of the Company, any of its subsidiaries or
any member of their Controlled Group has incurred any withdrawal liability
under Title IV of ERISA or would be subject to such liability if, as of the
Effective Time, the Company, any of its subsidiaries or any member of their
Controlled Group were to engage in a complete withdrawal (as defined in
ERISA section 4203) or partial withdrawal (as defined in ERISA section
4205) from any such multiemployer plan; and (ii) no multiemployer plan to
which the Company, any of its subsidiaries or any member of their
Controlled Group has any liabilities or contributes, is in reorganization
or insolvent (as those terms are defined in ERISA sections 4241 and 4245,
respectively).
(f) With respect to any Company Plan, (i) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending
or, to the knowledge of the Company, threatened, and (ii) no facts or
circumstances exist, to the knowledge of the Company, that could give rise
to any such actions, suits or claims.
(g) No Company Plan exists that could result in the payment to any
present or former employee of the Company or any of its subsidiaries of any
money or other property or accelerate or provide any other rights or
benefits to any present or former employee of the Company or any of its
subsidiaries as a result of the transaction contemplated by this Agreement,
whether or not such payment would constitute a parachute payment within the
meaning of Code section 280G.
SECTION 3.11 Tax Matters. The Company and each of its subsidiaries, and
any consolidated, combined, unitary or aggregate group for tax purposes of which
the Company or any of its subsidiaries is or has been a member has timely filed
all Tax Returns required to be filed by it in the manner provided by law, has
paid all Taxes (including interest and penalties) shown thereon to be due and
has provided adequate reserves in its financial statements according to
generally accepted accounting principles for any Taxes that have not been paid,
whether or not shown as being due on any returns. All such Tax Returns were
true, correct and complete in all material respects. Except as has been
disclosed to Parent in Schedule 3.11 to this Agreement: (i) no material claim
for unpaid Taxes has become a lien or encumbrance of any kind against the
property of the Company or any of its subsidiaries or is being asserted against
the Company or any of its subsidiaries; (ii) as of the date hereof no audit
<PAGE> 21
17
of any Tax Return of the Company or any of its subsidiaries is being conducted
by a Tax authority; and (iii) no extension of the statute of limitations on the
assessment of any Taxes has been granted by the Company or any of its
subsidiaries and is currently in effect. As used herein, "Taxes" shall mean any
taxes of any kind, including but not limited to those on or measured by or
referred to as income, gross receipts, capital, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, value added, property or windfall profits
taxes, customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any governmental authority, domestic or foreign.
As used herein, "Tax Return" shall mean any return, report or statement required
to be filed with any governmental authority with respect to Taxes.
SECTION 3.12 Offer Documents; Proxy Statement. Neither the Schedule
14D-9, nor any of the information supplied by the Company for inclusion in the
Offer Documents, shall, at the respective times such Schedule 14D-9, the Offer
Documents or any amendments or supplements thereto are filed with the SEC or are
first published, sent or given to stockholders, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Neither the proxy statement to be sent to the stockholders of the Company in
connection with the Stockholders Meeting (as defined in Section 6.1) or the
information statement to be sent to such stockholders, as appropriate (such
proxy statement or information statement, as amended or supplemented, is herein
referred to as the "Proxy Statement"), shall, at the date the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to stockholders
and at the time of the Stockholders Meeting and at the Effective Time, be false
or misleading with respect to any material fact, or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Stockholders Meeting which
has become false or misleading. Notwithstanding the foregoing, the Company makes
no representation or warranty with respect to any information supplied by Parent
or Purchaser or any of their respective representatives which is contained in
the Schedule 14D-9 or the Proxy Statement. The Schedule 14D-9 and the Proxy
Statement will comply in all material respects as to form with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder.
SECTION 3.13 Environmental Matters. (a) Except as disclosed in SEC
Reports filed and publicly available prior to
<PAGE> 22
18
the date of this Agreement and to the extent that the inaccuracy of any of the
following (or the circumstances giving rise to such inaccuracy), individually or
in the aggregate, is not reasonably likely to have a Material Adverse Effect or
prevent or materially delay consummation of the Offer or the Merger:
(i) (A) the Company and its subsidiaries are, and within the
period of all applicable statutes of limitation have been, in compliance
with all applicable Environmental Laws; and (B) the Company and each of
its subsidiaries believes that each of them will, and will not incur
material expense in excess of the amounts reflected in the Company's
statements and capital budgets to, timely attain or maintain compliance
with any Environmental Laws applicable to any of their current operations
or properties or to any of their planned operations over the next three
years;
(ii) (A) the Company and its subsidiaries hold all Environmental
Permits (each of which is in full force and effect) required for any of
their current operations and for any property owned, leased, or otherwise
operated by any of them, and are, and within the period of all applicable
statutes of limitation have been, in compliance with all such
Environmental Permits; and (B) neither the Company nor any of its
subsidiaries has knowledge that over the next three years: any of their
Environmental Permits will not be, or will entail material expense to be,
timely renewed or complied with; any additional Environmental Permits
required of any of them for current operations or for any property owned,
leased, or otherwise operated by any of them, or for any of their planned
operations, will not be timely granted or complied with; or any transfer
or renewal of, or reapplication for, any Environmental Permit required as
a result of the Merger will not be, timely effected;
(iii) (A) no review by, or approval of, any Governmental
Authority or other person is required under any Environmental Law in
connection with the execution or delivery of this Agreement; and (B)
neither the Company nor any of its subsidiaries has reason to believe that
such review or approval will not be timely obtained or granted;
(iv) neither the Company nor any of its subsidiaries has
received any Environmental Claim (as hereinafter defined) against any of
them, and neither the Company nor any of its subsidiaries has knowledge of
any such Environmental Claim being threatened;
(v) to the knowledge of the Company, Hazardous Materials are
not present on any property owned, leased, or operated by the Company or
any of its subsidiaries, that is reasonably likely to form the basis of
any Environmental Claim against any of them; and neither the Company nor
any of its subsidiaries has reason to believe that Hazardous
<PAGE> 23
19
Materials are present on any other property that is reasonably likely to
form the basis of any Environmental Claim against any of them;
(vi) neither the Company nor any of its subsidiaries has
knowledge of any material Environment Claim pending or threatened, or of
the presence or suspected presence of any Hazardous Materials that is
reasonably likely to form the basis of any Environmental Claim, in any
case against any person or entity (including without limitation any
predecessor of the Company or any of its subsidiaries) whose liability the
Company or any of its subsidiaries has or may have retained or assumed
either contractually or by operation of law. or against any real or
personal property which the Company or any of its subsidiaries formerly
owned, leased, or operated, in whole or in part; and
(vii) to the knowledge of the Company, the Company has informed
the Parent and the Purchaser of: all material facts which the Company or
any of its subsidiaries reasonably believes could form the basis of a
material Environmental Claim against any of them arising out of the
non-compliance or alleged non-compliance with any Environmental Law, or
the presence or suspected presence of Hazardous Materials at any location;
all material costs the Company reasonably expects it and any of its
subsidiaries to incur to comply with Environmental Laws during the next
three years; all material costs the Company and any of its subsidiaries
expect to incur for ongoing, and reasonably anticipated, investigation and
remediation of Hazardous Materials (including, without limitation, any
payments to resolve any threatened or asserted Environmental Claim for
investigation and remediation costs); and any other material matter
affecting the Company or any of its subsidiaries relating to any
Environmental Law.
(b) For purposes of this Agreement, the terms below shall have the
following meanings:
"Environmental Claim" means any claim, demand, action, suit,
complaint, proceeding, directive, investigation, lien, demand letter, or
notice (written or oral) of noncompliance, violation, or liability, by any
person or entity asserting liability or potential liability (including
without limitation liability or potential liability for enforcement,
investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damage, personal injury, fines or penalties)
arising out of, based on or resulting from (i) the presence, discharge,
emission, release or threatened release of any Hazardous Materials at any
location, (ii) circumstances forming the basis of any violation or alleged
violation of any Environmental Laws or Environmental Permits, or (iii)
otherwise relating to obligations or liabilities under any Environmental
Law.
<PAGE> 24
20
"Environmental Laws" means any and all laws, rules, orders,
regulations, statutes, ordinances, guidelines, codes, decrees, or other
legally enforceable requirement (including, without limitation, common law)
of any foreign government, the United States, or any state, local,
municipal or other governmental authority, regulating, relating to or
imposing liability or standards of conduct concerning protection of human
health as affected by the environment or Hazardous Materials (including
without limitation employee health and safety) or the environment
(including without limitation indoor air, ambient air, surface water,
groundwater, land surface, subsurface strata, or plant or animal species).
"Environmental Permits" means all permits, licenses, registrations,
approvals, exemptions and other filings with or authorizations by any
Governmental Authority under any Environmental Law.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity (including, without
limitation, a court) exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Hazardous Materials" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction
thereof), petroleum products, asbestos, asbestos-containing materials,
pollutants, contaminants, radioactivity, electromagnetic fields and all
other materials, whether or not defined as such, that are regulated
pursuant to any Environmental Laws or that could result in liability under
any applicable Environmental Laws.
SECTION 3.14 Brokers. No broker, finder or investment banker (other
than the Financial Adviser) is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company. The Company has
heretofore furnished to Parent a complete and correct copy of all agreements
between the Company and the Financial Adviser pursuant to which such firm would
be entitled to any payment relating to the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and
warrant to the Company that:
<PAGE> 25
21
SECTION 4.1 Corporate Organization. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated and has the requisite corporate
power and authority and any necessary governmental authority to own, operate or
lease its properties and to carry on its business as it is now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power, authority and governmental approvals is not, individually or in
the aggregate, reasonably likely to prevent the consummation of the Offer or the
Merger.
SECTION 4.2 Authority Relative to This Agreement. Each of Parent and
Purchaser has all necessary corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Purchaser and the consummation by each of
Parent and Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Purchaser
other than filing and recordation of appropriate merger documents as required by
the DGCL. This Agreement has been duly executed and delivered by Parent and
Purchaser and, assuming due authorization, execution and delivery by the
Company, constitutes a legal, valid and binding obligation of each such
corporation enforceable against such corporation in accordance with its terms.
SECTION 4.3 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement by Parent and Purchaser do
not and will not: (i) conflict with or violate the respective certificates of
incorporation or by-laws of Parent or Purchaser; (ii) assuming that all
consents, approvals and authorizations contemplated by clauses (i), (ii) and
(iii) of subsection (b) below have been obtained and all filings described in
such clauses have been made, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Parent or Purchaser or by which either
of them or their respective properties are bound or affected; or (iii) result in
any breach or violation of or constitute a default (or an event which with
notice or lapse of time or both could become a default) or result in the loss of
a material benefit under, or give rise to any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the property or assets of Parent or Purchaser pursuant to,
any note, bond, mortgage, indenture, contract (other than contracts terminable
at will or upon 90 days' or less notice by the terminating party), agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or Purchaser is a party or by which Parent or Purchaser or any of their
respective properties are bound or affected, except, in the case of clauses (ii)
and (iii), for any such conflicts, violations, breaches, defaults or other
<PAGE> 26
22
occurrences which are not, individually or in the aggregate, reasonably likely
to prevent or materially delay the consummation of the Offer or the Merger.
(b) The execution, delivery and performance of this Agreement by
Parent and Purchaser do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except (i) for
applicable requirements, if any, of the Exchange Act and the rules and
regulations promulgated thereunder, the HSR Act or other foreign filings or
approvals, state securities, takeover and "blue sky" laws, (ii) the filing and
recordation of appropriate merger or other documents as required by the DGCL,
and (iii) such consents, approvals, authorizations, permits, actions, filings or
notifications the failure of which to make or obtain are not, individually or in
the aggregate, reasonably likely to prevent the consummation of the Offer or the
Merger.
SECTION 4.4 Offer Documents; Proxy Statement. The Offer Documents, as
filed pursuant to Section 1.1, will not, at the time such Offer Documents are
filed with the SEC or are first published, sent or given to stockholders, as the
case may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent
for inclusion in the Proxy Statement shall not, on the date the Proxy Statement
is first mailed to stockholders, at the time of the Stockholders Meeting (as
defined in Section 6.1) or at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Stockholders Meeting which has become false or misleading. Notwithstanding the
foregoing, Parent and Purchaser make no representation or warranty with respect
to any information supplied by the Company or any of its representatives which
is contained in or incorporated by reference in any of the foregoing documents
or the Offer Documents. The Offer Documents, as amended and supplemented, will
comply in all material respects as to form with the requirements of the Exchange
Act and the rules and regulations promulgated thereunder.
SECTION 4.5 Brokers. No broker, finder or investment banker (other than
Morgan Stanley & Co. Incorporated) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of Parent or Purchaser.
<PAGE> 27
23
SECTION 4.6 Funds. Parent or Purchaser, at the expiration date
of the Offer and at the Effective Time, will have the funds necessary to
consummate the Offer and the Merger, respectively.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business of the Company Pending the
Merger. The Company covenants and agrees that, during the period from the date
hereof to the Effective Time, unless Parent shall otherwise agree in writing,
the businesses of the Company and its subsidiaries shall be conducted only in,
and the Company and its subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice; and
the Company and its subsidiaries shall each use its reasonable best efforts to
preserve substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, neither the
Company nor any of its subsidiaries shall, between the date of this Agreement
and the Effective Time, directly or indirectly do, or commit to do, any of the
following without the prior written consent of Parent:
(a) Amend or otherwise change its certificate of incorporation
or by-laws or equivalent organizational documents;
(b) Issue, deliver, sell, pledge, dispose of or encumber, or
authorize or commit to the issuance, sale, pledge, disposition or
encumbrance of, (A) any shares of capital stock of any class, or any
options, warrants, convertible securities or other rights of any kind
to acquire any shares of capital stock, or any other ownership interest
(including but not limited to stock appreciation rights or phantom
stock), of the Company or any of its subsidiaries (except for the
issuance of up to 1,749,829 shares of Company Common Stock required to
be issued pursuant to (1) the terms of Options outstanding as of April
16, 1997, (2) the employment agreement effective July 1, 1996 between
the Company and Thomas C. McDermott, and (3) the plan under which
non-employee directors are paid one-half of their annual retainer in
shares of Company Common Stock) or (B) any assets of the Company or any
of its subsidiaries, except for sales of products in the ordinary
course of business and in a manner consistent with past practice;
<PAGE> 28
24
(c) Declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock (other than (1) regular quarterly
dividends consistent with past practice, in an amount not to exceed
$.20 per share and (2) the distribution of Rights pursuant to the
Rights Plan);
(d) Reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) Acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof; (ii) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or
endorse, or otherwise as an accommodation become responsible for, the
obligations of any person, or make any loans, advances or capital
contributions to, or investments in, any other person (other than in
the ordinary course of business consistent with past practice); (iii)
enter into any contract or agreement other than in the ordinary course
of business consistent with past practice; or (iv) authorize any single
capital expenditure which is in excess of $1,500,000 or capital
expenditures (during any three month period) which are, in the
aggregate, in excess of $7,500,000 for the Company and its subsidiaries
taken as a whole;
(f) Except to the extent required under existing employee and
director benefit plans, agreements or arrangements as in effect on the
date of this Agreement, increase the compensation or fringe benefits of
any of its directors, officers or employees, except for increases in
salary or wages of employees of the Company or its subsidiaries who are
not officers of the Company in the ordinary course of business in
accordance with past practice, or grant any severance or termination
pay not currently required to be paid under existing severance plans to
or enter into any employment, consulting or severance agreement or
arrangement with any present or former director, officer or other
employee of the Company or any of its subsidiaries, or establish,
adopt, enter into or amend or terminate any collective bargaining
agreement or Company Plan, including, but not limited to, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees;
(g) Except as may be required as a result of a change in law
or in generally accepted accounting principles, change any of the
accounting practices or principles used by it;
<PAGE> 29
25
(h) Make any material tax election or settle or compromise any
material federal, state, local or foreign tax liability;
(i) Settle or compromise any pending or threatened suit,
action or claim which is material or which relates to the transactions
contemplated hereby;
(j) Adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of its subsidiaries not
constituting an inactive subsidiary (other than the Merger);
(k) Pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction (1) in
the ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the financial statements
of the Company or incurred in the ordinary course of business and
consistent with past practice and (2) of liabilities required to be
paid, discharged or satisfied pursuant to the terms of any contract in
existence on the date hereof (including, without limitation, benefit
plans relating to directors); or
(l) Take, or offer or propose to take, or agree to take in
writing or otherwise, any of the actions described in Sections 5.1(a)
through 5.1(k) or any action which would make any of the
representations or warranties of the Company contained in this
Agreement untrue and incorrect as of the date when made if such action
had then been taken, or would result in any of the conditions set forth
in Annex A not being satisfied.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders Meeting. (a) If required, the
Company, acting through its Board of Directors, shall in accordance with and
subject to applicable law and the Company's Certificate of Incorporation and
By-Laws, (i) duly call, give notice of, convene and hold a meeting of its
stockholders as soon as practicable following consummation of the Offer for the
purpose of considering and taking action on this Agreement and the transactions
contemplated hereby (the "Stockholders Meeting") and (ii) subject to its
fiduciary duties under applicable law, (A) include in the Proxy Statement the
unanimous recommendation of the Board of Directors that the stockholders of the
Company vote in favor of the approval of this Agreement and the transactions
contemplated hereby and the written opinion of the
<PAGE> 30
26
Financial Adviser that the consideration to be received by the stockholders of
the Company pursuant to the Offer and the Merger is fair to such stockholders
and (B) use its reasonable best efforts to obtain the necessary approval of this
Agreement and the transactions contemplated hereby by its stockholders. At the
Stockholders Meeting, Parent and Purchaser shall cause all Shares then owned by
them and their subsidiaries to be voted in favor of approval of this Agreement
and the transactions contemplated hereby.
(b) Notwithstanding the foregoing, in the event that Purchaser
shall acquire at least 90% of the outstanding Shares, the Company agrees, at the
request of Purchaser, subject to Article VII, to take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders, in accordance with Section 253 of the DGCL.
SECTION 6.2 Proxy Statement. If required by applicable law, as
soon as practicable following Parent's request, the Company shall file with the
SEC under the Exchange Act and the rules and regulations promulgated thereunder,
and shall use its reasonable best efforts to have cleared by the SEC, the Proxy
Statement with respect to the Stockholders Meeting. Parent, Purchaser and the
Company will cooperate with each other in the preparation of the Proxy
Statement; without limiting the generality of the foregoing, each of Parent and
Purchaser will furnish to the Company the information relating to it required by
the Exchange Act and the rules and regulations promulgated thereunder to be set
forth in the Proxy Statement. The Company agrees to use its reasonable best
efforts, after consultation with the other parties hereto, to respond promptly
to any comments made by the SEC with respect to the Proxy Statement and any
preliminary version thereof filed by it and cause such Proxy Statement to be
mailed to the Company's stockholders at the earliest practicable time.
SECTION 6.3 Company Board Representation; Section 14(f). (a)
Promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and
from time to time thereafter, Purchaser shall be entitled to designate up to
such number of directors, rounded up to the next whole number, on the Board of
Directors of the Company as shall give Purchaser representation on the Board of
Directors equal to the product of the total number of directors on such Board
(giving effect to the directors elected pursuant to this sentence) multiplied by
the percentage that the aggregate number of Shares beneficially owned by
Purchaser or any affiliate of Purchaser bears to the total number of Shares then
outstanding, and the Company shall, at such time, promptly take all action
necessary to cause Purchaser's designees to be so elected, including either
increasing the size of the Board of Directors or securing the resignations of
incumbent directors or both. At such times, the Company will use its
<PAGE> 31
27
reasonable best efforts to cause persons designated by Purchaser to constitute
the same percentage as is on the board of (i) each committee of the Board of
Directors, (ii) each board of directors of each subsidiary of the Company and
(iii) each committee of each such board, in each case only to the extent
permitted by law. Until Purchaser acquires a majority of the outstanding Shares
on a fully diluted basis, the Company shall use its reasonable best efforts to
ensure that all the members of the Board of Directors and such boards and
committees as of the date hereof who are not employees of the Company shall
remain members of the Board of Directors and such boards and committees.
(b) The Company's obligations to appoint designees to its
Board of Directors shall be subject to Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions
required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its
obligations under this Section 6.3 and shall include in the Schedule 14D-9 or a
separate Rule 14f-1 information statement provided to stockholders such
information with respect to the Company and its officers and directors as is
required under Section 14(f) and Rule 14f-1 to fulfill its obligations under
this Section 6.3. Parent or Purchaser will supply to the Company and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by Section 14(f) and Rule
14f-1.
(c) Following the election or appointment of Purchaser's
designees pursuant to this Section 6.3 and prior to the Effective Time, any
amendment, or waiver of any term or condition, of this Agreement or the
Certificate of Incorporation or By-Laws of the Company, any termination of this
Agreement by the Company, any extension by the Company of the time for the
performance of any of the obligations or other acts of Purchaser or waiver or
assertion of any of the Company's rights hereunder, and any other consent or
action by the Board of Directors with respect to this Agreement, will require
only the concurrence of a majority of the directors of the Company then in
office who are neither designated by Purchaser nor are employees of the Company
(the "Disinterested Directors") and such concurrence shall constitute the
authorization of the Board of Directors of the Company and no other action by
the Company, including any action by any other director of the Company, shall be
required for purposes of this Agreement. The number of Disinterested Directors
shall be not less than two. Any person who is a director on the date of this
Agreement, but who, in order to carry out the provisions of this Section 6.3, is
not a director at the Effective Time, shall be entitled to receive all payments
at the time such director resigns as he or she otherwise would have been
entitled to receive if he or she had been a director as of the Effective Time.
SECTION 6.4 Access to Information; Confidentiality. (a) From
the date hereof to the Effective Time, the Company
<PAGE> 32
28
shall, and shall cause its subsidiaries, officers, directors, employees,
auditors and other agents to, afford the officers, employees, auditors and other
agents of Parent, and financing sources who shall agree to be bound by the
provisions of this Section 6.4 as though a party hereto, complete access,
consistent with applicable law, at all reasonable times to its officers,
employees, agents, properties, offices, plants and other facilities and to all
books and records, and shall furnish Parent and such financing sources with all
financial, operating and other data and information as Parent, through its
officers, employees or agents, or such financing sources may from time to time
reasonably request.
(b) Each of Parent and Purchaser will hold and will cause its
officers, employees, auditors and other agents to hold in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all documents and information concerning the Company and
its subsidiaries furnished to Parent or Purchaser in connection with the
transactions contemplated in this Agreement (except to the extent that such
information can be shown to have been generally available to you on a
non-confidential basis prior to the date hereof or becomes generally available
to you on a non-confidential basis after the date hereof; provided that the
source of such information was not known by you to be bound by a confidentiality
agreement and will not release or disclose such information to any other person,
except (1) the officers, directors, employees, counsel, investment bankers and
other representatives of Parent and the Purchaser who need to know such
information for the purposes of evaluating the Merger and the other transactions
contemplated by this Agreement and (2) any other person after the Company has
provided written consent to such disclosure. If the transactions contemplated by
this Agreement are not consummated, such confidence shall be maintained for a
period of two years from the date hereof and, if requested by or on behalf of
the Company, Parent and Purchaser will, and will use all reasonable efforts to
cause their auditors and other agents to, return to the Company or destroy all
copies of written information furnished by the Company to Parent and Purchaser
or their agents, representatives or advisors. It is understood that Parent and
Purchaser shall be deemed to have satisfied their obligation to hold such
information confidential if they exercise the same care as they take to preserve
confidentiality for their own similar information.
(c) No investigation pursuant to this Section 6.4 shall affect
any representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 6.5 No Solicitation of Transactions. The Company, its
affiliates and their respective officers, directors, employees, representatives
and agents shall immediately cease any existing discussions or negotiations, if
any, with any parties
<PAGE> 33
29
conducted heretofore with respect to any acquisition or exchange of all or any
material portion of the assets of, or more than 20% of the equity interest in,
the Company or any of its subsidiaries or any business combination with or
involving the Company or any of its subsidiaries. The Company may, directly or
indirectly, furnish information and access, in each case only in response to a
request for such information or access to any person made after the date hereof
which was not encouraged, solicited or initiated by the Company or any of its
affiliates or any of its or their respective officers, directors, employees,
representatives or agents after the date hereof, pursuant to appropriate
confidentiality agreements, and may participate in discussions and negotiate
with such person concerning any merger, sale of assets, sale of shares of
capital stock or similar transaction (including an exchange of stock or assets)
involving the Company or any subsidiary or division of the Company, if such
person has submitted a written proposal to the Board of Directors of the Company
relating to any such transaction and the Board determines in good faith, based
upon the advice of outside counsel to the Company, that failing to take such
action would constitute a breach of the Board's fiduciary duty under applicable
law. The Board shall notify Parent immediately if any such proposal is made and
shall in such notice, indicate in reasonable detail the identity of the offeror
and the terms and conditions of any proposal and shall keep Parent promptly
advised of all developments which could reasonably be expected to culminate in
the Board of Directors withdrawing, modifying or amending its recommendation of
the Offer, the Merger and the other transactions contemplated by this Agreement.
Except as set forth in this Section 6.5, neither the Company or any of its
affiliates, nor any of its or their respective officers, directors, employees,
representatives or agents, shall, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Parent and Purchaser, any affiliate or associate of Parent and
Purchaser or any designees of Parent or Purchaser) concerning any merger, sale
of any material portion or assets, sale of more than 20% of the shares of
capital stock or similar transactions (including an exchange of stock or assets)
involving the Company or any subsidiary of the Company; provided, however, that
nothing herein shall prevent the Board from taking, and disclosing to the
Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender offer; provided,
further, that the Board shall not recommend that the stockholders of the Company
tender their Shares in connection with any such tender offer unless the Board
shall have determined in good faith, based upon the advice of outside counsel to
the Company, that failing to take such action would constitute a breach of the
Board's fiduciary duty under applicable law. The Company agrees not to release
any third party from, or waive any provisions of, any confidentiality or
standstill agreement to which the Company is a party, unless the Board shall
have determined in good faith, based upon the
<PAGE> 34
30
advice of outside counsel, that failing to release such third party or waive
such provisions would constitute a breach of the fiduciary duties of the Board
of Directors under applicable law.
SECTION 6.6 Employee Benefits Matters. (a) On and after the
Effective Time, Parent shall cause the Surviving Corporation and its
subsidiaries to promptly pay or provide when due all compensation and benefits
earned through or prior to the Effective Time as provided pursuant to the terms
of any compensation arrangements, employment agreements and employee or director
benefit plans (including, without limitation, deferred compensation plans),
programs and policies in existence as of the date hereof for all employees (and
former employees) and directors (and former directors) of the Company and its
subsidiaries. Parent and the Company agree that the Surviving Corporation and
its subsidiaries shall pay promptly or provide when due all compensation and
benefits required to be paid pursuant to the terms of any individual agreement
with any employee, former employee, director or former director in effect as of
the date hereof.
(b) Parent shall cause the Surviving Corporation, for the
period commencing at the Effective Time and ending on the first anniversary
thereof, to provide employee benefits under plans, programs and arrangements
which, in the aggregate, will provide benefits to the employees of the Surviving
Corporation and its subsidiaries (other than employees covered by a collective
bargaining agreement) which are no less favorable in the aggregate than those
provided pursuant to the plans, programs and arrangements (other than those
related to the equity securities of the Company) of the Company and its
subsidiaries in effect on the date hereof and employees covered by collective
bargaining agreements shall be provided with such benefits as shall be required
under the terms of any applicable collective bargaining agreement; provided,
however, that nothing herein shall prevent the amendment or termination of any
specific plan, program or arrangement, require that the Surviving Corporation
provide or permit investment in the securities of Parent, the Company or the
Surviving Corporation or interfere with the Surviving Corporation's right or
obligation to make such changes as are necessary to conform with applicable law.
Employees of the Surviving Corporation shall be given credit for all service
with the Company and its subsidiaries, to the same extent as such service was
credited for such purpose by the Company, under each employee benefit plan,
program, or arrangement of the Parent in which such employees are eligible to
participate for purposes of eligibility and vesting; provided, however, that in
no event shall the employees be entitled to any credit to the extent that it
would result in a duplication of benefits with respect to the same period of
service.
(c) If employees of the Surviving Corporation and its
subsidiaries become eligible to participate in a medical, dental or health plan
of Parent or its subsidiaries, Parent shall cause
<PAGE> 35
31
such plan to (i) waive any preexisting condition limitations for conditions
covered under the applicable medical, health or dental plans of the Company and
its subsidiaries and (ii) honor any deductible and out of pocket expenses
incurred by the employees and their beneficiaries under such plans during the
portion of the calendar year prior to such participation.
(d) Nothing in this Section 6.8 shall require the continued
employment of any person or, with respect to clauses (b) and (c) hereof, prevent
the Company and/or the Surviving Corporation and their subsidiaries from taking
any action or refraining from taking any action which the Company and its
subsidiaries prior to the Effective Time, could have taken or refrained from
taking.
SECTION 6.7 Directors' and Officers' Indemnification and
Insurance. (a) The By-Laws of the Surviving Corporation shall contain provisions
no less favorable with respect to indemnification than are set forth in Article
12 of the By-laws of the Company, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would adversely affect the rights thereunder of individuals
who at the Effective Time were directors, officers or employees of the Company.
(b) Parent shall use its reasonable best efforts to cause to
be maintained in effect for six years from the Effective Time the current
policies of the directors' and officers' liability insurance maintained by the
Company (provided that Parent may substitute therefor policies of at least the
same coverage containing terms and conditions which are not materially less
advantageous) with respect to matters occurring prior to the Effective Time to
the extent available; provided, however, that in no event shall Parent or the
Company be required to expend more than an amount per year equal to 150% of
current annual premiums paid by the Company (which the Company represents and
warrants to be not more than $250,000) to maintain or procure insurance coverage
pursuant hereto.
(c) For six years after the Effective Time, Parent agrees that
it will or will cause the Surviving Corporation to indemnify and hold harmless
each present and former director and officer of the Company, determined as of
the Effective Time (the "Indemnified Parties"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") (but only to the extent such
Costs are not otherwise covered by insurance and paid) incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or pertaining to
matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent permitted under applicable law (and Parent shall ,or shall cause the
Surviving Corporation to, also
<PAGE> 36
32
advance expenses as incurred to the fullest extent permitted under applicable
law provided the person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification).
(d) Any Indemnified Party wishing to claim indemnification
under paragraph (c) of this Section 6.7, upon learning of any such claim,
action, suit, proceeding or investigation, shall promptly notify Parent thereof,
but the failure to so notify shall not relieve Parent of any liability it may
have to such Indemnified Party if such failure does not materially prejudice
Parent. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) Parent
or the Surviving Corporation shall have the right to assume the defense thereof
and Parent shall not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently incurred by such
Indemnified Parties in connection with the defense thereof, except that if
Parent or the Surviving Corporation elects not to assume such defense or counsel
for the Indemnified Parties advises that there are issues that raise conflicts
of interest between Parent or the Surviving Corporation and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory to them, and
Parent or the Surviving Corporation shall pay all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as statements therefor are
received; provided, however, that Parent shall be obligated pursuant to this
paragraph (d) to pay for only one firm of counsel for all Indemnified Parties in
any jurisdiction unless the use of one counsel for such Indemnified Parties
would present such counsel with a conflict of interest, (ii) the Indemnified
Parties will cooperate in the defense of any such matter and (iii) Parent shall
not be liable for any settlement effected without its prior written consent,
which consent shall not be unreasonably withheld; and provided, further, that
Parent shall not have any obligation hereunder to any Indemnified Party when and
if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
SECTION 6.8 Delivery of Schedules. The Company shall deliver
to Parent, within ten business days after the date hereof, a schedule listing
all Foreign Company Plans. With respect to each Foreign Company Plan, the
Company will deliver or make available within ten business days after the date
hereof, to Parent a current, accurate and complete copy (or, to the extent no
such copy exists, an accurate description) thereof and, to the extent
applicable: (i) any related trust agreement or other funding instrument; (ii)
the most recent determination letter, if applicable; (iii) any summary plan
description and other written communications by the Company or any of its
subsidiaries to their employees concerning the extent of the benefits provided
under a
<PAGE> 37
33
Company Plan; and (iv) for the three most recent years (A) the Form 5500 and
attached schedules, (B) audited financial statements and (C) actuarial valuation
reports.
SECTION 6.9 Notification of Certain Matters. The Company shall
give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would, if such representation or warranty were required
to be made at such time, be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate; provided, however, that
the delivery of any notice pursuant to this Section 6.9 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 6.10 Further Action; Reasonable Best Efforts. (a) Upon
the terms and subject to the conditions hereof, each of the parties hereto shall
use its reasonable best efforts to take, or cause to be taken, all appropriate
action, and to do or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable, including
but not limited to (i) cooperation in the preparation and filing of the Offer
Documents, the Schedule 14D- 9, the Proxy Statement, any required filings under
the HSR Act or other foreign filings and any amendments to any thereof and (ii)
using its reasonable best efforts to promptly make all required regulatory
filings and applications including, without limitation, responding promptly to
requests for further information and to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and parties to contracts with the Company and its subsidiaries as are necessary
for the consummation of the transactions contemplated by this Agreement and to
fulfill the conditions to the Offer and the Merger. In case at any time after
the Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall use their reasonable best efforts to take all such
necessary action.
(b) The Company and Parent each shall keep the other apprised
of the status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
their subsidiaries, from any Governmental Authority with respect to the Offer or
the Merger or any of the other transactions contemplated by this Agreement. The
parties hereto will consult and cooperate with one another, and consider in good
faith the views of one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto
<PAGE> 38
34
in connection with proceedings under or relating to the HSR Act or any other
antitrust law.
(c) Without limiting the generality of the undertakings
pursuant to this Section 6.10: (i) Parent agrees to, if necessary to prevent any
Governmental Authority from taking steps to obtain, or from issuing, any order,
injunction, decree, judgment or ruling or the taking of any other action
restraining, enjoining or otherwise prohibiting the Offer or the Merger, offer
to accept an order to divest (or enter into a consent decree or other agreement
giving effect thereto) such of the Company's or Parent's assets and business as
may be necessary to forestall such order, decree, ruling or action and to hold
separate such assets and business pending such divestiture, but only if the
amount of such assets and businesses would not be material (measured in relation
to the combined assets or revenues of the Company and its subsidiaries and
Parent's fluid technology business, taken as a whole); and (ii) the Company and
Parent each agree to contest and resist any action seeking to have imposed any
order, decree, judgment, injunction, ruling or other order (whether temporary,
preliminary or permanent) (an "Order") that would delay, restrain, enjoin or
otherwise prohibit consummation of the Offer or the Merger and in the event that
any such temporary or preliminary Order is entered in any proceeding that would
make consummation of the Offer or the Merger in accordance with the terms of
this Agreement unlawful or that would prevent or delay consummation of the Offer
or the Merger or the other transactions contemplated by this Agreement, to use
its reasonable best efforts to take promptly any and all steps (including the
appeal thereof, the posting of a bond or the taking of the steps contemplated by
clause (i) of this paragraph) necessary to vacate, modify or suspend such Order
so as to permit such consummation as promptly as practicable after the date
hereof.
SECTION 6.11 Public Announcements. Parent and the Company
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to the Offer or the Merger and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with its
securities exchange.
SECTION 6.12 Disposition of Litigation. The Company agrees
that it will not settle any litigation currently pending, or commenced after the
date hereof, against the Company or any of its directors by any stockholder of
the Company relating to the Offer or this Agreement, without the prior written
consent of Parent (which shall not be unreasonably withheld).
SECTION 6.13 Rights. The Company will promptly adopt a
Stockholder Rights Plan (the "Rights Plan") in the form delivered to Parent on
or prior to the date hereof. Immediately prior to the purchase of Shares
pursuant to the Offer, the Board
<PAGE> 39
35
of Directors of the Company shall take all necessary action to terminate all of
the outstanding Rights (as defined in the Rights Plan), effective immediately
prior thereto. The Company has taken, or prior to the adoption of such Rights
Plan, will take, all necessary action so that none of the execution of this
Agreement, the making of the Offer, the acquisition of Shares pursuant to the
Offer or the consummation of the Merger will (i) cause the Rights issued
pursuant to such Rights Plan to become exercisable, (ii) cause any person to
become an Acquiring Person (as defined in the Rights Plan) or (iii) give rise to
a Separation Time (as defined in the Rights Plan) or a Flip-In Date (as defined
in the Rights Plan). The Company will not amend the Rights Plan.
ARTICLE VII
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect
the Merger. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) If required by the DGCL, this Agreement shall have been
approved by the affirmative vote of the stockholders of the Company by
the requisite vote in accordance with the Company's Certificate of
Incorporation and the DGCL (which the Company has represented shall be
solely the affirmative vote of a majority of the outstanding Shares).
(b) No statute, rule, regulation, executive order, decree,
ruling, injunction or other order (whether temporary, preliminary or
permanent) shall have been enacted, entered, promulgated or enforced by
any United States, foreign, federal or state court or governmental
authority which prohibits, restrains, enjoins or restricts the
consummation of the Merger.
(c) Purchaser shall have purchased Shares pursuant to the
Offer.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and
the Merger contemplated hereby may be abandoned at any time prior to the
Effective Time, notwithstanding approval thereof by the stockholders of the
Company:
(a) By mutual written consent of Parent, Purchaser and the
Company;
<PAGE> 40
36
(b) By Parent or the Company if any court of competent
jurisdiction or other governmental body located or having jurisdiction
within the United States or any country or economic region in which
either the Company or Parent, directly or indirectly, has material
assets or operations, shall have issued a final order, injunction,
decree, judgment or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Offer or the Merger and such
order, injunction, decree, judgment, ruling or other action is or shall
have become final and nonappealable;
(c) By Parent (only following the Outside Date (as defined
below), in the case of clause (ii) below) if due to an occurrence or
circumstance which resulted in a failure to satisfy any of the Offer
Conditions, Purchaser shall have (i) terminated the Offer in accordance
with the terms of this Agreement or (ii) failed to pay for Shares
pursuant to the Offer on or prior to the Outside Date;
(d) By the Company (only following the Outside Date, in the
case of clause (ii)(B) below) if (i) there shall have been a material
breach of any covenant or agreement on the part of Parent or the
Purchaser contained in this Agreement which materially adversely
affects Parent's or Purchaser's ability to consummate (or materially
delays commencement or consummation of) the Offer, and which shall not
have been cured prior to the earlier of (A) 10 business days following
notice of such breach and (B) two business days prior to the date on
which the Offer expires, (ii) Purchaser shall have (A) terminated the
Offer or (B) failed to pay for Shares pursuant to the Offer on or prior
to the Outside Date (unless such failure is caused by or results from
the failure of any representation or warranty of the Company to be true
and correct in any material respect or the failure of the Company to
perform in any material respect any of its covenants or agreements
contained in this Agreement) or (iii) prior to the purchase of Shares
pursuant to the Offer, any person shall have made a bona fide offer to
acquire the Company (A) that the Board of Directors of the Company
determines in its good faith judgment is more favorable to the
Company's stockholders than the Offer and the Merger and (B) as a
result of which the Board of Directors determines in good faith, based
upon the advice of outside counsel, that it is obligated by its
fiduciary obligations under applicable law to terminate this Agreement,
provided that such termination under this clause (iii) shall not be
effective until the Company has made payment of the full fee and
expense reimbursement required by Section 8.3; or
(e) By Parent prior to the purchase of Shares pursuant to the
Offer, if (i) there shall have been a breach of any covenant or
agreement on the part of the Company contained in this Agreement which
is reasonably likely to have a
<PAGE> 41
37
Material Adverse Effect on the Company or which materially adversely
affects (or materially delays) the consummation of the Offer, which
shall not have been cured prior to the earlier of (A) 10 business days
following notice of such breach and (B) two business days prior to the
date on which the Offer expires, (ii) the Board shall have withdrawn or
modified (including by amendment of the Schedule 14D-9) in a manner
adverse to Purchaser its approval or recommendation of the Offer, this
Agreement or the Merger or shall have recommended another offer or
transaction, or shall have resolved to effect any of the foregoing, or
(iii) the Minimum Condition shall not have been satisfied by the
expiration date of the Offer as it may have been extended pursuant
hereto and on or prior to such date (A) any person (including the
Company but not including Parent or Purchaser) shall have made a public
announcement with respect to a Third Party Acquisition that
contemplates a direct or indirect consideration (or implicit valuation)
for Shares (including the value of any stub equity) in excess of the
per Share Merger Consideration or (B) any person (including the Company
or any of its affiliates or subsidiaries), other than Parent or any of
its affiliates shall have become (and remain at the time of
termination) the beneficial owner of 19.9% or more of the Shares
(unless such person shall have tendered and not withdrawn such person's
Shares pursuant to the Offer). As used herein, the "Outside Date" shall
mean the latest of (A) 70 days following the date hereof, (B) the date
that all conditions to the Offer set forth in paragraph (a) and (h) of
the Offer Conditions, the satisfaction of which involve compliance with
or otherwise relate to any United States antitrust or competition laws
or regulations (including any enforcement thereof), have been satisfied
for a period of 10 business days, or (C) 10 business days following the
conclusion of any ongoing proceedings before any foreign Governmental
Authority in connection with its review of the transactions
contemplated hereby pursuant to any foreign antitrust or competition
law or regulation; provided that in no event shall the Outside Date be
later than December 31, 1997.
SECTION 8.2 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto except as set forth in Section 8.3 and Section 9.1; provided, however,
that nothing herein shall relieve any party from liability for any wilful breach
hereof.
SECTION 8.3 Fees and Expenses.
(a) If:
(i) Parent terminates this Agreement pursuant to Section
8.1(e)(i) hereof, or if the Company terminates this
<PAGE> 42
38
Agreement pursuant to Section 8.1(d)(ii) hereof under circumstances
that would have permitted Parent to terminate this Agreement pursuant
to Section 8.1(e)(i) hereof, and within 15 months thereafter, the
Company enters into an agreement with respect to a Third Party
Acquisition, or a Third Party Acquisition occurs, involving any party
(or any affiliate or associate thereof) (x) with whom the Company (or
its agents) had any discussions with respect to a Third Party
Acquisition, (y) to whom the Company (or its agents) furnished
information with respect to or with a view to a Third Party Acquisition
or (z) who had submitted a proposal or expressed any interest publicly
or to the Company in a Third Party Acquisition, in the case of each of
clauses (x), (y) and (z) prior to such termination; or
(ii) Parent terminates this Agreement pursuant to Section
8.1(e)(i) hereof, or if the Company terminates this Agreement pursuant
to Section 8.1(d)(ii) hereof under circumstances that would have
permitted Parent to terminate this Agreement pursuant to Section
8.1(e)(i) hereof and within 15 months thereafter the Company enters
into an agreement with respect to a Third Party Acquisition that
contemplates a direct or indirect consideration (or implicit valuation)
for Shares (including the value of any stub equity) in excess of the
per Share Merger Consideration; or
(iii) (1) the Company terminates this Agreement pursuant to
8.1(d)(iii) or (2) the Company terminates this Agreement pursuant to
Section 8.1(d)(ii)(B) hereof and at such time Parent would have been
permitted to terminate this Agreement under Section 8.1(e)(ii) or (iii)
hereof or (3) Parent terminates this Agreement pursuant to Section
8.1(e)(ii) or (iii) hereof;
then the Company shall pay to Parent and Purchaser, within one business day
following the execution and delivery of such agreement or such occurrence, as
the case may be, or simultaneously with any termination contemplated by Section
8.3(a)(iii) above, a fee, in cash, of $22 million (less any amounts previously
paid pursuant to Section 8.3(b)), provided, however, that the Company in no
event shall be obligated to pay more than one such fee with respect to all such
agreements and occurrences and such termination.
"Third Party Acquisition" means the occurrence of any of the
following events: (i) the acquisition of the Company by merger or similar
business combination by any person other than Parent, Purchaser or any affiliate
thereof (a "Third Party"); (ii) the acquisition by a Third Party of 20.0% or
more of the assets of the Company and its subsidiaries, taken as a whole; or
(iii) the acquisition by a Third Party of 20.0% or more of the outstanding
Shares.
<PAGE> 43
39
(b) Upon the termination of this Agreement (i) under
circumstances in which Parent shall have been entitled to terminate this
Agreement pursuant to Section 8.1(e)(i) hereof (whether or not expressly
terminated on such basis) or (ii) if any of the representations and warranties
of the Company contained in this Agreement were untrue or incorrect in any
material respect when made and at the time of termination remained untrue or
incorrect in any material respect and such misrepresentation materially
adversely affected the consummation (or materially delayed commencement or
consummation) of the Offer, then the Company shall reimburse Parent, Purchaser
and their affiliates (not later than one business day after submission of
statements therefor) for all actual documented out-of-pocket fees and expenses
actually incurred by any of them or on their behalf in connection with the Offer
and the Merger and the consummation of all transactions contemplated by this
Agreement (including, without limitation, fees and disbursements payable to
financing sources, investment bankers, counsel to Purchaser or Parent or any of
the foregoing, and accountants) up to a maximum amount of $2 million; provided,
however, that in no circumstances shall any payment be made under this Section
8.3(b) after a payment has been made under Section 8.3(a). Unless required to be
paid earlier pursuant to Section 8.1(d), the Company shall in any event pay the
amount requested within one business day of such request, subject to the
Company's right to demand a return of any portion as to which invoices are not
received in due course after request by the Company.
(c) Upon the termination of this Agreement (i) under
circumstances in which the Company shall have been entitled to terminate this
Agreement pursuant to Section 8.1(d)(i) hereof (whether or not expressly
terminated on such basis) or (ii) if any of the representations and warranties
of Parent or Purchaser contained in this Agreement were untrue or incorrect in
any material respect when made and at the time of termination remained untrue or
incorrect in any material respect and such misrepresentation materially
adversely affected Parent's or Purchaser's ability to consummate (or materially
delayed commencement or consummation of) the Offer, then Parent shall reimburse
the Company and its affiliates (not later than one business day after submission
of statements therefor) for all actual documented out-of-pocket fees and
expenses actually incurred by any of them or on their behalf in connection with
the Offer and the Merger and the consummation of all transactions contemplated
by this Agreement (including, without limitation, fees and disbursements payable
to financing sources, investment bankers, counsel to the Company or any of the
foregoing, and accountants) up to a maximum amount of $2 million.
(d) Except as otherwise specifically provided herein, each
party shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby.
<PAGE> 44
40
SECTION 8.4 Amendment. Subject to Section 6.3, this Agreement
may be amended by the parties hereto by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Effective Time;
provided, however, that, after approval of the Merger by the stockholders of the
Company, no amendment may be made which would reduce the amount or change the
type of consideration into which each Share shall be converted upon consummation
of the Merger. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 8.5 Waiver. Subject to Section 6.3, at any time prior
to the Effective Time, any party hereto may (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid if set forth in an instrument in writing signed by the
party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that the agreements set
forth in Article II, Section 6.6, Section 6.7 and Article IX shall survive the
Effective Time and those set forth in Section 6.4, Section 8.3 and Article IX
shall survive termination of this Agreement.
SECTION 9.2 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, telecopy, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
if to Parent or Purchaser:
ITT Industries, Inc.
4 West Red Oak Lane
White Plains, NY 10604
Attention: Vincent A. Maffeo, Esq.
<PAGE> 45
41
with an additional copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: William E. Curbow, Esq.
if to the Company:
Goulds Pumps, Incorporated
300 Willow Brook Office Park
Fairport, NY 14450
Attention: Michael T. Tomaino, Esq.
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: James C. Morphy, Esq.
SECTION 9.3 Certain Definitions. For purposes of this
Agreement, the term:
(a) "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, the first mentioned person;
(b) "beneficial owner" with respect to any Shares means a
person who shall be deemed to be the beneficial owner of such Shares
(i) which such person or any of its affiliates or associates
beneficially owns, directly or indirectly, (ii) which such person or
any of its affiliates or associates (as such term is defined in Rule
12b-2 of the Exchange Act) has, directly or indirectly, (A) the right
to acquire (whether such right is exercisable immediately or subject
only to the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of consideration rights, exchange
rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding or (iii) which
are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or person with whom such
person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares;
(c) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction
of the management policies of
<PAGE> 46
42
a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "generally accepted accounting principles" shall mean the
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as may be approved by a
significant segment of the accounting profession in the United States,
in each case applied on a basis consistent with the manner in which the
audited financial statements for the fiscal year of the Company ended
December 31, 1994 were prepared;
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group
(as defined in Section 13(d)(3) of the Exchange Act); and
(f) "subsidiary" or "subsidiaries" of the Company, the
Surviving Corporation, Parent or any other person means any
corporation, partnership, joint venture or other legal entity of which
the Company, the Surviving Corporation, Parent or such other person, as
the case may be (either alone or through or together with any other
subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holder of which is generally entitled to
vote for the election of the board of directors or other governing body
of such corporation or other legal entity.
SECTION 9.4 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
SECTION 9.5 Entire Agreement; Assignment. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject matter
hereof. This Agreement shall not be assigned by operation of law or otherwise,
except that Parent and Purchaser may assign all or
<PAGE> 47
43
any of their respective rights and obligations hereunder to any direct or
indirect wholly owned subsidiary or subsidiaries of Parent, provided that no
such assignment shall relieve the assigning party of its obligations hereunder
if such assignee does not perform such obligations.
SECTION 9.6 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, except for the provisions of Section 6.7,
is intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 9.7 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
SECTION 9.8 Headings. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 9.9 Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE> 48
44
IN WITNESS WHEREOF, Parent, Purchaser and the Company have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
ITT INDUSTRIES, INC.
By:/s/ Lawrence J. Swire
--------------------------------
Title: Authorized Person
GEORGE ACQUISITION, INC.
By:/s/ Lawrence J. Swire
--------------------------------
Title: Vice President
GOULDS PUMPS, INCORPORATED
By:/s/ Thomas C. McDermott
--------------------------------
Title: Chairman, Chief Executive
Officer and President
<PAGE> 49
ANNEX A
Offer Conditions
The capitalized terms used in this Annex A have the meanings
set forth in the attached Agreement, except that the term "Merger Agreement"
shall be deemed to refer to the attached Agreement and the term "Commission"
shall be deemed to refer to the SEC.
Notwithstanding any other provision of the Offer, but subject
to the terms and conditions of the Merger Agreement, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for any Shares
tendered pursuant to the Offer, and may postpone the acceptance for payment or,
subject to the restriction referred to above, payment for any Shares tendered
pursuant to the Offer, and may amend or terminate the Offer (whether or not any
Shares have theretofore been purchased or paid for) to the extent permitted by
the Merger Agreement if, (i) at the expiration of the Offer, a number of shares
of Company Common Stock which, together with any Shares owned by Parent or
Purchaser, constitutes more than 50% of the voting power (determined on a
fully-diluted basis), on the date of purchase, of all the securities of the
Company entitled to vote generally in the election of directors or in a merger
shall not have been validly tendered and not properly withdrawn prior to the
expiration of the Offer, the ("Minimum Condition") or (ii) at any time on or
after the date of this Agreement and prior to the acceptance for payment of
Shares, any of the following conditions occurs or has occurred:
(a) there shall have been entered any order, preliminary or
permanent injunction, decree, judgment or ruling in any action or
proceeding before any court or governmental, administrative or
regulatory authority or agency, or any statute, rule or regulation
enacted, entered, enforced, promulgated, amended or issued that is
applicable to Parent, Purchaser, the Company or any subsidiary or
affiliate of Purchaser or the Company or the Offer or the Merger, by
any legislative body, court, government or governmental, administrative
or regulatory authority or agency that: (i) makes illegal or otherwise
directly or indirectly restrains or prohibits or makes materially more
costly the making of the Offer in accordance with the terms of the
Merger Agreement, the acceptance for payment of, or payment for, some
of or all the Shares by Purchaser or any of its affiliates or the
consummation of the Merger; (ii) prohibits the ownership or operation
by the Company or any of its subsidiaries, or Parent or any of its
subsidiaries, of all or any material portion of the business or assets
of the Company or any of its subsidiaries, taken as a whole, or
A-1
<PAGE> 50
Parent or its subsidiaries, taken as a whole, or (iii) materially
limits the ownership or operation by the Company or any of its
subsidiaries, or Parent or any of its subsidiaries, of all or any
material portion of the business or assets of the Company or any of its
subsidiaries, taken as a whole, or Parent or its subsidiaries, taken as
a whole (other than, in either case, assets or businesses of the
Company or its subsidiaries or Parent's fluid technology business that
are not material (measured in relation to the combined assets or
revenues of the Company and its subsidiaries and Parent's fluid
technology business, taken as a whole)) or compels Parent or any of its
subsidiaries to dispose of or hold separate all or any portion of the
businesses or assets of the Company or any of its subsidiaries or
Parent or any of its subsidiaries (other than, in either case, assets
or businesses of the Company or its subsidiaries or Parent's fluid
technology business that are not material (measured in relation to the
combined assets or revenues of the Company and its subsidiaries and
Parent's fluid technology business, taken as a whole)), as a result of
the transactions contemplated by the Offer or the Merger Agreement;
(iii) imposes limitations on the ability of Parent, Purchaser or any of
Parent's affiliates effectively to acquire or hold or to exercise full
rights of ownership of Shares, including without limitation the right
to vote any Shares acquired or owned by Parent or Purchaser or any of
its affiliates on all matters properly presented to the stockholders of
the Company, including without limitation the adoption and approval of
the Merger Agreement and the Merger or the right to vote any shares of
capital stock of any subsidiary directly or indirectly owned by the
Company; or (iv) requires divestiture by Parent or Purchaser or any of
their affiliates of any Shares;
(b) there shall have occurred any event that is reasonably
likely to have a Material Adverse Effect;
(c) there shall have occurred (i) any general suspension of
trading in, or limitation on prices (other than suspensions or
limitations triggered on the New York Stock Exchange by price
fluctuations on a trading day) for, securities on any national
securities exchange or in the over-the-counter market in the United
States, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, (iii) any material
limitation (whether or not mandatory) by any government or
governmental, administrative or regulatory authority or agency,
domestic or foreign, on, the extension of credit by banks or other
lending institutions, (iv) a commencement of a war or armed hostilities
or other national calamity directly involving the United States or
materially adversely affecting (or material delaying) the consummation
of the Offer or (v) in the case of any of the foregoing
A-2
<PAGE> 51
existing at the time of commencement of the Offer, a material
acceleration or worsening thereof;
(d) (i) it shall have been publicly disclosed or Purchaser
shall have otherwise learned that beneficial ownership (determined for
the purposes of this paragraph as set forth in Rule 13d-3 promulgated
under the Exchange Act) of more than 25.0% of the outstanding Shares
has been acquired by any corporation (including the Company or any of
its subsidiaries or affiliates), partnership, person or other entity or
group (as defined in Section 13(d)(3) of the Exchange Act), other than
Parent or any of its affiliates, or (ii) (A) the Board of Directors of
the Company or any committee thereof shall have withdrawn or modified
in a manner adverse to Parent or Purchaser the approval or
recommendation of the Offer, the Merger or the Merger Agreement, or
approved or recommended any takeover proposal or any other acquisition
of more than 5% of the outstanding Shares other than the Offer and the
Merger, (B) any such corporation, partnership, person or other entity
or group shall have entered into a definitive agreement or an agreement
in principle with the Company with respect to a tender offer or
exchange offer for any Shares or a merger, consolidation or other
business combination with or involving the Company or any of its
subsidiaries, or (C) the Board of Directors of the Company or any
committee thereof shall have resolved to do any of the foregoing;
(e) any of the representations and warranties of the Company
set forth in the Merger Agreement that are qualified by reference to a
Material Adverse Effect shall not be true and correct, or any such
representations and warranties that are not so qualified shall not be
true and correct in any respect that is reasonably likely to have a
Material Adverse Effect, in each case as if such representations and
warranties were made at the time of such determination;
(f) the Company shall have failed to perform in any material
respect any material obligation or to comply in any material respect
with any material agreement or material covenant of the Company to be
performed or complied with by it under the Merger Agreement;
(g) the Merger Agreement shall have been terminated in
accordance with its terms or the Offer shall have been terminated with
the consent of the Company; or
(h) any waiting periods under the HSR Act applicable to the
purchase of Shares pursuant to the Offer or the Merger, and any
applicable waiting periods under any foreign statutes or regulations,
shall not have expired or been terminated;
A-3
<PAGE> 52
which, in the reasonable judgment of Purchaser with respect to each and every
matter referred to above and regardless of the circumstances (except for any
action or inaction by Purchaser or any of its affiliates constituting a breach
of the Merger Agreement) giving rise to any such condition, makes it inadvisable
to proceed with the Offer or with such acceptance for payment of or payment for
Shares or to proceed with the Merger.
The foregoing conditions are for the sole benefit of Purchaser
and may be asserted by Purchaser regardless of the circumstances giving rise to
any such condition (except for any action or inaction by Purchaser or any of its
affiliates constituting a breach of the Merger Agreement) or (other than the
Minimum Condition) may be waived by Purchaser in whole or in part at any time
and from time to time in its sole discretion (subject to the terms of the Merger
Agreement). The failure by Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
A-4
<PAGE> 1
Exhibit 2
[LOGO] GOULDS PUMPS, INCORPORATED
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS, MAY 7, 1997
The accompanying proxy is solicited by the Board of Directors for use at
the Annual Meeting of Stockholders of Goulds Pumps, Incorporated (the
"Company"), 300 WillowBrook Office Park, Fairport, New York 14450-4285, to be
held at the time and place stated in the Notice of Meeting which accompanies
this Proxy Statement. Proxy materials are first being mailed on or about March
24, 1997. The shares represented by properly completed proxies received prior to
the vote will be voted FOR the election as Directors of the nominees named
herein and FOR ratifying the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the year ending December 31, 1997, unless
specific instructions to the contrary are given or an abstention from voting is
indicated by the stockholder. The proxy may be revoked at any time before it is
exercised.
On March 10, 1997, the record date, there were 21,376,093 shares of
Common Stock outstanding, each of which entitles the holder to one vote on each
matter to come before the meeting. One-third of the outstanding shares, present
in person or by proxy, will constitute a quorum at the meeting. Abstentions
and broker non-votes are counted for purposes of determining whether a quorum
is present. A plurality vote is required for the election of Directors.
Accordingly, abstentions and broker non-votes will not affect the outcome of the
election of Directors.
ELECTION OF DIRECTORS
Eight Directors, constituting the entire Board, are to be elected to
hold office until the next Annual Meeting of Stockholders and until their
successors are elected and qualified. The names of, and certain information
about, the persons nominated by the Board of Directors for election as Directors
follow. The Board of Directors believes that all of the nominees will be
available and able to serve as Directors, but if for any reason any nominee
becomes unavailable for election, the persons named in the proxies may exercise
discretionary authority to vote for substitutes proposed by the Board of
Directors. All eight of the nominees are presently serving as Directors of the
Company. Seven of the nominees were elected at the 1996 Annual Meeting and one
of the nominees, Mr. Jerry H. Ballengee, was elected a Director by the Board in
December of 1996.
<PAGE> 2
[LOGO]
March 24, 1997
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 1997
To the Stockholders of GOULDS PUMPS, INCORPORATED:
THE ANNUAL MEETING of the Stockholders of Goulds Pumps, Incorporated
will be held at the Holiday Inn, Seneca Falls, New York (1/4 mile north of the
intersection of NY 414 and US 20) on Wednesday, May 7, 1997, at ten o'clock a.m.
for the following items of business
1. Election of Directors;
2. Ratification of the appointment of Deloitte & Touche LLP as
independent auditors for 1997; and
3. Such other business as may properly come before the meeting or
any adjournment thereof.
These matters are described more fully in the attached Proxy Statement.
Stockholders of record at the close of business on March 10, 1997 are entitled
to notice of and to vote at the meeting.
By Order of the Board of Directors
MICHAEL T. TOMAINO
Secretary
------------------------------------------------------------------------------
| The Board of Directors will appreciate your marking, signing and returning |
| promptly the accompanying proxy card, no matter how large or how small |
| your holdings may be. |
------------------------------------------------------------------------------
<PAGE> 3
DIRECTORS
Jerry H. Ballengee..... (59) Mr. Ballengee, a Director since 1996, has been a
Director, and President and Chief Operating
Officer of Union Camp Corporation, Wayne, New
Jersey, a manufacturer of paper and paper
products, since 1994. From 1988 to 1994, he was a
Director and Executive Vice President of Union
Camp Corporation. He is a Director of United
Cities Gas Company.
William W. Goessel...... (69) Mr. Goessel, a Director since 1976, retired in
1993 from Harnischfeger Industries, Inc.,
Milwaukee, Wisconsin, a manufacturer of mining
equipment, material handling systems and paper
making machines and a designer and integrator of
automated material handling systems, where he had
been Chairman since 1992. From 1986 to 1992 he was
Chairman and Chief Executive Officer of
Harnischfeger Industries, Inc. He is a member of
the Human Resources Committee and the Committee on
Directors. He is a Director of Measurex
Corporation.
David P. Gruber........ (55) Mr. Gruber, a Director since 1995, has been a
Director, and President and Chief Executive
Officer of Wyman-Gordon Company, North Grafton,
Massachusetts, an aerospace and industrial
manufacturing company, since 1994. He was a
Director, and President and Chief Operating
Officer of Wyman-Gordon since 1991. He is a member
of the Audit Committee and the Committee on
Directors.
Melvin Howard.......... (62) Mr. Howard, a Director since 1984, has been
President of Sector Management, Inc., Westport,
Connecticut, an investment firm, since 1993. He
retired in 1990 from Xerox Corporation, Stamford,
Connecticut, where be had been Vice Chairman of
the Board from 1986 to 1990. He is a member of the
Audit and Pension Committees.
Barbara B. Lucas........ (51) Ms. Lucas, a Director since 1992, has been
Senior Vice President-Public Affairs and Corporate
Secretary of The Black & Decker Corporation,
Towson, Maryland, a global manufacturer and
marketer of power tools and home improvement
products, since 1996. From 1985 to 1996, she was
Vice President-Public Affairs and Corporate
Secretary of The Black & Decker Corporation. She
is a member of the Human Resources Committee and
the Committee on Directors. She is a Director of
Provident Bankshares Corporation.
Thomas C. McDermott..... (60) Mr. McDermott, a Director since 1988, has been
Chairman of the Board of Directors since 1995 and
Chief Executive Officer and President since 1994.
He retired in 1993 from Bausch & Lomb
Incorporated, Rochester, New York, a health care
and optics company, where he had been President
and Chief Operating Officer from 1986 to 1993. He
is a member of the Executive and Pension
Committees. He is a Director of A.T. Cross Company
and Thomas & Betts Corporation.
2
<PAGE> 4
James C. Miller III... (54) Mr. Miller, a Director since 1990, is counselor to
Citizens for a Sound Economy, Washington, D.C.,
and from 1989 to 1993 had served as Chairman of
that organization's Board of Directors. Since
1988, he has also been the John M. Olin
Distinguished Fellow at the Center for Study of
Public Choice at George Mason University, Fairfax,
Virginia. He is a member of the Pension Committee
and the Committee on Directors. He is a Director
of Atlantic Coast Airlines, Washington Mutual
Investors, Inc. and The Union Corporation.
Peter Oddleifson..... (64) Mr. Oddleifson, a Director since 1974, is a
partner in the law firm of Harris, Beach & Wilcox,
LLP, Rochester, New York, which firm has been and
is currently engaged in performing various legal
services for the Company. He is a member of the
Executive and Audit Committees. He is a Director
of Rochester Midland Corporation.
--------------------------------------------------------------------------
| The Board of Directors recommends a vote "FOR" the election as |
| Directors of the nominees listed above. |
--------------------------------------------------------------------------
DIRECTORS NOT STANDING FOR RE-ELECTION
Arthur M. Richardson... (70) Mr. Richardson, a Director since 1980, has been
President of Richardson Capital Corporation,
Rochester, New York, an investment enterprise,
since 1985. He is a member of the Executive, Human
Resources and Audit Committees. He is a director
of The Raymond Corporation, Rochester Gas &
Electric Corporation and Transmation, Inc. Mr.
Richardson is retiring from the Board of Directors
of the Company on May 7, 1997 and is therefore not
standing for re-election.
ADDITIONAL INFORMATION RELATING TO THE BOARD OF DIRECTORS
Non-employee Directors are paid an annual retainer of $20,000 per year.
In December of 1996, the Directors approved a plan whereby, beginning in 1997,
one-half of this annual retainer would be paid in Company stock until the
Director meets the Company's stock ownership goals for non-employee Directors,
which is five times the annual retainer amount. In addition, non-employee
Directors are paid $1,000 per day for attendance at Board meetings, $800 for
attendance at each committee meeting that is not held in conjunction with a
Board meeting and $400 for attendance at each committee meeting that is held in
conjunction with a Board meeting. Committee chairs are paid an additional
retainer of $2,800 per year. Employee directors do not receive any additional
remuneration for their services as Directors.
Each non-employee Director of the Company receives, on the first stock
trading day following each Annual Meeting of Stockholders, an option to
purchase 1,500 shares of the Company's Common Stock at the closing price per
share as reported on the NASDAQ on that date.
Non-employee Directors are participants in the Retirement Plan for
Non-Employee Directors, which became effective on June 21, 1994. A Director who
retires with a minimum of ten years of
3
<PAGE> 5
service is entitled to receive an annual retirement benefit equaling his or
her final annual retainer, for a term equal to the period of service. Plan
benefits vest 50% after five years of service and an additional 10% for each
year of service from six through ten.
The Board of Directors held five meetings during 1996. All of the
Directors attended more than 75% of the meetings of the Board and committees on
which they served in 1996.
AUDIT COMMITTEE AND COMMITTEE ON DIRECTORS
The Audit Committee recommends to the Board of Directors the
appointment of independent auditors, reviews the plan and results of the audit
performed by the auditors and the plan and scope of the Company's internal
audit procedures, approves professional services provided by the auditors,
considers the range of audit and non-audit fees, reviews the adequacy of the
Company's internal accounting controls and directs and supervises
investigations into these matters. The Audit Committee held two meetings during
1996.
The Committee on Directors recommends to the Board nominees for election
as Directors and considers the performance of incumbent Directors in
determining whether to nominate them to stand for re-election. The Committee on
Directors will consider nominees recommended by stockholders and has
established a procedure to consider such nominees. Under the procedure,
stockholders shall submit written recommendations of nominees for election to
the Board of Directors to the Secretary of the Company no later than December
10 preceding the next Annual Meeting of Stockholders at which the election is to
be held. Stockholder recommendations must be accompanied by the written consent
of the recommended person to serve if elected and his or her complete
biographical data, particularly with respect to business or other experience
bearing upon such person's qualifications. The Committee on Directors held one
meeting during 1996.
4
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 14, 1997, certain
information regarding stock ownership by beneficial owners of more than five
percent of the Company's Common Stock (based on reports filed by them with the
Securities and Exchange Commission (SEC)) and, as of March 10, 1997, by
Directors and the executive officers listed in the Summary Compensation Table on
page 13, and by all Directors and executive officers as a group, each of whom
has sole voting and investment power, except as indicated.
<TABLE>
<CAPTION>
PERCENT OF
NAME NO. OF SHARES CLASS
---- ------------- -----
<S> <C> <C>
Mario J. Gabelli .......................................................... 3,464,432(1) 16.2%
c/o Gabelli Funds, Inc.
One Corporate Center
Rye, New York
The State Teachers Retirement Board of Ohio ............................... 1,688,200(2) 7.9%
275 Broad Street
Columbus, Ohio
Jerry H. Ballengee ........................................................ -- *
William W. Goessel ........................................................ 13,304(3) *
David P. Gruber ........................................................... 2,935(4) *
Melvin Howard ............................................................. 13,881(5) *
Barbara B. Lucas .......................................................... 8,536(6) *
Thomas C. McDermott ....................................................... 107,907(7) *
James C. Miller III ....................................................... 14,138(8) *
Peter Oddleifson .......................................................... 14,228(9) *
Arthur M. Richardson ...................................................... 12,866(10) *
Eric L. Steenburgh ........................................................ 7,885(11) *
Frank J. Zonarich ......................................................... 58,998(12) *
John P. Murphy ............................................................ 26,785(13) *
Michael T. Tomaino ........................................................ 5,412(14) *
John J. Scanlon ........................................................... 29,739(15) *
All Directors and Executive Officers (18 persons) ......................... 347,538(16) 1.6%
</TABLE>
- ----------
(1) Sole voting power with respect to 3,326,832 shares and sole dispositive
power with respect to 3,464,432 shares.
(2) Sole voting power and sole dispositive power with respect to 1,688,200
shares.
(3) Includes exercisable options to purchase 11,281 shares.
(4) Includes exercisable options to purchase 1,500 shares.
(5) Includes exercisable options to purchase 11,281 shares.
(6) Includes exercisable options to purchase 6,986 shares.
(7) Sole voting power only with respect to 10,000 shares. Includes
exercisable options to purchase 90,648 shares.
(8) Includes exercisable options to purchase 9,637 shares.
(9) Includes exercisable options to purchase 11,281 shares.
(10) Includes exercisable options to purchase 11,281 shares. Not standing
for re-election as a Director.
(11) Includes exercisable options to purchase 6,850 shares.
(12) Includes exercisable options to purchase 53,277 shares. Resigned,
December, 1996.
(13) Includes exercisable options to purchase 24,473 shares.
(14) Includes exercisable options to purchase 2,600 shares.
(15) Includes exercisable options to purchase 27,190 shares.
(16) Includes exercisable options to purchase 288,591 shares.
* Less than 1.0% of outstanding shares.
5
<PAGE> 7
HUMAN RESOURCES COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Board of Directors' Human Resources Committee (the "Committee")
provides the following information about its charter, executive compensation
philosophy and program, and 1996 compensation-related decisions.
The Human Resources Committee is responsible for all compensation-
related decisions of the Company. As such, it approves the design of, assesses
the effectiveness of, and administers the executive compensation program and
certain benefit plans. The Committee administers the 1988 Stock Incentive Plan,
the 1994 Incentive Plan to Increase Stockholder Value and the Executive
Incentive Plan, and in this capacity it approves all stock option grants or cash
bonus awards to officers and other executives including executives named in the
Summary Compensation Table found on page 13 (the "named executives"). The
Committee also reviews and approves all executive salary arrangements and other
remuneration, evaluates executive performance, and considers related matters.
The Committee, which consists of three non-employee Directors, met ten (10)
times during 1996.
THE OBJECTIVES OF THE EXECUTIVE COMPENSATION PROGRAM
The Committee is committed to implementing an executive compensation
program which supports the Company's mission and facilitates the achievement of
the Company's business strategies.
It is the intent that:
(1) the executive total compensation program should strengthen the
relationship between pay and performance by emphasizing variable, at-risk
compensation that is dependent upon the achievement of specified Company and
individual performance goals;
(2) some of the at-risk components of pay should be equity-based to
encourage a close identification with the Company and align executives'
interests with those of stockholders; and
(3) the executive compensation program should enhance the Company's
ability to attract, retain, and encourage the development of exceptionally
knowledgeable and experienced executives upon whom, in large part, the
successful operation and management of the Company depends.
OVERVIEW OF EXECUTIVE COMPENSATION PLANS AND 1996 COMMITTEE ACTIONS
The Committee evaluates the Company's financial performance and
executive compensation plans annually in the context of publicly traded
comparator companies consisting of pump industry competitors and a broader group
of major durable goods manufacturers. Total annual cash payments (base salary
plus annual cash bonuses) reflect Company financial performance, business unit
financial performance, and individual executive performance against previously
established goals and objec-
6
<PAGE> 8
tives. In 1996, the Committee decided to reduce targeted total cash compensation
from the 60th to the 50th percentile of the total cash compensation of the
comparator companies adjusted for size. This change reflects, in part, the
Committee's desire that a larger percentage of the total compensation package be
comprised of Company stock and other non-cash performance-based components.
The number of companies in the comparator group used for compensation
purposes is larger than the number of companies which comprise the industry peer
group index in the Performance Graph included in this Proxy Statement on pages
11 and 12. The Committee believes that the Company's competitors for executive
talent are greater in number than the companies included in the industry peer
group.
The key elements of the Company's executive compensation program are
base salary; annual cash bonuses, stock options and restricted stock grants
vesting upon achievement of long-term Company performance goals. These are
addressed separately below. In determining each element of compensation, the
Committee considers all components of compensation, including retirement plans,
insurance and other benefits.
The Base Salary structure is regularly reviewed by the Committee. The
target for salary range midpoints is the 50th percentile of comparator
companies. The base salary range midpoints are designed to recognize varying
levels of responsibility, experience and breadth of knowledge required, and
internal equity. The comparator companies are surveyed periodically to determine
specific compensation levels for similar executive positions. Such a review was
conducted in 1996 and base salary range midpoints were adjusted accordingly.
The Committee reviewed executive base salaries in 1996 and increases
were awarded or withheld based on Company financial performance in general,
individual executive performance and the comparator companies' compensation
levels. The salaries remain within the defined salary ranges and the named
executives' base pay generally falls within five percentage points of the 50th
percentile of the comparator company salary data.
The Executive Incentive Plan ("EIP"), which provides for annual cash
bonuses based on Company, business unit and individual performance, promotes the
Company's pay-for-performance philosophy. The annual bonus opportunity allows
the Company to communicate specific goals that are of primary importance during
the coming year and to motivate executives to achieve these goals.
The EIP cash bonus opportunity is a percentage of base salary that
increases with level of responsibility, thereby increasing the portion of
compensation at risk. Annual cash bonus opportunities at target are designed to
be slightly higher than the 50th percentile of comparator companies in order to
reflect the Committee's intention to place a greater percentage of executive
compensation at risk.
For 1996, the Company financial performance used to determine EIP
payouts for corporate staff was based on earnings per share (50%), sales (30%)
and return on assets (20%). The Committee
7
<PAGE> 9
believes these performance measures are contributing determinants of stock price
over time. The business units' performance used to determine EIP payouts was
based on sales, operating earnings, gross margin, inventory turns, and meeting
quarterly performance objectives. All of the named executives have a minimum of
25% of their award tied to Company financial performance to reinforce the need
for teamwork and to focus attention on overall Company objectives. The named
executives who are heads of business units also have a majority of their award
linked to business unit financial performance.
Target cash bonus opportunities for the named executives range from
35% to 60% of base salary: Depending on performance results, the EIP cash
bonus can vary from 50% to 150% of target cash bonus opportunity. A minimum
threshold of Company or business unit financial performance must be achieved for
any portion of the EIP payout to occur. In general, performance in 1996 was
above target goals and, accordingly, bonus payments were above target payment
levels.
Including the named executives, there are approximately 110 key
managers who participated in the EIP in 1996. Receipt of cash incentive awards
under the EIP may be deferred to a subsequent date or retirement.
The 1988 Stock Incentive Plan, approved by stockholders in 1988, and
the 1994 Incentive Plan to Increase Stockholder Value, approved by stockholders
in 1994, are in keeping with the Company's commitment to provide total
compensation which favors at-risk components of pay and closely links the
interests of management with those of stockholders. These are the Company's only
long-term incentive vehicles and they are designed to provide competitive
long-term incentive compensation opportunities, to tie executive long-term
financial gain to increases in the Company's stock price, and to increase
Company stock ownership among key managers.
Stock options are normally granted annually based on an assessment of
the performance and potential of executives, past grants made to executives, and
current Company stock holdings of the executives. The stock option program
targets its awards at the 60th percentile of similar awards at comparator
companies. Stock options are granted at an option price not less than the fair
market value of the Common Stock on the date of grant and will have value only
if the stock price appreciates from the date the options are granted. The stock
option grants vest at 25% per year for four years to aid in the retention of
executives and key managers. The named executives will next be considered for an
option award in June 1997. The Option Grants in Last Fiscal Year table on page
14 gives a summary of stock options granted in 1996 to the named executives
under the 1988 Stock Incentive Plan and the 1994 Incentive Plan to Increase
Stockholder Value.
Under the 1994 Incentive Plan to Increase Stockholder Value,
performance-based restricted stock awards were made in 1995 to key executives
subject to the Company's ability to achieve pre-established levels of Company
performance over a three-year period. The value of the awards will
8
<PAGE> 10
vary based on the degree to which Company Earnings Per Share ("EPS") goals are
attained over the three-year cycle. The EPS goal is reflective of stockholder
value creation. All earned awards are paid in Company stock. During the
performance period, dividends on the performance-based shares are paid in stock.
The stock paid as a result of the performance achievement, and that paid as
dividends, must be held by the executive until termination from the Company,
further aligning executives' interests with those of stockholders.
In determining the size of performance-based share awards, the
Committee considers existing stock option grants, Competitive practices, and the
level of responsibility of each executive. Grant sizes were at competitive
levels in comparison to similar programs at the comparator companies.
COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The CEO's compensation package is consistent with the spirit and
objectives of the Company's executive compensation program.
Mr. McDermott's base salary was increased $40,000 to $540,000 and his
EIP target cash bonus opportunity was increased five percentage points to 60% of
base salary effective January 1, 1996. His actual bonus payment was greater than
the target cash bonus opportunity because the Company financial performance in
1996 exceeded target goals.
The stock option grants given to Mr. McDermott in June 1996 are
disclosed in the table on page 14. The grant made in 1996 is within competitive
norms for the CEO position and at the medium level in comparison to the
comparator companies.
Under the 1994 Incentive Plan to Increase Stockholder Value, Mr.
McDermott received a performance-based restricted stock award in 1995 subject to
the Company's ability to achieve pre-established levels of Company performance
over a three-year period. The value of his award will vary based on the degree
to which Company EPS goals are attained over the three-year cycle. The EPS goal
is reflective of stockholder value creation. All earned awards are paid in
Company stock. During the performance period, dividends on the performance-based
shares are paid in stock, further aligning Mr. McDermott's interests with those
of stockholders.
Effective July 1, 1996 the Company entered into an agreement with Mr.
McDermott to secure his strong leadership of the Company for at least the next
five years. The material details of this agreement are set forth on page 12 of
this Proxy Statement. Under the agreement Mr. McDermott was granted 10,000
shares of restricted common stock of the Company, pursuant to the 1994 Incentive
Plan to Increase Stockholder Value, as of July 1, 1996. The restrictions on
these shares lapse three years after the date of grant. This restricted stock
grant, and the other terms of the agreement, are within competitive norms for
the CEO position in comparison to the comparator companies.
9
<PAGE> 11
COMPANY RESPONSE TO POTENTIAL LIMITS TO DEDUCTIBILITY OF EXECUTIVE PAY
Due to the minimal 1996 impact of any employee income in excess of the
annual one million dollar limit for deductibility under Section 162(m) of the
Internal Revenue Code of 1986 as amended (the "Code"), the Committee has
determined that it is not in the Company's current interest to undertake the
substantial revisions to compensation programs that would be necessary to
respond to the Code. The Committee will continue to evaluate the advisability of
changing its compensation programs in this respect in future years.
SUMMARY
The Committee believes the executive compensation program, through the
Committee's administration of the component plans and structures, continues to
ensure the Company's ability to attract, retain, and motivate the executive
resources required to enhance stockholder value. The Committee's competitive
base pay philosophy facilitates the employment and retention of talented
executives. The emphasis on variable pay and the tie to both short- and
long-term financial results and stock performance directly links compensation to
critical measures of Company performance. We believe these elements, in
combination, further the best interests of the Company's stockholders.
Respectfully submitted,
The Human Resources Committee
Arthur M. Richardson, Chairman
William W. Goessel
Barbara B. Lucas
10
<PAGE> 12
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
VS. S&P 500 AND PEER GROUP INDICES
The following performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
DECEMBER 1991 THROUGH DECEMBER 1996
[GRAPH]
Assumes $100 is invested on December 31, 1991 in Goulds Pumps, Incorporated
common stock, the S&P 500 Index and peer group common stock. Cumulative total
return assumes reinvestment of dividends.
<TABLE>
<CAPTION>
FORTUNE
INDUSTRIAL &
FARM EQUIPMENT
INDUSTRY--
DATE GOULDS PUMPS PEER GROUP S&P 500
<S> <C> <C> <C>
December 1991 ......... $100.00 $100.00 $100.00
December 1992 ......... $109.45 $108.82 $107.61
December 1993 ......... $114.23 $152.44 $118.41
December 1994 ......... $102.97 $153.53 $120.01
December 1995 ......... $122.12 $195.82 $164.95
December 1996 ......... $115.98 $244.14 $202.73
</TABLE>
11
<PAGE> 13
FORTUNE INDUSTRIAL AND FARM EQUIPMENT COMPANIES(1)(3)
<TABLE>
<CAPTION>
<S> <C> <C>
Caterpillar Inc. York International Corporation Tecumseh Products Company
Deere & Company Baker Hughes Incorporated Cincinnati Milacron Inc.
Ingersoll-Hand Company Harnischfeger Industries, Inc. Briggs & Stratton Corporation
The Black & Decker Corporation The Timken Company Stewart & Stevenson Services Inc.
Cummings Engine Company, Inc. Western Atlas International Inc. The Lincoln Electric Company
American Standard Cos.(2) NACCO Industries, Inc. Terex Corporation
Case Corporation (2) ACCO Corporation Kennametal Inc.
Dover Corporation Detroit Diesel Corporation The Toro Company
Parker-Hannifin Corporation TRINOVA Corporation Teleflex Incorporated
Crane Co.
</TABLE>
- ---------------
(1) Ranked by sales size.
(2) New to peer group list.
(3) Removed from prior year peer group list by virtue of no longer being
included in the Fortune Industrial and Farm Equipment Companies
published list:
Pentair, Inc.
Outboard Marine Corporation
Actava Group, Inc.
IMO Industries Inc.
Figgie International, Inc.
EMPLOYMENT AGREEMENTS AND POLICIES
In December of 1996, Mr. Frank J. Zonarich, who is identified on the
Summary Compensation Table on page 13, resigned. In connection with his
resignation, he will receive the compensation indicated on the Summary
Compensation Table.
Effective July 1, 1996, Thomas C. McDermott entered into an employment
agreement with the Company (the "Agreement") for services to be rendered through
June 30, 2001. The Agreement provides that Mr. McDermott will serve as Chairman,
Chief Executive Officer and President during the first three years of the
Agreement and as Chairman for the remaining two years.
The other principal provisions of the Agreement specify an annual salary
of $540,000 with yearly salary reviews by the Board of Directors; an annual
incentive award opportunity under the Executive Incentive Plan of 60% of base
salary; and an annual award of 10,000 Restricted Shares of Common Stock of the
Company, on which the restrictions lapse three years from the grant date. Stock
options will be granted by the Board each year commensurate with performance and
position under existing and/or future stock incentive plans of the Company.
The Company has outstanding agreements with the other named executives
listed in the Summary Compensation Table on page 13, which provide that the
named executives will not, in the event of the commencement of steps to effect a
Change-of-Control (defined generally as acquisition of 20% or more of the
outstanding voting shares or a change in a majority of the Board of Directors),
voluntarily leave the employ of the Company until a third person has terminated
efforts to effect a Change-of-Control or until three months after a
Change-of-Control has occurred.
In the event of a qualifying termination of the named executive's
employment within three years of a Change-of-Control, he or she is entitled to
three years' compensation including bonus, retirement
12
<PAGE> 14
benefits equal to the benefits he or she would have received had he or she
completed three additional years of employment, continuation of all life,
accident, health, savings and other fringe benefit plans for three years, and
relocation assistance. In addition, these named executives are covered by a
non-Change-of-Control severance policy equal to one year's base salary.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ -----------------------------------
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING LITP OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(a) COMPENSATIONS AWARDS(b) OPTIONS(a) PAYOUTS COMPENSATION
- ------------------------- ---- ------ ---------- ------------- --------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas C. McDermott 1996 $540,000 $425,200 $ -- $251,250(c) 52,100 $ -- $ 6,072(d)
Chairman, CEO & President 1995 500,000 227,000 -- -- 111,600 -- 7,018
1994(e) 255,769 140,672 -- -- 76,500 -- 205,254
Eric I. Steenburgh 1996 306,250 166,800 33,047(f) -- 25,000 -- 221,060(g)
Senior Vice President and 1995(h) 84,231 21,000 -- -- 27,400 -- --
President-Industrial Products
Frank J. Zonarich 1996 247,000 100,000 -- -- 17,100 -- 248,812(i)
resigned December, 1996 1995 239,417 86,500 -- -- 28,500 -- 1,812
Vice President 1994 227,350 67,627 -- -- 14,915 -- 2,332
John P. Murphy 1996 209,167 108,800 -- -- 17,000 -- 2,302(j)
Vice President-Finance and 1995 191,458 55,000 -- -- 26,100 -- 2,302
Chief Financial Officer 1994 183,125 50,100 -- -- 12,663 -- 3,701
Michael T. Tomaino 1996 184,167 82,300 -- -- 10,700 -- 523(k)
Vice President, General 1995(l) 88,154 31,000 -- -- 10,400 -- --
Counsel and Secretary
John J. Scanlon 1996 162,917 61,700 -- -- 7,900 -- 2,893(m)
Vice President-Worldwide 1995 147,533 40,000 -- -- 12,400 -- 2,893
Commercial Strategies
and President-Asia Pacific
</TABLE>
- -------------
(a) Includes amounts paid or deferred in the year following for services
rendered in the year indicated.
(b) Restricted Performance Shares outstanding, valued as of 12-31-96, are: Mr.
McDermott, 9,524 shares valued at $216,457; Mr. Steenburgh, 4,355 shares
valued at $99,893; Mr. Murphy, 2,857 shares valued at $65,532; Mr. Tomaino,
2,743 shares valued at $62,918; Mr. Scanlon, 2,438 shares valued at
$55,992.
(c) The restricted stock award reported in this column for Mr. McDermott was
granted on 07-01-96 at a share price of 25.125. Dividends are paid to all
holders of restricted stock.
(d) Includes premiums paid on the executive's behalf for a life insurance policy
provided by the Executive Security Plan--$6,072.
(e) Hired 06-94.
(f) Relocation expense tax gross-up: a one time reimbursement.
(g) Includes premiums paid on the executive's behalf for Basic Term Life
Insurance--$1,121; relocation expense reimbursement--$219,939.
(h) Hired 09-95.
(i) Includes premiums paid on the executive's behalf for a life insurance policy
provided by the Executive Security Plan--$1,812; transitional and consulting
payments in connection with Mr. Zonarich's resignation--$247,000.
(j) Includes premiums paid on the executive's behalf for a life insurance
policy provided by the Executive Security Plan--$2,302.
(k) Includes premiums paid on the executive's behalf for Basic Term Life
Insurance--$523.
(l) Hired 07-95.
(m) Includes premiums paid on the executive's behalf for a life insurance
policy provided by the Executive Security Plan--$2,893.
13
<PAGE> 15
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS GRANT
SECURITIES GRANTED TO EXERCISE DATE
UNDERLYING EMPLOYEES PRICE EXPIRATION PRESENT
NAME OPTIONS GRANTED IN FISCAL YEAR PER SHARE($) DATE VALUE($)(a)
---- --------------- -------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Thomas C. McDermott...... 82,100 21.36% 25.250 Jun 21, 2006 468,791
Eric L. Steenburgh....... 25,000 6.50% 25.250 Jun 21, 2006 142,750
Frank J. Zonarich........ 17,100 4.45% 25.250 Jun 21, 2006 97,641
John P. Murphy........... 17,000 4.42% 25.250 Jun 21, 2006 97,070
Michael T. Tomaino....... 10,700 2.78% 25.250 Jun 21, 2006 61,097
John J. Scanlon.......... 7,900 2.06% 25.250 Jun 21, 2006 45,109
</TABLE>
- ----------
(a) Black-Scholes Assumption Disclosure:
The estimated grant date present value reflected in the above table is
determined using the Black-Scholes Model. The material assumptions and
adjustments incorporated in the Black-Scholes Model in estimating the value
of the options reflected in the above table include the following:
* An exercise price on the options of $25.25 equal to the fair market value
of the underlying stock on the date of grant;
* An interest rate (6.9%) that represents the interest rate on a U.S.
Treasury security with a maturity date corresponding to that of the
option term;
* Volatility factor of .227 calculated using daily stock prices for the
one-year period prior to the grant date;
* Dividends at the rate of $.80 per share representing the annualized
dividends paid with respect to a share of common stock as of this date
of grant;
* Reduction of approximately 9.6% to reflect the probability of forfeiture
due to termination prior to vesting, and approximately 16.9% to reflect
the probability of a shortened option term due to termination of
employment prior to the option expiration date;
* An option term of ten years.
The ultimate values of the options will depend on the future market price
of Goulds Pumps' stock, which cannot be forecast with reasonable accuracy. The
actual value, if any, an optionee will realize upon exercise of an option will
depend on the excess of the market value of the Company's common stock on the
date the option is exercised over the exercise price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS HELD
SHARES AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED VALUE --------------------------------- ---------------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
---- ----------- ----------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Thomas C. McDermott...... 0 0 71,598 203,300 136,849 210,431
Eric L. Steenburgh....... 0 0 6,850 45,550 0 0
Frank J. Zonarich........ 0 0 40,926 49,679 10,148 30,445
John P. Murphy........... 0 0 16,607 44,156 9,677 29,030
Michael T. Tomaino....... 0 0 2,600 18,500 3,250 9,750
John J. Scanlon.......... 0 0 23,166 20,065 50,619 13,266
</TABLE>
14
<PAGE> 16
PENSION PLAN TABLE (1)
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------------------------
FINAL AVERAGE
COMPENSATION(2) 5 10 15 20 25 30 35
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$200,000 .......... $ 20,000 $ 40,000 $ 60,000 $ 80,000 $100,000 $110,000 $120,000
$300,000 .......... $ 30,000 $ 60,000 $ 90,000 $120,000 $150,000 $165,000 $180,000
$400,000 .......... $ 40,000 $ 80,000 $120,000 $160,000 $200,000 $220,000 $240,000
$500,000 .......... $ 50,000 $100,000 $150,000 $200,000 $250,000 $275,000 $300,000
$600,000 .......... $ 60,000 $120,000 $180,000 $240,000 $300,000 $330,000 $360,000
$700,000 .......... $ 70,000 $140,000 $210,000 $280,000 $350,000 $385,000 $420,000
$800,000 .......... $ 80,000 $160,000 $240,000 $320,000 $400,000 $440,000 $480,000
$900,000 .......... $ 90,000 $180,000 $270,000 $360,000 $450,000 $495,000 $540,000
$1,000,000 ........ $100,000 $200,000 $300,000 $400,000 $500,000 $550,000 $600,000
$1,100,000 ........ $110,000 $220,000 $330,000 $440,000 $550,000 $605,000 $660,000
$1,200,000 ........ $120,000 $240,000 $360,000 $480,000 $600,000 $660,000 $720,000
</TABLE>
- -------------
(1) Estimated annual pension plan benefits shown are prior to adjustment for
Social Security benefits.
(2) Final Average Compensation is the sum of salary and bonus from the Summary
Compensation Table.
The Company maintains a Pension Plan and a Supplemental Executive
Pension Plan in which all of the officers named in the Summary Compensation
Table on page 13 are participants. Taken together, the two plans provide
participants with monthly retirement benefit based on the participant's final
average compensation and years of service. The monthly benefit is reduced by
one-half the participant's primary Social Security benefit amount. The chart
above shows the estimated benefit (stated in annual amounts) payable (prior to
reduction for Social Security) beginning at age 62 for the years of credited
service and final average compensation amounts shown.
Years of Credited Service used in determining benefits for the named
executives are as follows through December 31, 1996:
Mr. McDermott, 2.5 years; Mr. Steenburgh, 1.3 years; Mr. Zonarich, 26.8;
Mr. Murphy, 3.3 years; Mr. Tomaino, 1.4 years; Mr. Scanlon, 37.8 years.
Benefits are computed at straight-life annuity amounts, which may be paid in
various forms.
15
<PAGE> 17
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has recommended that the appointment of Deloitte
& Touche LLP as independent auditors for the year ending December 31, 1997 be
ratified by the stockholders. Deloitte & Touche LLP and their predecessors have
served as auditors of the Company since 1908. Representatives of Deloitte &
Touche LLP are expected to be present at the Annual Meeting and will have an
opportunity to make a statement, if they so desire, and are expected to be
available to respond to appropriate questions.
- --------------------------------------------------------------------------------
| The Board of Directors recommends a vote "FOR" the ratification of |
| the appointment of auditors. |
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
All proposals by stockholders intended to be presented at the next
Annual Meeting of Stockholders must be received by the Company by November 25,
1997 in order to be considered for inclusion in the Company's Proxy Statement
for the 1998 Annual Meeting.
OTHER MATTERS AND SOLICITATION OF PROXIES
The Board of Directors does not know of any matters other than those
discussed herein which will be presented at the meeting. However, if any matters
properly come before the meeting, the person or persons voting the enclosed
proxy form will vote on them in accordance with their best judgment.
All costs of soliciting proxies will be borne by the Company. In
addition to soliciting proxies by use of the mails, some of the officers and
regular employees of the Company (without extra compensation) may solicit
proxies personally and by telephone and telefax. In addition, the Company will
reimburse the reasonable expenses incurred by banks and brokers who hold shares
in their names or in custody, or in the names of nominees for others, in
forwarding copies of the proxy material to those persons for whom they hold such
shares. The Company will pay the firm of D.F King & Co., Inc a fee of $7,000
plus expenses for soliciting proxies.
By Order of the Board of Directors
MICHAEL T. TOMAINO
Secretary
Fairport, New York
March 24, 1997
A copy of the annual report of the Company on Form 10-K for its most
recent fiscal year, as filed with the Securities and Exchange Commission, will
be furnished without charge to stockholders upon request addressed to Michael T.
Tomaino, Secretary, Goulds Pumps, Incorporated, 300 WillowBrook Office Park,
Fairport, New York 14450-4285.
16
<PAGE> 1
Exhibit 3
[GOLDMAN, SACHS & CO. LETTERHEAD]
PERSONAL AND CONFIDENTIAL
- -------------------------------------------------------------------------------
April 20, 1997
Board of Directors
Goulds Pumps, Incorporated
300 WillowBrook Office Park
Fairport, New York 14450-4285
Ladies and Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $1.00 per share (the "Shares"),
of Goulds Pumps, Incorporated (the "Company"), other than Shares owned by ITT
or George (as defined below), of the $37.00 per Share in cash proposed to be
paid by ITT or George in the Tender Offer and the Merger (as defined below)
pursuant to the Agreement and Plan of Merger dated as of April 20, 1997 among
ITT Industries, Inc. ("ITT"), George Acquisition, Inc. ("George"), a wholly-
owned subsidiary of ITT, and the Company (the "Agreement").
The Agreement provides for a tender offer for all of the Shares (the "Tender
Offer") pursuant to which George will pay $37.00 per Share in cash for each
Share accepted. The Agreement further provides that following completion of the
Tender Offer, George will be merged with and into the Company (the "Merger")
and each outstanding Share (other than Shares already owned by ITT or George
and Dissenting Shares (as defined in the Agreement)) will be converted into the
right to receive $37.00 in cash.
Goldman, Sachs & Co. ("Goldman Sachs"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. We are familiar with the Company having acted as its
financial advisor with respect to the acquisition of Pumpenfabrik Ernst Vogel
GmbH in 1994 and having acted as its financial advisor in connection with, and
having participated in certain of the negotiations leading to, the Agreement.
Goldman Sachs is a full service securities firm and, in the course of normal
trading activities, may from time to time effect transactions and hold
positions in the securities of the Company or ITT for its own account or for
the accounts of customers. As of April 17, 1997, Goldman Sachs, for its own
account, had a long position of 725 Shares of the Company, a long position of
7,780 shares of Common Stock of ITT, and a $3,500,000 long position in a 7.40%
corporate bond of ITT.
<PAGE> 2
Goulds Pumps, Incorporated
April 20, 1997
Page Two
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1996; certain interim reports
to stockholders and Quarterly Reports on Form 10-Q; certain other communications
from the Company to its stockholders; and certain internal financial analyses
and forecasts for the Company prepared by its management. We also have held
discussions with members of the senior management of the Company regarding its
past and current business operations, financial condition and future prospects.
In addition, we have reviewed the reported price and trading activity for the
Shares, compared certain financial and stock market information for the Company
with similar information for certain other companies the securities of which
are publicly traded, reviewed the financial terms of certain recent business
combinations and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us, and assumed such accuracy and completeness,
for purposes of rendering this opinion. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the Company
or any of its subsidiaries and we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed
herein are provided for the information and assistance of the Board of
Directors of the Company in connection with its consideration of the
transactions contemplated by the Agreement.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the $37.00 in
cash to be received by the holders of Shares, other than Shares owned by ITT or
George, in the Tender Offer and the Merger is fair to such holders.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ---------------------------------
(GOLDMAN, SACHS & CO.)
<PAGE> 1
Exhibit 4
GOULDS PUMPS, INCORPORATED
EXECUTIVE CHANGE OF CONTROL AGREEMENT
AGREEMENT between Goulds Pumps, Incorporated, a Delaware business
corporation (the "Corporation") and <<Name>> (the "Executive"):
WHEREAS, the Human Resources Committee (the "Committee") of the Board
of Directors (the "Board") of the Corporation has recommended, and the Board has
approved, the Corporation entering into Change of Control agreements with key
executives of the Corporation and its subsidiaries; and
WHEREAS, the Executive is a key executive of the Corporation or one of
its Subsidiaries and has been selected by the Board to be provided the benefits
stated herein, subject to the terms and conditions hereof; and
WHEREAS, should any third person pursue possible business combination
with, or acquisition of control of, the Corporation, the Board believes it
imperative that the Corporation and the Board be able to rely upon the Executive
to continue in his position, and that the Corporation be able to receive and
rely upon the Executive's advice, if it requests it, as to the best interests of
the Corporation and its stockholders without concern that he might be distracted
by the personal uncertainties and risks created by such a third party's
activities; and
WHEREAS, should the Corporation be the subject of any such third party
activities, in addition to the Executive's regular duties, he or she may be
called upon to assist in the assessment of third party proposals, to advise
management and the Board as to whether such proposals would be in the best
interests of the Corporation and its stockholders, and to take such other
actions as the Board might determine to be appropriate;
NOW, THEREFORE, to assure the Corporation that it will have the
continued dedication of the Executive and the availability of his advice and
counsel notwithstanding the possibility, threat or occurrence of a bid to take
over control of the Corporation, and to induce the Executive to remain in the
employ of the Corporation, and for other good and valuable consideration, the
Corporation and the Executive agree as follows:
1. SERVICES DURING CERTAIN EVENTS. In the event a third party
begins a tender or exchange offer, circulates a proxy to
stockholders which contemplates a Change of Control (as
<PAGE> 2
hereinafter defined), or takes other steps seeking to effect a
Change of Control, the Executive agrees not to leave the
employ of the Corporation voluntarily, and to render the
services contemplated in the recitals to this Agreement, until
the third person has abandoned or terminated efforts to effect
a Change of Control or until three months after a Change of
Control has occurred.
2. TERMINATION AFTER CHANGE OF CONTROL. In the event of a
Termination (as hereinafter defined) of the Executive's
employment with the Corporation (including its Subsidiaries)
within two years after a Change of Control of the Corporation:
A. CASH PAYMENT. On or before the Executive's last day
of employment, or on such later date as is selected
by the Executive, the Corporation will pay to the
Executive as compensation for services rendered to
the Corporation either,
(i) a lump sum in cash (subject to any applicable
payroll or other taxes required to be withheld) equal
to three (3) times the highest annual compensation
(including only base salary and bonuses) awarded,
paid or payable to the Executive by the Corporation
with respect to any 12 consecutive month period, as
selected by the Executive, during the three years
ending with the date of the Executive's termination;
or,
(ii) if the Executive provides at least 24 hours
advance written notice to the Corporation electing
not to receive the lump sum, on such date and on the
first day of each succeeding month for 35 months
thereafter, the Corporation will pay to the Executive
36 equal cash payments (subject to any applicable
payroll or other taxes required to be withheld) each
of which is equal to one-twelfth (1/12) the highest
annual compensation (including only base salary and
bonuses) awarded, paid or payable to the Executive by
the Corporation with respect to any 12 consecutive
month period, as selected by the Executive, during
the three years ending with the date of the
Executive's termination. In the event the Executive
selects the option described in this subparagraph
2A(ii) and dies or reaches his normal retirement date
at any time during the 36 months following his
-2-
<PAGE> 3
Termination, a lump sum payment equal to the balance
of the payments will be paid by the Company to the
Executive or, if applicable, to the Executive's
estate, pursuant to this paragraph 2A. The bonuses
referred to in this paragraph 2A are payments made
under the Corporation's Executive Incentive Plan
(EIP), or any predecessor, successor, substitute or
additional plan or plans of the Corporation, and
shall not include more than one payment made under
the EIP during a consecutive twelve month period.
B. SPECIAL RETIREMENT BENEFITS. The Executive shall
receive "Special Retirement Benefits" as provided in
this Paragraph 2B, so that the total retirement
benefits received will equal the retirement benefits
which would have been received had employment
continued for three years following Termination.
Special Retirement Benefits shall be paid when and as
the underlying retirement benefits are paid. In
addition to Special Retirement Benefits, the
Executive shall receive all other benefits which
would have been received had employment continued for
three years following Termination, including, without
limitation, all ancillary benefits, such as early
retirement and survivor rights and benefits available
at retirement, including hospital, medical-surgical,
major medical, group life insurance and Executive
Security Plan (if applicable), as well as benefits
(if any) under the Goulds Pumps, Incorporated Pension
Plan for Exempt Salaried Employees, the Supplemental
Executive Retirement Plan, and any predecessor,
successor, substitute or additional plan or plans of
the Corporation. The amount of Special Retirement
Benefits provided for in the first sentence of this
Paragraph 2B and payable hereunder to the Executive
or his or her beneficiaries shall equal the excess of
the amount specified in Paragraph 2B(i) over that in
2B(ii) below:
(i) The total retirement benefits that would be paid
to the Executive or his or her beneficiaries, if the
three years (or the period of his death or normal
retirement date, if less) following his Termination
are added to credited service under the Corporation's
pension plans (including the Goulds Pumps,
Incorporated Pension Plan for Exempt Salaried
Employees, the Supplemental Executive Pension Plan
-3-
<PAGE> 4
or any predecessor or successor or substitute plan or
plans of the Corporation), and final average
compensation is as determined under the plans
referred to in this Paragraph 2B(i) (the amount
specified in Paragraph 2A. hereof not being
considered "compensation" for purposes of calculating
final average compensation under this Paragraph
2B(i));
(ii) The total retirement benefits payable to the
Executive or his beneficiaries under the
Corporation's retirement plans (including the Goulds
Pumps, Incorporated Pension Plan for Exempt Salaried
Employees, the Supplemental Executive Pension Plan or
any successor plans of the Corporation).
All Special Retirement Benefits and other benefits provided
for herein are provided on an unfunded basis and are not
intended to meet the qualification requirement of Section 401
of the Internal Revenue Code. All Special Retirement Benefits
and other benefits provided for herein shall be payable solely
from the general assets of the Corporation or its appropriate
affiliate.
C. OTHER PROVISIONS.
(i) Insurance and Other Special Benefits. The
Executive's participation in the Goulds Pumps,
Incorporated group life, accident and health
insurance plans of the Corporation, the Executive
Medical Reimbursement Plan, the Executive Security
Plan (if applicable) and in fringe benefits provided
the Executive prior to the Change of Control, shall
be continued, or equivalent benefits provided, by the
Corporation, at no direct cost to the Executive, for
a period of three years from the date of Termination;
provided, that the provisions of this Paragraph C(i)
shall not affect the Executive's right to receive
Special Retirement Benefits or other benefits
provided for in Paragraph 2B hereof.
(ii) Relocation Assistance. Should the Executive move
his or her residence in order to pursue other
business opportunities within two years of
Termination, the Corporation will reimburse the
Executive for any expenses incurred in that
relocation which are not reimbursed by another
employer. Benefits under this provision will include
the assistance in selling the Executive's home and
all other
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<PAGE> 5
assistance and benefits that were customarily
provided by the Corporation to transferred executives
prior to the Change of Control.
(iii) Incentive Compensation. Any awards previously
made shall immediately vest upon a Change of Control.
(iv) Additional Health Care Coverage. At the
expiration of the three year period following
termination, the Executive shall be eligible to
participate in any group health insurance plan
offered by the Corporation, its parent Corporation,
or its successor, to its senior executives, such plan
to be at least comparable to the coverage provided
immediately prior to termination. Such eligibility
shall continue until the Executive becomes eligible
for Medicare. The Executive's cost to participate in
all group health plans beginning after the expiration
of the three year period following Termination shall
be the amount the Executive paid, by way of payroll
deduction, for health care coverage provided by the
Corporation, immediately prior to the Change of
Control. For purposes of this paragraph, health care
coverage does not include the Executive Medical
Reimbursement Plan benefit provided to the Executive
by the Corporation. The Corporation, its parent
Corporation, or its successor shall pay the remaining
costs of providing this coverage. Notwithstanding the
foregoing, upon the expiration of the three year
period following Termination, no health coverage
shall be required under this agreement after the
Executive first becomes eligible to participate in a
group health insurance plan of any subsequent
employer of the Executive.
D. DEFINITION OF CHANGE OF CONTROL. For the purposes of
this Agreement, a "Change of Control" shall be deemed
to have taken place if: (i) the stockholders of the
Company shall approve any plan, proposal or agreement
for, or there shall otherwise be consummated (1) any
consolidation or merger of the Company pursuant to
which any shares of the Company's Common Stock are to
be converted into cash, securities or other property,
unless, after the consolidation or merger the
Incumbent Board, as defined below, remains
-5-
<PAGE> 6
a majority of the Board; or (2) any sale, lease,
exchange or other transfer (in one transaction or a
series of related transactions) of more than 50% of
the assets or earning power of the Company to a third
party unrelated to the Company; or
(ii) the stockholders of the Company approve any plan
or proposal for the liquidation or dissolution of the
Company; or
(iii) any person (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of
1934), shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of 20% or more
of the Company's then outstanding Common Stock (a
"significant acquisition of ownership"), provided
that, such person shall not be a wholly-owned
subsidiary of the Company immediately before it
becomes such 20% beneficial owner;
(iv) individuals who constitute the Company's Board
of Directors on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a
director subsequent to the date hereof whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least
three quarters of the directors compromising the
Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in
which such person is named as a nominee for director,
without objection to such nomination) shall be, for
purposes of this clause (iv), considered as though
such person was a member of the Incumbent Board
provided that any individual whose initial assumption
of office occurs as a result of an actual or
threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A under the Securities
Exchange Act of 1934) or other actual or threatened
solicitation of proxies or consents by or on behalf
of a person other than the Board shall not be so
considered as a member of the Incumbent Board.
E. DEFINITION OF TERMINATION. For the purposes of this
Agreement, the term "Termination" shall mean
termination by the Corporation of the employment of
-6-
<PAGE> 7
the Executive with the Corporation (including its
Subsidiaries) for any reason other than death,
disability or cause (as defined below) after the
effective date (as defined below) of a Change of
Control, or resignation of the Executive upon the
occurrence of either of the following events:
(i) A significant change in the nature or scope of
the Executive's authority, powers, function or duties
from that prior to a Change of Control, a reduction
in the Executive's total compensation (including all
bonuses, incentive compensation and benefits referred
to in Paragraphs A, B, and C of this Section 2) from
that prior to a Change of Control, or a material
change in the location where the Executive is
required to perform services from that prior to a
Change of Control; or
(ii) A reasonable determination by the Executive
that, as a result of a Change of Control and a change
in circumstances thereafter significantly affecting
his position, he is unable to exercise the authority,
powers, function or duties attached to his position.
The term "cause" means fraud, misappropriation or
intentional material damage to the property or
business of the Corporation or commission of a
felony. For purposes of determining whether an
involuntary termination by the Corporation of the
Executive's employment is within the meaning of
"Termination," the term "effective date" shall mean
the first date on which a Change of Control occurs.
F. PAYMENT OF EXCISE TAXES. In addition to the payments
specified in Paragraphs A through C of this Section
2, the Corporation shall pay to the Executive, at the
same time as those amounts are paid, an additional
amount which, after taking into account any federal,
state or local excise tax imposed, and all federal,
state and local income taxes that the Executive is
required to pay with respect to receipt of such
additional amount, will render the net after tax
payment to the Executive of such additional amount
equal to any federal, state or local excise tax
imposed that the Executive is required to pay with
respect to the benefits provided and payments made
pursuant to this Section 2.
-7-
<PAGE> 8
3. GENERAL
A. INDEMNIFICATION. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to
the extent permitted by applicable law and the Corporation's
Certificate of Incorporation, hereby indemnifies the Executive
for his reasonable attorneys' fees and disbursements incurred
in such litigation, regardless of its outcome, and hereby
agrees to pay prejudgment interest on any money judgment
obtained by the Executive calculated at the Citibank prime
interest rate in effect from time-to-time from the date that
payment(s) should have been made under this Agreement.
B. PAYMENT OBLIGATIONS ABSOLUTE. The Corporation's obligation to
pay the Executive the compensation and to make the
arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim,
recoupment, defense or other right that the Corporation may
have against him or anyone else. All amounts payable by the
Corporation hereunder shall be paid without notice or demand.
Each and every payment made hereunder by the Corporation shall
be final and the Corporation will not seek to recover all or
any part of such payment from the Executive or from whosoever
may be entitled thereto, for any reason whatsoever.
C. CONTINUING OBLIGATIONS. The Executive shall retain in
confidence any confidential information known to him
concerning the Corporation and its Subsidiaries and their
respective businesses so long as such information is not
publicly disclosed.
D. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the Executive and his estate, and shall be
binding on and inure to the benefit of the
-8-
<PAGE> 9
Corporation and any successor of the Corporation, but neither
this Agreement nor any rights arising hereunder may be
assigned or pledged by the Executive.
E. SEVERABILITY. Any provision in this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or
affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
F. CONTROLLING LAW. This Agreement shall in all respects be
governed by, and construed in accordance with, the laws of the
State of New York.
G. TERMINATION. This Agreement shall terminate if the Board
determines, prior to any Termination of the Executive, that
the Executive is no longer a key executive to be included
within the Plan and so notifies the Executive; except that
such determination shall not be made, and if made shall have
no effect, (i) within three years after the Change of Control
in question or (ii) during any period of time when the
Corporation has knowledge that any third person has taken
steps reasonably calculated to effect a Change of Control
until, in the opinion of the Board, the third person has
abandoned or terminated his efforts to effect a Change of
Control. Any decision by the Board that the third person has
abandoned or terminated his efforts to effect a Change of
Control shall be conclusive and binding on the Executive.
H. OTHER BENEFITS AND COMPENSATION. The compensation and benefits
provided hereunder shall not limit or reduce compensation or
benefits otherwise payable to Executive pursuant to
arrangements between Executive and the Corporation, unless
specific reference to any such reduction or limit is made
herein. It is not intended that this Agreement constitute a
waiver of rights under federal, state or
-9-
<PAGE> 10
local law, including, without limitation, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment
Act and the Employee Retirement Income Security Act of 1974.
I. ENTIRE AGREEMENT. This agreement embodies the entire agreement
of the Corporation and the Executive in respect of the subject
matter hereof, and it supersedes and replaces all prior
agreements and understandings between the parties with respect
to the subject matter hereof and the transactions contemplated
hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement on the _______day
of _______ 19___.
_____________________________________________
<<Name>>
GOULDS PUMPS, INCORPORATED
By:__________________________________________
Arthur Richardson
Chairman, Human Resources Committee
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<PAGE> 1
Exhibit 5
GOULDS PUMPS, INCORPORATED
SENIOR EXECUTIVE CHANGE OF CONTROL AGREEMENT
AGREEMENT between Goulds Pumps, Incorporated, a Delaware business
corporation (the "Corporation") and <<Name>> (the "Executive"):
WHEREAS, the Human Resources Committee (the "Committee") of the Board
of Directors (the "Board") of the Corporation has recommended, and the Board has
approved, the Corporation entering into Change of Control agreements with key
executives of the Corporation and its subsidiaries; and
WHEREAS, the Executive is a key executive of the Corporation or one of
its Subsidiaries and has been selected by the Board to be provided the benefits
stated herein, subject to the terms and conditions hereof; and
WHEREAS, should any third person pursue possible business combination
with, or acquisition of control of, the Corporation, the Board believes it
imperative that the Corporation and the Board be able to rely upon the Executive
to continue in his position, and that the Corporation be able to receive and
rely upon the Executive's advice, if it requests it, as to the best interests of
the Corporation and its stockholders without concern that he might be distracted
by the personal uncertainties and risks created by such a third party's
activities; and
WHEREAS, should the Corporation be the subject of any such third party
activities, in addition to the Executive's regular duties, he or she may be
called upon to assist in the assessment of third party proposals, to advise
management and the Board as to whether such proposals would be in the best
interests of the Corporation and its stockholders, and to take such other
actions as the Board might determine to be appropriate;
NOW, THEREFORE, to assure the Corporation that it will have the
continued dedication of the Executive and the availability of his advice and
counsel notwithstanding the possibility, threat or occurrence of a bid to take
over control of the Corporation, and to induce the Executive to remain in the
employ of the Corporation, and for other good and valuable consideration, the
Corporation and the Executive agree as follows:
1. SERVICES DURING CERTAIN EVENTS. In the event a third party
begins a tender or exchange offer, circulates a proxy to
stockholders which contemplates a Change of Control (as
<PAGE> 2
hereinafter defined), or takes other steps seeking to effect a
Change of Control, the Executive agrees not to leave the
employ of the Corporation voluntarily, and to render the
services contemplated in the recitals to this Agreement, until
the third person has abandoned or terminated efforts to effect
a Change of Control or until three months after a Change of
Control has occurred.
2. TERMINATION AFTER CHANGE OF CONTROL. In the event of a
Termination (as hereinafter defined) of the Executive's
employment with the Corporation (including its Subsidiaries)
within three years after a Change of Control of the
Corporation:
A. CASH PAYMENT. On or before the Executive's last day
of employment, or on such later date as is selected
by the Executive, the Corporation will pay to the
Executive as compensation for services rendered to
the Corporation either,
(i) a lump sum in cash (subject to any applicable
payroll or other taxes required to be withheld) equal
to three (3) times the highest annual compensation
(including only base salary, bonuses and the cash
value of incentive compensation awards) awarded, paid
or payable to the Executive by the Corporation with
respect to any 12 consecutive month period, as
selected by the Executive, during the three years
ending with the date of the Executive's termination;
or,
(ii) if the Executive provides at least 24 hours
advance written notice to the Corporation electing
not to receive the lump sum, on such date and on the
first day of each succeeding month for 35 months
thereafter, the Corporation will pay to the Executive
36 equal cash payments (subject to any applicable
payroll or other taxes required to be withheld) each
of which is equal to one-twelfth (1/12) the highest
annual compensation (including only base salary,
bonuses and the cash value of incentive compensation)
awarded, paid or payable to the Executive by the
Corporation with respect to any 12 consecutive month
period, as selected by the Executive, during the
three years ending with the date of the Executive's
termination. In the event the Executive selects the
option described in this subparagraph 2A(ii) and dies
or reaches his normal retirement date at any time
-2-
<PAGE> 3
during the 36 months following his Termination, a
lump sum payment equal to the balance of the payments
will be paid by the Company to the Executive or, if
applicable, to the Executive's estate, pursuant to
this paragraph 2A. The incentive compensation
referred to in this paragraph 2A is only that amount
awarded as stock options under the Corporation's 1988
Stock Incentive Plan, 1994 Incentive Plan to Increase
Stockholder Value, or any predecessor, successor,
substitute or additional plan or plans of the
Corporation, valued as of the date of grant, using
the Black-Scholes Model, as calculated by the
Corporation's independent compensation consultants.
The bonuses referred to in this paragraph 2A are
payments made under the Corporation's Executive
Incentive Plan (EIP), or any predecessor, successor,
substitute or additional plan or plans of the
Corporation, and shall not include more than one
payment made under the EIP during a consecutive
twelve month period.
B. SPECIAL RETIREMENT BENEFITS. The Executive shall
receive "Special Retirement Benefits" as provided in
this Paragraph 2B, so that the total retirement
benefits received will equal the retirement benefits
which would have been received had employment
continued for three years following Termination.
Special Retirement Benefits shall be paid when and as
the underlying retirement benefits are paid. In
addition to Special Retirement Benefits, the
Executive shall receive all other benefits which
would have been received had employment continued for
three years following Termination, including, without
limitation, all ancillary benefits, such as early
retirement and survivor rights and benefits available
at retirement, including hospital, medical-surgical,
major medical, group life insurance and Executive
Security Plan (if applicable), as well as benefits
(if any) under the Goulds Pumps, Incorporated Pension
Plan for Exempt Salaried Employees, the Supplemental
Executive Retirement Plan, and any predecessor,
successor, substitute or additional plan or plans of
the Corporation. The amount of Special Retirement
Benefits provided for in the first sentence of this
Paragraph 2B and
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<PAGE> 4
payable hereunder to the Executive or his or her
beneficiaries shall equal the excess of the amount
specified in Paragraph 2B(i) over that in 2B(ii)
below:
(i) The total retirement benefits that would be paid
to the Executive or his or her beneficiaries, if the
three years (or the period of his death or normal
retirement date, if less) following his Termination
are added to credited service under the Corporation's
pension plans (including the Goulds Pumps,
Incorporated Pension Plan for Exempt Salaried
Employees, the Supplemental Executive Pension Plan or
any predecessor or successor or substitute plan or
plans of the Corporation), and final average
compensation is as determined under the plans
referred to in this Paragraph 2B(i) (the amount
specified in Paragraph 2A. hereof not being
considered "compensation" for purposes of calculating
final average compensation under this Paragraph
2B(i));
(ii) The total retirement benefits payable to the
Executive or his beneficiaries under the
Corporation's retirement plans (including the Goulds
Pumps, Incorporated Pension Plan for Exempt Salaried
Employees, the Supplemental Executive Pension Plan or
any successor plans of the Corporation).
All Special Retirement Benefits and other benefits
provided for herein are provided on an unfunded basis
and are not intended to meet the qualification
requirement of Section 401 of the internal Revenue
Code. All Special Retirement Benefits and other
benefits provided for herein shall be payable solely
from the general assets of the Corporation or its
appropriate affiliate.
C. OTHER PROVISIONS.
(i) Insurance and Other Special Benefits. The
Executive's participation in the Goulds Pumps,
Incorporated group life, accident and health
insurance plans of the Corporation, the Executive
Medical Reimbursement Plan, the Executive Security
Plan (if applicable) and in fringe benefits provided
the Executive prior to the Change of Control, shall
be continued, or equivalent benefits provided, by the
Corporation, at no direct cost to the Executive, for
a period of three years from the date of Termination;
provided that the provisions of this Paragraph C(i)
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<PAGE> 5
shall not affect the Executive's right to receive
Special Retirement Benefits or other benefits
provided for in Paragraph 2B hereof.
(ii) Relocation Assistance. Should the Executive move
his or her residence in order to pursue other
business opportunities within two years of
Termination, the Corporation will reimburse the
Executive for any expenses incurred in that
relocation which are not reimbursed by another
employer. Benefits under this provision will include
the assistance in selling the Executive's home and
all other assistance and benefits that were
customarily provided by the Corporation to
transferred executives prior to the Change of
Control.
(iii) Incentive Compensation. Any awards previously
made shall immediately vest upon a Change of Control.
(iv) Additional Health Care Coverage. At the
expiration of the three year period following
termination, the Executive shall be eligible to
participate in any group health insurance plan
offered by the Corporation, its parent Corporation,
or its successor, to its senior executives, such plan
to be at least comparable to the coverage provided
immediately prior to termination. Such eligibility
shall continue until the Executive becomes eligible
for Medicare. The Executive's cost to participate in
all group health plans beginning after the expiration
of the three year period following Termination shall
be the amount the Executive paid, by way of payroll
deduction, for health care coverage provided by the
Corporation, immediately prior to the Change of
Control. For purposes of this paragraph, health care
coverage does not include the Executive Medical
Reimbursement Plan benefit provided to the Executive
by the Corporation. The Corporation, its parent
Corporation, or its successor shall pay the remaining
costs of providing this coverage. Notwithstanding the
foregoing, upon the expiration of the three year
period following Termination, no health coverage
shall be required under this agreement after the
Executive first becomes eligible to participate in a
group health insurance plan of any subsequent
employer of the Executive.
-5-
<PAGE> 6
D. DEFINITION OF CHANGE OF CONTROL. For the purposes of
this Agreement, a "Change of Control" shall be deemed
to have taken place if:
(i) the stockholders of the Company shall approve any
plan, proposal or agreement for, or there shall
otherwise be consummated (1) any consolidation or
merger of the Company pursuant to which any shares of
the Company's Common Stock are to be converted into
cash, securities or other property, unless, after the
consolidation or merger the Incumbent Board, as
defined below, remains a majority of the Board; or
(2) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions)
of more than 50% of the assets or earning power of
the Company to a third party unrelated to the
Company; or
(ii) the stockholders of the Company approve any plan
or proposal for the liquidation or dissolution of the
Company; or
(iii) any person (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of
1934), shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of 20% or more
of the Company's then outstanding Common Stock (a
"significant acquisition of ownership"), provided
that, such person shall not be a wholly-owned
subsidiary of the Company immediately before it
becomes such 20% beneficial owner;
(iv) individuals who constitute the Company's Board
of Directors on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a
director subsequent to the date hereof whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least
three quarters of the directors compromising the
Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in
which such person is named as a nominee for director,
without objection to such nomination) shall be, for
purposes of this clause (iv), considered as though
such person was a member of the Incumbent Board
provided that any individual whose initial assumption
of office occurs as a result of an actual or
threatened election contest (as such terms are used
in Rule
-6-
<PAGE> 7
14a-11 of Regulation 14A under the Securities
Exchange Act of 1934) or other actual or threatened
solicitation of proxies or consents by or on behalf
of a person other than the Board shall not be so
considered as a member of the Incumbent Board.
E. DEFINITION OF TERMINATION. For the purposes of this
Agreement, the term "Termination" shall mean
termination by the Corporation of the employment of
the Executive with the Corporation (including its
Subsidiaries) for any reason other than death,
disability or cause (as defined below) after the
effective date (as defined below) of a Change of
Control, or resignation of the Executive upon the
occurrence of either of the following events:
(i) A significant change in the nature or scope of
the Executive's authority, powers, function or duties
from that prior to a Change of Control, a reduction
in the Executive's total compensation (including all
bonuses, incentive compensation and benefits referred
to in Paragraphs A, B, and C of this Section 2) from
that prior to a Change of Control, or a material
change in the location where the Executive is
required to perform services from that prior to a
Change of Control; or
(ii) A reasonable determination by the Executive
that, as a result of a Change of Control and a change
in circumstances thereafter significantly affecting
his position, he is unable to exercise the authority,
powers, function or duties attached to his position.
The term "cause" means fraud, misappropriation or
intentional material damage to the property or
business of the Corporation or commission of a
felony. For purposes of determining whether an
involuntary termination by the Corporation of the
Executive's employment is within the meaning of
"Termination," the term "effective date" shall mean
the first date on which a Change of Control occurs.
F. PAYMENT OF EXCISE TAXES. In addition to the payments
specified in Paragraphs A through C of this Section
2, the Corporation shall pay to the Executive, at the
-7-
<PAGE> 8
same time as those amounts are paid, an additional
amount which, after taking into account any federal,
state or local excise tax imposed, and all federal,
state and local income taxes that the Executive is
required to pay with respect to receipt of such
additional amount, will render the net after tax
payment to the Executive of such additional amount
equal to any federal, state or local excise tax
imposed that the Executive is required to pay with
respect to the benefits provided and payments made
pursuant to this Section 2.
3. GENERAL
A. INDEMMIFICATION. If litigation shall be brought to enforce or
interpret any provision contained herein, the Corporation, to
the extent permitted by applicable law and the Corporation's
Certificate of Incorporation, hereby indemnifies the Executive
for his reasonable attorneys' fees and disbursements incurred
in such litigation, regardless of its outcome, and hereby
agrees to pay prejudgment interest on any money judgment
obtained by the Executive calculated at the Citibank prime
interest rate in effect from time-to-time from the date that
payment(s) should have been made under this Agreement.
B. PAYMENT OBLIGATIONS ABSOLUTE. The Corporation's obligation to
pay the Executive the compensation and to make the
arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim,
recoupment, defense or other right that the Corporation may
have against him or anyone else. All amounts payable by the
Corporation hereunder shall be paid without notice or demand.
Each and every payment made hereunder by the Corporation shall
be final and the Corporation will not seek to recover all or
any part of such payment from the Executive or from whosoever
may be entitled thereto, for any reason whatsoever.
-8-
<PAGE> 9
C. CONTINUING OBLIGATIONS. The Executive shall retain in
confidence any confidential information known to him
concerning the Corporation and its Subsidiaries and their
respective businesses so long as such information is not
publicly disclosed.
D. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the Executive and his estate, and shall be
binding on and inure to the benefit of the Corporation and any
successor of the Corporation, but neither this Agreement nor
any rights arising hereunder may be assigned or pledged by the
Executive.
E. SEVERABILITY. Any provision in this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or
affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
F. CONTROLLING LAW. This Agreement shall in all respects be
governed by, and construed in accordance with, the laws of the
State of New York.
G. TERMINATION. This Agreement shall terminate if the Board
determines, prior to any Termination of the Executive, that
the Executive is no longer a key executive to be included
within the Plan and so notifies the Executive; except that
such determination shall not be made, and if made shall have
no effect, (i) within three years after the Change of Control
in question or (ii) during any period of time when the
Corporation has knowledge that any third person has taken
steps reasonably calculated to effect a Change of Control
until, in the opinion of the Board, the third person has
abandoned or terminated his efforts to effect a Change of
Control. Any decision by the Board that the third person has
-9-
<PAGE> 10
abandoned or terminated his efforts to effect a Change of
Control shall be conclusive and binding on the Executive.
H. OTHER BENEFITS AND COMPENSATION. The compensation and benefits
provided hereunder shall not limit or reduce compensation or
benefits otherwise payable to Executive pursuant to
arrangements between Executive and the Corporation, unless
specific reference to any such reduction or limit is made
herein. It is not intended that this Agreement constitute a
waiver of rights under federal, state or local law, including,
without limitation, Title VII of the Civil Rights Act of 1964,
the Age Discrimination in Employment Act and the Employee
Retirement Income Security Act of 1974.
I. ENTIRE AGREEMENT. This agreement embodies the entire agreement
of the Corporation and the Executive in respect of the subject
matter hereof, and it supersedes and replaces all prior
agreements and understandings between the parties with respect
to the subject matter hereof and the transactions contemplated
hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement on the ____________
day of __________ 19____.
____________________________________________
<<Name>>
GOULDS PUMPS, INCORPORATED
By:
_________________________________________
Arthur Richardson
Chairman, Human Resources Committee
-10-
<PAGE> 1
Exhibit 6
GOULDS PUMPS, INC.
SUPPLEMENTAL EXECUTIVE PENSION PLAN
Pursuant to Section 7.1 and the authority granted by the Human
Resources Committee's April 4, 1997, resolutions, the Company hereby amends the
Plan, effective April 4, 1997, as follows:
1. Section 2.7 is amended by deleting the current provision in its
entirety and substituting in its place the following:
2.7 Credited Service means a Participant's years of service
----------------
(including any fraction thereof determined by dividing completed whole
months of service by 12) as a member of the Company's Management
Executive Committee ("MEC"). In addition to actual MEC service,
a Participant shall be credited with such service as may be specified
under the terms of his Senior Executive Change of Control Agreement.
2. Section 4.1 is amended by deleting the current provision in its
entirety and substituting in its place the following:
4.1 Retirement Benefits. A Participant may retire on the first
-------------------
day of the month next following the attainment of Normal Retirement
Age. The benefit at such age shall be an annual annuity for the life of
the Participant, payable monthly, in an amount equal to his Final
Average Earnings times his Credited Service times the applicable
accrual percentage determined from the following table:
<TABLE>
<CAPTION>
Credited Service Accrual Percentage
---------------- ------------------
<S> <C>
0 - 5 4.000%
6 - 10 3.250%
11 - 20 1.375%
21 - 30 1.000%
30 + 0.00%
</TABLE>
<PAGE> 2
-2-
Notwithstanding the foregoing, any Participant having
30 or more years of service with the Company on April 4, 1997
shall be entitled to a benefit equal to 60 percent of his
Final Average Earnings.
A Participant's benefits determined under this
Section shall be reduced in accordance with Section 4.5.
Notwithstanding the foregoing, a Participant shall be
entitled to receive the benefit he had accrued under the
predecessor Section 4.1 as of April 3, 1997, if such accrued
benefit is higher than the benefit calculated above.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Amendment on its behalf this 16th day of April, 1997.
GOULDS PUMPS, INCORPORATED
By /s/ William G. Kelley
--------------------------------------
Title Vice President - Human Resources
--------------------------------------
<PAGE> 1
Exhibit 7
AMENDMENT TO THE GOULDS PUMPS
EXECUTIVE INCENTIVE PLAN
This Amendment, dated as of April 4, 1997, amends and restates in its
entirety the Executive Incentive Plan (the "EIP") of Goulds Pumps, Incorporated
(the "Company").
WHEREAS, the EIP provides that the Human Resources Committee of the
Board of Directors of the Company may amend the EIP, such amendment to be
effective as of the beginning of the next fiscal year; and
WHEREAS, the Human Resources Committee has determined in its judgment,
that the purpose of the delayed effectiveness of amendments, as stated above,
was to protect EIP participants from having their rights under the EIP in a
given plan year diminished by an amendment to the EIP; and
WHEREAS, the Human Resources Committee has determined that the
amendments set forth herein are specifically for the benefit of the EIP
participants and therefore are to become effective immediately, as if a separate
written agreement had been entered into with each EIP participant providing for
the enhanced rights set forth herein; and
WHEREAS, the Human Resources Committee has determined that in order to
provide for the security of the EIP participants' rights under the EIP in the
event of a change in the control of the Company, it is necessary to amend the
EIP to provide, upon such a change, that should an EIP participant be terminated
as a result of the change of control a prorated payment shall be made under the
EIP, calculated at the higher of the participant's target incentive percentage,
or actual year-to-date business performance on the date of termination,
multiplied by year-to-date eligible earnings as of the termination date; all as
set forth further herein.
THEREFORE, based on the foregoing:
1. The EIP is amended and restated in its entirety as attached hereto,
and the amendments provided for herein shall be effective immediately, without
further action on the part of the Company or the participants of the EIP.
IN WITNESS WHEREOF, the Company has caused this Amendment to the
Executive Incentive Plan to be executed on its behalf by a duly authorized
officer of the Company as of this April 4, 1997
GOULDS PUMPS, INCORPORATED
BY: /s/ William G. Kelley
----------------------------
William G. Kelley
Vice President - Human Resources
<PAGE> 2
GOULDS PUMPS, INC. [LOGO]
AMENDED AND RESTATED
EXECUTIVE INCENTIVE PLAN
EFFECTIVE APRIL 7, 1997
PURPOSE
The Executive Incentive Plan ("EIP") at Goulds Pumps, Inc. ("Goulds") is a bonus
program designed to provide financial reward to those officers, managers and
other employees who contribute to the growth and success of the Company. The
Plan is designed to attract and retain talented people with outstanding ability,
and to closely align their accomplishments with the interests of the Company's
shareholders. The Plan measures performance on a specific set of objectives, and
pays an Incentive Award based on a percentage of base pay.
ADMINISTRATION
The Plan has been approved by the Human Resources Committee (the "Committee") of
the Goulds Pumps Board of Directors. Administration of the Plan is the
responsibility of the Vice President of Human Resources, or his or her designee,
who shall also interpret and establish rules and regulations for the
administration of the Plan.
ELIGIBILITY
Eligible employees shall include salaried employees who directly influence the
financial results of the Corporation and/or its operating units. Eligible
employees for purposes of this Plan are defined as salaried employees in Grades
17 or higher not covered by another plan. Participants must be on the payroll by
July 1 to be eligible for an Incentive Award that year, otherwise they become
participants on the following January 1st. Incentive Awards are generally made
late in February for the preceding year.
STANDARD INCENTIVE AWARD
A Standard Incentive Award is the percentage of the participant's Base Salary to
be paid if Plan Performance Measures are equal to 100% or "Standard." The
Standard Incentive Award varies from participant to participant depending on
salary grade, based on Table A.
TABLE A -- NON-OFFICER
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PARTICIPANT GRADE STANDARD INCENTIVE AWARD
- --------------------------------------------------------------------------------
<S> <C>
21-25 25%
19-20 20%
17-18 15%
- --------------------------------------------------------------------------------
</TABLE>
"Base Salary" shall be the participant's annual earned base salary for the Plan
Year excluding all bonuses, awards or supplementary payments of any kind.
1
<PAGE> 3
PERFORMANCE MEASURES
The individual's performance is judged against the Individual Performance
Management Measures; the operation unit's performance (Corporate, Group, Unit)
is judged against the Organizational Performance Measures.
INDIVIDUAL PERFORMANCE MANAGEMENT MEASURES - The Individual Performance
Management Measures consist, in most cases, of two to five specific individual
objectives. These objectives, agreed upon at the beginning of the Plan Year,
should be as measurable as possible and substantially within the participant's
control. In some cases, subjective goals may be appropriate. Pre-determined
weighting among the objectives will reflect their bonus priority. Individual
performance is determined by the participant's manager and approved by the next
level of management and Human Resources.
ORGANIZATIONAL PERFORMANCE MEASURES -- The Organizational Performance Measures
process evaluates Corporate, Group and Unit performance and is weighted for
various positions as follows:
TABLE B -- STANDARD WEIGHTING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
POSITION CORPORATION GROUP OPERATING UNIT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Staff 100%
- --------------------------------------------------------------------------------
Group Presidents - MEC 25% 75%
- --------------------------------------------------------------------------------
Group & Operating Unit
Staff (where Unit is not 100%
measured independently)
- --------------------------------------------------------------------------------
Group & Operating Unit
Staff (where Unit is measured 25% 75%
independently)
- --------------------------------------------------------------------------------
</TABLE>
Weighting other than Standard must be approved by the Chief Executive Officer at
the beginning of the Plan Year.
Organizational objectives are agreed to at the beginning of the Plan Year.
Performance Levels for 5, 4, 3, 2, and 1 ratings should be defined at the
beginning of the Plan Year for each objective. There is a pre-determined
weighting among the objectives reflecting the priority of those objectives
(examples below).
TABLE C
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CORPORATE OBJECTIVES WEIGHT
- --------------------------------------------------------------------------------
<S> <C>
Sales 30%
- --------------------------------------------------------------------------------
Earnings Per Share (EPS) 50%
- --------------------------------------------------------------------------------
Free Cash Flow (defined below) 20%
- --------------------------------------------------------------------------------
</TABLE>
TABLE D
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
OPERATING UNIT OBJECTIVES WEIGHT
- --------------------------------------------------------------------------------
<S> <C>
Sales 20%
- --------------------------------------------------------------------------------
Contribution 30%
- --------------------------------------------------------------------------------
Gross Margin 20%
- --------------------------------------------------------------------------------
Inventory Turns 20%
- --------------------------------------------------------------------------------
Gating (defined below) 10%
- --------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 4
FREE CASH FLOW - Free Cash Flow is the cash that the organization generates,
without consideration of debt activity. Specifically, Free Cash Flow is net
income plus depreciation and amortization plus/minus changes in working capital
less capital additions and dividends.
GATING -- Gating is a measure of the sum of the number of quarters during the
Plan Year that the Sales Objective and the Contribution objective were reached.
GATING EXAMPLE 1: If the Sales Objective was reached every quarter, the
rating would be a 4; if the Contribution objective was reached every
quarter, the rating would be a 4, for a total Gating rating of 8.
GATING EXAMPLE 2: If the Sales Objective was reached every quarter, the
rating would be a 4; if the Contribution objective was reached three
quarters, the rating would be a 3, for a total Gating rating of 7.
The table below shows the possible ratings for the combined Sale and
Contribution Objectives.
TABLE E--GATING MEASURES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERFORMANCE LEVEL (SEE BELOW) NUMBER OF QUARTERS MADE OR EXCEEDED
SALES AND CONTRIBUTION GOAL
- --------------------------------------------------------------------------------
<S> <C>
5 (maximum) 8 quarters
- --------------------------------------------------------------------------------
4 (high standard) 7 quarters
- --------------------------------------------------------------------------------
3 (standard) 5 quarters
- --------------------------------------------------------------------------------
2 (low standard) 3 quarters
- --------------------------------------------------------------------------------
1 (minimum) 2 quarters
- --------------------------------------------------------------------------------
</TABLE>
PERFORMANCE LEVELS
The actual, approved Incentive Award may range from zero percent to 150 percent
of the Standard Incentive Award, depending on Individual and Organizational
performance measures. The definition for each Performance Level and the percent
of the Standard Incentive Award at each Performance Level is as follows:
TABLE F--PERFORMANCE LEVELS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PERFORMANCE LEVEL DEFINITION % OF STANDARD INCENTIVE AWARD
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
5 (maximum) Extraordinary performance where the 150%
objectives were exceeded by a wide margin.
4 (high standard) Excellent performance where the objectives 125%
were exceeded.
3 (standard) Successful performance where the 100%
objectives were well met.
2 (low standard) Performance fell short of goal. 50%
Less than 2 (minimum) Performance was well below expectations. 0%
- ---------------------------------------------------------------------------------------------------
</TABLE>
ADJUSTING FOR SPECIAL CIRCUMSTANCES
In general, it is expected that performance results and Incentive Awards will be
made solely on calculated performance against objectives for both Organizational
and Individual performance. However, modifications of up to plus or minus 20
percent may be made if, in management's final judgment, the calculated rating
does not
3
<PAGE> 5
accurately reflect performance. In the case of Organization objectives, the
modification would be made by the Chief Executive Officer. In the case of
Individual objectives, the modification would be made by the responsible member
of the Management Executive Committee ("MEC").
INCENTIVE AWARD CALCULATION
THE STANDARD INCENTIVE AWARD amount is equal to a participant's Base Salary
(defined in Section titled "Standard Incentive Award") times his or her Standard
Incentive Award percentage according to Table A. A STANDARD POOL is the sum of
all Incentive Award amounts at "Standard" or performance rating "3" (100%). A
Standard Incentive Award for a person with an $80,000 base salary and a 20%
Standard Incentive Award opportunity would be $16,000 ($80,000 x 20%).
INDIVIDUAL -- The final Individual Performance Management Measure rating is
converted to a percentage using Table F, then multiplied by the participant's
Standard Incentive Award. The sum of all Individual Incentive Awards may not
exceed the calculated Organization Award Pool.
ORGANIZATIONAL CALCULATION -- The composite Organizational Performance Measure
rating is made up of one or more components according to Table B.
The final composite Organizational Performance Measure rating is converted to a
percentage using Table F, then multiplied by the Organization's Standard Pool to
produce an Organization Award Pool.
THERE IS NO PAYOUT FOR A COMPONENT (CORPORATION, GROUP, UNIT), IF THE
COMPONENT'S PERFORMANCE RATING IS BELOW A 2.0 RATING.
Below are some example calculations.
ASSUMPTIONS
Employee Base Pay = $80,000
Standard Award Percentage = 20%
Standard Incentive Award = $16,000
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3
--------- --------- ---------
<S> <C> <C> <C>
Individual Rating: 3 (100%) 3 (100%) 3 (100%)
Organization Rating: 4 (125%) 3 (100%) 2 (50%)
Calculation:
Base Pay $80,000 $80,000 $80,000
Multiplied by (20%*125%) (20%*100%) (20%*50%)
Calculated Award: $20,000 $16,000 $8,000
======= ======= ======
</TABLE>
The actual Incentive Award is determined by both objective and subjective
measures and may be higher or lower than the Standard Incentive Award.
ROUNDING -- The rules for rounding are as follows:
- - Results Achieved Same as Goals
- - Base Pay Nearest Dollar
- - Rating Factors Hundredths (e.g., 4.10)
- - Performance Percentages Hundredths (e.g., 98.27%)
- - Bonus Payment Amount Nearest $100
4
<PAGE> 6
INCENTIVE AWARD RECOMMENDATIONS
Supervisors submit their recommendations for Individual Incentive Awards to
their immediate managers. Approvals include one-over-one Management signatures
plus Group Human Resources, and functional management, as appropriate. All
recommendations for Incentive Awards will be submitted to the Chief Executive
Officer for approval.
Corporate function heads submit their recommendations for Individual Incentive
Awards to their immediate managers, who then submit their recommendations to the
Chief Executive Officer for approval.
CHANGE IN EMPLOYMENT STATUS
- - Plan Participants who are transferred and/or change job categories during a
Plan Year shall receive an Incentive Award based on the pro-rata calculation
of the Standard Incentive Award segments in which the employee participated
during a Plan Year.
- - Performance on all financial segments will be based upon total year results.
- - Plan Participants who terminate employment (except for retirement,
disability or death) prior to the completion of a Plan Year are not entitled
to receive any Incentive Awards under this Plan.
- - Plan Participants who terminate employment (except for retirement,
disability or death) after completion of a Plan Year, but prior to the
payment of Incentive Awards under the Plan, are not entitled to receive any
Incentive Awards under this Plan, unless required otherwise by state laws.
- - Plan Participants (or beneficiaries or legal representatives) who retire,
become disabled, or die, during a Plan Year shall receive an actual
Incentive Award pro-rated for the portion of the Plan year during which the
employee was actively employed.
- - Plan Participants involuntarily terminated during the Plan Year, for reasons
other than as a result of a Change of Control of the Company, are not
entitled to receive any Incentive Awards under this Plan.
CHANGE OF CONTROL
In the event of a Change of Control of the Company, as defined herein, the
Executive Incentive Plan may not be terminated, for any reason, subsequent to
the end of the calendar year in which the Change of Control occurs. Furthermore,
all bonus payment opportunities under the EIP become guaranteed to participants
for the calendar year in which the Change of Control takes place and are paid as
follows:
a) In the event of termination of an EIP participant following a Change of
Control of the Company, a prorated payment shall be made under the EIP,
calculated at the higher of the participant's target incentive percentage, or
actual year-to-date business performance on the date of termination, multiplied
by year-to-date eligible earnings as of the termination date;
b) At the end of the calendar year in which the Change of Control takes place,
the EIP will terminate, without further action by the Company, and each
participant employed as of year-end, will receive payment calculated at the
higher of the participant's target incentive percentage or actual business
performance at year-end, multiplied by full year eligible earnings.
This payment shall not be considered compensation for purposes of calculating
severance benefits under any Change of Control agreement if any other EIP
payment is included in such calculation.
For the purposes of this Agreement, a Change of Control shall be deemed to have
occurred under any one or more of the following conditions:
(i) the stockholders of the Company shall approve any plan, proposal or
agreement for, or there shall otherwise be consummated (1) any consolidation or
merger of the Company pursuant to which any shares of the Company's Common Stock
are to be converted into cash, securities or other property, unless, after
5
<PAGE> 7
the consolidation or merger the incumbent Board, as defined below, remains a
majority of the Board; or (2) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of more than 50% of the
assets or earning power of the Company to a third party unrelated to the
Company; or
(ii) the stockholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company; or
(iii) any person (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934), shall become the beneficial owner (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of 20% or more of the Company's then outstanding Common Stock (a
"significant acquisition of ownership"), provided that, such person shall not be
a wholly-owned subsidiary of the Company immediately before it becomes such 20%
beneficial owner and, provided further that the Board of Directors of the
Company does not make a determination, within ten business days after the
Company receives notice of a significant acquisition of ownership that
notwithstanding such acquisition, there should not be a Change in Control
hereunder (such determination, if made, being subject to reversal or
reconsideration at any time in the Board's sole discretion); or
(iv) individuals who constitute the Company's Board of Directors on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least three quarters of the directors
comprising the incumbent Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) shall be, for purposes of this
clause (d), considered as though such person were a member of the Incumbent
Board, provided that, any individual whose initial assumption of office occurs
as a result of an actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A under the Securities Exchange Act of 1934), or
other actual or threatened solicitation of proxies or consents by or on behalf
of a person other than the Board, shall not be so considered as a member of the
Incumbent Board.
APPROVAL OF EXCEPTIONS TO GUIDELINES
Unless specified otherwise within these Guidelines, all exceptions to these
guidelines must be approved in writing by the Top Business Unit Executive or
Corporate Vice President, Corporate Compensation, the Corporate Vice President
of Human Resources and the standard one-over-one approval matrix.
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Human Resources Committee of the Goulds Pumps Board of Directors may, at any
time, interpret, amend, modify, suspend or terminate the Plan in accordance with
changing conditions; however, any such change shall be made effective as of the
beginning of the next succeeding fiscal year. In no event, however, may any
amendment increase the maximum Target Incentive Awards and the maximum
performance rating or materially increase the class of employees eligible to
participate without the approval of the Chief Executive Officer. No person has
any rights with respect to an Incentive Award until it has been paid. No person
eligible to receive any payments shall have any rights to pledge, assign or
otherwise dispose of unpaid portion of such payments.
_______________________________________
William G. Kelley Date
Vice President - Human Resources
Goulds Pumps, Inc.
___________________________________
Attest Date
6
<PAGE> 1
Exhibit 8
AMENDMENT TO THE GOULDS PUMPS
SEVERANCE PLAN FOR U.S. SALARIED EMPLOYEES
This amendment to the Goulds Pumps Severance Plan for U.S. Salaried
Employees (the "Plan") is effective April 4, 1997.
WHEREAS, the Company has reserved the right under the Plan to make
amendments to the Plan; and
WHEREAS, the Human Resources Committee has determined that it is
appropriate to provide for enhanced employment security of Plan participants in
the event of a change in the control of the Company as defined herein;
THEREFORE the Plan is amended as follows:
the following paragraph is added to the Plan following the paragraph titled
OTHER BENEFITS on page five (5) of the Plan Document:
In the event of an involuntary termination which occurs as a direct result of a
Change of Control of the Company, as defined herein, non-bargaining unit
employees whether classified by the Company as exempt or non-exempt under the
Fair Labor Standards Act (FLSA) shall receive a severance benefit, as defined
herein, equal to a minimum of thirteen (13) weeks commencing upon the date of
termination or the severance benefit otherwise applicable under the Plan,
whichever is greater. Such severance benefits shall be subject to all other
provisions contained herein.
A Change of Control shall be deemed to have taken place if:
(i) the stockholders of the Corporation shall approve any
plan, proposal or agreement for, or there shall otherwise be
consummated (1) any consolidation or merger of the Company pursuant to
which any shares of the Company's Common Stock are to be converted into
cash, securities or other property, unless, after the consolidation or
merger the Incumbent Board, as defined below, remains a majority of the
Board; or (2) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of more than 50% of
the assets or earning power of the Company to a third party unrelated
to the Company; or
(ii) the stockholders of the Company approve any plan or
proposal for the liquidation or dissolution of the Company; or
<PAGE> 2
Amendment to the Goulds Pumps
Severance Plan for U.S. Salaried Employees
Page 2
(iii) any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934), shall become the
beneficial owner (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of 20% or
more of the Company's then outstanding Common Stock (a "significant
acquisition of ownership"), provided that, such person shall not be a
wholly-owned subsidiary of the Company immediately before it becomes
such 20% beneficial owner; or
(iv) individuals who constitute the Company's Board of
Directors on the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof, provided that any
person becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least three quarters of the directors
compromising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is
named as a nominee for director, without objection to such nomination)
shall be, for purposes of this clause (d), considered as though such
person was a member of the Incumbent Board, provided that, any
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A under the Securities Exchange Act of 1934), or
other actual or threatened solicitation of proxies or consents by or on
behalf of a person other than the Board, shall not be so considered as
a member of the Incumbent Board.
IN WITNESS WHEREOF, the Company has caused this Amendment to the
Severance Plan for U.S. Salaried Employees to be executed on its behalf by a
duly authorized officer of the Company as of this April 4, 1997.
GOULDS PUMPS, INCORPORATED
BY: /s/ William G. Kelley
--------------------------------
William G. Kelley
Vice President - Human Resources
<PAGE> 1
Exhibit 9
GOULDS PUMPS, INCORPORATED
300 WILLOWBROOK OFFICE PARK
FAIRPORT, NY 14450-4285
April 25, 1997
Dear Stockholder:
I am pleased to inform you that on April 20, 1997, Goulds Pumps,
Incorporated (the "Company") entered into an Agreement and Plan of Merger (the
"Merger Agreement") with ITT Industries, Inc., an Indiana corporation ("ITT
Industries"), and George Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of ITT Industries (the "Purchaser"). Pursuant to the Merger
Agreement, the Purchaser is today commencing a tender offer (the "Offer") to
purchase (i) all outstanding shares of Common Stock, par value $1.00 per share,
of the Company (the "Shares") at a price of $37.00 per Share net to the seller
in cash, without interest thereon. The Merger Agreement provides that each Share
not acquired by the Purchaser pursuant to the Offer will be exchanged for the
same consideration payable pursuant to the Offer in cash in connection with the
merger (the "Merger") of the Purchaser into the Company, which will occur as
soon as practicable following the consummation of the Offer.
Your Board of Directors has unanimously approved the Merger Agreement and
the transactions contemplated thereby and determined that the Offer and the
Merger are fair to, and in the best interests of, the stockholders of the
Company. Accordingly, the Board of Directors recommends that stockholders accept
the Offer and tender their Shares to the Purchaser pursuant to the Offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9, including, among other things, the opinion of Goldman, Sachs &
Co. ("Goldman Sachs"), the Company's financial advisor, that the $37.00 per
Share to be received by the stockholders of the Company in the Offer and the
Merger is fair to such stockholders. The full text of the written opinion of
Goldman Sachs, which sets forth assumptions made, matters considered and
limitations on the review undertaken in connection with such opinion, is
attached hereto and stockholders are urged to read the opinion in its entirety.
Additional information with respect to the transaction is contained in the
enclosed Schedule 14D-9. Also enclosed is the Purchaser's Offer to Purchase,
dated April 25, 1997, and related materials, including a Letter of Transmittal
to be used for tendering your Shares. These documents set forth the terms and
conditions of the Offer and provide instructions as to how to tender your
Shares. We urge you to read the enclosed material and consider this information
carefully.
Sincerely,
/s/ THOMAS C. MCDERMOTT
THOMAS C. MCDERMOTT
Chairman, President and
Chief Executive Officer
