<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
__ of 1934 for the fiscal year ended December 31, 1997, or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
__ Exchange Act of 1934 for the transition period from ________ to _______.
Commission File Number 1-5562
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KOLLMORGEN CORPORATION
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(Exact name of registrant as specified in its charter)
New York 04-2151861
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Reservoir Place, 1601 Trapelo Road, Waltham, MA 02154-7333
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (781) 890-5655
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -------------------
Common Stock - $2.50 par value New York Stock Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
8 3/4% Convertible Subordinated
Debentures Due 2009 New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
__
State the aggregate market value of the voting stock held by non-affiliates
of the registrant.
$207,071,992 as of March 24, 1998.
Indicate the number of outstanding shares of the registrant's Common Stock.
10,054,474 shares as of March 24, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Definitive Proxy Statement to be filed for the 1998
Annual Meeting of Shareholders are incorporated by reference into Part III.
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PART I
Item 1. Business.
(a) General. Kollmorgen Corporation was incorporated in the State of New
York in 1916. The term the "Company" as used herein refers to Kollmorgen
Corporation and its subsidiaries. The Company believes that it is one of the
major worldwide manufacturers of high performance electronic motion control
products and systems and has operations in two industry segments: industrial
and commercial and aerospace and defense.
(b) Financial Information about Industry Segments. A table setting forth
the amounts of revenue, operating profit or loss and identifiable assets
attributable to each of the Company's industry segments in each of its last
three fiscal years is contained in Note 20 captioned "Industry Segment
Information" to the Financial Statements.
(c) Narrative Description of Business. During 1997, the Company made a
number of strategic acquisitions, divested itself of a significant business
unit, and internally realigned its businesses into two business segments. These
actions are consistent with the previously announced strategy to focus on
businesses primarily related to high performance electronic motion control. The
Company believes that it is one of the major worldwide leaders in the field of
high performance motion control. For example, in January 1997, the Company
announced the formation of a new Swiss joint venture with the shareholders of
Gretag AG whereby the Company, effective December 31, 1996, contributed all of
the Macbeth commercial electro-optical businesses to Gretag-Macbeth Holding AG
("Holding"), a Swiss company. In June 1997, the Company sold its interest in
Holding through a public offering on the Swiss stock exchange.
In the 1997 second quarter, the Company also announced that it increased its
ownership to 80% in Servotronix Ltd., a company in Israel that develops software
for motion control systems. During July 1997, the Company acquired Fritz A.
Seidel Elektro-Automatik GmbH of Dusseldorf, Germany, a leading designer and
distributor of high performance servo motors throughout Europe.
In addition, during 1997 the Company reorganized its existing businesses
into two distinct segments, namely, the Industrial and Commercial Group and the
Aerospace and Defense Group.
Industrial and Commercial Group.
The Company's products in this segment include a number of different types
of permanent magnet motors, associated electronic amplifiers and feedback
components, controls and related systems for a variety of applications. The
Company's line of servo motors and related drive electronics are used in a
variety of industrial applications including industrial automation, process
control, machine tools, underwater equipment, and robotics. Its torque motors,
tachometer generators are used worldwide in medical, machine tool and process
control applications. The above products are manufactured primarily in Radford,
Virginia, at the Company's Industrial Drives and Inland Motor Divisions.
In addition, the Company sells a line of stepper motors and brushless motors
used for office and factory automation, computer peripherals, instrumentation,
and medical applications. The PMI Division located in Commack, New York,
designs, manufactures, and distributes a line of low inertia, high speed of
response, d.c. motors and associated electronics plus feedback devices used
primarily in industrial automation and medical applications. This division also
sells linear motors for various industrial applications. The Company
distributes industrial motors and a proprietary line of analog and digital
electronic drives sold under the trademarks "Digifas" and "Digilink" in Europe
through its wholly-owned subsidiary, Seidel Servo Drives GmbH.
In addition to the Company's principal facilities located in Virginia and
New York, the Company in recent years has begun the manufacture and assembly of
its commercial products in other geographic locations. Through a joint venture
in Mumbai, India, the Company manufactures high volume, fractional horsepower
motors primarily for the computer peripheral and electronics markets. The
Company also distributes
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its industrial motors products in the People's Republic of China through a
majority-owned joint venture company, Tianjin Kollmorgen Industrial Drives
Corporation, located in Tianjin, PRC.
In this segment, competitive advantage is gained by the ability of the
Company to design new or adapt existing motors and drive systems to meet
relatively stringent packaging and performance requirements of customers, most
of whom are original equipment manufacturers purchasing the motors and drives
for inclusion in their end product. While meeting these stringent technical
specifications, the motors and drives must also be price competitive. The
number and identity of the competitors in this segment varies depending upon the
particular industry and product application. Several large European and
Japanese manufacturers, either directly or through joint ventures with American
companies, have been able to compete successfully in the United States machine
tool and industrial automation marketplaces, including the market for industrial
motors of the type that the Company's Industrial Drives Division manufactures.
In other markets, there are relatively few competitors for each marketplace or
application, and generally they are specialized domestic or foreign motor
manufacturers.
The products in this segment are marketed and sold worldwide directly
through qualified technical personnel employed by the Company, or through
manufacturers' representatives or distributors, or by a combination of the
foregoing.
In this segment, the Company also provides services for the modification and
upgrade of nuclear and fossil power plants of domestic electric utility
companies and independent power producers through a wholly-owned subsidiary,
Proto-Power Corporation. In recent years, this subsidiary has licensed its
proprietary computer-aided engineering software to a number of its customers for
analyzing the performance of power plant systems and equipment.
The backlog of the Industrial and Commercial Group at the end of 1997 was
$36.3 million, essentially all of which is expected to be shipped in 1998.
Aerospace and Defense Group.
The Company's motion control products and subsystems in this segment are
primarily manufactured by Kollmorgen Artus, a wholly-owned French subsidiary,
and the Inland Motor Division, Radford, Virginia. Its electro-optical products
and systems are manufactured and sold through its Electro-Optical Division
located in Northampton, Massachusetts.
Kollmorgen Artus manufactures and sells generators, special motors, electro-
mechanical actuators and drive electronics, synchros, and resolvers, which are
sold worldwide into the defense and aerospace market. During early 1997,
Kollmorgen Artus announced the successful test flight of its proprietary ac/dc
regulated power management system on the Bell-Boeing V-22 Osprey tiltrotor
aircraft. This subsidiary recently completed the construction of a new motor
facility in Bien Hoa, Vietnam, for the manufacture of resolvers, subassemblies
and motors exclusively for that business. Kollmorgen Artus also manufactures
and sells calibration systems for air traffic control navigation aids.
The specialty d.c. torque motors, tachometer generators and electro-
mechanical actuators and related electronics are used worldwide in a variety of
aerospace and defense applications, including missiles, commercial and military
aircraft and sophisticated guidance tracking systems.
In addition to selling rotating products and systems since 1960, the Company
has been the primary designer and major supplier of submarine periscopes and
related spare parts to the United States Navy since 1916 and also markets and
sells submarine periscopes to navies throughout the world through its Electro-
Optical Division. This Division also has been an important supplier of other
electro-optical instruments for various weapon systems, including specialized
on-board sights for the DDG-51 Arleigh-Burke Class of guided missile destroyers.
These instruments often possess highly advanced servo-driven optical systems and
may use lasers, infrared detectors, or low-light level television imaging
systems for night vision. The Company has also begun the introduction of a
proprietary weapon control system for a variety of platforms which are being
sold under the trademark CLAWS(TM).
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Depending on the particular customer, the Company's aerospace and defense
business, particularly at its Electro-Optical Division, is characterized by
long-term contracts which require the delivery of products over more than one
year and progress payments during the manufacture of the product. Competition is
generally limited to divisions of large multinational companies which specialize
in military contracting. To date, the Company has been able to compete
effectively against these larger companies because of the Company's experience
and expertise in the specialized areas which it serves.
The backlog of this segment at the end of 1997 was $62.1 million of which
approximately 80% is expected to be shipped in 1998.
Customer Base.
Except to the extent that sales to the U.S. government under numerous prime
and sub-contracts may be considered as sales to a single customer, the Company's
business is not characterized by dependence upon one customer or a few
customers, the loss of any of which would have a materially adverse effect on
its total business. Typical of all engineered or custom-made component and
systems businesses, the Company's customer base is composed of a number of large
key accounts, the importance of any one of which can vary from year to year.
During 1997, no customer accounted for 10% or more of the Company's consolidated
revenues.
Government Sales.
In 1997, sales to the U.S. Government or for U.S. Government end-use
represented approximately 21.5% of revenues.
Patents.
The Company has either applied for or been granted a number of domestic and
foreign patents pertaining to its business segments. The Company believes that
these patents are and will be important to the Company's continued leadership
position in these business segments and, when necessary, has and will continue
to enforce its legal rights against alleged infringements of its patent estate.
On January 15, 1998, the Company announced that it will receive $27.2 million
under a confidential settlement and paid-up license agreement with a large
multinational Japanese company covering certain of the Company's motion control
patents. The Company has also notified a number of domestic and foreign
companies that licenses are available for these patents.
Raw Materials.
The raw materials essential to the Company's business are generally
available in the open market, and the Company did not experience any significant
shortages in such materials during the past three years. The Company believes
that it has adequate sources of raw materials available for use and does not
anticipate any significant shortages.
Research and Development.
During 1997, the Company spent $9.7 million or approximately 4.3% of its
consolidated sales on research activities related to the development of new
products. This compares to $12.1 million or 5.3% in 1996, and $13.2 million or
5.8% in 1995. Substantially all of this amount was sponsored by the Company.
Environmental Matters.
The Company's operations are subject to a variety of federal environmental
laws and regulations. The most significant of these laws are the Clean Air Act,
the Clean Water Act and the Resource Conservation and Recovery Act, all of which
are administered by the United States Environmental Protection Agency. These
statutes and the regulations impose certain controls on atmospheric emissions,
discharges into sewers and domestic waters, and the handling and disposal of
hazardous wastes. In addition, certain state and local jurisdictions have
adopted
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environmental laws and regulations that are more stringent than federal
regulations. Compliance with these federal and state laws and regulations has
resulted in expenditures by the Company to improve or replace pollution control
equipment. The Company's estimated capital expenditures for environmental
control facilities are not expected to be material.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act and analogous state statutes, certain liabilities are imposed for
the disposal of "hazardous substances" without regard to fault or the legality
of such disposals. The Company has been named, or has been informed that it may
be named, as a potentially responsible party at several waste disposal sites
under these statutes. Based upon the information available to date, the Company
does not believe that its share of any clean-up costs will have a material
impact on the Company's financial condition, cash flows or results of
operations.
Employees.
The Company is a party to a collective bargaining agreement with the
International Association of Machinists and Aerospace Workers that currently
covers 34 employees and expires in August 1999.
As of December 31, 1997, the Company employed approximately 1,863
employees. The Company believes that it enjoys satisfactory relations with its
employees, including those covered by the collective bargaining agreement.
Financial Information About Foreign and Domestic Operations and Export Sales.
Financial information on the Company's foreign and domestic operations and
export sales is contained in the response to Item 14(a) of this Report.
Item 2. Properties.
The Company's corporate office is located in Waltham, Massachusetts. The
table which follows sets forth a current summary of the locations of the
Company's principal operating plants and facilities, and other pertinent facts
concerning them. The Company's facilities are substantially utilized, well
maintained and suitable for its products and services.
<TABLE>
<CAPTION>
Size of Leased
Business Segment Location Facility or Owned
---------------- -------- -------- --------
<S> <C> <C> <C>
Industrial and Commercial Group Commack, NY 100,000 sq.ft. Leased
Groton, CT 32,000 sq.ft. Leased
Radford, VA 261,000 sq.ft. Owned
Dusseldorf, Germany 34,000 sq.ft. Leased
Petach Tikva, Israel 11,000 sq.ft. Leased
Aerospace and Defense Group Brattleboro, VT 24,000 sq.ft. Leased
Northampton, MA 98,000 sq.ft. Owned
Avrille, France 94,000 sq.ft. Owned
Besancon, France 11,000 sq.ft. Owned
Bien Hoa, Vietnam 24,000 sq.ft. Owned
Corporate Waltham, MA 6,250 sq.ft. Leased
</TABLE>
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Item 3. Legal Proceedings.
The Company has various legal proceedings arising from the ordinary conduct
of its business; however, they are not expected to have a material adverse
effect on the consolidated financial position, cash flows, or results of
operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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Executive Officers of the Company.
The following is a list of the Company's executive officers, their ages and
their positions as of March 24, 1998:
<TABLE>
<CAPTION>
Present Business Experience During
Name Age Office Past Five Years
- ------------ ------- ------------- ---------------------------------------------
<S> <C> <C> <C>
Gideon Argov 41 President Chairman of the Board since March 1996.
President and Chief Executive Officer since
November 1991; Director since May 1991. From
March 1989 to May 1991, President and Chief
Executive Officer and Director of High Voltage
Engineering Company. Prior to that date, for five
years a manager and senior consultant with Bain &
Company.
Robert J. Cobuzzi 56 Senior Vice Senior Vice President since February 1993,
President, Treasurer and Chief Financial Officer since July
Treasurer, and 1991. From April 1989 to July 1991, Vice
Chief Financial President and Treasurer of High Voltage
Officer Engineering Company. Prior to April 1989, Vice
President and Chief Financial Officer of Ausimont
N.V.
Daniel F. Desmond 48 Vice President Vice President since November 1997. President of
the Company's Aerospace and Defense Group.
President of the Company's Electro-Optical
Division from 1989 to present.
James A. Eder 52 Vice President, Vice President since January 1990. General
Secretary, and Counsel since December 1991, and Secretary since
General Counsel 1983. Previously he had been Assistant Corporate
Counsel from 1977 to 1982.
Keith D. Jones 39 Controller and Corporate Controller since May 1996. Chief
Chief Accounting Accounting Officer since March 1996. Director of
Officer Finance and Corporate Controller of Cambridge
Biotech Corporation from September 1991 to August
1995.
Mark E. Petty 42 Vice President Vice President since January 1996. President of
the Company's Industrial and Commercial Group
since 1994. Prior to that, he held several
management positions in the Company since March
1992. Previously, President of General Eastern,
a Division of High Voltage Engineering Company.
</TABLE>
All officers are elected annually for one-year terms at the organizational
meeting of the Board of Directors held immediately following the annual meeting
of shareholders.
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Part II
Item 5. Market for the Company's Common Equity and Related Shareholder Matters.
The Company's Common Stock is traded on the New York Stock Exchange. There
were approximately 1,900 registered holders of the Company's Common Stock on
March 24, 1998. The following table sets forth the high and low sales price for
shares of the Company's Common Stock within the last two fiscal years and the
dividends paid during each quarterly period.
SELECTED QUARTERLY STOCK DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Q 1 97 Q 2 97 Q 3 97 Q 4 97 Q 1 96 Q 2 96 Q 3 96 Q 4 96
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market price per common share
High:.................................. $15 1/8 $15 15/16 $19 1/4 $20 3/8 $13 1/8 $15 5/8 $14 3/4 $13 3/4
Low:................................... 10 7/8 11 5/8 14 3/4 16 3/4 9 5/8 11 3/8 10 1/2 10 1/8
Shares of common stock traded .......... 2,076 1,425 1,914 1,270 1,152 1,215 818 1,710
Dividends per common share ............. $ .02 $ .02 $ .02 $ .02 $ .02 $ .02 $ .02 $ .02
Average outstanding common shares
and common share equivalents .......... 10,177 10,190 10,465 10,525 9,706 10,092 10,044 10,028
</TABLE>
Item 6. Selected Financial Data.
- --------------------------------
The following table sets forth selected consolidated financial data for the
Company for each of the five fiscal years 1993 through 1997.
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995* 1994 1993
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... $222,246 $230,424 $228,655 $191,771 $185,538
Acquired research and development ................. 11,391 - - - -
Tender offer costs ................................ 4,176 - - - -
Gain on sale of investment in Joint Venture........ 24,321 - - - -
Net income......................................... 19,720 8,904 7,157 4,051 4,752
Total assets....................................... 145,444 141,330 147,474 138,201 134,008
Total debt......................................... 43,623 65,541 49,808 53,991 53,524
Redeemable preferred stock (See Note 8
to Financial Statements)......................... - - 25,506 22,532 22,407
Average outstanding common shares and
common share equivalents......................... 10,364 10,042 9,770 9,703 9,632
Earnings per common share:
Basic............................................ $ 2.00 $ 0.89 $ 0.26 $ 0.18 $ 0.25
Diluted.......................................... $ 1.90 $ 0.86 $ 0.26 $ 0.18 $ 0.25
Cash dividends per common share.................... $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08
</TABLE>
* After provision for the 10% premium on the redemption of the Series D
Convertible Preferred Stock.
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Item 7. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations.
---------------------
This filing contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Please refer to the
"Forward-Looking Statements" and "Risk Factors" included in the Registration
Statement on Form S-4 dated January 15, 1998.
During 1997, the Company continued to increase its focus on high performance
motion control. Over the past three years this effort has resulted in the
acquisition of two companies, the sale of three instrumentation businesses, a
tender offer in an attempt to merge with one of the Company's competitors, and
an internal restructuring of its motion control businesses into two
organizations, the Industrial and Commercial Group and the Aerospace and Defense
Group. These activities resulted in several special items detailed in the notes
to the Company's financial statements. The special items are summarized below:
Effective April 2, 1997, the Company agreed to purchase all of the remaining
shares of Servotronix Ltd. ("Servotronix") for cash of $6.4 million and through
the issuance of 257,522 shares of the Company's common stock.
Effective June 10, 1997, the Company entered into a binding agreement to
purchase all of the shares of Fritz A. Seidel Elektro-Automatik GmbH ("Seidel")
for $9.4 million in cash.
In connection with the acquisitions of Servotronix and Seidel, the Company
has allocated the purchase price to the assets acquired, both tangible and
intangible, and the excess of the purchase price over the assets acquired has
been classified as goodwill. A portion of the purchase price has been allocated
to in-process research and development in the amount of $10.5 million which was
expensed as "Acquired research and development" in the second quarter of 1997.
Also included in Acquired research and development was a charge of approximately
$0.9 million for technology acquired unrelated to the Servotronix and Seidel
acquisitions.
On December 15, 1997, the Company commenced a tender offer ("Tender Offer")
for 50.1% of the outstanding shares of Pacific Scientific Company ("Pacific") in
cash with the remainder of the Pacific shares to be acquired through the
issuance of the Company's stock to complete the merger. On February 2, 1998,
the Company terminated its offer to acquire Pacific after a significantly higher
bid was accepted by the Pacific board of directors. Included in the
accompanying financial statements is a charge of $4.2 million representing the
costs incurred through December 31, 1997 in connection with the Tender Offer.
On January 16, 1997, the Company entered into an agreement, effective
December 31, 1996, to combine its Macbeth division with the Color Control
Systems business of Gretag AG (the "Joint Venture"). On June 25, 1997, the
Company sold approximately 88% of its interest in the Joint Venture, receiving
approximately $38 million. Subsequently, in August 1997, the Company sold the
remaining shares to the underwriter, receiving approximately $4.0 million in
cash. The accompanying financial statements reflect a gain in 1997 of
approximately $24 million from the sale of its shares in the Joint Venture. The
gain is net of $2 million in income taxes and the utilization of net operating
losses and other tax credit carryforwards.
In March 1996, the Company sold a significant portion of its instrumentation
business located in France for 12 million French francs (approximately $2.4
million), the approximate book value of the assets sold. In October 1995, the
Company sold its Photo Research business for $3.2 million in cash after expenses
relating to the sale, which resulted in a gain of approximately $0.9 million.
Collectively the French instrumentation business, the Photo Research business,
and the Macbeth business will be referred to as the "Businesses Sold".
On January 19, 1996, the Company entered into a term loan with the Company's
lead bank which amended its existing loan agreement to include a $25 million
five year amortizing term loan for the purpose of redeeming, in February 1996,
the Company's Series D Convertible Preferred Stock (the "Preferred Stock").
Deducted from earnings in the calculation of earnings per share in 1995 was a
10% redemption premium of $2.3 million, or $0.24 per share. The Preferred Stock
had a dividend rate of 9.5%, which was not deductible for tax purposes, versus
the 7.45% interest rate of the term loan. Consequently this rate differential
had a beneficial impact in 1996 on the
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Company's earnings per share, and the deductibility of the interest payments had
a favorable impact to the Company in 1997 as its tax benefit carryforwards were
fully utilized in 1996. In June 1997, the Company repaid the term loan with the
proceeds from the sale of its interest in the Joint Venture.
Collectively, the above items will be referred to as the "Special Items" to
provide for comparative discussion of the Company's results on a consistent
basis.
Results of Operations
---------------------
For the year ended December 31, 1997, the Company had sales of $222.2
million and net income of $19.7 million, equal to $1.90 per common share
(diluted). These results compare with 1996 sales of $230.4 million and net
income of $8.9 million equal to $0.86 per common share (diluted), and 1995 sales
of $228.7 million and net income of $7.2 million, equal to $0.26 per common
share (diluted). Excluding the impact of the Special Items discussed above, the
Company's net income would have been $10.5 million equal to $1.02 per share,
$8.9 million equal to $0.86 per share, and $7.2 million equal to $0.50 per share
for the years 1997, 1996, and 1995, respectively.
Operating income declined in 1997 to a loss of $1.8 million from income in
1996 of $8.9 million. Excluding the Special Items discussed above and the
equity in earnings of the Joint Venture, operating income would have been $12.5
million in 1997, an increase of 41% over 1996. Excluding the Special Items and
the Businesses Sold, the Industrial and Commercial Group's operating income
increased by 67% in 1997 over 1996 to $10.2 million from $6.1 million as a
result of the improved results by the Group's domestic operations, increased
sales from its high volume business, the impact of the Seidel acquisition and
strong performance in the engineering consulting business. The Aerospace and
Defense Group's operating income declined in 1997 by 4% to $10.5 million in 1997
from $11.0 million in 1996 as a result of a decline in the French operation
which was affected by the startup costs of the Vietnam manufacturing facility,
the decline in sales to foreign militaries, and the weakening value of the
French franc.
Operating income in 1996 increased 24% to $8.9 million in 1996 from $7.2
million in 1995. In the Industrial and Commercial Group, operating income
increased 23% to $8.4 million in 1996 from $7.0 million in 1995 due to increased
revenues being partially offset by increased R&D spending associated with new
products and G&A costs incurred in the implementation of new information
systems. In the Aerospace and Defense Group, operating income rose 19% to $11.0
million in 1996 from $9.2 million in 1995 as a result of increased sales volume
of higher margin products by its U.S. motion control components group.
The Company's sales decreased 4% in 1997 versus 1996. Excluding the
Businesses Sold, revenues increased 13% which is attributable to increased
revenue in the Industrial and Commercial Group. The Industrial and Commercial
revenue increased to $120.2 million in 1997 from $90.2 million in 1996 or 33%
was a result of the Seidel and Servotronix acquisitions, increased revenues for
engineering consulting, and an increase in the sales of fractional horsepower
motors manufactured at the Company's production facility located in Mumbai
(Bombay), India. Sales to Aerospace and Defense customers declined 5% from
$107.2 million in 1996 to $102.0 million in 1997 a result of the weakening in
the value of the French franc and a decline in motion control component sales.
These declines were primarily in the defense portion of this segment, with
decreased sales to foreign militaries more than offsetting increased sales to
the U.S. military.
The Company's sales increased by 1% in 1996 versus 1995. Excluding the
Businesses Sold, revenues increased 9% in 1996 over 1995. This was a result of
increased revenues in both segments with sales to Industrial and Commercial
customers increasing 15% and sales to the Aerospace and Defense markets
increasing 5%.
The Company's overall gross margin declined as a percent of sales to 31% in
1997 from 34% in 1996 as a result of the impact of the Businesses Sold.
Excluding the Businesses Sold, the Company's gross margin as a percent of sales
remained at approximately 31% for 1997 as compared to 1996. The Industrial and
Commercial Group had a slight increase in gross margin as a percent of sales
from 30% in 1996 to 31% in 1997. The Aerospace and Defense Group maintained a
31% gross profit as a percent of sales for both 1996 and 1997.
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The Company's overall gross margin improved as a percent of sales to 34% in
1996 versus 33% in 1995. Excluding the Businesses Sold, gross margin as a
percent of sales increased to 31% in 1996 from 29% in 1995. This was the result
of improved margins in the Company's Aerospace and Defense Group, primarily as a
result of volume increases in both the group's U.S. motors operation and the
French operation.
Sales and marketing expenses were $20.9 million or 9% of sales in 1997 as
compared to $27.6 million or 12% of sales in 1996. Excluding the Businesses
Sold, sales and marketing expenses increased 10% from $19.1 million in 1996 to
$20.9 million in 1997, but sales and marketing expenses as a percent of sales
decreased slightly to 9.4% in 1997 from 9.7% in 1996. The increase in spending
for sales and marketing was in the Industrial and Commercial Group due to the
Seidel and Servotronix acquisitions, although spending as a percent of sales
remained at 10% for this group.
Sales and marketing expenses were $27.6 million or 12% of sales for 1996 as
compared to $29.4 million or 13% of sales for 1995. The decrease in spending in
1996 was the result of the impact of the Businesses Sold, which when excluded
would result in an increase in sales and marketing expenses from $17.9 million
in 1995 to $19.1 million in 1996. The increase in spending in 1996 as compared
to 1995 was in both the Industrial and Commercial Group and the Aerospace and
Defense Group. Sales and marketing expenses as a percent of sales decreased
from 11% in 1995 to 10% in 1996 for the Industrial and Commercial Group and
remained constant at 9% of sales in the Aerospace and Defense Group.
Research and development expenses were $9.7 million or 4% of sales in 1997
as compared with $12.1 million or 5% of sales in 1996. Excluding the Businesses
Sold, R&D expenses were $9.7 million in 1997 or 4% of sales and $8.8 million or
5% of sales in 1996. R&D spending by the Industrial and Commercial Group
increased to $4.6 million in 1997 from $3.5 million in 1996, but remained at 4%
of sales. This increase in spending was a result of the Seidel and Servotronix
acquisitions. R&D spending by the Aerospace and Defense Group decreased in 1997
to $4.6 million from $5.3 million in 1996. The decline in spending was a result
of decreased spending by the group's French operation, where R&D spending had
risen significantly in 1996 to support certain billable long-term development
contracts.
Research and development expenses were $12.1 million or 5% of sales in 1996,
$13.2 million or 6% of sales in 1995. The decrease in spending in 1996 was the
result of the impact of the Businesses Sold. R&D spending from ongoing
businesses increased to $8.8 million or 5% of sales in 1996 from $6.9 million or
4% of sales in 1995. The Industrial and Commercial Group's R&D spending
increased to $3.5 million or 4% of sales in 1996 from $2.3 million or 3% of
sales as a result of the development of commercial products introduced in 1995
and 1996. The Aerospace and Defense Group's R&D spending increased from $4.6
million or 5% of sales in 1995 to $5.3 million or 5% of sales in 1996 as result
of an increase in spending in 1996 for the support of long-term development
contracts awarded to the group's French operation.
General and administrative expenses declined to $22.8 million or 10% of
sales in 1997 from $24.3 million or 11% of sales in 1996. Excluding the impact
of the Businesses Sold, G&A expenses increased 3% to $22.8 million or 10% of
sales in 1997 from $22.2 million or 11% of sales in 1996. The increase in G&A
spending was a result of increased spending by the Industrial and Commercial
Group due to the Seidel and Servotronix acquisitions and because of increased
support required by this group's growing engineering consulting business.
General and administrative expenses increased to $24.3 million in 1996 as
compared to $22.4 million in 1995. Excluding the Businesses Sold, G&A spending
increased 23% to $22.2 million or 11% of sales from $18.0 million or 10% of
sales in 1995. The increase reflects the costs to support the growth of the
Industrial and Commercial Group's engineering consulting business and the costs
of implementation of new computer systems.
Interest expense was $4.7 million, $5.8 million, and $4.7 million, in 1997,
1996, and 1995, respectively. The decrease in interest expense in 1997 as
compared to 1996 was due to the repayment of the balance of the $25 million term
loan the Company entered into to fund the redemption of its Preferred Stock in
1996, and the reduction in long-term debt as a result of the Company's annual
mandatory sinking fund payments on its two convertible subordinated debentures.
The increase in interest expense in 1996 over 1995 reflects the impact of the
$25 million term loan.
11
<PAGE>
The Company reported taxes of $2.8 million in 1997 provided against a loss
before taxes of $3.4 million. The Acquired research and development charge is
not deductible for tax purposes and only a portion of the Tender Offer costs are
deductible in 1997. After adjustment for these items, the Company recorded a
tax provision of approximately 28% against earnings. The Company had a zero tax
rate in 1996 and 1995 as a result of the utilization of net operating loss and
other tax credit carryforwards.
New orders for the Company (excluding the Businesses Sold) increased 22% in
1997 as compared with 1996. The Industrial and Commercial Group saw an increase
in bookings of 28% in 1997 versus 1996 as a result of the Seidel and Servotronix
acquisitions, increased orders for the group's fractional horsepower motors
manufactured in India, and increased orders for the group's engineering and
consulting business. The Aerospace and Defense Group's new orders increased 16%
in 1997 over 1996 principally due to long term orders at the group's domestic
military systems business, and an increase by its French operations.
Liquidity and Capital Resources
-------------------------------
The Company's consolidated cash position increased by $1.4 million during
1997. Cash provided from operations was $3.0 million, $20.0 million was
provided by investing activities due primarily from the cash proceeds received
from the sale of the Company's equity investment in the Joint Venture, and $21.7
million was used for financing activities.
Accounts receivable provided $5.1 million of cash reflecting collection of
progress billings on long-term military contracts, and from cash generated from
a receivable from the Joint Venture. Inventories used $0.8 million of cash
despite an increase in sales of $24.9 million from ongoing businesses,
reflecting the Company's continued focus on reducing inventory levels in 1997.
Accounts payable and accrued liabilities used $4.9 million as a result of a $1.5
million payment for the refinancing of a building lease on more favorable terms
to the Company, scheduled payments made in early 1997, and a decline in the
inventory of the Company's domestic operations. The Company paid taxes of $7.3
million in 1997 reflecting the full utilization of its net operating loss and
other tax credit carryforwards in 1996.
The Company's investing activities in 1997 included expenditures of $6.2
million for property, plant and equipment primarily for replacement of existing
equipment, investment in new equipment to improve the efficiency of
manufacturing, and investment in a new manufacturing facility in Vietnam which
commenced operations in 1997. The Company received $41.4 million from its
equity interest in the Joint Venture. In connection with the acquisition of
Servotronix, the Company paid $6.4 million in cash. The Company funded the
acquisition of Seidel for $9.4 million through a combination of debt and cash.
The Company's financing activities used $21.7 million of cash during the
year. Borrowings under its revolving credit facility were $4.9 million, which
was used to partially finance the Seidel acquisition. The Company repaid the
balance of its term loan, or $22.7 million, with the proceeds received from the
sale of its equity investment in the Joint Venture. The Company also made
mandatory sinking fund payments on its two convertible subordinated debentures
totaling $3.8 million, with the 10.50% debentures being retired on schedule in
1997. Common dividends were $0.8 million. The Company is required, under the
terms of the 8.75% convertible subordinated debenture, to make certain mandatory
sinking fund payments each year through the year 2009.
The Company entered into a five year $50 million unsecured multicurrency
credit facility in 1997. Borrowings under the agreement bear interest at the
bank's prime lending rate or the Eurodollar rate plus a margin ranging from 75
to 175 basis points and which the current margin is 75 basis points. The margin
varies based on the financial performance of the Company, and the Company
expects to continue its financial performance at a level that will maintain the
existing margin rate for the foreseeable future. This facility replaces a $45
million fully secured arrangement.
Capital spending for 1998 is expected to increase by approximately $1.0
million over 1997 reflecting the investment in computer systems the Company is
making, and investments in plant and equipment to support the increased level of
business expected in 1998. The Company expects to obtain lease or debt
financing for some of its capital requirements for 1998. The Company's need,
cost of, and access to funds are dependent on future
12
<PAGE>
operating results, as well as conditions external to the Company. The Company
continues to focus on working capital reductions and effective cash management
in order to maximize the amount of available cash. The Company believes that
with the cash generated from operations and with its current borrowing capacity,
it will be able to finance its 1998 capital expenditures, sinking fund payments,
and working capital requirements.
In January 1998, the Company announced that a Japanese company had agreed to
pay the Company $27.2 million under a confidential settlement and paid-up
licensing agreement covering certain of the Company's motion control patents.
The settlement amount, less applicable Japanese withholding taxes, was received
by the Company in the first quarter of 1998.
Certain of the Company's internal computer systems are not Year 2000 ready
(i.e. such systems use only two digits to represent the year in the date data
fields and, consequently, may not accurately distinguish between the 20th and
21st centuries or may not function properly at the turn of the century). The
Company has been taking actions to either correct such systems or replace them
with Year 2000 ready systems. The Company has been working on the replacement
of many of its systems over the past two years, and many of these systems are
either currently operational or will be in 1998. The Company expects to
implement successfully the systems and programming changes necessary to address
the Year 2000 issues and does not believe that the cost of such actions will
have a material effect on the Company's results of operations or financial
condition. There can be no assurance, however, that there will not be a delay
in, or increased costs associated with, the implementation of such changes, and
the Company's inability to implement such changes could have an adverse effect
on future results of operations.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is included in Item 14(a) of this
Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 10. Directors and Executive Officers of the Company.
The information required by this Item 10 of Form 10-K relating to directors
who are nominees, and to directors continuing in office after the Company's
Annual Meeting of Shareholders to be held on May 13, 1998, is contained in the
definitive proxy statement to be filed with the Securities and Exchange
Commission (the "Commission") on or before April 6, 1998, under the headings
"Nominees", and "Continuing Directors", and such information is incorporated
herein by reference in response to this item.
The information required by this Item 10 of Form 10-K with respect to
executive officers is set forth in Part I of this Form 10-K under the heading
"Executive Officers of the Company".
Item 11. Executive Compensation.
The information required by this Item 11 of Form 10-K is contained in the
Company's definitive proxy statement to be filed with the Commission on or
before April 6, 1998, under the heading "Executive Compensation" and such
information is incorporated herein by reference in response to this item.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item 12 of Form 10-K is contained in the
definitive proxy statement to be filed with the Commission on or before April 6,
1998, under the headings "Security Ownership of Certain
13
<PAGE>
Beneficial Owners" and "Security Ownership of Management" and such information
is incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements. See Index to Financial Statements on page
16.
(2) Exhibits. See Exhibit Index on page 41.
(b) Reports on Form 8-K.
(i) On December 15, 1997, the Company filed a current report on Form 8
regarding the commencement of a tender offer for a business
combination with Pacific Scientific Company.
(ii) On January 27, 1998, the Company filed a current report on Form 8-
K announcing the signing of a confidential settlement and paid-up
license agreement with a Japanese company.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, Kollmorgen Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KOLLMORGEN CORPORATION
/s/ Robert J. Cobuzzi
----------------------
Robert J. Cobuzzi
Its: Senior Vice President, Treasurer
and Chief Financial Officer
March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
/s/ Gideon Argov
- -------------------
Gideon Argov March 30, 1998
President and
Chief Executive Officer/Director
/s/ Robert J. Cobuzzi
- ------------------------
Robert J. Cobuzzi March 30, 1998
Senior Vice President, Treasurer and
Chief Financial Officer/Director
/s/ Keith D. Jones
- ---------------------
Keith D. Jones March 30, 1998
Controller and
Chief Accounting Officer
/s/ James A. Eder
- --------------------
James A. Eder March 30, 1998
Vice President and Secretary and
Attorney-in-Fact For:
Jerald G. Fishman, Director Geoffrey S. Rehnert, Director
Herbert L. Henkel, Director George P. Stephan, Director
James H. Kasschau, Director J. Douglas Maxwell, Director
15
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries are included in response to Item 8.
Page(s) in
Form 10-K
----------
Report of Independent Accountants 17
Consolidated Balance Sheets as of 18
December 31, 1997 and 1996.
Consolidated Statements of Operations for the years 19
ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for 20
the years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the 21
years ended December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements. 23
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Kollmorgen Corporation:
We have audited the accompanying consolidated balance sheets of Kollmorgen
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kollmorgen
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Boston, Massachusetts
January 24, 1998, except as to the information
presented in Note 19 relating to the Tender Offer
termination for which the date is February 2, 1998.
17
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS
- ------
1997 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1) $ 14,854 $ 13,445
Accounts receivable (net of allowance of $971
in 1997 and $772 in 1996) 39,528 43,189
Recoverable amounts on long-term contracts 5,762 4,973
Inventories (Note 3) 25,162 22,450
Prepaid expenses 2,041 1,645
-------- --------
Total current assets 87,347 85,702
Property, plant, and equipment, net (Note 4) 26,673 25,147
Goodwill, patents, and other intangible assets
(net of accumulated amortization
of $4,840 in 1997 and $4,078 in 1996) 14,343 5,649
Deferred income taxes (Note 12) 5,802 1,728
Investment in Joint Venture (Note 2) - 12,720
Other assets 11,279 10,384
-------- --------
$145,444 $141,330
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 18,467 $ 21,765
Accrued compensation and payroll taxes 9,218 7,703
Accrued liabilities 26,534 19,053
Line of credit (Note 6) 5,232 5,545
Current portion of long-term debt (Note 7) 2,012 6,942
-------- --------
Total current liabilities 61,463 61,008
Long-term debt (Note 7) 36,379 53,054
Other liabilities 5,874 5,202
Minority interest 136 287
Commitments and contingencies - -
Shareholders' equity (Notes 9 and 10):
Common stock, par value $2.50 per share
-- authorized 25,000,000 shares
-- issued 10,769,008 shares in 1997 and
10,765,570 shares in 1996
-- outstanding 10,018,022 shares in
1997 and 9,753,062 in 1996 26,921 26,914
Additional paid-in capital 12,682 13,166
Retained earnings (accumulated deficit) 9,268 (10,054)
Cumulative translation adjustments (602) 791
Less common stock in treasury, at cost
-- 750,986 shares in 1997 and
1,012,508 shares in 1996 (6,677) (9,038)
-------- --------
Total shareholders' equity 41,592 21,779
-------- --------
$145,444 $141,330
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
For the Years Ended December 31, 1997, 1996, and 1995
(Dollars in thousands, except per share amounts)
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Net sales $ 222,246 $ 230,424 $ 228,655
Cost of sales 153,206 152,928 152,614
------------ ------------ -----------
Gross profit 69,040 77,496 76,041
------------ ------------ -----------
Selling and marketing expense 20,928 27,570 29,412
General and administrative expense 22,847 24,348 22,435
Research and development expense 9,662 12,143 13,178
Acquired research and development (Note 13) 11,391 - -
Tender offer costs (Note 19) 4,176 - -
------------ ------------ -----------
Income from operations before interest and other items 36 13,435 11,016
Other (income) expense:
Interest expense 4,650 5,806 4,702
Interest (income) (612) (493) (695)
Other, net (585) (268) (148)
------------ ------------ -----------
Income (loss) before income taxes, joint venture
and minority interest (3,417) 8,390 7,157
Provision for income taxes 2,838 - -
------------ ------------ -----------
Income (loss) before equity in earnings of joint venture and
minority interest (6,255) 8,390 7,157
Equity in earnings of joint venture (Note 2) 1,430 - -
Minority interest 224 514 -
Gain on sale of investment in joint venture, net of income taxes (Note 2) 24,321 - -
------------ ------------ -----------
Net income $ 19,720 $ 8,904 $ 7,157
=========== ============ ===========
Net income available to common shareholders $ 19,720 $ 8,619 $ 2,509
Earnings per common share:
Basic $2.00 $0.89 $0.26
Diluted $1.90 $0.86 $0.26
Number of shares used in calculating earnings per common share:
Basic 9,875,963 9,732,055 9,667,434
Diluted 10,363,873 10,042,106 9,769,639
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1997, 1996 and 1995 (Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------------ Add'l Cumulative
Paid-in Retained Translation
Shares Amount Capital Earnings Adjustment
------- ------ ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 10,756,513 $ 26,891 $ 20,353 $ (26,115) $ (1,371)
Net income 7,157
Common stock issuances 5,511 13 35
Dividends paid on common
and preferred stock (2,978)
Common stock issued from treasury (97)
Accretion of preferred
stock discount (652)
Translation adjustments (83)
Preferred stock redemption
premium (2,318)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 10,762,024 26,904 14,343 (18,958) (1,454)
Net income 8,904
Common stock issuances 3,546 10 34
Dividends paid on common
and preferred stock (1,069)
Common stock issued from treasury (142)
Translation adjustments 2,245
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 10,765,570 26,914 13,166 (10,054) 791
Net income 19,720
Common stock issuances 3,438 7 37
Dividends paid on common stock (392) (398)
Common stock issued from treasury (129)
Translation adjustments (1,393)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 10,769,008 $ 26,921 $ 12,682 $ 9,268 $ (602)
========== ========== ========== ========== ==========
<CAPTION>
Treasury Stock Totals
------------------------ -----------------------
Shares Amount Shares Amount
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 (1,106,608) $(9,878) 9,649,905 $ 9,880
Net income 7,157
Common stock issuances 5,511 48
Dividends paid on common
and preferred stock (2,978)
Common stock issued from treasury 38,050 340 38,050 243
Accretion of preferred
stock discount (652)
Translation adjustments (83)
Preferred stock redemption
premium (2,318)
----------- ----------- ----------- -----------
Balance, December 31, 1995 (1,068,558) (9,538) 9,693,466 11,297
Net income 8,904
Common stock issuances 3,546 44
Dividends paid on common
and preferred stock (1,069)
Common stock issued from treasury 56,050 500 56,050 358
Translation adjustments 2,245
----------- ----------- ----------- -----------
Balance, December 31, 1996 (1,012,508) (9,038) 9,753,062 21,779
Net income 19,720
Common stock issuances 3,438 44
Dividends paid on common stock (790)
Common stock issued from treasury 261,522 2,361 261,522 2,232
Translation adjustments (1,393)
----------- ----------- ----------- -----------
Balance, December 31, 1997 (750,986) $ (6,677) 10,018,022 $41,592
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996, and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Income from operations $ 19,720 $ 8,904 $ 7,157
Adjustments to reconcile income to net cash
Provided by operating activities:
Depreciation 4,367 5,259 5,751
Amortization 1,228 1,063 1,848
Acquired research and development 11,391 - -
Gain on sale of assets (24,766) (561) (293)
Equity in income of joint venture (1,430) - -
Deferred income taxes (4,034) (1,991) (84)
Minority interest (151) (514) -
Other non-cash expenses 44 44 48
Changes in operating assets and liabilities (net of
Effects from acquisitions and divestitures):
Restricted cash - - 8,000
Accounts receivable 5,101 (9,664) (2,194)
Recoverable amounts on long-term contracts (789) 7,143 (4,736)
Inventories (842) (353) (3,892)
Prepaid expenses (275) (840) (248)
Accounts payable and accrued liabilities (4,868) (3,832) 6,264
Other deferred expenses (1,683) 1,710 1,135
-------- ------- -------
Net cash provided by operating activities 3,013 6,368 18,756
-------- ------- -------
Cash flows from investing activities:
Capital expenditures (6,216) (4,848) (3,852)
Proceeds from sale of assets (net of related expenses) - 5,762 5,619
Proceeds from sale of investment in joint venture 41,396 - -
Acquisitions and equity investments, net (15,421) (1,529) (1,718)
Other 262 753 (425)
-------- ------- -------
Net cash provided by (used in) investing activities 20,021 138 (376)
-------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
Cash flows from financing activities:
<S> <C> <C> <C>
Repayments under credit lines, net (337) (1,552) (803)
Principal repayment on other notes - (1,916) (896)
Proceeds from common stock issued from treasury 1,281 358 243
Redemption of preferred stock - (25,506) -
Borrowings of long-term debt 4,920 25,463 747
Repayments of long-term debt (26,738) (6,164) (3,864)
Dividends paid on common and preferred stock (790) (1,069) (2,978)
----------- --------- --------
Net cash used in financing activities (21,664) (10,386) (7,551)
----------- --------- --------
Effect of exchange rate changes on cash 39 (464) (205)
----------- --------- --------
Net increase (decrease) in cash and cash equivalents 1,409 (4,344) 10,624
Cash and cash equivalents at beginning of year 13,445 17,789 7,165
----------- --------- --------
Cash and cash equivalents at end of year $ 14,854 $ 13,445 $17,789
=========== ========= ========
Supplemental cash flow information
Cash paid during the period for:
Interest $ 4,387 $ 5,467 $ 4,704
Income taxes (net of refunds) $ 7,342 $ 334 $ (321)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
(Dollars in thousands, except per share amounts)
_________________________________________________________________
Note 1. Summary of significant accounting policies
- ---------------------------------------------------
A summary of the significant accounting policies followed by Kollmorgen
Corporation and its subsidiaries, (the "Company") is presented below. Certain
reclassifications have been made to the prior years' financial statements to
conform to 1997 classifications.
Principles of Consolidation Except as discussed in Note 2, the
---------------------------
consolidated financial statements include the accounts of the Company and all of
its majority-owned subsidiaries.
Use of Estimates The preparation of financial statements in conformity with
----------------
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
Cash and Cash Equivalents Cash equivalents are stated at cost that
-------------------------
approximates fair value. The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Recoverable Amounts on Long-Term Contracts These represent revenues
------------------------------------------
recognized on a percentage-of-completion basis less progress billings.
Inventories Inventories are stated at the lower of cost or market,
-----------
principally using the first-in, first-out method. Progress payments received on
contracts other than major long-term contracts are deducted from inventories.
Property, Plant, and Equipment and Accumulated Depreciation Property,
-----------------------------------------------------------
plant, and equipment are carried at cost and include expenditures for major
improvements which substantially increase their useful life. Repairs and
maintenance are expensed as incurred. When assets are retired or otherwise
disposed of, the assets and related allowances for depreciation and amortization
are eliminated from the accounts and any resulting gain or loss is recognized.
For financial reporting purposes, depreciation is provided on a straight-
line basis over the estimated useful lives of the buildings (10 to 40 years) and
the machinery and equipment (3 to 12 years). Leasehold improvements are
depreciated over the lesser of its useful life or the remaining period of the
existing leases. For income tax purposes, depreciation is computed by using
various accelerated methods and, in some cases, different useful lives than
those used for financial reporting.
Goodwill and Intangibles Goodwill consists of amounts by which the cost of
------------------------
acquisitions exceeded the values assigned to net tangible assets. Intangible
assets consist principally of patents and intangible assets purchased as part of
acquisitions (Note 13). All of these assets are being amortized on a straight-
line basis over periods ranging from 5 to 20 years.
At each balance sheet date, management evaluates whether there has been a
permanent impairment in the value of goodwill or intangible assets by assessing
the carrying value of the asset against the anticipated future cash flows from
related operating activities. Factors which management considers in performing
this assessment include current operating results, trends and prospects and, in
addition, demand, competition, and other economic factors.
23
<PAGE>
Foreign Currency Translation The functional currency for the majority of
----------------------------
the Company's foreign operations is the applicable local currency. The
translation from the applicable foreign currencies to U.S. dollars is performed
for balance sheet accounts using the exchange rates in effect at the balance
sheet date and for revenue and expense accounts using an average exchange rate
during the period. The gains or losses resulting from such translation are
included in shareholders' equity. Gains or losses resulting from foreign
currency transactions are included in other income.
Revenue Recognition Sales, other than revenues from major long-term
-------------------
contracts, are recorded based upon product shipment (or acceptance by the
customer if earlier) or delivery of service. Major programs that are performed
under long-term contracts are accounted for using the percentage-of-completion
method. Revenues recognized under this method were $31.6 million, $31.7
million, and $37.7 million in 1997, 1996, and 1995, respectively. In most
cases, the contracts also provide for progress billings over the life of the
program.
Earnings Per Common Share Earnings per common share ("EPS") is based on
-------------------------
net income less the dividends, interest accretion and the premium paid (see Note
8) on redeemable preferred stock divided by the weighted average number of
common and dilutive common equivalent shares outstanding. In accordance with
Statement of Financial Accounting Standards ("SFAS") 128, "Earnings per Share",
primary and fully diluted EPS are replaced with basic and diluted EPS (see Note
21). Note 10 to the Consolidated Financial Statements contains a summary of
the proforma effects to reported earnings per share for 1997, 1996 and 1995 if
the Corporation had elected to recognize compensation cost in accordance
with SFAS 123, "Accounting for Stock-Based Compensation."
Income Taxes The Company accounts for income taxes under the liability
------------
method. Under this method, deferred tax liabilities and assets are recognized
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities. A valuation
allowance is required to offset any net deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
Postretirement Benefits Other Than Pensions The Company has elected the
-------------------------------------------
delayed recognition method in which the cost for employees hired prior to
January 1, 1992, is being amortized over 20 years.
Fair Value of Financial Instruments The method and assumptions used to
-----------------------------------
estimate the fair value of each class of financial instrument for which it is
practicable to estimate a value are as follows:
Long-Term Debt: The fair value of the Company's long-term debt is estimated
based on its market price.
Standby Letters of Credit: The fair values of letters of credit are based
on the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
Derivatives: Derivative financial instruments are used by the Company in
the management of foreign currency exposures and are accounted for on an
accrual basis. Gains and losses resulting from effective hedges of existing
assets, liabilities, or firm commitments are deferred and recognized when
the offsetting gains and losses are recognized on the related hedged items.
The Company does not use hedging for speculative purposes. As of December
31, 1997 and 1996, the Company had no foreign exchange contracts
outstanding.
New Accounting Pronouncements In June 1997, the Financial Accounting
-----------------------------
Standards Board ("FASB") issued SFAS 130, "Reporting Comprehensive Income". The
Statement, which must be adopted for periods beginning after December 15, 1997,
establishes standards for reporting and displaying comprehensive income and its
components in consolidated financial statements. The effect of adopting SFAS 130
is not expected to impact the Company's financial position.
24
<PAGE>
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information", which must be adopted for periods beginning
after December 15, 1997. Under the new standard, companies will be required to
report certain information about operating segments in consolidated financial
statements. Operating segments will be determined based on the method by which
management organizes its business for making operating decisions and assessing
performance. The standard also requires that companies report certain
information about their products and services, the geographic areas in which
they operate, and their major customers. The Company is currently evaluating the
effect, if any, of implementing SFAS 131.
Note 2. Sale of Investment in Joint Venture and Other Assets
- ---------------------------------------------------------------
Effective December 31, 1996, the Company completed an agreement
("Subscription Agreement") to combine its Macbeth division ("Macbeth") with the
Color Control Systems business of Gretag AG ("Gretag"). The combined
entity,GretagMacbeth, is owned by a Swiss holding company ("Holding" or the
"Joint Venture") which was equally controlled by the Company and the
shareholders of Gretag AG who owned 48% and 52% of Holding, respectively.
Accordingly, the results of operations and statement of cash flows for the
twelve months ended December 31, 1996 reflect the inclusion of Macbeth, and the
consolidated balance sheet as of December 31, 1996 reflects the net asset value
of Macbeth as investment in Joint Venture. The Company accounted for this
transaction using the equity method until the sale of its investment in Joint
Venture
Effective June 17, 1997, the Company agreed, pursuant to a firm underwriting
agreement, to sell the majority of its interest in the Joint Venture as part of
an initial public offering on the Swiss stock exchange. On June 25, 1997 the
Company sold approximately 88% of its interest in the Joint Venture, receiving
approximately $38 million. Subsequently in August 1997, the Company sold the
remaining shares to the underwriter, receiving approximately $4 million in cash.
The accompanying financial statements reflect a gain in the second quarter of
1997 of approximately $24 million on the sale of its shares in the Joint
Venture. The gain is net of $2 million in income taxes and the utilization of
net operating losses and other tax credit carryforwards.
For income tax purposes, the Company has elected to treat the transfer of
the Macbeth assets into the Joint Venture as a taxable transaction in 1996.
Accordingly, the Company has recognized a tax gain of the excess of the fair
value of the Macbeth assets over their book value.
Note 3. Inventories
- ----------------------
Inventories at December 31 consist of the following:
1997 1996
-------- --------
Raw materials $12,640 $11,816
Work in process 8,871 8,118
Finished goods 3,651 2,516
------- -------
$25,162 $22,450
======= =======
25
<PAGE>
Note 4. Property, Plant, and Equipment
- ----------------------------------------
Property, plant, and equipment at December 31 consist of the following:
1997 1996
-------- --------
Land $ 1,368 $ 1,460
Leasehold improvements 1,027 812
Buildings 25,671 25,937
Machinery and equipment 72,279 68,807
Capital leases 382 382
---------- ---------
100,727 97,398
Less accumulated depreciation
and amortization 74,054 72,251
---------- ---------
$ 26,673 $25,147
========== =========
Note 5. Financial Instruments
- ----------------------------------
As of December 31, 1997 and 1996, the Company had no foreign exchange
contracts outstanding. During 1997, the Company purchased foreign exchange
contracts to hedge foreign currency exposure related to trade accounts
receivable and transactions associated with the purchase of a foreign business
and the sale of its interest in the Joint Venture.
The Company operates in countries in which the currency historically has been
considered stable. Management believes that any fluctuations in currency rates
within these countries will not have a material adverse effect on the Company's
financial condition, cash flows, or results of operations.
Note 6. Lines of credit
- ----------------------------
At December 31, 1997, the Company's foreign subsidiaries had $5.2 million
outstanding and $3.0 million additional availability under lines of credit. At
December 31, 1997, the Company was contingently liable for $1.9 million for
outstanding standby letters of credit issued principally to secure advance
payments received from foreign customers on long-term military contracts.
Note 7. Long term debt
- -------------------------
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
8.75% Convertible subordinated debentures due 2009 $32,840 $34,590
10.50% Convertible subordinated debentures due 1997 - 2,000
$50 million revolving credit facility, variable rate,
currently 4.50% 4,854 -
Term loans, 7.45%, due through 2001 - 22,750
Term loans, various rates, due through 2001 572 433
Capital lease obligations 125 223
------- -------
38,391 59,996
Less current maturities 2,012 6,942
------- -------
$36,379 $53,054
======= =======
</TABLE>
26
<PAGE>
The 8.75% Convertible subordinated debentures are convertible at any time
prior to maturity, unless previously redeemed, into 956,041 shares of common
stock of the Company at a conversion price of $34.35 per share, subject to
adjustment in certain events. The Company is required to make annual sinking
fund payments sufficient to retire at least $1.75 million, but not more than
$3.5 million principal amounts commencing May 1, 1994, and each year thereafter
including May 1, 2008. The balance, if any, is due on May 1, 2009. At December
31, 1997, the market price of these debentures approximated carrying value.
The 10.50% Convertible subordinated debentures, issued in a private
placement, were paid in full in August, 1997.
On September 30, 1997, the Company amended its borrowing facility with its
lead bank to provide for a five year $50 million unsecured revolving
multicurrency credit facility bearing interest, at the Company's option, of the
bank's prime rate plus 50 basis points or the Eurodollar rate plus a margin
ranging from 75 to 175 basis points, and which was 75 basis points at December
31, 1997. The facility contains certain financial covenants that the Company
must comply with including limits on capital spending, minimum cash flow
requirements, minimum net worth, and other ratios relating to the amount of
total debt that the Company may have as compared to the Company's net worth and
earnings. The Company was in compliance with all covenants at December 31, 1997.
At December 31, 1997, the Company's German subsidiary had $4.9 million
outstanding, there were $1.9 million of standby letters of credit outstanding,
and $43.2 million of availability under the facility.
The 7.45% term loan was for the sole purpose of redeeming the Company's
Preferred Stock (as described in Note 8), and the balance was repaid in June,
1997.
The Company incurred $4.7 million, $5.8 million, and $4.7 million of
interest expense on debt in 1997, 1996, and 1995, respectively.
Long-term debt at December 31, 1997, matures as follows:
Date Maturities
---- ----------
1998 $ 2,012
1999 1,999
2000 1,888
2001 1,797
2002 6,604
Thereafter 24,091
-------
$ 38,391
=======
Note 8. Preferred Stock
- -------------------------
In March 1990, the Company sold 23,187.5 shares of a new issue of Series D
convertible preferred stock (the "Preferred Stock") for $1,000 per share, or an
aggregate of approximately $23.2 million, to a group of investors. The
Preferred Stock had a cumulative dividend rate of 9.5 percent per year and was
convertible into an aggregate of 1,717,591 shares of the Company's common stock,
subject to antidilution provisions.
On February 19, 1996, the Company redeemed all of the Preferred Stock. The
redemption price included a 10% premium of $2.3 million plus unpaid dividends
through the date of redemption. The Company borrowed $25 million in January,
1996 to finance the redemption and the loan was repaid during 1997.
Note 9. Common Stock, Additional Paid-in Capital, and Treasury Stock
- ----------------------------------------------------------------------
Pursuant to the By-Laws of the Company, directors who are not employees of
the Company receive an annual retainer of $12,000. Under the terms of the 1992
Stock Ownership Plan for Non-Employee Directors, each
27
<PAGE>
non-employee director receives at least 50% of his annual retainer in shares of
common stock. The number of shares of common stock is based on the fair market
value of such shares at the end of each quarterly period.
The Company maintains a Shareholder Rights Plan which provides for one
Preferred Stock Purchase Right ("Right") for each outstanding share of Common
Stock of the Company. Each Right entitles the registered holder, subject to the
terms of a Rights Agreement, to purchase one one-thousandth of a share ("Unit")
of Series B Preferred Stock, par value $1.00 per share ("Preferred Stock"), at a
purchase price of $50 per Unit. The units of Preferred Stock are non-
redeemable, voting, and are entitled to certain preferential dividend rights.
The exercise price and the number of units issuable are subject to adjustment to
antidilution provisions. The Rights are not exercisable until the earlier to
occur of (i) 10 days following a public announcement (the date of such
announcement being the "Stock Acquisition Date") that a person or group has
acquired beneficial ownership of 20% or more of the then outstanding shares of
capital stock of the Company entitled to vote or (ii) a date determined by the
Board of Directors following the commencement of a tender or exchange offer
which would result in a party beneficially owning 30% or more of the shares of
voting stock of the Company. The Board of Directors of the Company may redeem
the Rights at any time on or prior to the tenth day following the Stock
Acquisition Date at a price of $0.01 per Right. Unless earlier redeemed, the
Rights will expire on December 20, 1998.
Common stock reserved for issuance at December 31 were as follows:
conversion of debentures 956,041 and 1,086,987 in 1997 and 1996, respectively;
and stock options and other awards 1,718,991 and 1,634,991 in 1997 and 1996,
respectively.
As a result of the Company's losses in previous years, there was not a
sufficient amount of retained earnings from which to pay dividends until the end
of the second quarter of 1997. Accordingly, dividends paid on common stock
prior to that date were charged to "Additional Paid-in Capital." For the
remainder of 1997 dividends were charged to "Retained Earnings".
Treasury stock is carried at average cost.
Note 10. Stock Based Compensation Plans
- ------------------------------------------
At December 31, 1997, the Company has four stock based compensation plans.
SFAS 123 requires that companies either recognize compensation expense for
grants of stock, stock options, and other equity instruments based on fair
value, or provide pro forma disclosure of net income and earnings per share in
the notes to the financial statements. The Company adopted the disclosure
provisions of SFAS 123 in 1996 and continues to apply Accounting Practices
Bulletin ("APB") Opinion 25 and related Interpretations in accounting for its
employee and director stock-based compensation. Compensation expense for shares
issued to directors of $0.04 million, $0.04 million, and $0.05 million was
recognized for 1997, 1996, and 1995, respectively. Proforma amounts are
indicated below.
The Company maintains two employee stock option plans under which grants
have been made to officers and key employees. Additionally, the Company
maintains a non-employee director ("NED") stock option plan that provides to
each non-employee director, among other things, a one-time grant of a non-
qualified stock option to purchase (i) 15,000 shares of common stock and (ii)
the right to acquire an additional option to purchase up to 10,000 shares if the
non-employee director purchases a corresponding number of shares on the open
market within ninety days after the grant. Generally, the options outstanding
under the Company's stock plans: (a) are granted at prices which equate to the
market value of the stock on the date of grant, (b) vest ratably over a five
year period for the employee plans and over a two year period for the NED plan
and (c) expire ten years subsequent to award. At December 31, 1997 the Company
has authorized 1,310,991 and 325,000 shares for issuance under the employee
plans and the NED plan, respectively. A total of 103,000 and 21,269 options
were granted in 1997 under the employee plans and the NED plan, respectively.
On April 1, 1997, the Company approved a new stock option plan for key
employees of Servotronix in conjunction with its acquisition (Note 13). Under
this plan, 83,000 shares were authorized and granted in exchange for the
surrender of shares held by these employees. The options outstanding under this
plan a) were granted at no cost, b) vest over a three year period, and c)
expire ten years subsequent to award.
28
<PAGE>
A summary of the status of the Company's stock options as of December 31,
1997, 1996, and 1995 and changes during the year ended on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
1997 Exercise 1996 Exercise 1995 Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1: 1,263,700 $ 8.93 986,950 $ 7.95 905,700 $ 7.58
Granted 124,269 17.54 400,500 10.91 209,000 9.16
Granted related to Servotronix 83,000 - - - - -
Exercised (180,769) 7.34 (56,050) 6.39 (38,050) 6.38
Canceled (49,300) 8.42 (67,700) 8.38 (89,700) 7.75
--------- --------- -------
Outstanding at December 31 1,240,900 9.26 1,263,700 8.93 986,950 7.95
========= ========= =======
Options exercisable at December 31 620,100 8.70 576,200 7.97 453,850 7.88
========= ========= =======
Options available for future grant 177,799 256,163 118,009
========= ========= =======
</TABLE>
The fair value of each option granted during 1997, 1996 and 1995 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield 0.8% 0.8% 0.8%
Expected stock price volatility 32.0% 37.0% 37.0%
Risk-free interest rate 6.2% 6.2% 5.6%
Expected life of options 5 years 5 years 5 years
</TABLE>
The Weighted Average Fair Value of options granted during the years 1997,
1996 and 1995 are $ 9.63, $4.21, and $3.54, respectively.
The following table summarizes information about currently outstanding and
exercisable stock options at December 31, 1997:
<TABLE>
<CAPTION>
Range of Number of Weighted Weighted Number Weighted
Exercise Prices Options Average Average Exercisable Average
Outstanding Remaining Exercise at Exercise
at 12/31/97 Contractual Life Price 12/31/97 Price
- ----------------- ----------- ---------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0 - 8.25 447,800 4.5 years $ 7.69 322,800 $ 7.81
8.375 10.375 506,400 7.2 years 9.47 222,900 8.86
11.625 18.688 286,700 8.9 years 14.38 74,400 12.07
--------- ---------
1,240,900 6.9 years $ 9.45 620,100 $ 8.70
========= =========
</TABLE>
29
<PAGE>
If compensation costs for the Company's 1997, 1996, and 1995 grants for
stock-based compensation plans had been determined consistent with SFAS 123, the
Company's net income and net income per share for these years would approximate
the proforma amounts below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- -----------------------
As Reported Proforma As Reported Proforma As Reported Proforma
----------- -------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income $19,720 $19,088 $8,904 $8,612 $7,157 $7,145
Earnings per common share:
Basic $ 2.00 $ 1.93 $ 0.89 $ 0.86 $ 0.26 $ 0.26
Diluted $ 1.90 $ 1.84 $ 0.86 $ 0.83 $ 0.26 $ 0.26
</TABLE>
The effect of applying SFAS 123 in this pro forma disclosure is not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and additional awards in future years are anticipated.
Note 11. Quarterly Results of Operations (Unaudited)
- ------------------------------------------------------
<TABLE>
<CAPTION>
Quarter
1997 First Second Third Fourth
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $50,587 $55,757 $56,710 $59,192
Gross profit 15,281 17,343 16,840 19,576
Acquired research and development - 11,391 - -
Tender offer costs - - - 4,176
Gain on sale of investment in joint venture, net
of income taxes - 24,321 - -
Net income 2,010 15,459 2,067 184
Earnings per common share:
Basic $ 0.21 $ 1.58 $ 0.21 $ 0.02
Diluted $ 0.20 $ 1.52 $ 0.20 $ 0.02
<CAPTION>
Quarter
1996 First Second Third Fourth
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $57,040 $59,788 $52,830 $60,766
Gross profit 19,226 20,158 17,525 20,587
Net income 1,648 2,229 1,804 3,223
Earnings per common share:
Basic $ 0.14 $ 0.23 $ 0.19 $ 0.33
Diluted $ 0.14 $ 0.22 $ 0.18 $ 0 .32
</TABLE>
Note 12. Taxes on income
- ---------------------------
The components of income (loss) before income taxes, joint venture, and
minority interest were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
United States $ 5,751 $ 9,436 $7,543
Foreign (9,168) (1,046) (386)
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C> <C>
-------- ------- --------
Total $ (3,417) $ 8,390 $ 7,157
======== ======= ========
</TABLE>
SFAS 109, "Accounting for Income Taxes", requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
As required by SFAS 109, management of the Company has evaluated the
positive and negative evidence bearing upon the realizability of its deferred
tax assets. Management has evaluated the components of its deferred tax assets,
the anticipated taxable income of the Company, and concluded that, in accordance
with applicable accounting standards, it is more likely than not that these
assets will be utilized.
For income tax purposes the Company elected to treat the transfer of the
Macbeth assets into the Joint Venture as a taxable transaction in 1996.
Accordingly, the Company recognized a tax gain of the excess of the fair value
of the Macbeth assets over their net tax value.
The valuation allowance decreased in 1997 and 1996 resulting from
recognizing benefits from the utilization of net operating loss and tax credit
carryforwards as a result of current income from operations and the tax gain
from the formation of the Joint Venture, and the conclusion is that it is more
likely than not that these assets will be utilized.
The provision (benefit) for income taxes consists of the following:
1997 1996 1995
-------- -------- ------
Current provision (benefit):
U.S. federal $ 4,705 $ 1,543 $ 61
Foreign - - (235)
State 2,207 185 -
-------- -------- ------
6,912 1,728 (174)
Deferred provision (benefit):
U.S. federal (2,980) (1,487) -
Foreign - - 174
State (1,094) (241) -
-------- -------- ------
(4,074) (1,728) 174
-------- -------- ------
Total $ 2,838 $ - $ -
======== ======== ======
The U.S. effective income tax rate from operations is different from the
U.S. federal statutory rates for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Income tax provision (benefit) if computed
at U.S. federal statutory rates $(1,196) $ 2,937 $ 2,433
Gain on the formation of Joint Venture - 8,645 -
Non-deductible Tender Offer costs 550 - -
Write-off of Acquired in-process research and development 3,098 - -
Benefit of net operating loss
carryforwards and tax credits (600) (13,487) (2,650)
Unutilized foreign net operating losses 549 364 -
Foreign tax rate variances (129) - 70
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C> <C>
State income taxes net of federal benefit 400 1,602 -
Other 166 (61) 147
------- -------- -------
$ 2,838 $ - $ -
======= ======== =======
</TABLE>
The deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Bad debt reserve $ 153 $ 197
Employee benefit reserves 2,042 2,015
Reserve for net realizable value of real estate 62 1,088
Other 3,893 3,526
Federal tax credits 1,024 4,777
Foreign losses 292 -
Depreciation (1,372) (2,215)
------- -------
6,094 9,388
Valuation allowance (292) (7,660)
------- -------
Net deferred tax asset $ 5,802 $ 1,728
======= =======
</TABLE>
Note 13. Asset Acquisitions and Equity Investments
- ---------------------------------------------------
In May 1995, the Company entered into an agreement to acquire for $0.6
million, a 10% equity interest in Servotronix Ltd. ("Servotronix"), a firm in
Israel which designs and markets digital control systems for the motion control
market. In 1996 the Company increased its equity interest in Servotronix to 25%
with payments totaling $1.4 million. Effective April 2, 1997, the Company
purchased additional shares of Servotronix for cash of $6.4 million to increase
its ownership of Servotronix from 25% to 81%. The Company has agreed to purchase
the balance of the shares through the issuance of 257,522 shares of the
Company's common stock. Accordingly, the Company has accounted for the purchase
of Servotronix as if 100% of the shares were purchased on April 2, 1997, and
with the value of the shares not yet purchased being shown as a liability of the
Company, amounting to $2.3 million at December 31, 1997.
Effective June 10, 1997, the Company entered into a binding agreement to
purchase all of the shares of Fritz A. Seidel Elektro-Automatik GmbH ("Seidel"),
a designer and distributor of electronic motion control products located in
Germany, for $9.4 million in cash. The results of operations for Seidel are
consolidated in the accompanying financial statements effective July 1, 1997.
In connection with the acquisitions of Servotronix and Seidel, the Company
has allocated the purchase price to the assets acquired, both tangible and
intangible, and any excess of the purchase price over the assets acquired has
been classified as goodwill. Intangible assets acquired consist primarily of
completed technology and trade names and are being amortized over a five to
seven year period. Goodwill will be amortized over a fifteen year period. A
portion of the purchase price has been allocated to in-process research and
development in the amount of $10.5 million, which was expensed as "Acquired
research and development" in the second quarter of 1997. Also included in
Acquired research and development was a charge of approximately $0.9 million for
technology acquired unrelated to the Servotronix and Seidel acquisitions.
Management believes that the technological feasibility of the in-process
technology had not yet been established and the technology had no alternative
future use.
Note 14. Operating Leases
- --------------------------
32
<PAGE>
The Company leases certain of its facilities and equipment under various
operating lease arrangements. Such arrangements generally include fair market
value renewal and/or purchase options.
Rent expense for operating leases amounted to $2.5 million in 1997, $2.2
million in 1996, and $2.5 million in 1995. Future minimum rental payments
required under non-cancelable operating leases having a lease term in excess of
one year, at December 31, 1997, are as follows:
Operating
Leases
------
1998 $ 2,477
1999 2,474
2000 2,276
2001 1,675
2002 828
Thereafter 4,089
-----------
Total minimum lease payments $ 13,819
===========
Note 15. Commitments and Contingencies
- -----------------------------------------
The Company has various lawsuits, claims, commitments and contingent
liabilities including environmental matters arising from the ordinary conduct of
its business; however, they are not expected to have a material adverse effect
on its consolidated financial position and cash flows.
In doing business with the U.S. Government, the Company is subject to
routine audits and, in certain circumstances, to inquiry, review, or
investigation by the U.S. Government Agencies relating to the Company's
compliance with Government Procurement policies and practices. The Company's
policy is to conduct its activities in compliance with all applicable rules and
regulations.
Pursuant to the Subscription Agreement described in Note 2, the Company has
retained certain potential liabilities of the Macbeth division. Management
believes that the assumption of these potential liabilities will not have a
material adverse effect on the financial position of the Company.
Note 16. Pension and other employee benefit plans
- --------------------------------------------------
The Company maintains two non-contributory qualified defined benefit pension
plans covering substantially all domestic employees (the "Plans"). Plans
covering most employees provide pension benefits based generally on the
employee's years of service and final five-year or career average compensation.
Due to full funding, the Plans currently have no required contributions by the
Company.
The net periodic pension cost for the years 1997, 1996 and 1995 included the
following components:
1997 1996 1995
--------- --------- ---------
Service cost $ 2,085 $ 2,499 $ 1,617
Interest cost 3,542 3,633 3,123
Actual (return) loss on plan assets (11,692) (10,502) (13,472)
Net amortization and deferral 5,047 4,280 8,396
--------- --------- ---------
Net periodic pension cost (credit) $ (1,018) $ (90) $ (336)
========= ========= =========
33
<PAGE>
The assumptions used in determining the end of year benefit obligations
included discount rates of 6.5%, 7.0%, and 6.5% in 1997, 1996 and 1995,
respectively, an expected investment return of 10% and compensation increases of
5% for the years ending 1997, 1996, and 1995. The Plans' assets consist
principally of cash, common stocks, and bonds.
The Plans' funded status together with the amounts recognized in the
Company's Balance Sheet at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $(37,682) $(36,545)
========== ==========
Accumulated $(38,814) $(37,450)
========== ==========
Projected (54,575) (51,729)
Plans' assets at fair value 70,340 63,879
---------- ----------
Plans' assets in excess of projected benefit obligation 15,765 12,150
Unrecognized net gain (7,408) (5,864)
Unrecognized net asset at January 1 (3,913) (4,705)
Unrecognized prior service cost 1,354 1,717
---------- ----------
Prepaid pension cost $ 5,798 $ 3,298
========== ==========
</TABLE>
The Salaried Employees' Retirement Plan provides that in the event of a
termination of that plan following a change in control of the Company, any
assets of that plan remaining after provision is made for all benefits
thereunder will be employed to supplement such benefits.
The Company also maintains a Supplemental Retirement Income Plan ("SERP")
for former key employees. The Company has accrued an actuarially determined
liability of $3.6 million and $3.5 million at December 31, 1997 and 1996,
respectively, in anticipation of the payment of such benefits in the future to
seven former employees who were designated as eligible by the Company's board of
directors for participation in the SERP program. The Company incurred a pension
expense of $0.3 million in 1997 and 1996 for the SERP.
The Company has a voluntary 401(k) savings and investment plan designed to
enhance the existing retirement program covering eligible domestic employees.
In 1997 and 1996, the Company matched 50% of each participant's contributions,
up to a maximum contribution of 2% of base salary. Company contributions to
this plan were $0.7 million, $0.7 million, and $0.5 million in 1997, 1996, and
1995, respectively.
In 1997 employees of Macbeth became employees of the Joint Venture as
described in Note 2. This was accounted for as a curtailment and a settlement
under SFAS 88, "Employers' Accounting for Settlement and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits", and SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The Plan's funded
status reflects a curtailment gain of $1.2 million, a settlement gain of $0.5
million, and a special termination benefit loss of $0.2 million due to the Joint
Venture.
Note 17. Postretirement medical insurance benefits
- ---------------------------------------------------
The Company maintains a postretirement medical benefits plan covering
substantially all domestic employees hired prior to January 1, 1992. The plan
is contributory. Retiree contributions are adjusted annually, and are based on
the difference between total cost and the employer contribution. The Company's
contribution
34
<PAGE>
towards retiree medical benefits for employees retiring after January 1, 1992,
is capped at 1991 levels. FAS 106 was implemented on a delayed recognition
basis, resulting in amortization of the transition obligation amount over 20
years. The Company currently funds the plan as claims are paid.
Net periodic postretirement benefit cost for 1997, 1996, and 1995 included
the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ 213 $ 168 $ 122
Interest cost 382 423 460
Amortization of obligation at transition 252 278 278
Amortization of loss - 9 -
------ ------ ------
Net periodic postretirement benefit cost $ 847 $ 878 $ 860
====== ====== ======
</TABLE>
The plan amounts recognized in the Company's balance sheet at December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Accumulated postretirement benefit obligation:
1997 1996
---- ----
<S> <C> <C>
Retirees and dependents $(2,560) $(3,712)
Fully eligible active plan participants (566) (326)
Other active plan participants (2,813) (2,498)
----------- -----------
Total (5,939) (6,536)
Plan assets at fair value - -
----------- -----------
Accumulated postretirement benefit obligation
in excess of plan assets (5,939) (6,536)
Unrecognized net loss 233 559
Unrecognized prior service cost - -
Unrecognized transition obligation 3,717 4,448
----------- -----------
Accrued postretirement benefit cost $(1,989) $(1,529)
=========== ===========
</TABLE>
The Company's postretirement benefit plans are unfunded.
For measurement purposes, a 10.2% annual rate of increase in the per capita
cost of covered medical benefits was assumed for 1997; the rate was assumed to
decrease to 5.5% for 2000 and remain at that level thereafter. Increasing the
assumed health care cost trend rates by 1% in each year would increase the
accumulated postretirement benefit obligation as of January 1, 1997, by $0.2
million and the aggregate of the service cost and interest cost components of
net periodic postretirement benefit cost by $0.02 million.
The weighted average discount rates used in determining the accumulated
postretirement benefit obligation are 6.5% and 7.0% as of December 31, 1997 and
1996, respectively.
35
<PAGE>
Note 18. Foreign Operations and Geographic Segments, and Export Sales
- -----------------------------------------------------------------------
The effect of the Company's foreign operations upon the consolidated
financial statements are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Sales
North America $ 179,524 $ 190,776 $ 180,891
Europe 44,733 48,806 56,269
Other 12,759 440 -
Eliminations (14,770) (9,598) (8,505)
------------------- ---------------- ------------------
$ 222,246 $ 230,424 $ 228,655
=================== ================ ==================
Net Income
North America $ 30,304 $ 9,416 $ 7,501
Europe (410) (55) (325)
Other (8,536) (536) -
Eliminations (1,638) 79 (19)
------------------- ---------------- ------------------
$ 19,720 $ 8,904 $ 7,157
=================== ================ ==================
Identifiable Assets
North America $ 97,211 $ 105,445 $ 107,450
Europe 44,306 33,288 41,238
Other 13,914 4,223 -
Eliminations (9,987) (1,626) (1,214)
------------------- ---------------- ------------------
$ 145,444 $ 141,330 $ 147,474
=================== ================ ==================
</TABLE>
The Company's principal foreign facilities are in France, Germany, India,
Israel, and Vietnam. The sales eliminations are transfers at prevailing
wholesale selling prices. The Company has no other significant foreign
operations.
In addition to foreign operations, export sales amounted to $21.0 million in
1997, $39.7 million in 1996, and $31.9 million in 1995. Sales to the U.S.
Government or for U.S. Government end-use amounted to $47.8 million in 1997,
$41.3 million in 1996, and $43.5 million in 1995.
Note 19. Subsequent Events
- ---------------------------
In January 1998, the Company announced that a Japanese company agreed to pay
the Company $27.2 million under a confidential settlement and paid-up licensing
agreement covering certain of the Company's motion control patents. The
settlement amount, less applicable Japanese withholding taxes, was received by
the Company in the first quarter of 1998.
On December 15, 1997, the Company commenced a tender offer ("Tender Offer")
for 50.1% of the outstanding shares of Pacific Scientific Company ("Pacific") in
cash with the remainder of the outstanding shares to be acquired through the
issuance of the Company's stock to complete the merger.
On February 2, 1998, the Company terminated its offer to acquire Pacific
after a significantly higher bid was accepted by the Pacific board of directors.
Included in the accompanying financial statements is a charge of $4.2 million
representing the costs incurred through December 31, 1997 in connection with the
Tender Offer. Approximately $1.0 million of additional costs are expected to
be incurred in the first quarter of 1998.
36
<PAGE>
Note 20. Industry Segment Information
- --------------------------------------
The Company has continued a focus on high performance motion control, which
included the divestiture of three instrumentation businesses in 1995 and 1996
that were part of the Company's Electro-Optical Instruments segment.
Additionally, the Company has reorganized its business around two market
channels, Industrial and Commercial, and Aerospace and Defense, and changed its
segment disclosure to reflect this focus. Information provided for 1996 and
1995 has been prepared as if the reorganization around these two market segments
had occurred at the beginning of each year.
The Company has operations in two industry segments: the Industrial and
Commercial Group and the Aerospace and Defense Group. The following table
includes certain financial information relating to each of the Company's
segments in the last three fiscal years:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Industrial & Commercial Group:
Sales $120,244 $123,257 $126,338
Operating income (expense) (1) (1,198) 8,393 6,962
Assets 56,517 42,240 50,589
Capital additions 2,816 1,336 1,729
Depreciation 1,898 2,474 2,884
Backlog 36,318 30,162 33,734
Aerospace & Defense Group:
Sales $102,002 $107,167 $102,317
Operating income 10,548 11,014 9,242
Assets 67,716 71,814 76,175
Capital additions 3,348 3,487 2,110
Depreciation 2,400 2,601 2,646
Backlog 62,112 65,652 74,689
Corporate:
Operating expenses (2) $(11,113) $(10,503) $ (9,047)
Assets 21,211 27,276 20,710
Capital additions 52 25 13
Depreciation 69 184 221
Consolidated:
Sales $222,246 $230,424 $228,655
Operating income (loss) (1,763) 8,904 7,157
Assets 145,444 141,330 147,474
Capital additions 6,216 4,848 3,852
Depreciation 4,367 5,259 5,751
Backlog 98,430 95,814 108,423
</TABLE>
(1) 1997 operating income includes a charge of $11.4 million for Acquired
research and development as discussed in Note 13.
(2) 1997 Corporate expenses include $4.2 million for Tender Offer expenses as
discussed in Note 19.
The operating income in the above table represents operating segment income
after minority interest and before general corporate expenses, interest, and
income taxes. Identifiable assets by segment are those assets used exclusively
in the operation of that industry segment.
Corporate expenses include interest expense, interest income, and general
and administrative expenses, and are not allocated to respective segments.
Corporate assets consist principally of cash and investments, net assets held
for disposition, equity investments, and intangible pension assets.
37
<PAGE>
Note 21. Earnings Per Share
- ----------------------------
The Company has adopted SFAS 128, which requires the presentation of basic and
diluted EPS. Basic EPS excludes the dilutive effect of common equivalent
securities and is computed by dividing income available to common shareholders
by the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earning of the entity. In accordance with SFAS 128, as of December 31, 1997,
the Company has restated all prior period EPS data presented. A reconciliation
between basic EPS and diluted EPS is as follows:
<TABLE>
<CAPTION>
For the Year Ended 1997 For the Year Ended 1996
------------------------------------------- ---------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------- ---------------- ----------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income $19,720 $8,904
Less: Preferred stock dividends and (285)
accretion of preferred stock
discount
Basic EPS:
- ----------
Net income available to common $19,720 9,875,963 $2.00 $8,619 9,732,055 $0.89
shareholders
Effect of dilutive securities:
- ------------------------------
Options 487,910 310,051
------------- ----------- ------------ ------------
Diluted EPS:
- ------------
Income available to common
shareholders and assumed
Conversions $19,720 10,363,873 $1.90 $8,619 10,042,106 $0.86
============ ============= ======= ========== ============ ========
<CAPTION>
For the Year Ended
1995
------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- ----------------- ----------
<S> <C> <C> <C>
Net income $7,157
Less: Preferred stock dividends and (4,648)
accretion of preferred stock
discount
Basic EPS:
- ----------
Net income available to common $2,509 9,667,434 $0.26
shareholders
Effect of dilutive securities:
- ------------------------------
Options 102,205
------------- -----------------
Diluted EPS:
- ------------
Income available to common
shareholders and assumed
Conversions $2,509 9,769,639 $0.26
============= ================= =========
</TABLE>
38
<PAGE>
During 1997, options to purchase 103,500 shares of common stock with
exercise prices ranging from $17.31 to $18.69 per share and with expiration
dates ranging up to December 16, 2007 were outstanding but were not included in
the computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares. Also, 956,041 common
equivalent shares of the convertible subordinated debentures were not included
in the diluted EPS calculation as a result of their antidilutive effect.
During 1996, options to purchase 126,200 shares of common stock with
exercise prices ranging from $12.00 to $16.88 per share and with expiration
dates ranging up to May 15, 2006 were outstanding but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares. Also, 1,086,987 common
equivalent shares of the convertible subordinated debentures were not included
in the diluted EPS calculation as a result of their antidilutive effect.
During 1995, options to purchase 328,700 shares of common stock with
exercise prices ranging from $8.88 to $20.00 per share and with expiration dates
ranging up to December 19, 2005 were outstanding but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares. Also, 1,217,933 common
equivalent shares of the convertible subordinated debentures and 1,717,591
common equivalent shares of the Preferred Stock were not included in the diluted
EPS calculation as a result of their antidilutive effect.
39
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
3(a) Restated Certificate of Incorporation, as amended, incorporated by
reference to Exhibit 3(a) of the Form SE filed on April 2, 1990.
3(b) Restated and Amended By-Laws incorporated by reference to Exhibit
3.1 of Form 8-K filed on December 15, 1997.
4(a) Debenture Purchase Agreement dated as of July 30, 1982, with
respect to 10-1/2% Convertible Subordinated Debentures Due 1996
incorporated by reference to Exhibit 4 to the Quarterly Report on
Form 10-Q of the Company for the quarter ended June 30, 1982.
4(b) Indenture dated as of May 1, 1984, with respect to 8-3/4%
Convertible Subordinated Debentures Due 2009 incorporated by
reference to Exhibit 4 to Registration Statement on Form S-3 (2-
90655).
4(c) Rights Agreement dated as of December 20, 1988, as amended and
restated as of March 27, 1990, between the Company and the First
National Bank of Boston, as Rights Agent, incorporated by
reference to Exhibit 4(d) of the Form SE filed on April 2, 1990.
10(a) Fifth Amended and Restated Multicurrency Credit Agreement dated as
of September 30, 1997, among Kollmorgen Corporation, BankBoston,
N.A., Certain Other Financial Institutions Listed on Schedule 1,
and BankBoston, N.A., as Agent, incorporated by reference to
Exhibit 10 of the Form SE filed on or about November 14, 1997.
10(c) Kollmorgen Stock Option Plan, as amended, incorporated by
reference to Exhibit A of the Company's Proxy Statement dated
March 24, 1987, for the Annual Meeting of Shareholders held on
April 22, 1987.
10(d) Kollmorgen 1991 Long Term Incentive Plan, as amended, incorporated
by reference to Exhibit A of the Company's Proxy Statement dated
April 5, 1996, for the Annual Meeting of Shareholders held on May
8, 1996.
10(e) 1998 Management Stock Incentive Plan (filed herewith)
10(f) Form of Retention Agreement entered into between the Company and
Messrs. Argov, Cobuzzi, Desmond, Eder, Jones and Petty. (filed
herewith)
10(g) Kollmorgen Deferred Compensation Plan incorporated by reference to
Exhibit 10 of the Form SE filed on or about November 14, 1997.
10(h) Form of 1991, 1992, and 1993 Non-Qualified Stock Option Agreement
under the Long-Term Incentive Plan and/or Kollmorgen Stock Option
Plan for Gideon Argov, Robert J. Cobuzzi, James A. Eder and Mark
E. Petty. Each agreement is identical except for the number of
shares and the date of grant. Said agreement is incorporated by
reference to Exhibit 10(j) to the Annual Report on Form 10-K of
the Company for the year ended December 31, 1991.
40
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
10(i) Form of 1995, 1996, and 1998, Incentive Stock Option Agreement
under the Long-Term Incentive Plan for Gideon Argov, Robert J.
Cobuzzi, Daniel F. Desmond, James A. Eder, Keith D. Jones and Mark
E. Petty. Each agreement is identical except for the number of
shares and the date of grant. Said Agreement is incorporated by
reference to Exhibit 10(g) to the Annual Report on Form 10-K of
the Company for the year ended December 31, 1995.
10(j) Kollmorgen 1992 Stock Ownership Plan for Non-Employee Directors,
as amended, incorporated by reference to Exhibit B of the
Company's Proxy Statement dated April 5, 1996, for the Annual
Meeting of Shareholders held on May 8, 1996.
10(k) Form of Non-Qualified Stock Option Agreement for the grant of
15,000 options between each non-employee director and the Company
pursuant to the Kollmorgen 1992 Stock Ownership Plan for Non-
Employee Directors, as amended, incorporated by reference to
Exhibit 10(i) to the Annual Report on Form 10-K of the Company
for the year ended December 31, 1996.
10(l) Kollmorgen 1998 Corporate Incentive Plan for Corporate Officers
and other key corporate employees is identical to the plan
incorporated by reference to Exhibit 10(j) to the Annual Report on
Form 10-K for the year ended December 31, 1996.
10(m) Letter employment agreement dated May 21, 1991, for Gideon Argov.
Said Agreement is incorporated by reference to Exhibit 10(c) to
the Annual Report on Form 10-K of the Company for the year ended
December 31, 1991.
10(n) Letter employment agreement dated July 1, 1991, for Robert J.
Cobuzzi. Said Agreement is incorporated by reference to Exhibit
10(c) to the Annual Report on Form 10-K of the Company for the
year ended December 31, 1991.
10(o) Form of severance agreement for George P. Stephan. Said agreement
is incorporated by reference to Exhibit 10(i) to the Annual Report
on Form 10-K of the Company for the year ended December 31, 1989.
10(p) Form of Indemnification Agreement for each of the Company's
executive officers, directors and director emeritus. Each
agreement is identical to this exhibit except for the name and
title of each individual. Said agreement is incorporated by
reference to Exhibit 10(f) to the Annual Report on Form 10-K of
the Company for the year ended December 31, 1987.
10(q) Supplemental Retirement Income Plan for key executives
incorporated by reference to Exhibit 10(n) to the Annual Report on
Form 10-K of the Company for the year ended December 31, 1990.
10(r) Master Equipment Lease Agreement dated as of April 19, 1996,
between Provident Commercial Group, Inc. and Kollmorgen
Corporation incorporated by reference to EX-10 of the Form SE
filed on November 30, 1996.
41
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
11 Calculations of Earnings Per Share - The information is contained
in the Company's 1997Annual Report to shareholders in Note 21
"Earnings Per Share" on page 39 and is incorporated in here by
reference.
21 Subsidiaries of the Company (filed herewith)
23 Consent of Independent Accountants - Coopers & Lybrand L.L.P.
(filed herewith)
24 Powers of Attorney (filed herewith)
27(a) Financial Data Schedule for 1997 fiscal year ended December 31,
1997. (filed herewith)
27(b) Restated Financial Data Schedule for quarter ended September 30,
1997. (filed herewith)
27(c) Restated Financial Data Schedule for quarter ended June 30, 1997.
(filed herewith)
27(d) Restated Financial Data Schedule for quarter ended March 31, 1997.
(filed herewith)
27(e) Restated Financial Data Schedule for 1996 fiscal year ended
December 31, 1996. (filed herewith)
27(f) Restated Financial Data Schedule for quarter ended
September 30, 1996. (filed herewith)
27(g) Restated Financial Data Schedule for quarter ended June 30, 1996.
(filed herewith)
27(h) Restated Financial Data Schedule for quarter ended March 31, 1996.
(filed herewith)
27(i) Restated Financial Data Schedule for 1996 fiscal year ended
December 31, 1995. (filed herewith)
27(j) Restated Financial Data Schedule for 1996 fiscal year ended
December 31, 1994. (filed herewith)
42
<PAGE>
EXHIBIT 10(E)
KOLLMORGEN CORPORATION
1998 MANAGEMENT STOCK INCENTIVE PLAN
I. DEFINITIONS
-----------
(a) "Affiliate" means any "subsidiary corporation" of the Company, as such
term is defined in Section 424(f) of the Code.
(b) "Award" means, individually or collectively, a grant under the Plan of
Non-statutory Stock Options, Incentive Stock Options, Stock Awards and
Restricted Stock Units.
(c) "Award Agreement" means an agreement evidencing and setting forth the
terms of an Award granted under the Plan, in such form as the Committee
may, from time to time, approve.
(d) "Board of Directors" means the board of directors of the Company.
(e) "Cause" means a Participant's engagement in (i) any dishonest act or
common law fraud, in connection with the Participant's duties or in the
course of the Participant's employment with the Company, (ii)
intentional wrongful damage to property of the Company, (iii)
intentional wrongful disclosure of confidential information of the
Company, (iv) the use or possession of weapons or illegal substances on
Company property, (v) failure or refusal to perform any duties
reasonably required in the course of the Participant's employment, but
only after notice from the Company followed by a repetition of such
failure or refusal, (vi) violation by Participant of any material
Company policy, (vii) absenteeism not related to illness, sick leave or
vacation but only after notice from the Company followed by a
repetitioon of such absenteeism.
(f) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act,
whether or not the Company is then subject to such reporting
requirement, provided, however, that, anything in this Plan to the
contrary notwithstanding, a Change in Control shall be deemed to have
occurred if:
(i) any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity or person, or
any syndicate or group deemed to be a person under Section
14(d)(2) of the Exchange Act, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding
securities entitled to vote in the election of directors of the
Company;
(ii) during any period of two (2) consecutive years (not including any
period prior to the execution of this Plan) individuals who at
the beginning of such period constituted the Board and any new
directors, whose election by the Board or nomination for election
by the Company's shareholders was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved
(the "Incumbent Directors"), cease for any reason to constitute a
majority thereof;
<PAGE>
(iii) there occurs a reorganization, merger, consolidation or other
corporate transaction involving the Company (a "Transaction"), in
each case, with respect to which the shareholders of the Company
immediately prior to such Transaction do not, immediately after
the Transaction, own more than 50 percent of the combined voting
power of the Company or other corporation resulting from such
Transaction;
(iv) all or substantially all of the assets of the Company are sold,
liquidation or distributed; or
(v) there is a "change in control" of the Company within the meaning
of Section 280G of the Code and the regulations thereunder.
(g) "Change in Control Date" shall mean the earliest of (i) the date on
which the Change in Control occurs, (ii) the date on which the Company
executes an agreement, the consummation of which would result in the
occurrence of a Change in Control, (iii) the date the Board approves a
transaction or series of transactions, the consummation of which would
result in a Change in Control, and (iv) the date the Company fails to
have this Plan assumed by an successor to the Company. If the Change in
Control Date occurs as a result of an agreement described in clause
(ii) of the previous sentence or as a result of the approval of the
Board described in clause (iii) of the previous sentence and the Change
in Control to which such agreement or approval relates (the
"Contemplated Change in Control") subsequently does not occur, then the
Term shall expire on the sixtieth day (the "Reset Date") following the
date the Board certifies by resolution duly adopted by three-fourths
(3/4ths) of the Incumbent Directors then in office that the
Contemplated Change in Control is not reasonably likely to occur;
provided, however, that this sentence shall not apply if (A) an
Involuntary Termination of employment with the Company has occurred on
and after the Change in Control Date and on or prior to the Reset Date
or (B) the Contemplated Change in Control subsequently occurs within
three months of the Reset Date. Following the Reset Date, the
provisions of this Agreement shall remain in effect and a new Term
shall commence upon the occurrence of a subsequent Change in Control
Date. Notwithstanding the first sentence of this section, if employment
with the Company terminates prior to the Change in Control Date and it
is reasonably demonstrated that such termination of employment (i) was
at the request of the third party who has taken steps reasonably
calculated to effect the Change in Control or (ii) otherwise arose in
connection with or in anticipation of the Change in Control, then
Change in Control Date shall mean the date immediately prior to the
date of such termination of employment.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means the Personnel and Compensation Committee designated
by the Board of Directors to administer the Plan pursuant to Section 2
of the Plan.
(j) "Common Stock" means the Common Stock of the Company, par value, $2.50
per share.
(k) "Company" means Kollmorgen Corporation.
(l) "Date of Grant" means the effective date of an Award.
(m) "Effective Date" means the date approved by the shareholders.
(n) "Employee" means any person employed by the Company or an Affiliate who
is designated by the Board as a key contributor.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE>
(p) "Exercise Price" means the price at which a share of Common Stock may
be purchased by a Participant pursuant to an Option.
(q) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:
(i) If the Common Stock was traded on the date in question on The
NASDAQ Stock Market then the Fair Market Value shall be equal to
the last transaction price quoted for such date by The NASDAQ
Stock Market;
(ii) If the Common Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions
report for such date; and
(iii) If neither of the foregoing provisions is applicable, then the
Committee in good faith on such basis shall determine the Fair
Market Value as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in The Wall Street
---------------
Journal. Such determination shall be conclusive and binding on all
-------
persons.
(r) "Incentive Stock Option" means an Option granted to a Participant
pursuant to Section 7 of the Plan that is intended to meet the
requirements of Section 422 of the Code.
(s) "Restricted Stock Unit" means an Award granted to a Participant
pursuant to Section 8 of the Plan.
(t) "Non-statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended
to be and is not identified as an Incentive Stock Option or a stock
option granted under the Plan which is intended to be and is identified
as an Incentive Stock Option but which does not meet the requirements
of Section 422 of the Code.
(u) "Option" means an Incentive Stock Option or Non-statutory Stock Option.
(v) "Participant" means any person who holds an outstanding Award pursuant
to the Plan.
(w) "Plan" means the Kollmorgen Corporation 1998 Management Stock Incentive
Plan.
(x) "Stock Award" means an Award granted to a Participant pursuant to
Section 9 of the Plan.
2. ADMINISTRATION
--------------
(a) The Plan shall be administered by the Committee. The Committee shall
consist of two or more disinterested directors of the Company, who
shall be appointed by the Board of Directors. A member of the Board of
Directors shall be deemed to be "disinterested" only if he satisfies
(i) such requirements as the Securities and Exchange Commission may
establish for non-employee directors administering plans intended to
qualify for exemption under Rule 16b-3 (or its successor) under the
Exchange Act and (ii) such requirements as the Internal Revenue Service
may establish for outside directors acting under plans intended to
qualify for exemption under Section 162(m)(4)(C) of the Code. The Board
of Directors may also appoint one or more separate committees of the
Board of Directors, each composed of one or more directors of the
Company or an Affiliate who need not be disinterested and who may grant
Awards and administer the Plan with respect to Employees who are not
considered officers or directors of the Company under Section 16 of the
Exchange Act.
<PAGE>
(b) The Committee shall (i) select the Employees who are to receive Awards
under the Plan, (ii) determine the type, number, vesting requirements
and other features and conditions of such Awards, (iii) interpret the
Plan and (iv) make all other decisions relating to the operation of the
Plan. The Committee may adopt such rules or guidelines, as it deems
appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.
(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be approved by the
Committee. Each Award Agreement shall constitute a binding contract
between the Company or an Affiliate and the Participant, and the terms
and restrictions of the Plan and the Award Agreement shall bind every
Participant, upon acceptance of the Award Agreement. The terms of each
Award Agreement shall be in accordance with the Plan, but each Award
Agreement may include such additional provisions and restrictions
determined by the Committee in its discretion provided that such
additional provisions and restrictions are not inconsistent with the
terms of the Plan. In particular, the Committee shall set forth in each
Award Agreement (i) the type of Award granted (ii) the Exercise Price
of an Option, (iii) the number of shares subject to the Award; (iv) the
expiration date of the Award, (v) the manner, time, and rate
(cumulative or otherwise) of exercise or vesting of such Award, (vi)
the acceleration of the vesting schedule in the event of a Change in
Control, and (vii) the restrictions, if any, placed upon such Award, or
open shares which may be issued upon exercise of such Award. The
Chairman of the Committee and such other directors and officers as
shall be designated by the Committee are hereby authorized to execute
Award Agreements on behalf of the Company or an Affiliate and to cause
them to be delivered to the recipients of Awards.
(d) The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the
execution of any Award Agreement. The Committee may rely on the
descriptions, representations, reports and estimate provided to it by
the management of the Company or an Affiliate for determinations to be
made pursuant to the Plan.
3. TYPES OF AWARDS AND RELATED RIGHTS
----------------------------------
The following Awards may be granted under the Plan:
(a) Non-statutory Stock Options
(b) Incentive Stock Options
(c) Stock Awards
(d) Restricted Stock Units
4. STOCK SUBJECT TO THE PLAN
-------------------------
Subject to adjustment as provided in Section 13 hereof, the maximum number
of shares reserved for Awards under the Plan is 500,000. Subject to adjustment
as provided in Section 13 hereof, the maximum number of shares reserved hereby
for purchase pursuant to the exercise of Options granted under the Plan is
500,000 minus the number of Stock Awards or Restricted Stock Units issued. The
maximum number of shares reserved for Stock Awards and Restricted Stock Units is
150,000. The shares of Common Stock issued under the Plan may be either
authorized but unissued shares or authorized shares previously issued and
acquired or reacquired the Company, respectively. To the extent that Options
and Stock Awards are granted under the Plan, the shares underlying such Awards
will be unavailable for any other use including future grants under the Plan
except that, to the extent that Stock Awards or Options terminate, expire, or
are forfeited without having vested or without having been exercised, new Awards
may be made with respect to these shares.
5. ELIGIBILITY
-----------
Subject to the terms of the Plan, all Employees shall be eligible to receive
Awards under the Plan.
<PAGE>
6. NON-STATUTORY STOCK OPTIONS
---------------------------
The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but unawarded under this Plan,
grant Non-statutory Stock Options upon such terms and conditions as it may
determine. Non-statutory Stock Options granted under this Plan are subject to
the following terms and conditions.
(a) Exercise Price. The Exercise Price of each Non-statutory Stock Option
---------------
shall be determined by the Committee on the Date of Grant. Such
Exercise Price shall not be less than 100% of the Fair Market Value of
the Common Stock on the Date of Grant. Shares of Common Stock
underlying a Non-statutory Stock Option may be purchased only upon full
payment of the Exercise Price in a manner provided for in Section 10 of
the Plan.
(b) Terms of Non-statutory Stock Options. The term during which each Non-
------------------------------------
statutory Stock Option may be exercised shall be determined by the
Committee, but in no event shall a Non-statutory Stock Option be
exercisable in whole or in part more than ten (10) years from the Date
of Grant. The Committee shall determine the date on which each Non-
statutory Stock Option shall become exercisable and any terms or
conditions which must be satisfied prior to each Non-statutory Stock
Option becoming exercisable. Any such terms or conditions shall be
determined by the Committee as of the Date of Grant. The shares of
Common Stock underlying each Non-statutory Stock Option installment may
be purchased in whole or in part by the Participant at any time during
the term of such Non-statutory Stock Option after such installment
becomes exercisable.
(c) Non-Transferability. Unless otherwise determined by the Committee in
-------------------
accordance with this Section 6(c), Non-statutory Stock Options shall
not be transferred, assigned, hypothecated, or disposed of in any
manner by a Participant other than by will or the laws of intestate
succession. The Committee may, however, in its sole discretion, permit
transferability or assignment of a Non-statutory Stock Option if such
transfer or assignment is, in its sole determination, for valid estate
planning purposes and such transfer or assignment is permitted under
the Code and Rule 16b-3 under the Exchange Act. For purposes of this
Section 6(c), a transfer for valid estate planning purposes includes,
but is not limited to: (a) a transfer to a revocable intervivos trust
as to which the Participant is both the settlor and trustee, or (b) a
transfer for no consideration to: (i) any member of the Participant's
Immediate Family, (ii) any trust solely for the benefit of members of
the Participant's Immediate Family, (iii) any partnership whose only
partners are members of the Participant's Immediate Family, and (iv)
any limited liability corporation or corporate entity whose only
members or equity owners are members of the Participant's Immediate
Family. For purposes of this Section 6(c), "Immediate Family" includes,
but is not necessarily limited to, a Participant's parents, spouse,
children, grandchildren and great-grandchildren. Nothing contained in
this Section 6(c) shall be construed to require the Committee to give
its approval to any transfer or assignment of any Non-statutory Stock
Option or portion thereof, and approval to any transfer or assignment
of any Non-statutory Stock Option or portion thereof does not mean that
such approval will be given with respect to any other Non-statutory
Stock Option or portion thereof. The transferee or assignee of any Non-
statutory Stock Option shall be subject to all of the terms and
conditions applicable to such Non-statutory Stock Option immediately
prior to the transfer or assignment and shall be subject to any
conditions prescribed by the Committee with respect to such Non-
statutory Stock Option.
(d) Termination of Employment or Service. Unless otherwise determined by
------------------------------------
the Committee, upon the termination of a Participant's employment or
service for any reason other than death or termination for Cause, the
Participant's Non-statutory Stock Options shall be exercisable only as
to those shares that were immediately exercisable by the Participant at
the date of termination and only for a period of three (3) months
following termination. Unless otherwise determined by the
<PAGE>
Committee, in the event of the termination of a Participant's
employment or service due to death, all Non-statutory Stock Options
that were immediately exercisable by the Participant at the date of
death shall remain exercisable for a period of one (1) year following
such death. Unless otherwise determined by the Committee, in the event
of a Participant's termination for Cause, all rights under the
Participant's Non-statutory Stock Options shall expire immediately upon
the effective date of such termination for Cause.
7. INCENTIVE STOCK OPTIONS
-----------------------
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but unawarded under this Plan,
grant Incentive Stock Options to an Employee. Incentive Stock Options granted
pursuant to the Plan shall be subject to the following terms and conditions:
(a) Exercise Price. The Exercise Price of each Incentive Stock Option
--------------
shall be not less than 100% of the Fair Market Value of the Common
Stock on the Date of Grant. However, if at the time an Incentive Stock
Option is granted, the Employee owns or is treated as owning, for
purposes of Section 422 of the Code, Common Stock representing more
than 10% of the total combined voting stock of the Company or an
Affiliate ("10% owner"), the Exercise Price shall not be less than 110%
of the Fair Market Value of the Common Stock on the Date of Grant.
Shares of Common Stock may be purchased only upon payment of the full
Exercise Price in a manner provided for in Section 10 of the Plan.
(b) Amounts of Incentive Stock Options. To the extent the aggregate Fair
----------------------------------
Market Value of shares of Common Stock with respect to which Incentive
Stock Options that are exercisable for the first time by an Employee
during any calendar year under the Plan and any other stock option plan
of the Company or an Affiliate exceeds $100,000, or such higher value
as may be permitted under Section 422d of the Code, such other
Incentive Stock Options in excess of such limit shall be treated as
Non-statutory Stock Options. Fair Market Value shall be determined as
of the Date of Grant with respect to each such Incentive Stock Option.
(c) Terms of Incentive Stock Options. The term during which each Incentive
--------------------------------
Stock Option may be exercised shall be determined by the Committee, but
in no event shall an Incentive Stock Option be exercisable in whole or
in part more than ten (10) years from the Date of Grant. If at the time
an Incentive Stock Option is granted to an Employee who is a 10% Owner,
the Incentive Stock Option granted to such Employee shall not be
exercisable after the expiration of five (5) years from the Date of
Grant. The Committee shall determine the date on which each Incentive
Stock Option shall become exercisable and any terms or conditions which
must be satisfied prior to the Incentive Stock Option becoming
exercisable. Any such terms or conditions shall be determined by the
Committee as of the Date of Grant. The shares of Common Stock
underlying each Incentive Stock Option installment may be purchased in
whole or in part at any time during the term of such Incentive Stock
Option after such installment becomes exercisable.
(d) Transferability. An Incentive Stock Option shall not be transferable
---------------
except by an Employee's will or the laws of descent and distribution
and shall be exercisable, during an Employee's lifetime, only by the
Employee to whom it is granted. The designation of a beneficiary does
not constitute a transfer.
(e) Termination of Employment. Unless otherwise determined by the
-------------------------
Committee, upon the termination of an Employee's employment for any
reason other than death or termination for Cause, the Employee's
Incentive Stock Options shall be exercisable only as to those Incentive
Stock Options that were immediately exercisable by the Employee at the
date of termination and only for a period of three (3) months following
such termination. Unless otherwise determined by the Committee, in the
event of the termination of an Employee's employment for death, all
Incentive Stock Options that were immediately exercisable by the
Participant at the date of death shall remain exercisable for one (1)
year following such death. Unless otherwise determined by the
Committee, in the event of an Employee's termination for Cause, all
rights under such Employee's Incentive Stock Options shall expire
immediately upon the effective date of such termination for Cause. Any
Option, which, by
<PAGE>
operation of this provision, does not meet the requirements of Section
422 of the Code, shall be considered a Non-statutory Stock Option.
8. RESTRICTED STOCK UNITS
----------------------
Each year, the Committee shall, subject to the limitations of Section 4,
establish fixed limitations as to the percentage of the Participant's annual
incentive bonus that shall be paid in Restricted Stock Units ("RSU") and as to
the portion of the Participant's annual incentive bonus such Participant may
elect to defer and receive in the form of RSUs in lieu of such annual incentive
bonus. Each RSU represents the right to receive one share of Common Stock upon
the terms and conditions stated herein. Each RSU awarded to a Participant shall
be credited to a bookkeeping account established and maintained for that
Participant.
(a) Valuation of RSUs. The value of each RSU, as designated by the
-----------------
Committee, shall be equal to no less than 75% of the Fair Market Value
of each share of the Common Stock on the date of the award.
(b) Participation. Each year, subject to the percent limitations
--------------
established by the Committee above the Participant shall be issued a
RSU Subscription Agreement ("Subsequent Agreement) representing the
percentage of the Participant's annual incentive bonus required be paid
in RSUs. Each Subscription Agreement issued under this paragraph shall
specify a deferral period for the RSUs to which it pertains. The
deferral period shall be expressed as a number of whole years, not less
than three, beginning on the award date.
Each year, subject to the percentage limitation established by the
Committee each Participant may elect to receive an award for RSUs under
the Plan during the calendar year by completing a Bonus Deferral and
RSU Subscription Agreement ("Subscription Agreement"). The Subscription
Agreement shall provide that the Participant elects to receive RSUs in
lieu of a specified portion of any annual incentive bonus. Such portion
shall be expressed as a specified percentage of the Participant's
actual bonus amount up to the limitation established by the Committee.
Any percentage specified must be in 5% increments and not more than the
limit established by the Committee and is entirely contingent on the
amount of bonus actually awarded. Each Subscription Agreement, in
addition, shall specify a deferral period for the RSUs to which it
pertains. The deferral period shall be expressed as a number of whole
years, not less than three, beginning on the award date. Subscription
Agreements under this paragraph must be received by the Company no
later than September 30/th/ of the fiscal year for which such bonus
amount will be determined.
(c) Award of RSUs. Once each year, on the date that annual incentive
-------------
bonuses are paid or would otherwise be paid, the Company shall award
RSUs to each Participant as follows: Each Participant's account shall
be credited with a whole number of RSUs determined by dividing the
amount (expressed in dollars) that is determined under his Subscription
Agreement(s) by the value of each RSU awarded on such date. No
fractional RSU will be credited and the amount equivalent in value to
the fractional RSU will be paid out to the Participant currently in
cash.
(d) Vesting. A Participant shall be fully vested in each RSU three years
--------
after the date such RSU was awarded.
(e) Settlement After Vesting. With respect to each vested RSU, the Company
-------------------------
shall issue to the Participant one share of Common Stock at the end of
the deferral period specified in the Participant's Subscription
Agreement pertaining to such RSU(s), or upon the Participant's
termination of employment or the termination of the Plan, if sooner.
(f) Voluntary Termination and Termination for Cause. If a Participant
------------------------------------------------
voluntarily terminates his employment with the Company for reasons
other than death or permanent disability, or if the Participant is
terminated for Cause, the Participant's nonvested RSUs shall be
canceled and he shall receive a cash payment equal to the lesser of (a)
the Fair Market Value of such RSUs at the time of
<PAGE>
grant or (b) an amount equal to the number of such RSUs multiplied by
the Fair Market Value of the Common Stock on the date of the
Participant's termination of employment.
(g) Involuntary Termination other than for Cause. If a Participant's
---------------------------------------------
employment is terminated by the Company other than for Cause, or if the
Participant's employment terminates as a result of death or permanent
disability, the Participant's nonvested RSUs shall be canceled. The
Participant shall receive cash in an amount equal to the greater of (a)
the Fair Market Value of such RSUs at the time of grant or (b) an
amount equal to the number of such RSUs multiplied by the Fair Market
Value of the Common Stock on the date of the Participant's termination
of employment.
(h) Committee's Discretion. The Committee shall have complete discretion
-----------------------
to determine the circumstances of a Participant's termination of
employment, including whether the same results from voluntary
termination, permanent disability or involuntary termination by the
Company, and the Committee's determination shall be final and binding
on all parties and not subject to review or challenge by any
Participant or other person.
(i) Treatment of Dividends. Whenever dividends (other than dividends
----------------------
payable only in shares of Stock) are paid with respect to Stock, each
Participant shall be paid an amount in cash equal to the number of his
vested RSUs multiplied by the dividend value per share. In addition,
each Participant's account shall be credited with an amount equal to
the number of such Participant's nonvested RSUs multiplied by the
dividend value per share. Amounts credited with respect to each
nonvested RSU shall be paid, without interest, on the date the
Participant becomes vested in such RSU, or when the Participant
receives payment of his nonvested RSUs.
9. STOCK AWARDS
------------
The Committee may, subject to the limitations of the Plan, make Stock
Awards, which shall consist of the grant of some number of shares of Common
Stock to a Participant. Stock Awards shall be made subject to the following
terms and conditions.
(a) Payment of the Stock Award. Stock Awards may only be made in whole
--------------------------
shares of Common Stock. Stock Awards may only be granted from shares
reserved under the Plan and available for award at the time the Stock
Award is made to the Participant.
(b) Terms of the Stock Award. The Committee shall determine the dates on
------------------------
which Stock Awards granted to a Participant shall vest and any terms or
conditions which must be satisfied prior to the vesting of any
installment or portion of the Stock Award. Any such terms, or
conditions shall be determined by the Committee as of the Date of
Grant.
(c) Termination of Employment or Service. Unless otherwise determined by
------------------------------------
the Committee, upon the termination of a Participant's employment or
service for any reason other than termination for Cause, the
Participant's unvested Stock Awards as of the date of termination shall
be forfeited and any rights the Participant had to such unvested Stock
Awards shall become null and void. Unless otherwise determined by the
Committee, or in the event of the Participant's termination for Cause,
all unvested Stock Awards held by such Participant as of the effective
date of such termination for Cause shall be forfeited and any rights
such Participant had to such unvested Stock Awards shall become null
and void.
(d) Non-Transferability.
-------------------
(i) The recipient of a Stock Award shall not sell, transfer, assign,
pledge, or otherwise encumber shares subject to Stock Award until
full vesting of such shares has occurred. For purposes of this
section, the separation of beneficial ownership and legal title
through the use of any "swap" transaction is deemed to be a
prohibited encumbrance.
<PAGE>
(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic
relations order, a Stock Award is not transferable and may be
earned in his lifetime only by the Participant to whom it is
granted. Upon the death of a Participant, a Stock Award is
transferable by will or the laws of descent and distribution. The
designation of a beneficiary shall not constitute a transfer.
(iii) If a recipient of a Stock Award is subject to the provisions of
Section 16 of the Exchange Act, shares of Common Stock subject to
such Stock Award may not, without the written consent of the
Committee (which consent may be given in the Award Agreement), be
sold or otherwise disposed of within six (6) months following the
date of grant of the Stock Award.
(e) Accrual of Dividends. Whenever shares of Common Stock underlying a
--------------------
Stock Award are distributed to a Participant or beneficiary thereof
under the Plan, such Participant or beneficiary shall also be entitled
to receive, with respect to each such share distributed, a payment
equal to any cash dividends and the number of shares of Common Stock
equal to any stock dividends, declared and paid with respect to a share
of the Common Stock if the record date for determining shareholders
entitled to receive such dividends falls between the date the relevant
Stock Award was granted and the date the relevant Stock Award or
installment thereof is issued.
(f) Voting of Stock Awards. After a Stock Award has been granted but for
----------------------
which the shares covered by such Stock Award have not yet been vested,
earned and distributed to the Participant pursuant to the Plan, the
Participant shall be entitled to vote such shares of Common Stock which
the Stock Award covers pursuant to the rules and procedures adopted by
the Committee for this purpose.
10. METHOD OF EXERCISE
------------------
Subject to any applicable Award Agreement, any Option may be exercised by
the Participant in whole or in part at such time or times, and the Participant
may make payment of the Exercise Price in such form or forms, including, without
limitation, payment by delivery of cash, Common Stock or other consideration
(including, where permitted by law and the Committee, Awards) having a Fair
Market Value on the exercise date equal to the total Exercise Price, or by any
combination of cash, shares of Common Stock and other consideration, including
exercises by means of a cashless exercise arrangement with a qualifying broker-
dealer, as the Committee may specify in the applicable Award Agreement.
11. RIGHTS OF PARTICIPANTS
----------------------
No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such Common Stock. Nothing contained herein or in any
Award Agreement confers on any person any right to continue in the employ or
service of the Company or an Affiliate or interferes in any way with the right
of the Company or an Affiliate to terminate a Participant's services.
12. DESIGNATION OF BENEFICIARY
--------------------------
A Participant may, with the consent of the Committee, designate a person or
persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by
and delivered to the Company and may be revoked in writing. If a Participant
fails effectively to designate a beneficiary, then the Participant's estate will
be deemed to be the beneficiary.
13. DILUTION AND OTHER ADJUSTMENTS
------------------------------
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other
<PAGE>
similar corporate change, or other increase or decrease in such shares without
receipt or payment of consideration by the Company, or in the event an
extraordinary capital distribution is made, the Committee may make such
adjustments to previously granted Awards, to prevent dilution, diminution, or
enlargement of the rights of the Participant, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
or other securities that may underlie future Awards under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock
or other securities underlying Awards already made under the Plan;
(c) adjustments in the Exercise Price of outstanding Incentive and/or Non-
statutory Stock Options, or any Limited Rights attached to such
Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Company.
14. TAX WITHHOLDING
---------------
Notwithstanding any other provision of the Plan, Awards under this Plan
shall be subject to tax withholding to the extent required by any governmental
authority. Any withholding shall comply with Rule 16b-3 or any amendment or
successive rule. Shares of Common Stock withheld to pay for tax withholding
amounts shall be valued at their Fair Market Value on the date the Award is
deemed taxable to the Participant. Participants shall be responsible for paying
any required tax withholding applicable under the exercise of an Option.
15. AMENDMENT OF THE PLAN AND AWARDS
--------------------------------
The Board of Directors may at any time, and from time to time, modify or
amend the Plan in any respect, provided however, that provisions governing
grants of Incentive Stock Options, unless permitted by the rules and regulations
or staff pronouncements promulgated under the Code shall be submitted for
shareholder approval to the extent required by such law, regulation or
interpretation.
Failure to ratify or approve amendments or modifications by shareholders
shall be effective only as to the specific amendment or modification requiring
such ratification. Other provisions of this Plan will remain in full force and
effect.
No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.
16. EFFECTIVE DATE OF PLAN
----------------------
The Plan shall become effective upon approval by the Company's shareholders.
The failure to obtain shareholder approval for such purposes will not effect the
validity of the Plan and any Awards made under the Plan; provided, however, that
if the Plan is not approved by shareholders the Plan shall remain in full force
and effect, and any Incentive Stock Options granted under the Plan shall be
deemed to be Non-statutory Stock Options and any Award intended to comply with
Section 162(m) of the Code shall not comply with Section 162(m) of the Code.
17. TERMINATON OF THE PLAN
----------------------
The right to grant Awards under the Plan will terminate ten (10) years after
the Effective Date. The Board of Directors has the right to suspend or
terminate the Plan at any time, provided that no such action will, without the
consent of a Participant, adversely affect a Participant's vested rights under a
previously granted Award.
<PAGE>
18. APPLICABLE LAW
--------------
The Plan and all Award Agreements entered into under the Plan shall be
construed in accordance with and governed by the laws of the State of New York.
<PAGE>
EXHIBIT 10(F)
[ DATE ], 1998
[NAME]
[ADDRESS]
[CITY, STATE]
Retention Agreement
-------------------
Dear [NAME]:
Kollmorgen Corporation, a New York corporation (the "Company"), considers it
essential to the best interests of its shareholders to take reasonable steps to
retain key management personnel. Further, the Board of Directors of the Company
(the "Board") recognizes that the uncertainty and questions which might arise
among management in the context of a change in control of the Company could
result in the departure or distraction of management personnel to the detriment
of the Company and its shareholders.
The Board has determined, therefore, that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members of
the management of the Company and its subsidiaries, including yourself, to their
assigned duties without distraction in the face of potentially disturbing
circumstances arising from any possible change in control of the Company.
In order to induce you to remain in the employ of the Company, the Company
has determined to enter into this letter agreement (this "Agreement") which
addresses the terms and conditions of your employment in the event of a change
in control of the Company. Capitalized words which are not otherwise defined
herein shall have the meanings assigned to such words in Section 8 of this
Agreement.
1. Term of Employment Under the Agreement; Effect on Prior Agreement. The
-----------------------------------------------------------------
term of your employment under this Agreement shall commence on the Change in
Control Date and shall continue until the second anniversary of the Change in
Control Date (the "Term"). This Agreement supersedes that certain Retention
Agreement dated __________ __, 1997, between the Company and you, which, as of
the date of your execution of this Agreement, shall be of no further force or
effect.
2. Employment During the Term. During the Term, the following terms and
--------------------------
conditions shall apply to your employment with the Company:
(a) Titles; Reporting and Duties. Your position, titles, nature and
----------------------------
status of responsibilities and reporting obligations shall be no less favorable
to you than those that you enjoyed immediately prior to the Change in Control
Date.
(b) Salary and Bonus. Your base salary and annual bonus opportunity may
----------------
not be reduced, and your base salary shall be periodically reviewed and
increased in the manner commensurate with increases awarded to other similarly
situated executives of the Company.
<PAGE>
(c) Incentive Compensation. You shall be eligible to participate in
----------------------
each long-term incentive plan or arrangement established by the Company for its
executive employees, in accordance with the terms and provisions of such plan or
arrangement and at a level consistent with the Company's practices applicable to
you prior to the Change in Control Date.
(d) Benefits. You shall be eligible to participate in all pension,
--------
welfare and fringe benefit plans and arrangements that the Company provides to
its executive employees in accordance with the terms of such plans and
arrangements, which shall be no less favorable to you, in the aggregate, than
the terms and provisions available to other executive employees of the Company.
(e) Location. You will continue to be employed at the business location
--------
at which you were employed prior to the Change in Control Date and the amount of
time that you are required to travel for business purposes will not be increased
in any significant respect from the amount of business travel required of you
prior to the Change in Control Date.
3. Involuntary Termination During the Term.
---------------------------------------
(a) Severance Payment. In the event of your Involuntary Termination
-----------------
during the Term, the Company shall pay you within 5 days of the date of such
Involuntary Termination the full amount of any earned but unpaid base salary
through the Date of Termination at the rate in effect at the time of the Notice
of Termination, plus a cash payment (calculated on the basis of your Reference
Salary) for all unused vacation time which you may have accrued as of the Date
of Termination. The Company shall also pay you within 5 days of the Date of
Termination a pro rata portion of the annual bonus for the year in which your
Involuntary Termination occurs, calculated on the basis of your target bonus for
that year and on the assumption that all performance targets have been or will
be achieved. You also shall receive long-term incentive bonus amounts, to the
extent such amounts are payable in accordance with the terms of any long-term
incentive plan of the Company in which you participated immediately prior to
your Date of Termination. In addition, the Company shall pay you in a cash lump
sum, within 8 days following the date of your execution of the release described
in the last sentence of this Section 3(a) (or on the Date of Termination, if
later), an amount (the "Severance Payment") equal to [two and one half times]
the sum of your Reference Salary and your Reference Bonus. The Severance
Payment shall be in lieu of any other severance payments which you are entitled
to receive under any other severance pay plan or arrangement sponsored by the
Company and its subsidiaries. Your right to the Severance Payment shall be
conditioned upon your execution of a release in favor of the Company in
substantially the form attached hereto as Exhibit A.
(b) Benefit Payment. In the event of your Involuntary Termination
---------------
during the Term, you and your eligible dependents shall continue to be eligible
to participate during the Benefit Continuation Period (as hereinafter defined)
in the medical, dental, health, life and other fringe benefit plans and
arrangements applicable to you immediately prior to your Involuntary Termination
on the same terms and conditions in effect for you and your dependents
immediately prior to such Involuntary Termination. For purposes of the previous
sentence, "Benefit Continuation Period" means the period beginning on the Date
of Termination and ending on the earlier to occur of (i) the [date 30 months
following] [OR] [first anniversary of] the Date of Termination and (ii) the date
that you and your dependents are eligible and elect coverage under the plans of
a subsequent employer which provide substantially equivalent or greater benefits
to you and your dependents.
(c) Date and Notice of Termination. Any termination of your employment
------------------------------
by the Company or by you during the Term shall be communicated by a notice of
termination to the other party hereto (the "Notice of Termination"). The Notice
of Termination shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated. The date of your termination of employment
with the Company and its subsidiaries (the "Date of Termination") shall be
determined as follows: (i) if your employment is terminated for Disability,
thirty (30) days after a Notice of Termination is given (provided that you shall
not have returned to the full-time performance of your duties during such thirty
(30) day period), (ii) if your employment is terminated by the Company in an
Involuntary Termination, five (5) days after the date the Notice of Termination
is received by
<PAGE>
you and (iii) if your employment is terminated by the Company for Cause, the
later of the date specified in the Notice of Termination or ten (10) days
following the date such notice is received by you. If the basis for your
Involuntary Termination is your resignation for Good Reason, the Date of
Termination shall be ten (10) days after the date your Notice of Termination is
received by the Company. The Date of Termination for a resignation of employment
other than for Good Reason shall be the date set forth in the applicable notice,
which shall be no earlier than ten (10) days after the date such notice is
received by the Company.
(d) No Mitigation or Offset. You shall not be required to mitigate the
-----------------------
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided for in
this Agreement be reduced by any compensation earned by you as the result of
employment by another employer or by pension benefits paid by the Company or
another employer after the Date of Termination or otherwise except as
specifically provided in clause (ii) of the last sentence of Section 3(b).
4. Additional Payment.
------------------
(a) Gross-Up Payment. Notwithstanding anything herein to the contrary,
----------------
if it is determined that any Payment would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any interest or penalties thereon, is
herein referred to as an "Excise Tax"), then you shall be entitled to an
additional payment (a "Gross-Up Payment") in an amount that will place you in
the same after-tax economic position that you would have enjoyed if the Excise
Tax had not applied to the Payment. The amount of the Gross-Up Payment shall be
determined by the Accounting Firm in accordance with the formula {(E x (1 -
M)/(1 - T)) - E} (or such other formula as the Accounting Firm deems appropriate
which is intended to achieve the same result), where
E equals the Payments which are determined to be "excess
parachute payments" within the meaning of Section 280G(b)(1)
of the Code;
M equals the sum of the highest marginal rates for Taxes
applicable to you at the time of the Payment; and
T equals M plus the rate of Excise Tax applicable to the
Payment.
(b) Determination of Gross-Up Payment. Subject to the provisions of
---------------------------------
Section 4(c), all determinations required under this Section 4, including
whether a Gross-Up Payment is required, the amount of the Payments constituting
excess parachute payments, and the amount of the Gross-Up Payment, shall be
made by the Accounting Firm, which shall provide detailed supporting
calculations both to you and the Company within fifteen days of the Change in
Control Date, your Date of Termination or any other date reasonably requested by
you or the Company on which a determination under this Section 4 is necessary or
advisable. The Company shall pay to you the initial Gross-Up Payment within 5
days of the receipt by you and the Company of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by you, the Company shall cause the Accounting Firm to provide you with an
opinion that the Accounting Firm has substantial authority under the Code and
Regulations not to report an Excise Tax on your federal income tax return. Any
determination by the Accounting Firm shall be binding upon you and the Company.
If the initial Gross-Up Payment is insufficient to cover the amount of the
Excise Tax that is ultimately determined to be owing by you with respect to any
Payment (hereinafter an "Underpayment"), the Company, after exhausting its
remedies under Section 4(c) below, shall promptly pay to you an additional
Gross-Up Payment in respect of the Underpayment.
(c) Procedures. You shall notify the Company in writing of any claim by
----------
the Internal Revenue Service that, if successful, would require the payment by
the Company of a Gross-Up Payment. Such notice shall be given as soon as
practicable after you know of such claim and shall apprise the Company of the
nature of the claim and the date on which the claim is requested to be paid.
You agree not to pay the claim until the expiration of the thirty-day period
following the date on which you notify the Company, or such shorter period
ending on the date the
<PAGE>
Taxes with respect to such claim are due (the "Notice Period"). If the Company
notifies you in writing prior to the expiration of the Notice Period that it
desires to contest the claim, you shall: (i) give the Company any information
reasonably requested by the Company relating to the claim; (ii) take such action
in connection with the claim as the Company may reasonably request, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company and reasonably acceptable to you;
(iii) cooperate with the Company in good faith in contesting the claim; and (iv)
permit the Company to participate in any proceedings relating to the claim. You
shall permit the Company to control all proceedings related to the claim and, at
its option, permit the Company to pursue or forgo any and all administrative
appeals, proceedings, hearings, and conferences with the taxing authority in
respect of such claim. If requested by the Company, you agree either to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner
and to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate courts
as the Company shall determine; provided, however, that, if the Company directs
you to pay such claim and pursue a refund, the Company shall advance the amount
of such payment to you on an after-tax and interest-free basis (the "Advance").
The Company's control of the contest related to the claim shall be limited to
the issues related to the Gross-Up Payment and you shall be entitled to settle
or contest, as the case may be, any other issues raised by the Internal Revenue
Service or other taxing authority. If the Company does not notify you in writing
prior to the end of the Notice Period of its desire to contest the claim, the
Company shall pay to you an additional Gross-Up Payment in respect of the excess
parachute payments that are the subject of the claim, and you agree to pay the
amount of the Excise Tax that is the subject of the claim to the applicable
taxing authority in accordance with applicable law.
(d) Repayments. If, after receipt by you of an Advance, you become
----------
entitled to a refund with respect to the claim to which such Advance relates,
you shall pay the Company the amount of the refund (together with any interest
paid or credited thereon after Taxes applicable thereto). If, after receipt by
you of an Advance, a determination is made that you shall not be entitled to any
refund with respect to the claim and the Company does not promptly notify you of
its intent to contest the denial of refund, then the amount of the Advance shall
not be required to be repaid by you and the amount thereof shall offset the
amount of the additional Gross-Up Payment then owing to you.
(e) Further Assurances. The Company shall indemnify you and hold you
------------------
harmless, on an after-tax basis, from any costs, expenses, penalties, fines,
interest or other liabilities ("Losses") incurred by you with respect to the
exercise by the Company of any of its rights under this Section 4, including,
without limitation, any Losses related to the Company's decision to contest a
claim or any imputed income to you resulting from any Advance or action taken on
your behalf by the Company hereunder. The Company shall pay all legal fees and
expenses incurred under this Section 4, and shall promptly reimburse you for the
reasonable expenses incurred by you in connection with any actions taken by the
Company or required to be taken by you hereunder. The Company shall also pay
all of the fees and expenses of the Accounting Firm, including, without
limitation, the fees and expenses related to the opinion referred to in Section
4(b).
5. Other Provisions.
----------------
(a) Vesting and Exercise. Notwithstanding the terms of the Equity Plan,
--------------------
and of any agreement thereunder, Equity Awards granted to you under the Equity
Plan shall vest and become exercisable in the event of your Involuntary
Termination on or following the Change in Control Date.
(b) General. Anything in this Agreement to the contrary
-------
notwithstanding, in no event shall the vesting and exercisability provisions
applicable to you under the terms of your Equity Awards be less favorable to you
then the terms and provisions of such awards in effect on the date hereof.
6. Legal Fees and Expenses. The Company shall pay or reimburse you on an
-----------------------
after-tax basis for all costs and expenses (including, without limitation, court
costs and reasonable legal fees and expenses which reflect common practice with
respect to the matters involved) incurred by you as a result of any claim,
action or proceeding (i) arising out of your termination of employment during
the Term, (ii) contesting, disputing or enforcing any right, benefits or
obligations under this Agreement or (iii) arising out of or challenging the
validity, advisability or enforceability of this Agreement or any provision
thereof.
<PAGE>
7. Successors; Binding Agreement.
-----------------------------
(a) Assumption by Successor. The Company will require any successor
-----------------------
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company expressly to
assume and to agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place; provided, however, that no such assumption shall relieve the
Company of its obligations hereunder. As used in this Agreement, the "Company"
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law or otherwise.
(b) Enforceability; Beneficiaries. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of you (and your personal representatives and heirs)
and the Company and any organization which succeeds to substantially all of the
business or assets of the Company, whether by means of merger, consolidation,
acquisition of all or substantially all of the assets of the Company or
otherwise, including, without limitation, as a result of a Change in Control or
by operation of law. This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.
8. Definitions. For purposes of this Agreement, the following capitalized
-----------
words shall have the meanings set forth below:
"Accounting Firm" shall mean [NAME] or, if such firm is unable or
unwilling to perform such calculations, such other national accounting firm
as shall be designated by agreement between you and the Company. To the
extent reasonably practicable, one such accounting firm shall be designated
to perform the calculations in respect of the Combined Arrangements.
"Cause" shall mean a termination of your employment during the Term
which is a result of (i) your felony conviction, (ii) your willful
disclosure of material trade secrets or other material confidential
information related to the business of the Company and its subsidiaries or
(iii) your willful and continued failure substantially to perform your
duties with the Company (other than any such failure resulting from your
incapacity due to physical or mental illness or any such actual or
anticipated failure resulting from a resignation by you for Good Reason)
after a written demand for substantial performance is delivered to you by
the Board, which demand specifically identifies the manner in which the
Board believes that you have not substantially performed your duties, and
which performance is not substantially corrected by you within 10 days of
receipt of such demand. For purposes of the previous sentence, no act or
failure to act on your part shall be deemed "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief
that your action or omission was in the best interest of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you
a copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4ths) of the entire membership of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice to you
and an opportunity for you, together with your counsel, to be heard before
the Board), finding that in the good faith opinion of the Board you were
guilty of conduct set forth above in clause (i), (ii) or (iii) of the first
sentence of this section and specifying the particulars thereof in detail.
"Change in Control" shall mean a change in control of the Company
of a nature that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Exchange Act,
whether or not the Company is then subject to such reporting requirement;
provided, however, that, anything in this Agreement to the contrary
notwithstanding, a Change in Control shall be deemed to have occurred if:
<PAGE>
(i) any individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity or person, or any
syndicate or group deemed to be a person under Section 14(d)(2) of the
Exchange Act, is or becomes the "beneficial owner" (as defined in Rule
13d-3 of the General Rules and Regulations under the Exchange Act),
directly or indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then outstanding
securities entitled to vote in the election of directors of the Company;
(ii) during any period of two (2) consecutive years (not including
any period prior to the execution of this Agreement) individuals who at
the beginning of such period constituted the Board and any new
directors, whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least three-fourths
(3/4ths) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for
election was previously so approved (the "Incumbent Directors"), cease
for any reason to constitute a majority thereof;
(iii) there occurs a reorganization, merger, consolidation or other
corporate transaction involving the Company (a "Transaction"), in each
case, with respect to which the shareholders of the Company immediately
prior to such Transaction do not, immediately after the Transaction, own
more than 50 percent of the combined voting power of the Company or
other corporation resulting from such Transaction;
(iv) all or substantially all of the assets of the Company are sold,
liquidated or distributed; or
(v) there is a "change in control" of the Company within the meaning
of Section 280G of the Code and the Regulations.
"Change in Control Date" shall mean the earliest of (i) the date on
which the Change in Control occurs, (ii) the date on which the Company
executes an agreement, the consummation of which would result in the
occurrence of a Change in Control, (iii) the date the Board approves a
transaction or series of transactions, the consummation of which would
result in a Change in Control and (iv) the date the Company fails to satisfy
its obligations to have this agreement assumed by any successor to the
Company in accordance with Section 7(a) of this Agreement. If the Change in
Control Date occurs as a result of an agreement described in clause (ii) of
the previous sentence or as a result of the approval of the Board described
in clause (iii) of the previous sentence and the Change in Control to which
such agreement or approval relates (the "Contemplated Change in Control")
subsequently does not occur, then the Term shall expire on the sixtieth day
(the "Reset Date") following the date the Board certifies by resolution duly
adopted by three-fourths (3/4ths) of the Incumbent Directors then in office
that the Contemplated Change in Control is not reasonably likely to occur;
provided, however, that this sentence shall not apply if (A) an Involuntary
Termination of your employment with the Company has occurred on and after
the Change in Control Date and on or prior to the Reset Date or (B) the
Contemplated Change in Control subsequently occurs within three months of
the Reset Date. Following the Reset Date, the provisions of this Agreement
shall remain in effect and a new Term shall commence upon the occurrence of
a subsequent Change in Control Date. Notwithstanding the first sentence of
this section, if your employment with the Company terminates prior to the
Change in Control Date and it is reasonably demonstrated that your
termination of employment (i) was at the request of the third party who has
taken steps reasonably calculated to effect the Change in Control or (ii)
otherwise arose in connection with or in anticipation of the Change in
Control, then Change in Control Date shall mean the date immediately prior
to the date of your termination of employment.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor provisions thereto.
"Common Stock" shall mean the common stock of the Company.
<PAGE>
"Disability" shall mean (i) your incapacity due to physical or
mental illness which causes you to be absent from the full-time performance
of your duties with the Company for six (6) consecutive months, and (ii)
your failure to return to full-time performance of your duties for the
Company within thirty (30) days after written Notice of Termination due to
Disability is given to you. Any question as to the existence of your
Disability upon which you and the Company cannot agree shall be determined
by a qualified independent physician selected by you (or, if you are unable
to make such selection, such selection shall be made by any adult member of
your immediate family), and approved by the Company. The determination of
such physician made in writing to the Company and to you shall be final and
conclusive for all purposes of this Agreement.
"Equity Awards" shall mean options, restricted stock, bonus stock or
other grants or awards which consist of, or relate to, equity securities of
the Company and which have been granted to you under the Equity Plan. For
purposes of this Agreement, Equity Awards shall also include any securities
acquired upon the exercise of an option, warrant or similar right that
constitutes an Equity Award.
"Equity Plan" shall mean the Kollmorgen Corporation 1991 Long Term
Incentive Plan, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor provisions thereto.
"Good Reason" shall mean a resignation of your employment during the
Term as a result of any of the following:
(i) A meaningful and detrimental alteration in your position,
your titles, or the nature or status of your responsibilities (including
your reporting responsibilities) from those in effect immediately prior
to the Change in Control Date;
(ii) A reduction by the Company in your annual base salary as in
effect immediately prior to the Change in Control Date or as the same
may be increased from time to time thereafter; a failure by the Company
to increase your salary at a rate commensurate with that of other key
executives of the Company; or a reduction in your target annual bonus
(expressed as a percentage of base salary) below the target in effect
for you prior to the Change in Control Date;
(iii) The relocation of the office of the Company where you are
employed immediately prior to the Change in Control Date (the "CIC
Location") to a location which is more than fifty (50) miles away from
the CIC Location or the Company's requiring you to be based more than
fifty (50) miles away from the CIC Location (except for required travel
on the Company's business to an extent substantially consistent with
your customary business travel obligations in the ordinary course of
business prior to the Change in Control Date);
(iv) The failure by the Company to continue in effect any
compensation plan in which you participated prior to the Change in
Control Date or made available to you after the Change in Control Date,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan in connection
with the Change in Control, or the failure by the Company to continue
your participation therein on at least as favorable a basis, both in
terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed on the Change
in Control Date;
(v) The failure by the Company to continue to provide you with
benefits at least as favorable in the aggregate to those enjoyed by you
under the Company's pension, savings, life insurance, medical, health
and accident, disability, and fringe benefit plans and programs in which
you were participating immediately prior to the Change in Control Date;
or the failure by the Company to provide you with the number of paid
vacation days to which you are entitled on the basis
<PAGE>
of years of service with the Company in accordance with the Company's
normal vacation policy in effect immediately prior to the Change in
Control;
(vi) The failure of the Company to obtain an agreement reasonably
satisfactory to you from any successor to assume and agree to perform
this Agreement, as contemplated in Section 7(a) hereof or, if the
business of the Company for which your services are principally
performed is sold at any time after a Change in Control, the failure of
the Company to obtain such an agreement from the purchaser of such
business;
(vii) Any termination of your employment which is not effected
pursuant to the terms of this Agreement; or
(viii) A material breach by the Company of the provisions of this
Agreement;
provided, however, that an event described above in clause (i), (ii), (iv),
(v) or (viii) shall not constitute Good Reason unless it is communicated by
you to the Company in writing and is not corrected by the Company in a
manner which is reasonably satisfactory to you (including full retroactive
correction with respect to any monetary matter) within 10 days of the
Company's receipt of such written notice from you.
"Involuntary Termination" shall mean (i) your termination of
employment by the Company and its subsidiaries during the Term other than
for Cause or Disability or (ii) your resignation of employment with the
Company and its subsidiaries during the Term for Good Reason.
"Payment" means (i) any amount due or paid to you under this
Agreement, (ii) any amount that is due or paid to you under any plan,
program or arrangement of the Company and its subsidiaries (including,
without limitation, the Equity Plans), and (iii) any amount or benefit that
is due or payable to you under this Agreement or under any plan, program or
arrangement of the Company and its subsidiaries not otherwise covered under
clause (i) or (ii) hereof which must reasonably be taken into account under
Section 280G of the Code and the Regulations in determining the amount of
the "parachute payments" received by you, including, without limitation, any
amounts which must be taken into account under the Code and Regulations as a
result of (A) the acceleration of the vesting of any option, restricted
stock or other equity award granted under the Equity Plans or otherwise, (B)
the acceleration of the time at which any payment or benefit is receivable
by you or (C) any contingent severance or other amounts that are payable to
you.
"Reference Bonus" shall mean the average of the two most recent
annual bonuses paid to you prior to your Involuntary Termination
(disregarding any bonus in an amount that results in a breach of this
Agreement).
"Reference Salary" shall mean the annual rate of your base salary
from the Company and its subsidiaries in effect immediately prior to the
date of your Involuntary Termination (disregarding any reduction of such
base salary in breach of this Agreement).
"Regulations" shall mean the proposed, temporary and final
regulations under Section 280G of the Code or any successor provision
thereto.
"Taxes" shall mean the federal, state and local income taxes to
which you are subject at the time of determination, calculated on the basis
of the highest marginal rates then in effect, plus any additional payroll or
withholding taxes to which you are then subject.
"Transaction Date" shall mean the date described in clause (i) of
the definition of Change in Control Date.
9. Notice. For the purpose of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United
<PAGE>
States registered mail, return receipt requested, postage prepaid, addressed to
the Board of Directors, Kollmorgen Corporation, [Address], with a copy to the
General Counsel of the Company, or to you at the address set forth on the first
page of this Agreement or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
10. Miscellaneous.
-------------
(a) Amendments, Waivers, Etc. No provision of this Agreement may be
------------------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement and this
Agreement shall supersede all prior agreements, negotiations, correspondence,
undertakings and communications of the parties, oral or written, with respect to
the subject matter hereof; provided, however, that, except as expressly set
forth herein, this Agreement shall not supersede the terms of Equity Awards
previously granted to you.
(b) Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(c) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
(d) No Contract of Employment. Nothing in this Agreement shall be
-------------------------
construed as giving you any right to be retained in the employ of the Company or
shall affect the terms and conditions of your employment with the Company prior
to the commencement of the Term hereof.
(e) Withholding. Amounts paid to you hereunder shall be subject to all
-----------
applicable federal, state and local withholding taxes.
(f) Source of Payments. All payments provided under this Agreement,
------------------
other than payments made pursuant to a plan which provides otherwise, shall be
paid in cash from the general funds of the Company, and no special or separate
fund shall be established, and no other segregation of assets made, to assure
payment. You will have no right, title or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
hereunder. To the extent that any person acquires a right to receive payments
from the Company hereunder, such right shall be no greater than the right of an
unsecured creditor of the Company.
(g) Headings. The headings contained in this Agreement are intended
--------
solely for convenience of reference and shall not affect the rights of the
parties to this Agreement.
(h) Governing Law. The validity, interpretation, construction, and
-------------
performance of this Agreement shall be governed by the laws of the State of New
York applicable to contracts entered into and performed in such State.
* * * *
If this letter sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this letter which will then
constitute our agreement on this subject.
Sincerely,
KOLLMORGEN CORPORATION
<PAGE>
By
----------------------
[Name]
[Title]
Agreed to as of this
day of , 1998.
- ------------------------------
[Name]
<PAGE>
EXHIBIT A
RELEASE
1. I have signed a Retention Agreement with Kollmorgen Corporation (the
"Company"), dated February __, 1997, (the "Agreement"), wherein I agreed to the
terms applicable to certain terminations of employment with the Company.
Pursuant to the terms of the Agreement, I am entitled to certain severance
payments and benefits, described in the Agreement, provided that I sign this
Release.
2. In consideration of the severance payments described in the Agreement,
I, on behalf of myself, my heirs, agents, representatives, predecessors,
successors and assigns, hereby irrevocably release, acquit and forever discharge
the Company and each of its respective agents, employees, representatives,
parents, subsidiaries, divisions, affiliates, officers, directors, shareholders,
investors, employees, attorneys, transferors, transferees, predecessors,
successors and assigns, jointly and severally of and from any and all debts,
suits, claims, actions, causes of action, controversies, demands, rights,
damages, losses, expenses, costs, attorneys' fees, compensation, liabilities and
obligations whatsoever, suspected or unsuspected, known or unknown, foreseen or
unforeseen, arising at any time up to and including the date of this Release,
save and except for the parties' obligations and rights under the Agreement. In
recognition of the consideration set forth in the Agreement, I hereby release
and forever discharge the Company from any and all claims, actions and causes of
action, I have or may have as of the date of this Release arising under any
state or federal civil rights or human rights law, or under the Federal Age
Discrimination in Employment Act of 1967, as amended, and the applicable rules
and regulations promulgated thereunder ("ADEA"). By signing this Release, I
hereby acknowledge and confirm the following: (a) I was advised in writing by
the Company in connection with my termination to consult with an attorney of my
choice prior to signing this Agreement, including, without limitation, the terms
relating to my release of claims arising under ADEA and any other law, rule or
regulation referred to above; (b) I was given a period of not fewer than 21 days
to consider the terms of this Agreement and to consult with an attorney of my
choosing with respect hereto; and (c) I am providing the release and discharge
set forth in this paragraph only in exchange for consideration in addition to
anything of value to which I was already entitled.
3. The Agreement and this Release may be revoked by me within the 7-day
period commencing on the date I sign this Release (the "Revocation Period"). In
the event of any such revocation, all obligations of the Company under the
Agreement will terminate and be of no further force and effect as of the date of
such revocation and both the Company and I will have and be entitled to exercise
all rights that would have existed had the Agreement and Release not been
entered into. No such revocation will be effective unless it is in writing and
signed by me and received by the Company prior to the expiration of the
Revocation Period.
_____________________ ______________
[NAME] Date
_____________________ ______________
WITNESS
<PAGE>
EXHIBIT 21
Subsidiaries of the Company
As of March 24, 1998, the Company owned or controlled the following
percentages of the capital stock of the corporations listed below:
State or Country of
Name of Corporation Incorporation % Owned
------------------- -------------- -------
Kollmorgen Overseas Development
Corporation Delaware 100
Proto-Power Corporation Delaware 100
Kollmorgen Tandon (India) India 51
Tianjin Kollmorgen Industrial Peoples' Republic
Drives Corporation of China 63
Artus Group France 100
Kollmorgen Artus
Societe Anonyme Cryla
Seidel Servo Drives GmbH Germany 100
Servotronix, Ltd. Israel 100
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the Incorporation by reference in the registration statements of
Kollmorgen Corporation on Form S-8 (File Nos. 333-21379, 333-21409, and
333-41585) and on Form S-3 (File No. 333-34707) of our report, dated January 24,
1998, except as to the information presented in Note 19 relating to the Tender
Offer termination for which the date is February 2, 1998, on our audits of the
consolidated financial statements of Kollmorgen Corporation, as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 28, 1997
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
GEORGE P. STEPHAN does hereby appoint and constitute Gideon Argov, Robert J.
Cobuzzi and James A. Eder and each of them as his agent and attorney in fact to
execute in his name, place and stead as director of Kollmorgen Corporation an
Annual Report on Form 10-K for the year ended December 31, 1997, and any and all
amendments thereto; and to file the same with the Securities and Exchange
Commission. Each of the said attorneys shall have the power to act hereunder
with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 27th day of
March, 1998.
/s/ George P. Stephan
-------------------------------
George P. Stephan
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
GEOFFREY S. REHNERT does hereby appoint and constitute Gideon Argov, Robert
J. Cobuzzi and James A. Eder and each of them as his agent and attorney in fact
to execute in his name, place and stead as director of Kollmorgen Corporation an
Annual Report on Form 10-K for the year ended December 31, 1997, and any and all
amendments thereto; and to file the same with the Securities and Exchange
Commission. Each of the said attorneys shall have the power to act hereunder
with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 27th day of
March, 1998.
/s/ Geoffrey S. Rehnert
-------------------------------
Geoffrey S. Rehnert
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
J. DOUGLAS MAXWELL, JR. does hereby appoint and constitute Gideon Argov,
Robert J. Cobuzzi and James A. Eder and each of them as his agent and attorney
in fact to execute in his name, place and stead as director of Kollmorgen
Corporation an Annual Report on Form 10-K for the year ended December 31, 1997,
and any and all amendments thereto; and to file the same with the Securities and
Exchange Commission. Each of the said attorneys shall have the power to act
hereunder with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 27th day of
March, 1998.
/s/ J. Douglas Maxwell, Jr.
--------------------------------
J. Douglas Maxwell, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
JAMES H. KASSCHAU does hereby appoint and constitute Gideon Argov, Robert J.
Cobuzzi and James A. Eder and each of them as his agent and attorney in fact to
execute in his name, place and stead as director of Kollmorgen Corporation an
Annual Report on Form 10-K for the year ended December 31, 1997, and any and all
amendments thereto; and to file the same with the Securities and Exchange
Commission. Each of the said attorneys shall have the power to act hereunder
with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 27th day of
March, 1998.
/s/ James H. Kasschau
--------------------------------
James H. Kasschau
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
HERBERT L. HENKEL does hereby appoint and constitute Gideon Argov, Robert J.
Cobuzzi and James A. Eder and each of them as his agent and attorney in fact to
execute in his name, place and stead as director of Kollmorgen Corporation an
Annual Report on Form 10-K for the year ended December 31, 1997, and any and all
amendments thereto; and to file the same with the Securities and Exchange
Commission. Each of the said attorneys shall have the power to act hereunder
with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 27th day of
March, 1998.
/s/ Herbert L. Henkel
--------------------------------
Herbert L. Henkel
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
JERALD G. FISHMAN does hereby appoint and constitute Gideon Argov, Robert J.
Cobuzzi and James A. Eder and each of them as his agent and attorney in fact to
execute in his name, place and stead as director of Kollmorgen Corporation an
Annual Report on Form 10-K for the year ended December 31, 1997, and any and all
amendments thereto; and to file the same with the Securities and Exchange
Commission. Each of the said attorneys shall have the power to act hereunder
with or without the other.
IN WITNESS WHEREOF, the undersigned has executed this form this 27th day of
March, 1998.
/s/ Jerald G. Fishman
-----------------------------------
Jerald G. Fishman
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,854
<SECURITIES> 0
<RECEIVABLES> 39,528
<ALLOWANCES> 971
<INVENTORY> 25,162
<CURRENT-ASSETS> 87,347
<PP&E> 100,727
<DEPRECIATION> 74,054
<TOTAL-ASSETS> 145,444
<CURRENT-LIABILITIES> 61,463
<BONDS> 32,840
0
0
<COMMON> 26,921
<OTHER-SE> 14,671
<TOTAL-LIABILITY-AND-EQUITY> 145,444
<SALES> 195,264
<TOTAL-REVENUES> 222,246
<CGS> 135,258
<TOTAL-COSTS> 153,206
<OTHER-EXPENSES> 69,004
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,650
<INCOME-PRETAX> (1,763)
<INCOME-TAX> 2,838
<INCOME-CONTINUING> (4,601)
<DISCONTINUED> 0
<EXTRAORDINARY> 24,321
<CHANGES> 0
<NET-INCOME> 19,720
<EPS-PRIMARY> 2.00<F1>
<EPS-DILUTED> 1.90<F2>
<FN>
<F1>REPRESENTS EARNINGS PER SHARE - BASIC PER SFAS 128
<F2>REPRESENTS EARNINGS PER SHARE - DILUTED PER SFAS 128
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 17,881
<SECURITIES> 0
<RECEIVABLES> 41,367
<ALLOWANCES> 861
<INVENTORY> 25,486
<CURRENT-ASSETS> 91,119
<PP&E> 100,231
<DEPRECIATION> 74,225
<TOTAL-ASSETS> 142,144
<CURRENT-LIABILITIES> 62,912
<BONDS> 32,840
0
0
<COMMON> 26,919
<OTHER-SE> 14,992
<TOTAL-LIABILITY-AND-EQUITY> 142,144
<SALES> 141,712
<TOTAL-REVENUES> 163,054
<CGS> 99,598
<TOTAL-COSTS> 113,590
<OTHER-EXPENSES> 51,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,915
<INCOME-PRETAX> (2,807)
<INCOME-TAX> 1,978
<INCOME-CONTINUING> (4,785)
<DISCONTINUED> 0
<EXTRAORDINARY> 24,321
<CHANGES> 0
<NET-INCOME> 19,536
<EPS-PRIMARY> 1.99<F1>
<EPS-DILUTED> 1.90<F2>
<FN>
<F1>REPRESENTS EARNINGS PER SHARE - BASIC PER SFAS 128
<F2>REPRESENTS EARNINGS PER SHARE - DILUTED PER SFAS 128
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 26,101
<SECURITIES> 0
<RECEIVABLES> 40,867
<ALLOWANCES> 768
<INVENTORY> 25,550
<CURRENT-ASSETS> 99,350
<PP&E> 98,976
<DEPRECIATION> 73,269
<TOTAL-ASSETS> 154,483
<CURRENT-LIABILITIES> 78,989
<BONDS> 34,840
0
0
<COMMON> 26,917
<OTHER-SE> 11,366
<TOTAL-LIABILITY-AND-EQUITY> 154,483
<SALES> 91,533
<TOTAL-REVENUES> 106,344
<CGS> 64,293
<TOTAL-COSTS> 73,720
<OTHER-EXPENSES> 37,265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,059
<INCOME-PRETAX> (5,674)
<INCOME-TAX> 1,178
<INCOME-CONTINUING> (6,852)
<DISCONTINUED> 0
<EXTRAORDINARY> 24,321
<CHANGES> 0
<NET-INCOME> 17,469
<EPS-PRIMARY> 1.79<F1>
<EPS-DILUTED> 1.71<F2>
<FN>
<F1>REPRESENTS EARNINGS PER SHARE - BASIC PER SFAS 128
<F2>REPRESENTS EARNINGS PER SHARE - DILUTED PER SFAS 128
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,949
<SECURITIES> 0
<RECEIVABLES> 40,457
<ALLOWANCES> 713
<INVENTORY> 21,668
<CURRENT-ASSETS> 79,909
<PP&E> 96,721
<DEPRECIATION> 72,115
<TOTAL-ASSETS> 135,192
<CURRENT-LIABILITIES> 54,334
<BONDS> 34,840
0
0
<COMMON> 26,916
<OTHER-SE> (3,470)
<TOTAL-LIABILITY-AND-EQUITY> 135,192
<SALES> 43,351
<TOTAL-REVENUES> 50,587
<CGS> 30,663
<TOTAL-COSTS> 35,306
<OTHER-EXPENSES> 12,473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,283
<INCOME-PRETAX> 2,488
<INCOME-TAX> 478
<INCOME-CONTINUING> 2,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,010
<EPS-PRIMARY> 0.21<F1>
<EPS-DILUTED> 0.20<F2>
<FN>
<F1>REPRESENTS EARNINGS PER SHARE - BASIC PER SFAS 128
<F2>REPRESENTS EARNINGS PER SHARE - DILUTED PER SFAS 128
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,445
<SECURITIES> 0
<RECEIVABLES> 43,189
<ALLOWANCES> 772
<INVENTORY> 22,450
<CURRENT-ASSETS> 85,702
<PP&E> 97,398
<DEPRECIATION> 72,251
<TOTAL-ASSETS> 141,330
<CURRENT-LIABILITIES> 61,008
<BONDS> 36,590
0
0
<COMMON> 26,914
<OTHER-SE> (5,135)
<TOTAL-LIABILITY-AND-EQUITY> 141,330
<SALES> 212,664
<TOTAL-REVENUES> 230,424
<CGS> 142,030
<TOTAL-COSTS> 152,928
<OTHER-EXPENSES> 64,061
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,806
<INCOME-PRETAX> 8,904
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,904
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,904
<EPS-PRIMARY> 0.89<F1>
<EPS-DILUTED> 0.86<F2>
<FN>
<F1>REPRESENTS EARNINGS PER SHARE - BASIC PER SFAS 128
<F2>REPRESENTS EARNINGS PER SHARE - DILUTED PER SFAF 128
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,096
<SECURITIES> 0
<RECEIVABLES> 39,895
<ALLOWANCES> 586
<INVENTORY> 29,634
<CURRENT-ASSETS> 92,136
<PP&E> 111,913
<DEPRECIATION> 84,235
<TOTAL-ASSETS> 138,965
<CURRENT-LIABILITIES> 63,273
<BONDS> 36,590
0
0
<COMMON> 26,912
<OTHER-SE> (10,591)
<TOTAL-LIABILITY-AND-EQUITY> 138,965
<SALES> 157,424
<TOTAL-REVENUES> 169,658
<CGS> 105,334
<TOTAL-COSTS> 112,749
<OTHER-EXPENSES> 47,881
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,192
<INCOME-PRETAX> 5,681
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,681
<EPS-PRIMARY> 0.55<F1>
<EPS-DILUTED> 0.54<F2>
<FN>
<F1>REPRESENTS EARNINGS PER SHARE - BASIC PER SFAS 128
<F2>REPRESENTS EARNINGS PER SHARE - DILUTED PER SFAS 128
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 15,095
<SECURITIES> 0
<RECEIVABLES> 39,392
<ALLOWANCES> 624
<INVENTORY> 29,733
<CURRENT-ASSETS> 96,998
<PP&E> 112,161
<DEPRECIATION> 83,386
<TOTAL-ASSETS> 144,772
<CURRENT-LIABILITIES> 68,104
<BONDS> 38,590
0
0
<COMMON> 26,909
<OTHER-SE> (12,486)
<TOTAL-LIABILITY-AND-EQUITY> 144,772
<SALES> 108,895
<TOTAL-REVENUES> 116,828
<CGS> 72,822
<TOTAL-COSTS> 77,444
<OTHER-EXPENSES> 32,927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,803
<INCOME-PRETAX> 3,877
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,877
<EPS-PRIMARY> 0.37<F1>
<EPS-DILUTED> 0.36<F2>
<FN>
<F1>REPRESENTS EARNINGS PER SHARE - BASIC PER SFAS 128
<F2>REPRESENTS EARNINGS PER SHARE - DILUTED PER SFAS 128
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 13,938
<SECURITIES> 0
<RECEIVABLES> 41,700
<ALLOWANCES> 758
<INVENTORY> 28,825
<CURRENT-ASSETS> 99,550
<PP&E> 111,632
<DEPRECIATION> 84,368
<TOTAL-ASSETS> 147,348
<CURRENT-LIABILITIES> 70,280
<BONDS> 40,340
0
0
<COMMON> 26,908
<OTHER-SE> (14,021)
<TOTAL-LIABILITY-AND-EQUITY> 147,348
<SALES> 53,093
<TOTAL-REVENUES> 57,040
<CGS> 35,587
<TOTAL-COSTS> 37,814
<OTHER-EXPENSES> 16,407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,317
<INCOME-PRETAX> 1,648
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,648
<EPS-PRIMARY> 0.14<F1>
<EPS-DILUTED> 0.14<F2>
<FN>
<F1>REPRESENTS EARNINGS PER SHARE - BASIC PER SFAS 128
<F2>REPRESENTS EARNINGS PER SHARE - DILUTED PER SFAS 128
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 17,789
<SECURITIES> 0
<RECEIVABLES> 40,831
<ALLOWANCES> 697
<INVENTORY> 26,210
<CURRENT-ASSETS> 98,503
<PP&E> 113,496
<DEPRECIATION> 84,693
<TOTAL-ASSETS> 147,474
<CURRENT-LIABILITIES> 71,038
<BONDS> 40,340
25,506
0
<COMMON> 26,904
<OTHER-SE> (15,607)
<TOTAL-LIABILITY-AND-EQUITY> 147,474
<SALES> 219,493
<TOTAL-REVENUES> 228,655
<CGS> 146,979
<TOTAL-COSTS> 152,614
<OTHER-EXPENSES> 65,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,007
<INCOME-PRETAX> 7,157
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,157
<EPS-PRIMARY> 0.26<F1>
<EPS-DILUTED> 0.26<F2>
<FN>
<F1>REPRESENTS EARNINGS PER SHARE - BASIC PER SFAS 128
<F2>REPRESENTS EARNINGS PER SHARE - DILUTED PER SFAS 128
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,165
<SECURITIES> 0
<RECEIVABLES> 38,348
<ALLOWANCES> 1,064
<INVENTORY> 23,231
<CURRENT-ASSETS> 85,427
<PP&E> 112,524
<DEPRECIATION> 81,735
<TOTAL-ASSETS> 138,201
<CURRENT-LIABILITIES> 60,402
<BONDS> 44,090
25,506
0
<COMMON> 26,891
<OTHER-SE> (17,011)
<TOTAL-LIABILITY-AND-EQUITY> 138,201
<SALES> 184,820
<TOTAL-REVENUES> 191,771
<CGS> 119,598
<TOTAL-COSTS> 124,627
<OTHER-EXPENSES> 60,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,679
<INCOME-PRETAX> 3,236
<INCOME-TAX> (815)
<INCOME-CONTINUING> 4,051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,051
<EPS-PRIMARY> 0.18<F1>
<EPS-DILUTED> 0.18<F2>
<FN>
<F1>REPRESENTS EARNINGS PER SHARE - BASIC PER SFAS 128
<F2>REPRESENTS EARNINGS PER SHARE - DILUTED PER SFAS 128
</FN>
</TABLE>
