<PAGE>
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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, 1999,
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
KOLLMORGEN CORPORATION
(Exact name of registrant as specified in its charter)
New York 04-2151861
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Reservoir Place, 1601 Trapelo Road, 02451-7333
Waltham, MA (Zip Code)
(Address of principal executive
office)
Registrant's telephone number, including area code: (781) 890-5655
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
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 New York Stock Exchange, Inc.
Debentures Due 2009
</TABLE>
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. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant.
$148,514,111 as of March 24, 2000.
Indicate the number of outstanding shares of the registrant's Common Stock.
10,335,275 shares as of March 24, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2000 Definitive Proxy Statement to be filed for the 2000
Annual Meeting of Shareholders are incorporated by reference into Part III.
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<PAGE>
PART I
Item 1. Business.
(a) General. Kollmorgen Corporation (the "Company"), incorporated in the
State of New York in 1916, is one of the major worldwide manufacturers of high
performance electronic motion control products and systems and has operations
in two industry segments: (1) Industrial and Commercial and (2) Aerospace and
Defense.
(b) Financial Information about Operating Segments. A table setting forth
the amounts of revenue, pre-tax profit or loss, identifiable assets and
capital additions attributable to each of the Company's operating segments in
each of its last three fiscal years is contained in Note 18 captioned
"Geographic and industry information" to the Financial Statements.
(c) Narrative Description of Business. Below is a description of the
Company's two operating segments.
Industrial and Commercial Group
The Company's products and services in this segment include (i) a number of
different types of permanent magnet motors, associated electronic amplifiers
and feedback components, controls and related systems for a variety of
applications, (ii) motion control positioning systems and (iii) specialized
engineering services to the electric utility industry. The Company's line of
servo motors and related drive electronics are used in many types of
industrial automation, process control, packaging, semiconductor and
electronic assembly and fabrication, machine tool, underwater equipment and
robotic applications. Its torque motors and tachometer generators are used
worldwide in medical, machine tool and process control applications. In
February 2000, Otis Elevator Company ("Otis") announced that it selected the
Company as its exclusive supplier of the motion system for the Otis Gen2
elevator. The Company developed the proprietary permanent magnet motor for
this elevator as part of a development effort with Otis.
The Company's stepper motors and brushless motors are used for office and
factory automation, instrumentation, and medical applications. The Commack,
New York facility designs, manufactures and sells a line of low inertia, high
speed of response, d.c. motors and associated electronics used primarily in
industrial automation and medical applications. Recently, the Company's motors
have been used in electric vehicle applications, including electric bicycles.
The Company also manufactures and sells torque and linear motors for various
commercial and industrial applications.
The Company distributes industrial motors and a proprietary line of analog
and digital electronic drives under the trademarks Servostar(R), Digifas(TM)
and Digilink(TM) in Europe through its wholly-owned German subsidiary,
Kollmorgen Seidel Servo Drives GmbH. The Company also distributes and
manufactures industrial motors in the People's Republic of China through a
joint venture company, Tianjin Kollmorgen Industrial Drives Corporation,
located in Tianjin, Peoples Republic of China.
In addition to its principal facilities located in Virginia, New York and
California, where its core servo products are being designed and manufactured,
the Company develops certain proprietary electronic products in Israel and
Germany, and manufactures and assembles its commercial products in several
other geographic locations.
In April 1999, the Company purchased substantially all of the assets of New
England Affiliated Technologies ("NEAT") a designer and manufacturer of high
performance motion control positioning systems. NEAT, located in Lawrence,
Massachusetts, designs and fabricates products for a variety of applications
that are utilized in a number of markets, including semiconductor, biomedical
and graphic arts. In November 1999, the Company acquired Semcom s.r.o., a
designer and manufacturer of brushless servo motors that are sold under the
SMB trademark throughout Western and Eastern Europe. Semcom has a
manufacturing facility in Brno, Czech Republic and a sales office in
Dettenheim, Germany. In December 1999, the Company acquired from its joint
venture partner the remaining 49% of its Bombay, India motor facility that
manufactures fractional horsepower brushless motors primarily for the computer
and electronics markets.
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In this segment, competitive advantage is gained by the ability of the
Company to design new or adapt existing motor 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 vary 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 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 directly through
qualified technical personnel employed by the Company, or through
manufacturers' representatives or distributors, or by a combination of the
foregoing.
The Company provides engineering 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 located in Groton, Connecticut. This business also licenses its
proprietary computer-aided engineering software to utility companies for
analyzing the performance of their power plant systems and equipment.
The backlog of this segment at the end of 1999 was $51.5 million, of which
approximately 90% is expected to be shipped in 2000.
Aerospace and Defense Group
The Company's motion control products and subsystems in this segment are
primarily manufactured by Kollmorgen Artus, a French subsidiary, the Inland
Motor Division, located in Radford, Virginia, its Electro-Optical Division
located in Northampton, Massachusetts and its Italian subsidiary, Calzoni
S.p.A.
Kollmorgen Artus manufactures and sells generators, special motors, electro-
mechanical actuators and drive electronics, synchros, and resolvers, which are
sold worldwide into the aerospace and defense market. This business also has a
motor facility in Bien Hoa, Vietnam, for the manufacture of resolvers,
subassemblies and motors. Kollmorgen Artus also manufactures and sells
calibration systems for air traffic control navigation aids.
The Company's specialty d.c. torque motors, tachometer generators and
electro-mechanical actuators and related electronics are designed and
manufactured at its Inland Motor facility in Radford, Virginia and used
worldwide in a variety of aerospace and defense applications, including
missiles and military aircraft and sophisticated guidance tracking systems.
In addition to the products described above, the Company has been the
primary designer and major supplier of submarine periscopes to the United
States Navy since 1916 and also markets and sells submarine periscopes to
navies throughout the world through its Electro-Optical Division.
In July 1999, the Company acquired Calzoni S.p.A., a designer and
manufacturer of proprietary motion systems and components, including submarine
masts, sold worldwide. Prior to the acquisition, the Company and Calzoni had
worked closely together for over 15 years on such programs as the U.S. Navy's
non-penetrating periscope ("NPP") and Universal Modular Mast ("UMM"). Calzoni,
with operations in Bologna, Milan and Florence, Italy also designs and builds
a range of other motion products for a variety of surface and underwater
applications. In addition, this Italian subsidiary designs and sells the
Panerai brand of specialized naval lighting products.
In 1995, the Company received a $35 million contract from the Naval Sea
Systems Command to design and build a new photonic system for submarines that
would replace the traditional "through the hull" periscope. In 1998, the
Company was awarded the first production order of this system. In April 1999,
the Company
3
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received a follow-on $17 million order to deliver 14 Universal Modular Masts
for the Navy's Virginia-class submarines and in January 2000, the Company
received a $17.5 million contract extension from the Naval Sea Systems Command
to provide the photonics for these submarines.
In the international market, the Company received, in March 1999, a $22
million contract from a German shipyard to deliver four Model 76 Attack and
Search periscopes to the Turkish Navy. In addition, in February 2000, the
Company announced a $15 million order from the Egyptian Navy for optronic
periscope systems to be funded through Foreign Military Funds.
The Electro-Optical 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 also designs and
markets a proprietary weapon control system under the registered trademark
CLAWS(R) for a variety of platforms.
In November 1999, the Company also received a $5.5 million contract for its
proprietary MK46 Mod 1 Optical Sight System. The four systems are to be
installed on the Navy's DDG-51 Arleigh Burke Class destroyers. The Company has
been the sole supplier of MK46 systems to the U.S. Navy since 1990.
In general, the Company's aerospace and defense business is characterized by
long-term contracts that require the delivery of products over more than one
year and may include progress payments during the manufacture of the product.
Competition is generally limited to divisions of large multinational companies
that specialize in military contracting. The Company has been able to compete
effectively against these larger companies because of the Company's experience
and expertise in the specialized areas that it serves.
The backlog of this segment at the end of 1999 was $127.1 million of which
approximately 62% is expected to be shipped in 2000.
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
businesses, the Company's motion technologies business is characterized by a
customer base founded upon a number of large key accounts, the importance of
any one of which can vary from year to year. During 1999, no customer
accounted for 10% or more of the Company's consolidated revenues.
Government Sales.
In 1999, sales to the U.S. Government or for U.S. Government end-use
represented approximately 20.2% 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. In 1998, the Company received $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. During the
past two years, the Company has notified a number of domestic and foreign
companies that licenses are available for these patents. During the fourth
4
<PAGE>
quarter of 1998, and in 1999, the Company also concluded additional licenses
for these patents. For a description of the Company's outstanding patent
enforcement litigations, see Item 3 captioned "Legal Proceedings".
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 1999, the Company spent $12.2 million or approximately 4.8% of its
consolidated sales on research activities related to the development of new
products. This compares to $12.1 million or 5% in 1998, and $9.7 million or
4.3% in 1997. 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 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 28 employees and expires in August 2002.
As of December 31, 1999, the Company employed approximately 2,180 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
5
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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... Bombay, India 23,000 sq.ft. Leased
Brno, Czech Republic 23,500 sq.ft. Owned
Commack, NY 100,000 sq.ft. Leased
Dusseldorf, Germany 34,000 sq.ft. Leased
Groton, CT 32,000 sq.ft. Leased
Lawrence, MA 30,000 sq.ft. Leased
Petach Tikva, Israel 11,000 sq.ft. Leased
Radford, VA (1) 261,000 sq.ft. Owned
Radford, VA 15,000 sq.ft. Leased
Vista, CA (1) 37,000 sq.ft. Leased
Aerospace and Defense Group....... Avrille, France 94,000 sq.ft. Owned
Besancon, France 15,000 sq.ft. Owned
Bien Hoa, Vietnam 24,000 sq.ft. Owned
Bologna, Italy 120,000 sq.ft. Leased
Brattleboro, VT 24,000 sq.ft. Leased
Northampton, MA 98,000 sq.ft. Owned
Corporate......................... Waltham, MA 6,250 sq.ft. Leased
</TABLE>
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(1) Portions of these facilities are utilized for the Aerospace and Defense
Group.
Item 3. Legal Proceedings.
The Company has various legal proceedings arising from the ordinary conduct
of its business; however, they, including the litigations described below, are
not expected to have a material adverse effect on the consolidated financial
position, cash flows, or results of operations of the Company.
In connection with the Company's patent enforcement program described under
the section captioned "Patents", the Company is currently a party in two
patent litigations.
In May 1999, the Company commenced an action against Yaskawa Electric
Corporation ("YEC") and Yaskawa Electric America, Inc. ("YEA"), in the United
States District Court, Western District of Virginia, Roanoke Division,
alleging that defendants' products infringe certain of the Company's motion
control patents. The Company is seeking monetary damages and equitable relief.
In June 1999, YEC and YEA filed a countersuit in the Northern District of
Illinois (Chicago) seeking a declaratory judgment that the same patents are
invalid and/or not infringed. A hearing on Yaskawa's motion to dismiss the
lawsuit against YEC for lack of jurisdiction and/or move the case to Chicago
was heard in November and the Court denied the motions of Yaskawa and YEC,
respectively. Discovery has commenced in this litigation.
In June 1999, Rockwell International subsidiaries Allen-Bradley Company
L.L.C. and Reliance Motion Control Inc. (collectively "Rockwell"), commenced
an action in the United States District Court, Eastern District of Wisconsin,
against the Company for a declaratory judgment that plaintiffs' products do
not infringe certain of the Company's motion control patents. The Company has
filed an answer with counterclaims to Rockwell's allegations alleging that
Rockwell's products infringe the Company's products. Discovery has commenced
in this matter.
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, 2000:
<TABLE>
<CAPTION>
Present
Name Age Office Business Experience
---- --- ------- -------------------
<S> <C> <C> <C>
Gideon Argov............ 43 President and Chairman of the Board since March 1996,
Chief Executive President and Chief Executive Officer since
Officer November 1991; Director since May 1991. From
March 1988 to May 1991, President and Chief
Executive Officer and Director of High
Voltage Engineering Company.
Robert J. Cobuzzi....... 58 Senior Vice Senior Vice President (since February 1993),
President, Treasurer and Chief Financial Officer since
Treasurer and July 1991. From April 1989 to July 1991,
Chief Financial Vice 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....... 50 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 1997.
James A. Eder........... 54 Vice President, Vice President since January 1990; General
Secretary and Counsel since December 1991, and Secretary
General Counsel since 1983. Previously he had been Assistant
Corporate Counsel from 1977 to 1982.
James S. Geller......... 42 Vice President Vice President since July 1999. Corporate
Of Human Director of Human Resources from 1995 to
Resources 1999. Prior to that date, Director of Human
Resources at the Electro-Optical Division
for five years.
Keith D. Jones.......... 41 Controller and Corporate Controller since May 1996. Chief
Chief Accounting Officer since March 1996.
Accounting Director of Finance and Corporate Controller
Officer of Cambridge Biotech Corporation from
September 1991 to August 1995.
Willy Verbrugghe........ 48 Vice President Corporate Vice President and President of
the Company's Industrial & Commercial Motion
Control Group since August 1999. From 1998
to August 1999, President of Sermatech
International. From 1995 to 1998 Vice
President and Managing Director of European
Operations for Brink's, Inc. Director of
International Operations for Crown, Cork &
Seal from 1992 to 1995.
</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, 2000. 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>
4 Q 99 3 Q 99 2 Q 99 1 Q 99 4 Q 98 3 Q 98 2 Q 98 1 Q 98
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market price per common
share:
High.................... $ 12 5/16 $14 7/8 $ 15 3/16 $17 1/8 $ 19 3/8 $ 21 3/8 $ 21 15/16 $24 1/4
Low..................... 9 1/8 10 11/16 10 3/4 11 7/8 13 5/8 13 3/4 17 5/8 16
Shares of common stock
traded................... 2,306 562 1,270 792 647 1,098 703 1,562
Dividends per common
share.................... $ .02 $ .02 $ .02 $ .02 $ .02 $ .02 $ .02 $ .02
Average outstanding common
shares and common share
equivalents.............. 10,411 10,469 10,214 10,448 10,482 10,488 10,702 11,599
</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 1995 through 1999.
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales................... $253,945 $243,939 $222,246 $230,424 $228,655
Restructuring charge and
reorganization of research
and development
organization............... (3,065) (1,310) -- -- --
Impairment of goodwill and
assets held for sale....... -- (2,733) -- -- --
Acquired research and
development................ -- -- (11,391) -- --
Tender offer costs.......... -- (1,273) (4,176) -- --
Intellectual property
license, net of expenses... -- 21,217 -- -- --
Gain on sale of investment
in joint venture........... -- -- 24,321 -- --
Cumulative effect of change
in accounting principle.... -- (438) -- -- --
Net income.................. 1,230 14,307 19,720 8,904 7,157
Total assets................ 216,361 168,633 145,444 141,330 147,474
Total debt.................. 81,326 47,809 43,623 65,541 49,808
Redeemable preferred stock
(See Note 8 to Financial
Statements)................ -- -- -- -- 25,506
Weighted average diluted
shares outstanding......... 10,452 10,506 10,364 10,042 9,770
Earnings per common share:
Basic..................... $ 0.12 $ 1.42 $ 2.00 $ 0.89 $ 0.26(1)
Diluted................... $ 0.12 $ 1.36 $ 1.90 $ 0.86 $ 0.26(1)
Cash dividends per common
share...................... $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08
</TABLE>
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(1) After provision for the 10% premium on the redemption of the Series D
Convertible Preferred Stock.
8
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Item 7. Management's Discussion and Analysis of Financial Condition And
Results of Operations
For the year ended December 31, 1999, the Company had sales of $253.9
million and net income of $1.2 million, or $0.12 per common share (diluted).
These results compare with 1998 sales of $243.9 million and net income of
$14.3 million, or $1.36 per common share (diluted), and 1997 sales of $222.2
million (as described below) and net income of $19.7 million, or $1.90 per
common share (diluted). Excluding the impact of the Special Items (as
described below), the Company's net income would have been $3.2 million or
$0.31 per share; $12.0 million, or $1.14 per share; and $10.5 million, or
$1.02 per share for the years ended December 31, 1999, 1998, and 1997,
respectively.
Special Items
The Company has made five acquisitions in the past three years in its
Industrial and Commercial group: Seidel, Servotronix, Magndeyne, NEAT, and
SMB. These acquisitions, combined with a downturn in some of this group's key
markets (semiconductor equipment and machine tools), left the Company with too
high of a cost structure. Consequently, in June 1999, the Company recorded a
$3.1 million restructuring charge for cost reductions in its Industrial and
Commercial motion control operations. The charge was primarily for the
severance costs of $2.3 million associated with the termination of 87
employees in the U.S., Europe, and Israel. Additionally, the Company provided
for the costs to terminate a lease allowing one of the Company's manufacturing
operations to move to a smaller and more cost effective location. At December
31, 1999, $1.4 million had been charged against the reserve. Of this amount
$1.0 million was for severance benefits paid to 39 employees. An additional
$1.0 million will be paid in 2000 to employees terminated in 1999. In the
fourth quarter of 1999, the Company enlarged the scope of its restructuring to
include additional severance payments of $0.4 million in its Industrial and
Commercial group's sales organization in Europe. Additionally, the acquisition
of Calzoni will allow the Aerospace and Defense Group, in early 2000, to
consolidate its European sales organization by eliminating personnel and
representatives, and closing an office at a cost of $0.3 million. The Company
believes that the remainder of the restructuring charge of approximately $1.7
million is adequate to complete the original cost reductions in its Industrial
and Commercial Group. This includes additional personnel reductions of 47
employees, and the move of one of the Company's domestic manufacturing
operations to a smaller, more cost effective facility. These actions are
expected to be complete by mid-2000.
In January 1998, the Company announced a major license agreement for its
pioneering electronic motion control patents in the amount of $27.2 million,
which, after legal and other expenses, resulted in pre-tax income of $21.2
million. In connection with its patent enforcement program, the Company has
engaged counsel to continue enforcement of the Company's patent estate, and
accordingly, recorded a pre-tax charge of $6.8 million to cover legal expenses
and other related costs. The Company has incurred costs of $1.2 million during
1999 and $1.2 million during 1998 in connection with its patent enforcement
program. In May 1999, the Company commenced a patent infringement action
against Yaskawa Electric Corporation and Yaskawa America, Inc. in the United
States District Court, Western District of Virginia, Roanoke Division,
alleging that defendants' products infringe certain of the Company's patents.
The Company is seeking monetary damages and equitable relief. In June 1999,
Allen-Bradley Company L.L.C. and Reliance Motion Control, Inc. commenced an
action in the Eastern District Court, Eastern District of Wisconsin against
the Company for a declaratory judgement of non-infringement requesting the
court to enter a judgement that plaintiffs' products do not infringe certain
of the Company's motion control patents. The Company subsequently filed an
answer with a counterclaim against the plantiffs alleging infringement of the
Company's patents.
In the first quarter of 1998, the Company recorded a pre-tax charge of $2.7
million, primarily relating to the write-down of goodwill from its 1994
acquisition of the assets of Sperry Marine. Also in the first quarter of 1998,
the Company elected to change the vesting method for post-retirement medical
insurance benefits, resulting in a pre-tax charge of $1.6 million.
In the fourth quarter of 1998, the Company reorganized its worldwide
research and development organization to eliminate redundancies and improve
the efficiency of its development process, which resulted in a pre-tax charge
of $1.3 million for severance cost, and was paid in 1998 and 1999.
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On December 31, 1998, the Company adopted SOP 98-5, "Accounting for the
Costs of Start-Up Activities" which requires all costs of start up activities
to be expensed as incurred. As a result, the Company recorded a charge of $0.4
million as a cumulative change in accounting principle. There was no tax
benefit associated with the charge, which was reflected as a reduction of
intangible assets.
In connection with the 1997 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 was allocated
to in-process research and development, in the amount of $10.5 million and 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 common stock. 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 are pre-tax charges of $1.3 million and $4.2 million
representing the costs incurred in connection with the Tender Offer for 1998
and 1997, respectively.
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"). In 1997, the Company sold its interest in the Joint
Venture, receiving approximately $42 million in cash, and resulting in a gain
of $24.3 million. The gain is net of $2.0 million in income taxes and the
utilization of net operating losses and other tax credit carryforwards.
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. The sale of the Macbeth business will be referred to as the "Business
Sold".
Results of Operations
The following table reflects the results of operations for the Company's two
operating segments excluding the impact of the Special Items and the Business
Sold. This table and the following discussion of results of operations for the
Company's business segments are based upon profit before tax which is a
measure used by the Company's chief operating decision makers to assess the
segment's operating performance. The calculation of profit before tax may not
be consistent with the calculation of profit before tax by other public
companies and segment profit before tax should not be viewed by investors as
an alternative to Generally Accepted Accounting Principles measures of income.
This comparison provides a consistent basis by which to view the results of
the Company's two operating segments (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Industrial and Commercial Group:
Bookings............................................. $142.2 $131.0 $117.4
Sales................................................ 135.0 134.4 120.2
Profit before tax.................................... 2.6 10.2 10.2
Aerospace and Defense Group:
Bookings............................................. $157.4 $110.8 $104.6
Sales................................................ 118.9 109.6 102.0
Profit before tax.................................... 12.0 13.6 10.5
</TABLE>
10
<PAGE>
1999 versus 1998
Total profit before tax declined in 1999 to $1.6 million as compared to
$24.9 million in 1998. Excluding the Special Items discussed above, profit
before tax would have been $4.6 million in 1999, a decrease of 74% as compared
to $17.4 million in 1998. Excluding the Special Items, the Industrial and
Commercial Group's profit before tax declined to $2.6 million in 1999 as
compared to $10.2 million in 1998. The decline was a result of a decline in
revenues in the group's U.S. and European businesses (excluding acquisitions)
combined with increased spending on sales and marketing and general and
administrative costs. The Aerospace and Defense Group's profit before tax
decreased 12% to $12.0 million in 1999 from $13.6 million in 1998 principally
due to lower sales by its motion components business.
The Company's sales increased 4% in 1999 to $253.9 million as compared to
$243.9 million in 1998. The Industrial and Commercial Group's revenue
increased to $135.0 million in 1999 from $134.4 million in 1998, or less than
1%, and was a result of the full year of Magnedyne, and the NEAT and SMB
acquisitions. Without these acquisitions, sales declined $17.8 million or 16%
in 1999 from 1998. The decline was caused by declines in sales to the machine
tool and semiconductor equipment sectors, and a significant decline in the
sales of the Company's custom motor business due to the loss of one
significant customer and a major reduction in volume by another significant
customer. Sales by the Aerospace and Defense Group increased 8% to $118.9
million in 1999 from $109.6 million in 1998, as a result of the Calzoni
acquisition. Excluding the Calzoni acquisition, sales increases in the group's
systems and subsystems businesses offset a decline in the group's components
business.
The Company's overall gross margin as a percent of sales declined to 29% in
1999 as compared with 31% in 1998. The Industrial and Commercial Group had a
decrease in gross margin as a percent of sales to 28% in 1999 from 30% in
1998. The decrease was principally caused by the volume declines in the
group's base businesses. The Aerospace and Defense Group's gross margin as a
percent of sales declined to 29% in 1999 as compared to 33% in 1998. The
decline was a result of margin declines due primarily to volume and product
mix at the group's motion components business.
Sales and marketing expenses increased 13% in 1999 to $26.1 million as
compared to $23.2 million in 1998, but remained constant at 10% of sales in
both years. The increase is principally related to the impact of the NEAT and
Calzoni acquisitions, and increased sales and marketing efforts by the
Industrial and Commercial Group in the U.S. and Europe for products introduced
during 1999.
Research and development ("R&D") expenses were $12.2 million or 5% of sales
in 1999 as compared with $12.1 million or 5% of sales in 1998. R&D expenses
remained relatively flat from year to year. The increases caused by the
Company's acquisitions were offset by decreases in R&D spending as a result of
the R&D consolidation that occurred in late 1998 and during 1999.
General and administrative expenses were $29.6 million in 1999 as compared
to $23.1 in 1998 an increase of $6.5 million or 28%, and increased as a
percent of sales to 12% in 1999 from 10% in 1998. The increase was principally
due to the inclusion of Magnedyne for the full year and the NEAT, Calzoni, and
SMB acquisitions including the associated goodwill amortization in 1999, and
external consulting costs associated with improvements made to the Company's
information systems.
Bookings for the Company's products and services increased 24% in 1999 as
compared with 1998. The Industrial and Commercial Group saw an increase in
bookings of 9% in 1999 versus 1998 as a result of the full year of Magnedyne,
and the NEAT and SMB acquisitions offsetting declines in its ongoing motion
business and the group's engineering consulting business. The Aerospace and
Defense Group's bookings increased 42% in 1999 over 1998 principally due to a
significant increase in long term orders at the group's military systems
business where orders are typically large multi-year orders received on an
infrequent basis.
1998 versus 1997
Total profit before tax increased in 1998 to $24.9 million as compared to a
loss in 1997 of $3.4 million. Excluding the Special Items and the Business
Sold discussed above, profit before tax would have been $17.4
11
<PAGE>
million in 1998, an increase of 42% over $12.3 million in 1997. Excluding the
Special Items, the Industrial and Commercial Group's profit before tax
remained unchanged at $10.2 million in both 1998 and 1997. Increased profit
before tax at the group's motion business was offset by a decline in the
group's engineering consulting business. The Aerospace and Defense Group's
profit before tax increased 29% to $13.6 million in 1998 from $10.5 million in
1997 principally due to the performance of its motion components business and
the group's electro-optical business.
The Company's sales increased 10% in 1998 to $243.9 million as compared to
$222.2 million in 1997. The Industrial and Commercial Group's revenue increase
to $134.4 million in 1998 from $120.2 million in 1997, or 12%, was a result of
the Magnedyne, Seidel, and Servotronix acquisitions, and an increase in the
sales of fractional motors manufactured at the Company's production facility
located in India. The sales increase more than offset a sales decline by the
group's engineering consulting business. Sales by the Aerospace and Defense
Group increased 7% to $109.6 million in 1998 from $102.0 million in 1997,
reflecting increased sales by all of the group's businesses.
The Company's overall gross margin as a percent of sales remained relatively
constant at approximately 31% in 1998 and 1997. The Industrial and Commercial
Group had a decrease in gross margin as a percent of sales to 30% in 1998 from
32% in 1997. The decrease was caused by the volume decline in the group's
engineering consulting business. The Aerospace and Defense Group improved its
gross margin as a percent of sales to 33% in 1998 as compared to 31% in 1997.
The improvement was a result of margin improvements by the group's motion
components business.
Sales and marketing expenses increased 6% in 1998 to $23.2 million as
compared to $21.9 million in 1997, but remained constant at 10% of sales in
both years. The increase is related principally to the full year impact of the
Seidel and Servotronix acquisitions and increased sales and bookings during
the year in the Industrial and Commercial Group.
Research and development ("R&D") expenses were $12.1 million or 5% of sales
in 1998 as compared with $9.7 million or 4% of sales in 1997. R&D expenses at
the Industrial and Commercial Group increased $2.4 million during 1998 to 5%
of sales from $4.6 million or 4% in 1997 reflecting the impact of the
Magnedyne, Seidel, and Servotronix acquisitions. R&D expenses at the Aerospace
and Defense Group increased 9% in 1998, but remained at 5% of sales for both
1998 and 1997.
General and administrative expenses increased $0.3 million or 1% in 1998 as
compared to 1997, but remained at approximately 10% of sales for both years.
Bookings for the Company's products and services increased 9% in 1998 as
compared with 1997. The Industrial and Commercial Group saw an increase in
bookings of 12% in 1998 versus 1997 as a result of the Magnedyne, Seidel, and
Servotronix acquisitions, and the increase in its ongoing motion business more
than offsetting decreased orders for the group's engineering consulting
business. The Aerospace and Defense Group's bookings increased 6% in 1998 over
1997 principally due to an increase by its French operations offsetting a
decline in long-term orders at the group's domestic military systems business
where orders are typically large multi-year orders received on an infrequent
basis.
Interest and Taxes
Interest expense was $4.3 million, $3.4 million, and $4.7 million in 1999,
1998, and 1997, respectively. The increase in 1999 was a result of the
increased debt of the Company to fund the NEAT, Calzoni, and SMB acquisitions.
The decrease in interest expense from 1997 to 1998 was due to lower debt
levels as a result of the repayment at the end of the second quarter of 1997
of the balance of a $25 million term loan. The Company makes annual mandatory
sinking fund payments on its convertible subordinated debentures.
12
<PAGE>
The Company recorded a tax provision of $0.5 million in 1999 or 34% of pre-
tax income. The Company recorded a provision for income taxes of $10.1 million
in 1998 or 41% of pre-tax income, however excluding the Special Items, the
Company provided for income taxes at 31%. The 41% tax rate reflects the effect
of the patent licensing income, taxable in the U.S., which was subject to
Japan withholding tax. The Company's effective tax rate (excluding Special
Items) of 34% in 1999 and 31% in 1998 is less than the statutory U.S. tax rate
as some of the Company's foreign subsidiaries operate in countries where the
statutory rate is less than the U.S. rate, or the Company is operating under a
tax holiday agreement. The Company reported income taxes of $2.8 million in
1997 provided against a loss before taxes of $3.4 million. The acquired
research and development charge was not deductible for tax purposes and only a
portion of the Tender Offer costs were deductible in 1997. After adjustment
for these items, the Company recorded a tax provision of approximately 28%
against earnings.
Liquidity and Capital Resources
The Company's consolidated cash position decreased by $8.9 million during
1999. Cash provided by operations was $4.6 million, $40.6 million was used in
investing activities, and financing activities provided $27.6 million.
The Company used $7.6 million of cash to fund working capital requirements,
principally relating to recoverable expenditures on long-term military
contracts that have not yet been billed to the customer. The Company continues
to focus on working capital reductions and effective cash management in order
to maximize the amount of available cash.
The Company's investing activities in 1999 included expenditures of $9.0
million for property, plant and equipment, primarily for replacement of
existing equipment, investment in new equipment to improve the efficiency of
manufacturing, and continued investment in information systems both
domestically and in Europe. The Company used $33.6 million of cash to fund the
acquisitions of NEAT, SMB, and a portion of Calzoni. The balance of $7.5
million for the Calzoni purchase will be paid during 2000 using the Company's
existing line of credit.
The Company's financing activities provided $27.6 million of cash during the
year. Net borrowings to fund working capital requirements under its short-term
credit facilities were $0.7 million. The Company also made mandatory sinking
fund payments on its convertible subordinated debentures totaling $1.8
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 borrowed $28.3 million under its
revolving credit facilities to fund the NEAT and SMB acquisitions and a
portion of the Calzoni acquisitions. Common dividends paid were $0.8 million,
and proceeds from common stock issued from treasury for option exercises were
$1.1 million.
The Company entered into a five year, $50 million multicurrency credit
facility in 1997 and $30.7 million was outstanding at December 31, 1999.
Borrowings under the agreement bear interest at the bank's prime lending rate
plus a margin of 0 to 200 basis points, currently 100 basis points, or the
Eurodollar rate plus a margin ranging from 75 to 325 basis points, currently
225 basis points. The margin varies based on the financial performance of the
Company.
Capital spending for 2000 is expected to be the same or slightly more than
1999 as a result of an increase in capital spending to support a major new
customer of the Company. The Company expects to obtain lease or debt financing
for some of its capital requirements for 2000. The Company's need for, cost
of, and access to funds are dependent on future operating results, as well as
conditions external to the Company. The Company believes that with the cash
generated from operations and with its current borrowing capacity, it will be
able to fund its 2000 capital expenditures, sinking fund payments, and working
capital requirements.
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 effect on the Company's
financial condition, cash flows, or results of operations.
13
<PAGE>
The Company meets its capital requirements with a combination of variable
rate short-term and fixed rate long-term financing. The Company enters into
interest rate swap agreements with commercial banks primarily to reduce the
impact of changes in interest rates on long-term financing arrangements. At
December 31, 1999 the Company had three interest rate swaps with a notional
amount of $29.7 million and mature in 2002 and 2004. Under the swap agreements
the Company will pay the counterparties interest at a weighted average rate of
6.33%, and the counterparties will pay the Company at a variable rate
primarily equal to three month LIBOR. The weighted average variable rate
applicable to these agreements at December 31, 1999 was 6.33%.
The Company also enters into foreign exchange contracts from time to time
with commercial banks to minimize fluctuations in the value of receipts from
customers in currencies other than the functional currency of the Company or
one of its subsidiaries. In 1999 the Company entered into a number of
contracts on behalf of it's French subsidiary to minimize the fluctuations of
the French franc to the dollar. The Company marked these transactions to
market during the year. At December 31, 1999, the Company had one foreign
exchange contract for approximately $1 million which was adjusted to market at
a loss of $86 thousand.
Year 2000 Issue
The year 2000 issue is the result of computer programs having been written
using two digits, rather than four, to define the applicable year. Any of the
Company's computers, computer programs, manufacturing and administration
equipment or products that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. If any of the Company's
systems or equipment that have date-sensitive software use only two digits,
system failures or miscalculations may result causing disruptions of
operations, including, among other things, a temporary inability to process
transactions or send and receive electronic data with third parties or engage
in similar normal business activities.
During 1999, the Company formed an ongoing internal review team to address
the year 2000 issue that encompassed operating and administrative areas of the
Company. A team of global professionals was engaged in a process to work with
Company personnel to identify and resolve significant year 2000 issues in a
timely manner. In addition, executive management regularly monitored the
status of the Company's year 2000 remediation plans. The process included an
assessment of issues and development of remediation plans, where necessary, as
they relate to internally used software, computer hardware and use of computer
applications in the Company's manufacturing processes and products. In
addition, the Company assessed the year 2000 issue with significant suppliers.
The Company completed its year 2000 remediation plans, and experienced no
negative impact due to the year 2000 issue. The Company will continue to
monitor its systems during the year to insure that no unforeseen occurrences
arise.
The Euro
On January 1, 1999, eleven of fifteen member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency, the euro. The euro now trades on
currency exchanges and may be used in business transactions. The conversion to
the euro eliminates currency exchange rate risk among the eleven member
countries. Beginning in January 2002, new euro-denominated bills and coins
will be issued. The Company's business units significantly affected by the
euro conversion established plans in 1998 to address the issues raised by the
euro currency conversion, and were completed during 1999. These issues
included, among others, the need to adapt computer and financial systems,
business processes and equipment, and the need to accommodate euro-denominated
transactions and the impact of one common currency on product pricing,
taxation and governmental and legal regulations. The costs to implement the
changes to the Company's systems were not material to its financial condition,
results of operations or cash flows.
14
<PAGE>
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments. The statement
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FAS Statement 133," which postponed the adoption date of
SFAS No. 133. As such, the Company is not required to adopt the statement
until fiscal 2001. Had the Company implemented SFAS 133 for the current
reporting period, there would have been no material effect on the financial
statements.
Forward looking information
Certain statements in this report are "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. All
forward looking statements involve risks and uncertainties. In particular, any
statement contained herein, in press releases, written statements or other
documents filed with the Securities and Exchange Commission, or in the
Company's communications and discussions with investors and analysts in the
normal course of business through meetings, phone calls and conference calls,
regarding the consummation and benefits of future acquisitions, as well as
expectations with respect to future sales, operating efficiencies and product
expansion, are subject to known and unknown risks, uncertainties and
contingencies, many of which are beyond the control of the Company. These
factors may cause actual results, performance or achievements to differ
materially from anticipated results, performances or achievements. Factors
that might affect such forward looking statements include, but are not limited
to, overall economic and business conditions; the demand, and receipt of
orders, for the Company's goods and services; the timing of and market
acceptance of new products; competitive factors in the industries and
geographic markets in which the Company competes; changes in tax requirements
(including tax rate changes, new tax laws and revised tax law
interpretations); interest rate fluctuations and other capital market
conditions, including foreign currency rate fluctuations; economic and
political conditions in international markets; the ability to achieve
anticipated synergies and other cost savings in connection with acquisitions
and productivity programs; the timing, impact and other uncertainties of
future acquisitions; and the Company's ability and its customers' and
suppliers' ability to replace, modify or upgrade computer programs in order to
adequately address the year 2000 issue. Any forward looking statements should
be considered in light of these factors.
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.
15
<PAGE>
PART III
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 10, 2000, is contained in the
definitive proxy statement to be filed with the Securities and Exchange
Commission (the "Commission") on or before April 4, 2000, 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 4, 2000, 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
4, 2000, under the headings "Security Ownership of Certain 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 F-1.
(2) Exhibits. See Exhibit Index on page F-26.
(b) Reports on Form 8-K.
(1) No reports on Form 8-K were filed by the Company during the fourth
quarter ended December 31, 1999.
16
<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 29, 2000
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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gideon Argov President and Chief March 29, 2000
______________________________________ Executive
Gideon Argov Officer/Director
/s/ Robert J. Cobuzzi Senior Vice President, March 29, 2000
______________________________________ Treasurer and Chief
Robert J. Cobuzzi Financial
Officer/Director
/s/ Keith D. Jones Controller and Chief March 29, 2000
______________________________________ Accounting Officer
Keith D. Jones
/s/ James A. Eder Attorney-in-Fact For: March 29, 2000
______________________________________
James A. Eder
Jerald G. Fishman, Director
Herbert L. Henkel, Director
James H. Kasschau, Director
J. Douglas Maxwell, Director
Robert N. Parker, Director
George P. Stephan, Director
</TABLE>
17
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s) in
Form 10-K
----------
<S> <C>
Report of Independent Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998....... F-3
Consolidated Statements of Operations for the years ended December
31, 1999, 1998 and 1997........................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997.................................. F-5
Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997........................................... F-6
Notes to Consolidated Financial Statements......................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Kollmorgen Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Kollmorgen
Corporation and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations, and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
January 22, 2000
except for Note 20,
as to which the date is March 24, 2000
F-2
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(Dollars in thousands
except per share
amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 1)................... $ 4,170 $ 13,086
Accounts receivable (net of allowance of $920 in 1999
and $581 in 1998)................................... 56,139 48,927
Recoverable amounts on long-term contracts........... 11,369 2,597
Inventories (Note 5)................................. 30,008 27,838
Prepaid expenses..................................... 3,312 1,885
---------- ----------
Total current assets............................... 104,998 94,333
Property, plant, and equipment, net (Note 6)........... 34,360 30,809
Goodwill, patents, and other intangible assets (net of
accumulated amortization of $7,081 in 1999 and $5,759
in 1998).............................................. 55,454 20,420
Deferred income taxes (Note 14)........................ 7,079 9,448
Other assets........................................... 14,470 13,623
---------- ----------
Total assets....................................... $ 216,361 $ 168,633
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 24,677 $ 14,336
Income taxes payable................................. 3,515 6,733
Accrued compensation and payroll taxes............... 11,440 8,883
Accrued liabilities.................................. 24,511 19,135
Line of credit (Note 7).............................. 3,097 4,938
Current portion of long-term debt and note payable
(Note 7)............................................ 10,158 2,419
---------- ----------
Total current liabilities.......................... 77,398 56,444
Long-term debt (Note 7)................................ 68,071 40,452
Deferred pension liability............................. 9,906 10,209
Other liabilities...................................... 4,004 4,826
Minority interest...................................... -- 175
Commitments and contingencies (Note 16)
Shareholders' equity (Notes 11 and 12):
Common stock, par value $2.50 per share-authorized
25,000,000 shares-issued 10,781,613 and 10,774,145
shares in 1999 and 1998, respectively-outstanding
10,320,274 and 10,125,355 shares in 1999 and 1998,
respectively........................................ 26,955 26,932
Additional paid-in capital........................... 13,462 12,882
Retained earnings.................................... 23,184 22,772
Accumulated other comprehensive income............... (2,504) (270)
Less common stock in treasury, at cost-461,339 and
648,790 shares in 1999 and 1998, respectively....... (4,115) (5,789)
---------- ----------
Total shareholders' equity......................... 56,982 56,527
---------- ----------
Total liabilities and shareholders' equity......... $ 216,361 $ 168,633
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(Dollars in thousands, except
per share amounts)
<S> <C> <C> <C>
Net sales.................................. $ 253,945 $ 243,939 $ 222,246
Cost of sales.............................. 179,748 167,501 152,276
---------- ---------- ----------
Gross profit............................... 74,197 76,438 69,970
---------- ---------- ----------
Selling and marketing expense.............. 26,118 23,202 21,858
General and administrative expense......... 29,627 23,139 22,847
Research and development expense........... 12,178 12,125 9,662
Restructuring charge and reorganization of
research and development organization
(Note 10)................................. 3,065 1,310 --
Impairment of goodwill and assets held for
sale (Note 1)............................. -- 2,733 --
Acquired research and development (Note
2)........................................ -- -- 11,391
Tender offer costs (Note 2)................ -- 1,273 4,176
---------- ---------- ----------
Income from operations..................... 3,209 12,656 36
Other income (expense):
Interest expense......................... (4,345) (3,387) (4,650)
Interest income.......................... 154 771 612
Intellectual property license, net of
expenses (Note 4)....................... -- 21,217 --
Other, net (Note 4)...................... 2,550 (6,356) 585
---------- ---------- ----------
Income (loss) before income taxes, joint
venture, minority interest and change in
accounting principle...................... 1,568 24,901 (3,417)
Provision for income taxes (Note 14)....... (533) (10,085) (2,838)
---------- ---------- ----------
Income (loss) before equity in earnings of
joint venture, minority interest and
change in accounting principle............ 1,035 14,816 (6,255)
Equity in earnings of joint venture (Note
3)........................................ -- -- 1,430
Minority interest.......................... 195 (71) 224
Gain on sale of investment in joint
venture, net of income taxes (Note 3)..... -- -- 24,321
---------- ---------- ----------
Income before cumulative effect of change
in accounting principle................... 1,230 14,745 19,720
Cumulative effect of change in accounting
principle (Note 1)........................ -- (438) --
---------- ---------- ----------
Net income................................. $ 1,230 $ 14,307 $ 19,720
========== ========== ==========
Net income available to common
shareholders.............................. $ 1,230 $ 14,307 $ 19,720
Earnings per common share:
Basic.................................... $ 0.12 $ 1.42 $ 2.00
Diluted.................................. $ 0.12 $ 1.36 $ 1.90
Number of shares used in calculating
earnings per common share:
Basic.................................... 10,242,602 10,081,578 9,875,963
Diluted.................................. 10,452,068 10,506,252 10,363,873
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock Accumulated Treasury Stock Totals
------------------ Additional Other ------------------- -------------------
Issued Paid-in Retained Comprehensive Outstanding
Shares Amount Capital Earnings Income Shares Amount Shares Amount
---------- ------- ---------- -------- ------------- ---------- ------- ----------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996.. 10,765,570 $26,914 $13,166 $(10,054) $ 791 (1,012,508) $(9,038) 9,753,062 $21,779
Net income...... 19,720 19,720
Common stock
issuances...... 3,438 7 37 3,438 44
Dividends paid
on common
stock.......... (392) (398) (790)
Common stock
issued from
treasury....... (129) 261,522 2,361 261,522 2,232
Other
comprehensive
income (net of
tax benefit of
$390 in
comprehensive
income)........ (1,393) (1,393)
Comprehensive
income.........
---------- ------- ------- -------- ------- ---------- ------- ---------- -------
Balance,
December 31, 1997.. 10,769,008 26,921 12,682 9,268 (602) (750,986) (6,677) 10,018,022 41,592
Net income...... 14,307 14,307
Common stock
issuances...... 5,137 11 67 5,137 78
Dividends paid
on common
stock.......... (803) (803)
Common stock
issued from
treasury....... 133 102,196 888 102,196 1,021
Other
comprehensive
income (net of
tax benefit of
$103 in
comprehensive
income)........ 332 332
Comprehensive
income.........
---------- ------- ------- -------- ------- ---------- ------- ---------- -------
Balance,
December 31, 1998.. 10,774,145 26,932 12,882 22,772 (270) (648,790) (5,789) 10,125,355 56,527
Net income...... 1,230 1,230
Common stock
issuances...... 7,468 23 96 7,468 119
Dividends paid
on common
stock.......... (818) (818)
Common stock
issued from
treasury....... 484 187,451 1,674 187,451 2,158
Other
comprehensive
income (net of
tax benefit of
$782 in
comprehensive
income)........ (2,234) (2,234)
Comprehensive
income.........
---------- ------- ------- -------- ------- ---------- ------- ---------- -------
Balance,
December 31, 1999.. 10,781,613 $26,955 $13,462 $ 23,184 $(2,504) (461,339) $(4,115) 10,320,274 $56,982
========== ======= ======= ======== ======= ========== ======= ========== =======
Balance,
December 31, 1999..
<CAPTION>
Comprehensive
Income
-------------
<S> <C>
Balance,
December 31, 1996..
Net income...... $19,720
Common stock
issuances......
Dividends paid
on common
stock..........
Common stock
issued from
treasury.......
Other
comprehensive
income (net of
tax benefit of
$390 in
comprehensive
income)........ (1,003)
-------------
Comprehensive
income......... 18,717
=============
Balance,
December 31, 1997..
Net income...... 14,307
Common stock
issuances......
Dividends paid
on common
stock..........
Common stock
issued from
treasury.......
Other
comprehensive
income (net of
tax benefit of
$103 in
comprehensive
income)........ 229
-------------
Comprehensive
income......... 14,536
=============
Balance,
December 31, 1998..
Net income...... 1,230
Common stock
issuances......
Dividends paid
on common
stock..........
Common stock
issued from
treasury.......
Other
comprehensive
income (net of
tax benefit of
$782 in
comprehensive
income)........ (1,452)
-------------
Comprehensive
income......... $ (222)
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 1,230 $14,307 $19,720
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation..................................... 6,952 5,648 4,367
Amortization..................................... 2,017 1,643 1,228
Acquired research and development................ -- -- 11,391
Impaired asset charge............................ -- 2,733 --
Gain (loss) on sale of assets.................... (240) 255 (24,766)
Equity in earnings of joint venture................ -- -- (1,430)
Deferred income taxes.............................. 2,247 (3,572) (4,034)
Minority interest and other non-cash expenses...... (48) 557 (107)
Changes in operating assets and liabilities........
Accounts receivable.............................. 1,666 (5,154) 5,101
Recoverable amounts on long-term contracts....... (6,293) 3,165 (789)
Inventories........................................ (295) (878) (842)
Prepaid expenses................................... (142) 235 (275)
Accounts payable and accrued liabilities........... (2,570) (1,285) (4,868)
Other deferred expenses............................ 58 105 (1,683)
------- ------- -------
Net cash provided by operating activities.......... 4,582 17,759 3,013
------- ------- -------
Cash flows from investing activities:
Capital expenditures for property, plant &
equipment....................................... (8,983) (9,659) (6,216)
Proceeds from sale of assets (net of related
expenses)....................................... 2,137 250 --
Proceeds from sale of investment in joint
venture......................................... -- -- 41,396
Acquisitions net of cash acquired................ (33,613) (10,300) (15,421)
Other............................................ (125) (581) 262
------- ------- -------
Net cash provided by (used in) investing
activities........................................ (40,584) (20,290) 20,021
------- ------- -------
Cash flows from financing activities:
Borrowing (repayments) under credit lines, net... 729 1,887 (337)
Proceeds from common stock issued from treasury.. 1,129 66 1,281
Borrowings of long-term debt..................... 28,812 2,427 4,920
Repayments of long-term debt..................... (2,271) (2,790) (26,738)
Dividends paid on common and preferred stock..... (818) (803) (790)
------- ------- -------
Net cash provided by (used in) financing
activities........................................ 27,581 787 (21,664)
------- ------- -------
Effect of exchange rate changes on cash.......... (495) (24) 39
------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... (8,916) (1,768) 1,409
Cash and cash equivalents at beginning of year..... 13,086 14,854 13,445
------- ------- -------
Cash and cash equivalents at end of year........... $ 4,170 $13,086 $14,854
======= ======= =======
Supplemental cash flow information:
Cash paid during the period for interest......... $ 4,208 $ 3,770 $ 5,269
Cash paid during the period for income taxes..... $ 3,018 $ 7,013 $ 7,358
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
(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 1999 classifications.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and all of its majority-owned subsidiaries. For
those consolidated subsidiaries where Company ownership is less than 100%, the
outside stockholders' interest is shown as "Minority interest". Intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates. The consolidated financial statements are prepared in
conformity with generally accepted accounting principles and, accordingly,
include amounts that are based on management's best estimates and judgments.
Actual results could differ from those estimates. Certain significant
estimates are disclosed throughout these consolidated financial statements.
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 net of progress billings.
Inventories. Inventories are stated at the lower of cost or market,
principally using the first-in, first-out method.
Property, Plant, and Equipment. Property, plant, and equipment are stated at
cost less accumulated depreciation and include expenditures for major
improvements that 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 as other income or expense.
For financial reporting purposes, these assets are being depreciated 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 their useful lives or the remaining period
of the existing leases.
Goodwill and Intangibles. Goodwill consists of amounts by which the cost of
acquisitions exceeded the values assigned to net tangible and intangible
assets. Intangible assets consist principally of patents and intangible assets
purchased as part of acquisitions (Note 2). All of these assets are being
amortized on a straight-line basis over periods ranging from 5 to 30 years.
Impairment of Long-Lived Assets. The Company reviews long-lived assets for
impairment when events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable. The impairment
test is a comparison of the carrying value of the asset against the
anticipated future cash flows from related operating activities. If an
impairment is indicated, the asset is written down to its fair value.
In 1998, the Company recorded a charge of $2.7 million for the impairment of
assets. Of this amount $2.0 million related to the write-down of goodwill from
its 1994 acquisition of the assets of Sperry Marine.
F-7
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additionally, the Company increased its reserve for impaired real estate by
$0.7 million to reflect its then current assessment of the fair value of real
estate held for sale, and which was sold in 1999 with a loss equal to the
reserve established.
Foreign Currency Translation. The functional currency for the majority of
the Company's foreign operations is each entity's local currency. The
translation from the functional 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 on agreed terms, typically upon product shipment
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 the percentage of completion method were $35.7
million, $34.5 million, and $31.6 million in 1999, 1998, and 1997,
respectively. In most cases, the contracts provide for progress billings over
the life of the program.
Earnings Per Common Share. Earnings per common share ("EPS") is based on net
income divided by the weighted average number of common and dilutive common
potential shares outstanding.
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 where the cost for employees hired prior to January
1, 1992 is 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: Amortized cost which approximates its market price.
Standby Letters of Credit: 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
from time to time in the management of foreign currency and interest rate
exposures (Note 9) 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.
Change in Accounting Principle. On December 31, 1998, the Company adopted
SOP 98-5, "Accounting for the Costs of Start-Up Activities" which requires all
costs of start-up activities to be expensed as incurred. As a result, the
Company recorded a charge of $438 thousand as a cumulative change in
accounting principle. There was no tax benefit associated with the charge,
which was reflected as a reduction of intangible assets.
Note 2. Acquisitions
Effective December 31, 1999, the Company purchased the remaining stock of
its Indian joint venture from its joint venture partner, for approximately
$1.4 million in cash. This amount was classified as goodwill and will be
amortized over 30 years.
Effective November 1, 1999, the Company purchased 100% of the stock of
Semcon a.s. which owns SMB Sro, a manufacturer of servo motors located in the
Czech Republic, and SMB GmbH, its German distributor
F-8
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(collectively "SMB"). The acquisition was accounted for as a purchase. The
purchase price was approximately $11.5 million, and was allocated to assets of
$4.6 million, liabilities of $3.2 million and goodwill of $10.1 million, which
is being amortized over thirty years. The results of operations for SMB are
consolidated in the accompanying financial statements effective November 1,
1999.
Effective July 1, 1999, the Company completed the purchase of its naval
systems partner, Calzoni S.p.A. of Bologna, Italy. Calzoni designs and builds
motion systems and components primarily for naval platforms and is a leading
maker of submarine masts. Of the approximately $13 million purchase price,
$2.7 million was paid in cash and a note payable was issued for the remainder.
The acquisition was accounted for as a purchase. At December 31, 1999, $7.5
million was outstanding. The purchase price was allocated to assets of $33
million, liabilities of $30 million and goodwill of $10 million, which is
being amortized over thirty years. Calzoni has facilities in Bologna, as well
as Milan and Florence. The results of operations for Calzoni are consolidated
in the accompanying financial statements effective July 1, 1999.
Effective May 1, 1999, the Company purchased the assets of New England
Affiliated Technologies ("NEAT") for $16.3 million. The acquisition was
accounted for as a purchase. The purchase price was allocated to assets
acquired of $4.7 million, liabilities of $1.8 million and goodwill of $13.4
million, which is being amortized over thirty years. NEAT is a leader in the
application of high-performance motion control for advanced positioning
systems. The results of operations for NEAT are consolidated in the
accompanying financial statements effective May 1, 1999.
On July 1, 1998, the Company acquired the assets of the Magnedyne division
of Sierracin Corporation in a purchase transaction for $10.0 million in cash.
The excess of the purchase price over the net assets acquired of $7.7 million
has been classified as goodwill and is being amortized over fifteen years. The
results of operations for Magnedyne are consolidated in the accompanying
financial statements effective July 1, 1998.
Effective April 2, 1997, the Company purchased the remaining 75% of the
shares of Servotronix Ltd. for $6.4 million of cash plus 257,522 shares of the
Company's common stock. The results of operations for Servotronix Ltd. are
consolidated in the accompanying financial statements effective April 2, 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 allocated the purchase price to the assets acquired, both tangible
and intangible, and any excess of the purchase price over the assets acquired
is 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 is being 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.
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 common stock. 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 are pre-tax charges of $1.3 million and $4.2 million
representing the costs incurred in connection with the Tender Offer for 1998
and 1997, respectively.
F-9
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Sale of Investment in Joint Venture
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, was owned by a Swiss holding company (the "Joint
Venture") which was equally controlled by the Company and the shareholders of
Gretag AG who owned 48% and 52% of the Joint Venture, respectively.
In 1997, the Company sold its interest in the Joint Venture, receiving
approximately $42 million in cash, and resulting in a gain of $24.3 million.
The gain is net of $2 million in income taxes and the utilization of net
operating losses and other tax credit carryforwards.
Note 4. Intellectual Property Licensing
In January 1998, the Company announced a major license agreement for its
pioneering electronic motion control patents in the amount of $27.2 million,
which, after legal and other expenses, resulted in pre-tax income of $21.2
million. In connection with its patent enforcement program, the Company has
engaged counsel to continue enforcement of the Company's patent estate, and
accordingly, has recorded a pre-tax charge of $6.8 million to cover legal
expenses and other related costs. The Company incurred costs of $1.2 million
in 1999 and $1.2 million in 1998 connection with its patent enforcement
program. Additionally, in 1999 and 1998 the Company recognized $2.0 million
and $1.5 million, respectively in income in connection with its patent
licensing and enforcement efforts, and which is included in other income.
Note 5. Inventories
At December 31, net inventories consist of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Raw materials................................................ $14,093 $12,187
Work in process.............................................. 11,013 8,073
Finished goods............................................... 4,902 7,578
------- -------
$30,008 $27,838
======= =======
</TABLE>
Note 6. Property, Plant, and Equipment
At December 31, property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land..................................................... $ 709 $ 1,270
Leasehold improvements................................... 862 1,155
Buildings................................................ 22,390 25,787
Machinery and equipment.................................. 104,003 84,088
Capital leases........................................... 382 382
-------- --------
128,346 112,682
Less accumulated depreciation and amortization........... (93,986) (81,873)
-------- --------
$ 34,360 $ 30,809
======== ========
</TABLE>
Depreciation expense was $7.0 million, $5.6 million, and $4.4 million for
years ended December 31, 1999, 1998, and 1997, respectively.
F-10
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7. Debt
At December 31, long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
8.75% convertible subordinated debentures due 2009....... $29,299 $31,090
$50 million revolving credit facility.................... 30,736 --
$11 million revolving credit facility.................... 8,617 10,383
Note payable issued in connection with Calzoni
acquisition (Note 2).................................... 7,494 --
Term loans, various rates, due through 2005.............. 2,083 1,344
Capital lease obligations................................ -- 54
------- -------
78,229 42,871
Less current maturities.................................. (10,158) (2,419)
------- -------
$68,071 $40,452
======= =======
</TABLE>
The 8.75% convertible subordinated debentures are convertible at any time
prior to maturity, unless previously redeemed, into 852,984 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, 1999, the market price of these debentures approximated
carrying value.
The Company has a five year $50 million revolving multicurrency credit
facility which was amended December 31, 1999, and which expires September 30,
2002. The agreement is secured by substantially all of the Company's assets.
Loans under the agreement bear interest, at the Company's option, at the
bank's prime rate plus a margin ranging from 0 to 200 basis points, or the
Eurodollar rate plus a margin ranging from 75 to 325 basis points. At December
31, 1999, the Company's borrowings under this facility was $19.0 million at a
rate of 7.44% and $11.7 million at a rate of 6.24%. 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 the facility at December 31, 1999. At December 31, 1999, there
were $14.7 million of standby letters of credit outstanding, and $4.6 million
of availability under the facility.
On May 13, 1998, the Company entered into an agreement with one of its
syndicate banks to provide for an $11 million revolving credit facility for
its French and German subsidiaries. This revolving credit facility has terms
similar to the existing $50 million revolving multicurrency credit facility.
At December 31, 1999, the Company's German subsidiary had $5.3 million
outstanding, and the Company's French subsidiary had $3.3 million outstanding
at a combined average rate of 5.8%.
Term loans held by the Company had a weighted average interest rate of 5.01%
at December 31, 1999.
F-11
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-term debt at December 31, 1999, matures as follows:
<TABLE>
<CAPTION>
Date Maturities
---- ----------
<S> <C>
2000.......................................................... $10,158
2001.......................................................... 2,426
2002.......................................................... 41,405
2003.......................................................... 1,868
2004.......................................................... 1,807
Thereafter.................................................... 20,565
-------
$78,229
=======
</TABLE>
At December 31, 1999, the Company had $3.1 million outstanding and $16.2
million additional availability under lines of credit.
The Company incurred $4.3 million, $3.4 million, and $4.7 million of
interest expense on debt in 1999, 1998, and 1997, respectively.
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. Financial Instruments
The Company meets its capital requirements with a combination of variable
rate short-term and fixed rate long-term financing. The Company enters into
interest rate swap agreements with commercial banks primarily to reduce the
impact of changes in interest rates on long-term financing arrangements. At
December 31, 1999, the Company had three interest rate swaps with a notional
amount of $29.7 million and mature in 2002 and 2004. Under the swap agreements
the Company will pay the counterparties interest at a weighted average rate of
6.33%, and the counterparties will pay the Company at a variable rate
primarily equal to three month LIBOR. The weighted average variable rate
applicable to these agreements at December 31, 1999 was 6.33%.
The Company also enters into foreign exchange contracts from time to time
with commercial banks to minimize fluctuations in the value of receipts from
customers in currencies other than the functional currency of the Company or
one of its subsidiaries. In 1999 the Company entered into a number of
contracts on behalf of it's French subsidiary to minimize the fluctuations of
the French Franc to the dollar. The Company marked these transactions to
market during the year. At December 31, 1999, the Company had one foreign
exchange contract for approximately $1 million which was adjusted to market at
a loss of $86 thousand.
The Company had no derivative financial instruments outstanding at December
31, 1998.
Note 10. Restructuring and reorganization
The Company has made five acquisitions in the past three years in its
Industrial and Commercial group: Seidel, Servotronix, Magndeyne, NEAT, and
SMB. These acquisitions, combined with a downturn in some of
F-12
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
this group's key markets (semiconductor equipment and machine tools), left the
Company with too high of a cost structure. Consequently, in June 1999, the
Company recorded a $3.1 million restructuring charge for cost reductions in
its Industrial and Commercial motion control operations. The charge was
primarily for the severance costs of $2.3 million associated with the
termination of 87 employees in the U.S., Europe, and Israel. Additionally, the
Company provided for the costs to terminate a lease allowing one of the
Company's manufacturing operations to move to a smaller and more cost
effective location. At December 31, 1999, $1.4 million had been charged
against the reserve. Of this amount $1.0 million was for severance benefits
paid to 39 employees. An additional $1 million will be paid in 2000 to
employees terminated in 1999. In the fourth quarter of 1999, the Company
enlarged the scope of its restructuring to include additional severance
payments of $0.4 million in its Industrial and Commercial Group's sales
organization in Europe. Additionally, the acquisition of Calzoni will allow
the Aerospace and Defense Group, in early 2000, to consolidate its European
sales organization by eliminating personnel and representatives, and closing
an office at a cost of $0.3 million. The Company believes that the remainder
of the restructuring charge of approximately $1.7 million is adequate to
complete the original cost reductions in its Industrial and Commercial Group.
This includes additional personnel reductions of 47 employees, and the move of
one of the Company's domestic manufacturing operations to a smaller, more cost
effective facility. These actions are expected to be complete by mid-2000.
In the fourth quarter of 1998, the Company reorganized its worldwide
research and development organization to eliminate redundancies and improve
the efficiency of its development process, which resulted in a pre-tax charge
of $1.3 million for severance cost, and was paid in 1998 and 1999.
Note 11. 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 received an annual retainer of $24 thousand, $24 thousand, and $12
thousand in 1999, 1998 and 1997, respectively. Under the terms of the 1992
Stock Ownership Plan for Non-Employee Directors, each non-employee director
receives at least 50% of his annual retainer in shares of the Company's common
stock. The number of shares of common stock issued 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 was amended and
restated effective October 22, 1998 and 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 $70 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 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 20% or more of the shares of common
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 October 22, 2008.
Common stock reserved for issuance at December 31, 1999 and 1998 were as
follows: for conversion of debentures, 852,984 and 905,095, respectively; and
stock options and other awards, 1,702,251 and 1,814,139, respectively.
F-13
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 the date were charged to "Additional paid-in capital". Since the
second quarter of 1997, dividends were charged to "Retained earnings".
Treasury stock is carried at average cost.
Note 12. Stock Based Compensation Plans
At December 31, 1999, the Company has five 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 Principles
Board ("APB") Opinion 25 and related interpretations in accounting for its
employee stock-based compensation. Compensation expense for shares issued to
directors and for restricted shares issued of $106 thousand, $209 thousand,
and $50 thousand was recognized for 1999, 1998, and 1997, respectively. Pro
forma amounts are indicated below.
The Company maintains three 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 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, 1999, the Company
currently has available 1,421,497 and 280,754 shares for issuance under the
employee plans and the NED plan, respectively. A total of 145,445 and 7,440
options were granted in 1999 under the employee plans and the NED plan,
respectively.
On April 1, 1997, the Company approved a stock option plan for key employees
of Servotronix in conjunction with the acquisition of Servotronix (Note 2).
Under this plan, 83,000 shares were authorized and granted in exchange for the
surrender of rights to acquire Servotronix 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.
F-14
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Company's stock options as of December 31,
1999, 1998, and 1997 and changes during the year ended on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
1999 Exercise 1998 Exercise 1997 Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January
1...................... 1,579,254 $12.18 1,240,900 $ 9.45 1,263,700 $ 8.93
Granted................. 130,000 11.63 463,614 17.94 124,269 17.54
Restricted stock
grants................. 22,885 -- -- -- -- --
Granted to Servotronix
employees.............. -- -- -- -- 83,000 --
Exercised............... (106,888) 6.43 (104,060) 4.42 (180,769) 7.34
Canceled................ (119,700) 14.05 (21,200) 12.22 (49,300) 8.42
--------- --------- ---------
Outstanding at December
31..................... 1,505,551 12.21 1,579,254 12.18 1,240,900 9.26
========= ========= =========
Options exercisable at
December 31............ 873,961 10.48 776,461 9.31 620,100 8.70
========= ========= =========
Options available for
future grant........... 196,700 234,885 177,799
========= ========= =========
</TABLE>
The fair value of each option granted during 1999, 1998 and 1997 is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Expected dividend yield.............................. 0.7% 0.4% 0.8%
Expected stock price volatility...................... 42.0% 38.0% 32.0%
Risk-free interest rate.............................. 6.0% 5.6% 5.8%
Expected life of options............................. 6 years 6 years 6 years
</TABLE>
The weighted average fair value of options granted during the years 1999,
1998 and 1997 is $5.71, $8.03, and $6.94, respectively.
The following table summarizes information about currently outstanding and
exercisable stock options at December 31, 1999:
<TABLE>
<CAPTION>
Number of Weighted Weighted Weighted
Options Average Average Number Average
Outstanding Remaining Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/99 Contractual Life Price at 12/31/99 Price
- ------------------------ ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.000................. 36,201 8.1 years $ 0.00 11 $ 0.00
5.000-10.375.......... 676,950 3.9 years 8.74 598,550 8.57
10.938-17.313.......... 305,300 7.8 years 12.04 160,000 12.13
17.437-18.125.......... 411,800 8.3 years 17.92 85,400 17.91
$18.438-20.938.......... 75,300 8.0 years 18.73 30,000 18.70
--------- -------
1,505,551 6.2 years $12.21 873,961 $10.48
========= =======
</TABLE>
F-15
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
If compensation cost for the Company's 1999, 1998, and 1997 grants for
stock-based compensation plans had been determined in accordance with the fair
value method described by SFAS 123, the Company's net income and net income
per share for these years would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income.............. $1,230 $ 180 $14,307 $13,139 $19,720 $19,088
Earnings per common
share:
Basic................. $ 0.12 $0.02 $ 1.42 $ 1.30 $ 2.00 $ 1.93
Diluted............... $ 0.12 $0.02 $ 1.36 $ 1.25 $ 1.90 $ 1.84
</TABLE>
The effect of applying SFAS 123 in this pro forma disclosure is not
indicative of future compensation expense amounts, as SFAS 123 does not apply
to awards prior to 1995, and additional awards in future years are
anticipated.
Note 13. Earnings Per Share
Basic earnings per share is calculated 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 earnings of the entity. A reconciliation
between basic EPS and diluted EPS is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income before change in accounting principle...... $ 1,230 $14,745 $19,720
Cumulative effect of change in accounting
principle........................................ -- (438) --
------- ------- -------
Net income........................................ $ 1,230 $14,307 $19,720
======= ======= =======
Shares used in net income per share--basic........ 10,243 10,082 9,876
Effect of dilutive securities: Stock options...... 209 424 488
------- ------- -------
Shares used in net income per share--diluted...... 10,452 10,506 10,364
======= ======= =======
Income per share before change in accounting
principle--basic................................. -- $ 1.46 --
Income per share before change in accounting
principle--diluted............................... -- $ 1.40 --
Net income per share--basic....................... $ 0.12 $ 1.42 $ 2.00
Net income per share--diluted..................... $ 0.12 $ 1.36 $ 1.90
</TABLE>
During 1999, options to purchase 530,312 shares of common stock with
exercise prices ranging from $13.56 to $20.94 per share and with expiration
dates ranging up to July 20, 2009 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, 852,984 common
equivalent shares of the convertible subordinated debentures were not included
in the diluted EPS calculation as a result of their anti-dilutive effect.
During 1998, options to purchase 91,393 shares of common stock with exercise
prices ranging from $18.44 to $20.94 per share and with expiration dates
ranging up to May 12, 2008 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, 905,095 common
equivalent shares of the convertible subordinated debentures were not included
in the diluted EPS calculation as a result of their antidilutive effect.
F-16
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Note 14. Taxes on income
The components of income (loss) before income taxes, joint venture, and
minority interest were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Domestic.......................................... $ (48) $22,393 $ 5,751
Foreign........................................... 1,616 2,508 (9,168)
------- ------- -------
Total........................................... $ 1,568 $24,901 $(3,417)
======= ======= =======
Statement of Financial Accounting Standard No.109 ("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 realized.
The valuation allowance decrease in 1997 resulted from the utilization of
net operating loss and tax credit carryforwards, current income from
operations and the tax gain from the formation of the Joint Venture. The 1998
valuation allowance decrease resulted from the utilization of certain foreign
tax loss carryforwards. The 1998 current foreign tax provision consists of the
foreign withholding taxes paid by the Company in connection with the license
agreement more fully explained in Note 4.
The provision (benefit) for income taxes consists of the following:
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current provision:
U.S. federal.................................... $(2,898) $ 9,314 $ 4,705
Foreign......................................... 877 2,720 --
State........................................... (119) 2,055 2,207
------- ------- -------
(2,140) 14,089 6,912
Deferred (benefit):
U.S. federal.................................... 2,466 (3,345) (2,980)
Foreign......................................... -- -- --
State........................................... 207 (659) (1,094)
------- ------- -------
2,673 (4,004) (4,074)
------- ------- -------
Total provision................................... $ 533 $10,085 $ 2,838
======= ======= =======
</TABLE>
F-17
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The U.S. effective income tax rate from operations is different from the
U.S. federal statutory rates for the following reasons:
<TABLE>
<CAPTION>
1999 1998
----- -------
<S> <C> <C>
Income tax provision (benefit) at U.S. federal statutory
rates.................................................... $ 549 $ 8,716
Foreign taxes withheld.................................... -- 1,768
Reduction of valuation allowance.......................... -- (292)
Foreign tax rate variances................................ (130) (792)
State income taxes net of federal benefit................. 57 908
Other..................................................... 57 (223)
----- -------
$ 533 $10,085
===== =======
</TABLE>
The deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Bad debt reserve........................................... $ 176 $ 151
Employee benefit reserves.................................. 4,169 3,766
Reserve for net realizable value of real estate............ 813 881
Patent defense accrual..................................... 1,926 2,457
Depreciation............................................... (2,247) (1,455)
Other...................................................... 2,242 3,648
------- -------
7,079 9,448
Valuation allowance........................................ -- --
------- -------
Net deferred tax asset..................................... $ 7,079 $ 9,448
======= =======
</TABLE>
Note 15. Operating Leases
The Company leases certain of its facilities and equipment under operating
lease arrangements. Such arrangements generally include fair market value
renewal and/or purchase options.
Rent expense for operating leases amounted to $3.9 million, $2.7 million,
and $2.5 million in 1999, 1998 and 1997, respectively. Future minimum rental
payments required under non-cancelable operating leases having a lease term in
excess of one year at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
2000............................................................ $3,519
2001............................................................ 3,012
2002............................................................ 697
2003............................................................ 243
2004............................................................ 98
Thereafter...................................................... 73
------
Total minimum lease payments.................................... $7,642
======
</TABLE>
F-18
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 16. Commitments and Contingencies
The Company has various lawsuits, claims, commitments and contingent
liabilities including environmental matters arising from the ordinary conduct
of its existing businesses; 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.
Note 17. Pension plans and postretirement benefits
Pension Plans:
The Company maintains two non-contributory qualified defined benefit pension
plans (the "Plans") covering substantially all domestic employees. Due to full
funding, the Company is currently not required to make any contributions to
the Plans.
The net periodic pension cost for the years 1999, 1998 and 1997 includes the
following components:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service cost..................................... $ 2,177 $ 2,337 $ 2,085
Interest cost.................................... 3,505 3,174 3,542
Expected return on plan assets................... (7,711) (7,007) (6,218)
Amortization of:
Transition obligation.......................... (538) (538) (545)
Prior service cost............................. 160 160 146
Actuarial gain................................. (310) (555) (28)
------- ------- -------
Net periodic pension credit...................... $(2,717) $(2,429) $(1,018)
======= ======= =======
</TABLE>
The assumptions used in determining the net periodic pension credit included
discount rates of 6.25%, 6.5%, and 7.0% in 1999, 1998 and 1997, respectively,
an expected investment return of 10% and compensation increases of 5% for the
years ending 1999, 1998, and 1997.
F-19
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The assumptions used in determining the end of year benefit obligations
included discount rates of 7.5% for 1999 and 6.25% for 1998, and compensation
increases of 5% per year. The Plans' funded status, together with the amounts
recognized in the Company's balance sheet at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Change in benefit obligations:
Benefit obligation at beginning of year................ $ 54,215 $54,575
Service cost........................................... 2,177 2,337
Interest cost.......................................... 3,505 3,174
Amendments............................................. 21 223
Actuarial gain......................................... (7,198) (3,766)
Settlement............................................. (2,749) --
Benefits paid.......................................... (556) (2,328)
-------- -------
Benefit obligation at end of year...................... 49,415 54,215
Change in plan assets:
Fair value of plan assets at beginning of year......... 73,389 70,340
Actual return on plan assets........................... 9,650 5,378
Benefits paid.......................................... (556) (2,329)
Settlement............................................. (2,749) --
-------- -------
Fair value of plan assets at end of year............... 79,734 73,389
Funded status.......................................... 30,320 19,174
Unrecognized actuarial gain............................ (17,816) (8,989)
Unrecognized portion of net obligation at transition... (2,837) (3,375)
Unrecognized prior service cost........................ 1,277 1,417
-------- -------
Net amount recognized.................................. 10,944 8,227
Amounts recognized in the Balance Sheet consist of:
Prepaid benefit cost................................... 10,944 8,227
Accrued benefit liability.............................. -- --
-------- -------
Net amount recognized.................................. $ 10,944 $ 8,227
======== =======
</TABLE>
The Company also maintains a Supplemental Retirement Income Plan ("SERP")
for former key employees. The Company has accrued an actuarially determined
liability of $3.7 million at December 31, 1999 and 1998, respectively, in
anticipation of the future payment of such benefits 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 each of 1999, 1998 and 1997 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 1999, 1998, and 1997, the Company matched 50% of each participant's
contributions, up to a maximum contribution of 2% of base salary. Company
annual contributions to this plan were $0.8 million, $0.7 million and $0.7
million in 1999, 1998, and 1997.
In 1997, employees of Macbeth became employees of the Joint Venture as
described in Note 3. This was accounted for as a curtailment and a settlement
under Statement of Financial Accounting Standard No. 88, "Employers'
Accounting for Settlement and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits". The Plan's funded status in 1997 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.
F-20
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Postretirement Benefits:
The Company maintains a postretirement medical benefits plan covering
substantially all domestic employees hired prior to January 1, 1992.
Net periodic postretirement benefit cost for 1999, 1998, and 1997 includes
the following components:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost.................................................. $296 $266 $213
Interest cost................................................. 259 263 382
Amortization of:
Transition obligation....................................... 30 30 252
---- ---- ----
Net periodic postretirement benefit cost.................. $585 $559 $847
==== ==== ====
</TABLE>
The Company's postretirement benefit plans are unfunded.
During 1998, the Company elected to change the vesting method used to
determine eligibility for post-retirement medical insurance benefits,
resulting in a curtailment charge of $1.6 million.
For measurement purposes, a 8.4% annual rate of increase in the per capita
cost of covered medical benefits was assumed for 1999; the rate was assumed to
decrease to 5.5% for 2007 and remain at that level thereafter.
The assumptions used in determining the net periodic postretirement benefit
cost included discount rates of 6.25%, 6.5%, and 7.0%, for 1999, 1998, and
1997, respectively.
The weighted average discount rates used in determining the end of year
accumulated postretirement benefit obligation are 7.5%, 6.25%, and 6.5% as of
December 31, 1999, 1998, and 1997, respectively.
Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans. A one-percentage point change in
assumed health care cost trend rates would have the following effect on the
Postretirement Medical Benefit Program:
<TABLE>
<CAPTION>
One-Percentage One-Percentage
Point Decrease Point Increase
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost
components................................. $ (21) $ 22
Effect on postretirement benefit
obligation................................. (135) 140
</TABLE>
F-21
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Plans' funded status together with the amounts recognized in the
Company's balance sheet at December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Change in benefit obligations:
Benefit obligation at beginning of year................. $ 4,419 $ 5,939
Service cost............................................ 295 266
Interest cost........................................... 259 263
Amendments.............................................. 100 (1,643)
Actuarial gain.......................................... (594) (18)
Benefits paid........................................... (523) (388)
------- -------
Benefit obligation at end of year....................... 3,956 4,419
Change in plan assets:
Fair value of plan assets at beginning of year.......... -- --
Employer contributions.................................. 423 388
Plan participants' contributions........................ 100 --
Benefits paid........................................... (523) (388)
------- -------
Fair value of plan assets at end of year................ -- --
Funded status........................................... (3,956) (4,419)
Unrecognized actuarial loss............................. (380) 214
Unrecognized portion of net obligation at transition.... 389 420
------- -------
Net amount recognized................................... (3,947) (3,785)
Amounts recognized in the Balance Sheet consist of:
Prepaid benefit cost.................................... -- --
Accrued benefit liability............................... (3,947) (3,785)
------- -------
Net amount recognized................................... $(3,947) $(3,785)
======= =======
</TABLE>
F-22
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 18. Geographic and industry information
The effect of the Company's foreign operations upon the consolidated
financial statements are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales
North America................................ $186,539 $189,003 $179,524
Europe....................................... 70,393 55,983 44,733
Other........................................ 10,248 18,248 12,759
Eliminations................................. (13,235) (19,295) (14,770)
-------- -------- --------
$253,945 $243,939 $222,246
======== ======== ========
Net Income
North America................................ $ 847 $ 11,967 $ 30,304
Europe....................................... 497 2,215 (410)
Other........................................ (114) 126 (8,536)
Eliminations................................. -- (1) (1,638)
-------- -------- --------
$ 1,230 $ 14,307 $ 19,720
======== ======== ========
Identifiable Assets
North America................................ $180,023 $125,106 $ 97,211
Europe....................................... 82,677 46,252 44,306
Other........................................ 16,701 15,190 13,914
Eliminations................................. (63,040) (17,915) (9,987)
-------- -------- --------
$216,361 $168,633 $145,444
======== ======== ========
</TABLE>
The Company's principal foreign facilities are in France, Germany, India,
Israel, Italy, Czech Republic and Vietnam. The eliminations of sales are at
prevailing wholesale selling prices. The Company has no other significant
foreign operations.
In addition to foreign operations, export sales amounted to $28.8 million in
1999, $26.4 million in 1998, and $21.0 million in 1997. Sales to the U.S.
Government or for U.S. Government end-use amounted to $51.2 million, $50.8
million and $47.8 million in 1999, 1998 and 1997, respectively.
The Company has maintained its focus on high performance motion control, and
the Company in late 1997 reorganized its business around two market segments,
Industrial and Commercial and Aerospace and Defense. Information provided for
1997 has been prepared as if the reorganization around these two market
segments had occurred at the beginning of the year.
F-23
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table includes certain financial information relating to each
of the Company's segments in the last three fiscal years:
<TABLE>
<CAPTION>
Industrial Aerospace Special
and and Corporate, Items and
Commercial Defense Interest Businesses
Group Group and Other Sold (1) Total
---------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
1999
Bookings................ $142,191 $157,386 $ -- $ -- $299,577
Sales................... 135,020 118,925 -- -- 253,945
Profit (loss) before
tax.................... 2,562 12,032 (9,961) (3,065) 1,568
Assets.................. 112,406 96,092 7,863 -- 216,361
Capital additions....... 3,047 4,575 1,361 -- 8,983
1998
Bookings................ $135,492 $106,289 $ -- $ -- $241,781
Sales................... 135,715 108,224 -- -- 243,939
Profit (loss) before
tax.................... 10,202 13,598 (6,376) 7,477 24,901
Assets.................. 74,017 68,986 25,630 -- 168,633
Capital additions....... 4,456 4,649 554 -- 9,659
1997
Bookings................ $117,447 $104,583 $ -- $ -- $222,030
Sales................... 120,244 102,002 -- -- 222,246
Profit (loss) before
tax.................... 10,193 10,548 (8,432) (15,726) (3,417)
Assets.................. 56,517 67,716 21,211 -- 145,444
Capital additions....... 2,816 3,348 52 -- 6,216
</TABLE>
- --------
(1) Excludes the impact of the "Special Items" and the "Business Sold" more
fully described in Management's Discussion and Analysis of Financial
Condition and Results of Operations and in the notes to the financial
statements.
F-24
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 19. Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter
--------------------------------
1999 First Second Third Fourth
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales................................. $59,471 $59,922 $62,974 $71,578
Gross profit.............................. 17,593 16,923 18,569 21,113
Restructuring charge...................... -- 3,065 -- --
Net income (loss)......................... 1,634 (2,516) 912 1,200
Earnings per common share:
Basic................................... $ 0.16 $ (0.25) $ 0.09 $ 0.12
Diluted................................. $ 0.16 $ (0.25) $ 0.09 $ 0.12
<CAPTION>
Quarter
--------------------------------
1998 First Second Third Fourth
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales................................. $56,793 $60,340 $61,891 $64,915
Gross profit.............................. 17,127 18,952 19,481 20,878
Impairment of goodwill and assets held for
sale..................................... 2,733 -- -- --
Tender offer costs........................ 1,273 -- -- --
Intellectual property license, net of
expenses................................. 21,217 -- -- --
Reorganization of research and development
organization............................. -- -- -- 1,310
Net income before change in accounting
principle................................ 5,560 2,279 3,118 3,788
Cumulative effect of change in accounting
principle................................ -- -- -- 438
Net income................................ 5,560 2,279 3,118 3,350
Earnings per common share before
cumulative effect of change in accounting
principle:
Basic................................... $ 0.55 $ 0.23 $ 0.31 $ 0.37
Diluted................................. $ 0.52 $ 0.21 $ 0.30 $ 0.36
Earnings per common share:
Basic................................... $ 0.55 $ 0.23 $ 0.31 $ 0.33
Diluted................................. $ 0.52 $ 0.21 $ 0.30 $ 0.32
</TABLE>
Note 20. Subsequent Events
The Company owns 534,157 shares of Telaxis Communications Corporation
("Telaxis") with a book value of approximately $3.1 million. Telaxis' shares
began trading on the NASDAQ exchange on February 2, 2000 under the symbol
TLXS. The offering price of the Telaxis initial public offering was $17.00 per
share, and the stock closed after the first day of trading at $47.50 per
share. On March 24, 2000, the shares of Telaxis closed at $83.475 per share.
The Company is prohibited from selling its shares for 180 days following the
initial public offering under an agreement with Telaxis and its underwriters.
F-25
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page in this
Exhibit No. Description of Exhibit Form 10-K
----------- ---------------------- ------------
<C> <S> <C>
3(a) Restated Certificate of Incorporation, as amended,
incorporated by reference to Exhibit 3(i) to Form
10-Q filed on November 13, 1998. N/A
3(b) Restated and Amended By-Laws incorporated by
Reference to Exhibit 3 to Form 10-Q filed on
August 13, 1998. N/A
4(a) 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). N/A
4(b) Amended and Restated Rights Agreement dated as of
October 22, 1998, between the Company and
BankBoston, N.A., as Rights Agent, incorporated by
reference to Exhibit 4 to Form 8-K filed on
November 4, 1998. N/A
4(c) Amendment No. 1 dated December 13, 1999 to the
Amended and Restated Rights Agreement dated as of
October 22, 1998 between the Company and
BankBoston, N.A., as rights agent, incorporated by
reference to Exhibit 1 on Form 8-K filed on
January 3, 2000. N/A
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 10A of the Form 10-Q filed on
November 14, 1997. N/A
10(b) First Amendment to the Fifth Amended and Restated
Multicurrency Credit Agreement dated as of
September 30, 1997, among Kollmorgen Corporation,
certain other Financial Institutions listed on
Schedule 1, and BankBoston, N.A., as Agent,
incorporated by reference to Exhibit 10 of the
Form 10-Q filed on August 16, 1999. N/A
10(c) Second Amendment to the Fifth Amended and Restated
Multicurrency Credit Agreement dated as of
September 30, 1997, among Kollmorgen Corporation,
certain other Financial Institutions listed on
Schedule 1, and BankBoston, N.A. *
10(d) Third Amendment to the Fifth Amended and Restated
Multicurrency Credit Agreement dated as of
September 30, 1997, among Kollmorgen Corporation,
certain other Financial Institutions listed on
Schedule 1, and BankBoston, N.A. *
10(e) Form of $10,000,000 Money Market Line for a
Revolving Credit Facility Agreement dated June 4,
1999, between Kollmorgen Corporation and
BankBoston, N.A., as Agent. *
10(f) Form of Limited Guaranty given by the Company to
secure ABN AMRO's credit facility of up to
$11,000,000 million provided to the Company's
wholly owned subsidiaries in France and Germany,
and incorporated by reference to Exhibit 10(b) of
the Form 10-K filed for the year ended December
31, 1998. N/A
10(g) 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. N/A
10(h) 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. N/A
</TABLE>
F-26
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page in this
Exhibit No. Description of Exhibit Form 10-K
----------- ---------------------- ------------
<C> <S> <C>
10(i) 1998 Management Stock Incentive Plan incorporated
by reference to Exhibit A of the Company's Proxy
Statement dated April 3, 1998, for the Annual
Meeting of Shareholders held on May 13, 1998. N/A
10(j) Form of Retention Agreement, as amended, entered
into between the Company and Messrs. Argov,
Cobuzzi, Desmond, Eder, Jones and Verbrugghe, and
incorporated by reference to Exhibit 10(f) of the
Form 10-K filed for the year ended December 31,
1998. N/A
10(k) Kollmorgen Deferred Compensation Plan incorporated
by reference to Exhibit 10B of the Form 10-Q filed
on or about November 14, 1997. N/A
10(l) 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 and James A. Eder.
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. N/A
10(m) Form of 1995 and 1996, Incentive Stock Option
Agreement under the Long-Term Incentive Plan for
Gideon Argov, Robert J. Cobuzzi, Daniel F.
Desmond, James A. Eder, and Keith D. Jones. Each
agreement is identical except for the number of
shares and the date of grant. Said Agreement is
incorporated by reference to Exhibit 10(i) on Form
10-K filed for the year ended December 31, 1995. N/A
10(n) Form of 1998 Non-Qualified Stock Option Agreement
under the 1998 Management Stock Incentive Plan for
Gideon Argov, Robert J. Cobuzzi, Daniel F.
Desmond, James A. Eder and Keith D. Jones. 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) on Form
10-K filed for the year ended December 31, 1998. N/A
10(o) Form of 1999 Restricted Stock Units Subscription
Agreement for Gideon Argov, Robert J. Cobuzzi,
Daniel F. Desmond, James A. Eder and Keith D.
Jones. Each agreement is identical except for the
number of shares of restricted stock units. Said
Agreement is incorporated by reference to Exhibit
10(k) on Form 10-K filed for the year ended
December 31, 1998. N/A
10(p) Form of 1999 Incentive Stock Option Agreement under
the 1991 Long Term Incentive Plan for Willy
Verbrugghe *
10(q) 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. N/A
10(r) 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 t Exhibit 10(i) to the Annual Report on
Form 10-K of the Company for the year ended
December 31, 1996. N/A
10(s) Kollmorgen 2000 Corporate Incentive Plan for
Corporate Officers and other key corporate
employees. *
10(t) 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. N/A
</TABLE>
F-27
<PAGE>
KOLLMORGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page in this
Exhibit No. Description of Exhibit Form 10-K
----------- ---------------------- ------------
<C> <S> <C>
10(u) 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. N/A
10(v) Letter employment agreement dated July 27, 1999 for
Willy Verbrugghe. *
10(w) 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. N/A
10(x) 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. N/A
10(y) 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. N/A
10(z) Master Equipment Lease Agreement dated as of April
19, 1996, between Provident Commercial Group, Inc.
and Kollmorgen Corporation incorporated by
reference to Exhibit 10 to Form 10-Q filed on or
about November 12, 1996. N/A
21 Subsidiaries of the Company *
23 Consent of Independent Accountants--
PricewaterhouseCoopers LLP *
24 Powers of Attorney *
27 Financial Data Schedule *
</TABLE>
- --------
* Filed herewith.
F-28
<PAGE>
EXHIBIT 10(c)
SECOND AMENDMENT
TO FIFTH AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT
Second Amendment dated as of December 31, 1999 to Fifth Amended and
Restated Multicurrency Credit Agreement (the "Amendment"), by and among
KOLLMORGEN CORPORATION, a New York corporation (the "Company"), PMI MOTION
TECHNOLOGIES GmbH, a German limited liability company ("PMI GmbH"), BANKBOSTON,
N.A. and the other lending institutions listed on Schedule 1 to the Credit
----------
Agreement (as hereinafter defined) (collectively, the "Banks"), ABN AMRO Bank,
N.V., as the fronting bank (the "Fronting Bank") and BANKBOSTON, N.A., as agent
for the Banks and the Fronting Bank (in such capacity, the "Agent"), amending
certain provisions of the Fifth Amended and Restated Multicurrency Credit
Agreement dated as of September 30, 1997 (as amended and in effect from time to
time, the "Credit Agreement") by and among the Company, PMI GmbH, the Banks, the
Fronting Bank and the Agent. Terms not otherwise defined herein which are
defined in the Credit Agreement shall have the same respective meanings herein
as therein.
WHEREAS, the Company, PMI GmbH, the Fronting Bank, and the Banks have
agreed to modify certain terms and conditions of the Credit Agreement as
specifically set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
(S)1. Amendment to (S)1 of the Credit Agreement. Section 1.1 of the
--------- -- ---- -- --------------------
Credit Agreement is hereby amended as follows:
(a) the definition of "Applicable Margin" is hereby amended by deleting
such definition in its entirety and substituting in place thereof the following
definition:
Applicable Margin. For each period commencing on an Adjustment Date
-----------------
through the date immediately preceding the next Adjustment Date (each a
"Rate Adjustment Period"), the Applicable Margin shall be the applicable
margin set forth below with respect to the Company's Leverage Ratio, as
determined for the fiscal period of the Company ending immediately prior to
the applicable Rate Adjustment Period.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Base Rate Eurodollar and Letter of
Tier Leverage Ratio Loans Eurocurrency Rate Commitment Fees Credit Fees
Loans
==============================================================================================================================
<C> <S> <C> <C> <C> <C>
1 Less than 2.00:1.00 0% 0.75% .250% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Base Rate Eurodollar and Letter of
Tier Levarage Ratio Loans Eurocurrency Rate Commitment Fees Credit Fees
Loans
==============================================================================================================================
<C> <S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
2 Less than 2.50:1.00 but greater
than or equal to 2.00:1.00 0% 1.00% .250% 1.00%
- ------------------------------------------------------------------------------------------------------------------------------
3 Less than 3.00:1.00 but greater
than or equal to 2.50:100 0% 1.25% .375% 1.25%
- ------------------------------------------------------------------------------------------------------------------------------
4 Less than 3.25:1.00 but greater
than or equal to 3.00:100 .25% 1.50% .375% 1.50%
- ------------------------------------------------------------------------------------------------------------------------------
5 Less than 3.75:1.00 but greater .50% 1.75% .500% 1.75%
than or equal to 3.25:1.00
- ------------------------------------------------------------------------------------------------------------------------------
6 Less than 4.25:.100 but greater 1.00% 2.25% .500% 2.25%
than or equal to 3.75:1.00
- ------------------------------------------------------------------------------------------------------------------------------
7 Less than 4.75:1.00 but greater 1.50% 2.75% .500% 2.75%
than or equal to 4.25:1.00
- ------------------------------------------------------------------------------------------------------------------------------
8 Greater than or equal to 4.75:1.00 2.00% 3.25% .500% 3.25%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding the foregoing, (a) for Loans outstanding and the
commitment fee and Letter of Credit fees payable during the period
commencing on January 1, 2000 through the date immediately preceding the
first Adjustment Date to occur after the fiscal quarter ending March 31,
2000, the Applicable Margin shall be the applicable margin set forth in
Tier 6 and (b) if the Company fails to deliver any Compliance Certificate
pursuant to (S)9.4(c) hereof then, for the period commencing on the
Adjustment Date to occur subsequent to such failure through the date
immediately following the date on which such Compliance Certificate is
delivered, the Applicable Margin shall be the highest Applicable Margin set
forth above.
(b) the definition of "Consolidated Debt Service" is hereby amended by
inserting immediately at the end of the text of such definition the words
"provided, however, when calculating Consolidated Debt Service for any period in
-------- -------
which a Permitted Acquisition has occurred, the calculation of Consolidated Debt
Service shall be made on a Pro Forma Basis".
(c) the definition of "Consolidated Net Income" is hereby amended by
inserting immediately after the words "extraordinary gains" the words "or
losses".
(d) the definitions of "Guarantors" and "Guaranty" are each hereby amended
by deleting such definitions in their entirety and restating them as follows:
Guarantors. Collectively, all Domestic Subsidiaries of the Company.
----------
As of December 31, 1999 the Guarantors shall be KODC, Proto-Power,
Kollmorgen Securities Corporation, Kollmorgen Magnedyne Corporation and
Kollmorgen International LLC.
Guaranty. The Guaranty, dated or to be dated on or prior to December
--------
31, 1999, made by the Guarantors in favor of the Banks and the Agent
pursuant to which such Guarantors guarantee to the Banks and the Agent the
payment and performance of the Obligations and in form and substance
satisfactory to the Agent.
<PAGE>
(e) the definition of "Leverage Ratio" is hereby amended by inserting
immediately at the end of the text of such definition the words "provided,
--------
however, when calculating the Leverage Ratio for any period in which a Permitted
- -------
Acquisition has occurred, the calculation of the Leverage Ratio shall be made on
a Pro Forma Basis".
(f) the definition of "Loan Documents" is hereby amended by deleting the
words "the Guaranty" which appears in such definition and substituting in place
thereof the words "the Security Documents"
(g) Section 1.1 of the Credit Agreement is further amended by inserting
the following definitions in the appropriate alphabetical order:
Collateral. All of the property, rights and interests of the Company
----------
and its Domestic Subsidiaries that are or are intended to be subject to the
security interests and mortgages created by the Security Documents.
Perfection Certificates. The Perfection Certificates as defined in the
-----------------------
Security Agreements.
Permitted Acquisition. See (S)10.5(a).
---------------------
Pro Forma Basis. Following a Permitted Acquisition, the Consolidated
---------------
Debt Service and EBITDA for the fiscal quarter in which such Permitted
Acquisition occurred and each of the three fiscal quarters immediately
following such Permitted Acquisition being calculated with reference to the
audited historical financial results of the Person so acquired (or, to the
extent such financial results are unaudited, such unaudited results shall
have been prepared in a manner which is reasonably acceptable to the Agent)
and the Company and its Subsidiaries for the applicable Test Period after
giving effect on a pro forma basis to such Permitted Acquisition and
assuming that such Permitted Acquisition had been consummated at the
beginning of such Test Period in the manner described in (i), (ii) and
(iii) below:
(i) all Indebtedness (whether under this Credit Agreement or
otherwise) and any other balance sheet adjustments incurred or made in
connection with the Permitted Acquisition shall be deemed to have been
incurred or made on the first day of the Test Period, and all
Indebtedness of the Person acquired or to be acquired in such
Permitted Acquisition which was or will have been repaid in connection
with the consummation of the Permitted Acquisition shall be deemed to
have been repaid concurrently with the incurrence of the Indebtedness
incurred in connection with the Permitted Acquisition;
<PAGE>
(ii) all Indebtedness assumed to have been incurred pursuant to
the preceding clause (i) shall be deemed to have borne interest at the
sum of (a) the arithmetic average of (x) the Eurocurrency Rate for
Eurocurrency Rate Loans having an Interest Period of one month in
effect on the first day of the Test Period and (y) the Eurocurrency
Rate for Eurocurrency Rate Loans having an Interest Period of one
month in effect on the last day of the Test Period plus (b) the
----
Applicable Margin for Revolving Credit Loans then in effect (after
giving effect to the Permitted Acquisition on a Pro Forma Basis); and
---------
(iii) other reasonable cost savings, expenses and other income
statement or operating statement adjustments which are attributable to
the change in ownership and/or management resulting from such
Permitted Acquisition as may be approved by the Agent in writing
(which approval shall not be unreasonably withheld) shall be deemed to
have been realized on the first day of the Test Period.
Security Agreements. The several Security Agreements, dated or to be
-------------------
dated on or prior to December 31, 1999, between the Company and its
Domestic Subsidiaries and the Agent and in form and substance satisfactory
to the Agent.
Security Documents. The Guaranty, the Security Agreements, the Stock
------------------
Pledge Agreements and all other instruments and documents, including
without limitation Uniform Commercial Code financing statements, required
to be executed or delivered pursuant to any Security Document.
Acquisition. The acquisition by the Company or any Subsidiary of the
-----------
capital stock or certain assets of , on terms and
conditions acceptable to the Agent.
Stock Pledge Agreements. Collectively, (a) the Stock Pledge Agreement,
-----------------------
dated or to be dated on or prior to December 31, 1999 between the Company
and the Agent and in form and substance satisfactory to the Agent; (b) the
Pledge Agreement, dated or to be dated on or prior to December 31, 1999
between the Company, and the Agent, and in form and substance satisfactory
to the Agent; (c) the Stock Pledge Agreement, dated or to be dated on or
prior to December 31, 1999 between KODC and the Agent and in form and
substance satisfactory to the Agent; and (d) the various pledge agreements
between KODC and the Agent as to the capital stock of Kollmorgen Artus and
PMI, each dated or to be dated on or prior to February 29, 2000, and in
form and substance satisfactory to the Agent.
<PAGE>
Test Period. The period of all fiscal quarters (and any portion of a
-----------
fiscal quarter) being tested in any covenant calculation period prior to
the date of such Permitted Acquisition as set forth in the definition of
Pro Forma Basis.
(S)2. Amendment to (S)7 of the Credit Agreement. Section 7 of the Credit
--------- -- ---- -- --------------------
Agreement is hereby amended by inserting immediately after the text of (S)7.8
the following:
7.8 Security of Company. The Obligations shall be secured by a
-------------------
perfected first priority security interest (subject only to Permitted Liens
entitled to priority hereunder or under applicable law) in all of the
assets of the Borrower, whether now owned or hereafter acquired, pursuant
to the terms of the Security Documents to which the Borrower is a party.
7.9 Guaranties and Security of Subsidiaries. The Obligations shall
---------------------------------------
also be guaranteed pursuant to the terms of the Guaranty. The obligations
of the Domestic Subsidiaries under the Guaranty shall be in turn secured by
a perfected first priority security interest (subject only to Permitted
Liens entitled to prioity hereunder or under applicable law) in all of the
assets of each such Subsidiary, whether now owned or hereafter acquired,
pursuant to the terms of the Security Documents to which such Subsidiary is
a party.
(S)3. Amendment to (S)8 of the Credit Agreement. Section 8 of the Credit
--------- -- ---- -- --------------------
Agreement is hereby amended by inserting immediately after the text of (S)8.22
the following:
8.23 Perfection of Security Interest. All filings, assignments,
-------------------------------
pledges and deposits of documents or instruments have been made and
all other actions have been taken that are necessary or advisable,
under applicable law, to establish and perfect the Agent's security
interest in the Collateral. The Collateral and the Agent's rights with
respect to the Collateral are not subject to any setoff, claims,
withholdings or other defenses. The Company or a Subsidiary of the
Company party to one of the Security Agreements is the owner of the
Collateral free from any lien, security interest, encumbrance and any
other claim or demand, except for Permitted Liens.
(S)4. Amendment to (S)9 of the Credit Agreement. Section 9 of the Credit
--------- -- ---- -- --------------------
Agreement is hereby amended as follows:
(a) Section 9.4 of the Credit Agreement is hereby amended by deleting
(S)9.4(d) of the Credit Agreement in its entirety and substituting in place
thereof the following:
(d) (i) as soon as practicable, but in any event within thirty (30)
days after the end of each month in each fiscal year of the Company,
unaudited monthly consolidated income statement and balance sheet of the
Borrower and its Subsidiaries for such month and, to the extent prepared by
the Company, the unaudited monthly income statement and balance sheet of
<PAGE>
the Borrower and its Subsidiaries for such month, each prepared in
accordance with generally accepted accounting principles, together with a
certification by the principal financial or accounting officer of the
Borrower that the information contained in such financial statements fairly
presents the financial condition of the Borrower and its Subsidiaries on
the date thereof (subject to year-end adjustments); and
(ii)contemporaneously with the filing or mailing thereof, copies of all
material of a financial nature filed with the Securities and Exchange
Commission or sent to the shareholders of the Company; and
(b) Section 9.5 of the Credit Agreement is hereby amended by inserting
immediately after the text of (S)9.5(c) the following:
(d) Notification of Claims against Collateral. The Company will,
-----------------------------------------
immediately upon becoming aware thereof, notify the Agent and each of the
Banks in writing of any setoff, claims, withholdings or other defenses to
which any of the Collateral, or the Agent's rights with respect to the
Collateral, are subject.
(S)5. Amendment to (S)10 of the Credit Agreement. Section 10 of the
--------- -- ----- -- --------------------
Credit Agreement is hereby amended as follows:
(a) Section 10.1(o) of the Credit Agreement is hereby amended by inserting
immediately after the end of the text thereof the word "and";
(b) Section 10.1 of the Credit Agreement is hereby amended by inserting
the following immediately after (S)10.1(o):
(p) Indebtedness incurred in connection with the Acquisition, provided
--------
that the aggregate principal amount of such Indebtedness shall not exceed
the aggregate amount of the Dollar equivalent of $10,000,000.
(c) Section 10.2(vii) of the Credit Agreement is hereby amended by
inserting immediately after the words "Schedule 10.2 hereto" the words "and
liens in favor of the Agent for the benefit of the Banks and the Agent under the
Loan Documents"; and
(d) Section 10.2(viii) of the Credit Agreement is hereby amended by
deleting the reference "(S)11.0(h)" which appears in (S)10.2(viii) and
substituting in place thereof the reference (S)10.1(h) and 10.1(p)".
(e) Section 10.3(i) of the Credit Agreement is hereby amended by deleting
the text of (S)10.3(i) in its entirety and restating it as follows:
(i) so long as no Default or Event of Default has occurred and is
continuing or would exist as a result thereof, Investments (i) by the
Company made pursuant to the Company's investment guidelines as in
<PAGE>
effect on the Closing Date and attached hereto as Schedule 10.1(i); and
----------------
(ii) by the Company or any Subsidiary consisting of the purchase by the
Company or such Subsidiary of the capital stock of any Person to the extent
such a purchase is a Permitted Acquisition otherwise permitted by
(S)10.5.1. hereof; and
(f) Section 10.3 of the Credit Agreement is further amended by deleting
the amount "$2,000,000" which appears in (S)10.3(j) and substituting in place
thereof the amount "$3,000,000".
(g) Section 10.5(a)(iv)(1) of the Credit Agreement is hereby amended by
deleting the text of (S)10.5(a)(iv)(1) in its entirety and restating it as
follows:
(1) the Company has provided the Agent with five (5) Business Days prior
written notice of such Permitted Acquisition, which notice shall include a
reasonably detailed description of such Permitted Acquisition, together
with historical financial statements of the Person to be acquired and any
and all additional financial information and due diligence information as
the Agent or any Bank may reasonably request (with the Agent agreeing to
send copies of such information to the Banks) and, as to the Acquisition,
the Company shall have provided the Agent and each of the Banks, five (5)
Business Days prior to the consummation of such Acquisition, copies of the
acquisition documents pertaining thereto (or the most recent draft of such
documents as exist at such time, with supplements of revised drafts as they
become available)
(h) Section 10.5(a)(iv)(6) of the Credit Agreement is hereby amended by
inserting immediately after the words "on a pro forma basis" the words "(taking
into account the projected future performance of the Company and its
Subsidiaries after giving effect to such acquisition)"; and
(i) Section 10.5(a) is further amended by inserting immediately at the end
of (S)10.5(a) the sentence "Notwithstanding anything to the contrary contained
in (S)10.5(a)(iv)(7), the aggregate purchase price for the Acquisition shall not
exceed the Dollar equivalent of $14,000,000 and not more than $5,500,000 of such
purchase price shall be payable within the first year of consummating such
acquisition".
(S)6. Amendment to (S)11 of the Credit Agreement. Section 11.4 of the
--------- -- ----- -- --------------------
Credit Agreement is hereby amended by deleting (S)11.4 in its entirety and
restating it as follows:
11.4. Consolidated Total Funded Indebtedness to EBITDA. The Borrowers
------------------------------------------------
will not at any time during any period described in the table set forth
below permit the Leverage Ratio to be greater than the ratio appearing
opposite such period in such table:
<PAGE>
<TABLE>
<CAPTION>
Period Ratio
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
<S> <C>
December 31, 1999 - March 30, 2000 4.50:1.00
- ---------------------------------------------------------------------------------
March 31, 2000 - June 29, 2000 5.25:1.00
- ---------------------------------------------------------------------------------
June 30, 2000 - September 29, 2000 4.50:1.00
- ---------------------------------------------------------------------------------
September 30, 2000 - December 30, 2000 4.00:1.00
- ---------------------------------------------------------------------------------
December 31, 2000 and at any time thereafter 3.50:1.00
- ---------------------------------------------------------------------------------
</TABLE>
(S)7. Amendment to (S)14 of the Credit Agreement. Section 14 of the Credit
------------------------------------------
Agreement is hereby amended as follows:
(a) Section 14.1(k) of the Credit Agreement is hereby amended by deleting
(S)14.1(k) in its entirety and restating it as follows:
(k) if any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded or the Agent's security interests, mortgages or liens
in a substantial portion of the Collateral shall cease to be perfected, or
shall cease to have the priority contemplated by the Security Documents, in
each case otherwise than in accordance with the terms thereof or with the
express prior written agreement, consent or approval of the Banks, or any
action at law, suit or in equity or other legal proceeding to cancel,
revoke or rescind any of the Loan Documents shall be commenced by or on
behalf of the Company or any of its Subsidiaries party thereto or any of
their respective stockholders, or any court or any other governmental or
regulatory authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the
effect that, any one or more of the Loan Documents is illegal, invalid or
unenforceable in accordance with the terms thereof;
(b) Section 14.4 of the Credit Agreement is hereby amended by deleting
words "any enforcement of remedies hereunder" and substituting in place thereof
the words "the enforcement of any of the Security Documents, or otherwise with
respect to the realization upon any of the Collateral,"
(S)8. Conditions to Effectiveness. This Amendment shall not become
---------------------------
effective until the Agent receives the following:
(a) a counterpart of this Amendment executed by the Company, PMI GmbH, the
Agent, the Fronting Bank and the Majority Banks;
(b) a counterpart of each of the Security Documents, executed by the
Company, the applicable Domestic Subsidiary and the Agent;
(c) evidence that all appropriate corporate action has been taken to
consummate the transactions contemplated hereby;
<PAGE>
(d) legal opinion from counsel to the Company in form and substance
satisfactory to the Agent; and
(e) payment by the Company to the Agent for the pro rata accounts of the
Banks an amendment fee of $125,000.
(S)9. Representations and Warranties. Each of the Company and PMI GmbH
------------------------------
hereby repeats, on and as of the date hereof, each of the representations and
warranties made by it in (S)8 of the Credit Agreement (except to the extent of
changes resulting from matters contemplated or permitted by the Credit Agreement
and the other Loan Documents, changes occurring in the ordinary course of
business that singly or in the aggregate are not materially adverse, and to the
extent that such representations and warranties relate expressly to an earlier
date), provided, that all references therein to the Credit Agreement shall refer
--------
to such Credit Agreement as amended hereby. In addition, each of the Company
and PMI GmbH hereby represents and warrants that the execution and delivery by
the Company and PMI GmbH of this Amendment and the performance by the Company
and PMI GmbH of all of its agreements and obligations under the Credit Agreement
as amended hereby are within the corporate authority of the Company and PMI GmbH
and have been duly authorized by all necessary corporate action on the part of
the Company and PMI GmbH.
(S)10. Ratification, Etc. Except as expressly amended hereby, the Credit
------------ ---
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Guarantees, are hereby ratified and confirmed
in all respects and shall continue in full force and effect. The Credit
Agreement and this Amendment shall be read and construed as a single agreement.
All references in the Credit Agreement, the Loan Documents or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
(S)11. No Waiver. Nothing contained herein shall constitute a waiver of,
---------
impair or otherwise affect any Obligations, any other obligation of the
Borrowers or any rights of the Agent or the Banks consequent thereon.
(S)12. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
(S)13. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a
document under seal as of the date first above written.
KOLLMORGEN CORPORATION
By:
------------------------------------
Name:
Title:
PMI MOTION TECHNOLOGIES GmbH
By:
------------------------------------
Name:
Title:
BANKBOSTON, N.A., individually and as Agent
By:
------------------------------------
Name:
Title:
ABN AMRO Bank N.V., individually and as
Fronting Bank
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By:
------------------------------------
Name:
Title:
<PAGE>
RATIFICATION OF GUARANTY
The undersigned guarantors hereby acknowledges and consents to the
foregoing Second Amendment as of December 31, 1999, and agrees that the Guaranty
dated as of September 30, 1997 from each of the undersigned in favor of the
Agent and each of the Banks remains in full force and effect, and each Guarantor
confirms and ratifies all of its obligations thereunder.
KOLLMORGEN OVERSEAS
DEVELOPMENT CORP.
By:__________________________________
Title:
PROTO-POWER CORPORATION
By:__________________________________
Title:
<PAGE>
EXHIBIT 10(d)
THIRD AMENDMENT
TO FIFTH AMENDED AND RESTATED MULTICURRENCY CREDIT
AGREEMENT
Third Amendment dated as of March 10, 2000 to Fifth Amended and Restated
Multicurrency Credit Agreement (the "Amendment"), by and among KOLLMORGEN
CORPORATION, a New York corporation (the "Company"), PMI MOTION TECHNOLOGIES
GmbH, a German limited liability company ("PMI GmbH"), FLEET NATIONAL BANK
(formerly known as BankBoston, N.A.) and the other lending institutions listed
on Schedule 1 to the Credit Agreement (as hereinafter defined) (collectively,
----------
the "Banks"), ABN AMRO Bank, N.V., as the fronting bank (the "Fronting Bank")
and FLEET NATIONAL BANK (formerly known as BankBoston, N.A.), as agent for the
Banks and the Fronting Bank (in such capacity, the "Agent"), amending certain
provisions of the Fifth Amended and Restated Multicurrency Credit Agreement
dated as of September 30, 1997 (as amended and in effect from time to time, the
"Credit Agreement") by and among the Company, PMI GmbH, the Banks, the Fronting
Bank and the Agent. Terms not otherwise defined herein which are defined in the
Credit Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Company, PMI GmbH, the Fronting Bank, and the Banks have
agreed to modify certain terms and conditions of the Credit Agreement as
specifically set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
(S)1. Amendment to (S)5 of the Credit Agreement. Section 5.1.1 of the
-----------------------------------------
Credit Agreement is hereby amended by deleting the words "shall not exceed
$15,000,000 at any one time" which appear in the second sentence of (S)5.1.1 and
substituting in place thereof the words "shall not exceed $30,000,000 at any one
time".
(S)2. Conditions to Effectiveness. This Amendment shall not become
---------------------------
effective until the Agent receives a counterpart of this Amendment executed by
the Company, PMI GmbH, the Agent, the Fronting Bank, the Guarantors and the
Majority Banks.
(S)3. Representations and Warranties. Each of the Company and PMI GmbH
------------------------------
hereby repeats, on and as of the date hereof, each of the representations and
warranties made by it in (S)8 of the Credit Agreement (except to the extent of
changes resulting from matters contemplated or permitted by the Credit Agreement
and the other Loan Documents, changes occurring in the ordinary course of
business that singly or in the aggregate are not materially adverse, and to the
extent that such representations and
<PAGE>
warranties relate expressly to an earlier date), provided, that all references
--------
therein to the Credit Agreement shall refer to such Credit Agreement as amended
hereby. In addition, each of the Company and PMI GmbH hereby represents and
warrants that the execution and delivery by the Company and PMI GmbH of this
Amendment and the performance by the Company and PMI GmbH of all of its
agreements and obligations under the Credit Agreement as amended hereby are
within the corporate authority of the Company and PMI GmbH and have been duly
authorized by all necessary corporate action on the part of the Company and PMI
GmbH.
(S)4. Ratification, Etc. Except as expressly amended hereby, the Credit
-----------------
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Guarantees, are hereby ratified and confirmed
in all respects and shall continue in full force and effect. The Credit
Agreement and this Amendment shall be read and construed as a single agreement.
All references in the Credit Agreement, the Loan Documents or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
(S)5. No Waiver. Nothing contained herein shall constitute a waiver of,
---------
impair or otherwise affect any Obligations, any other obligation of the
Borrowers or any rights of the Agent or the Banks consequent thereon.
(S)6. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
(S)7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as a
document under seal as of the date first above written.
KOLLMORGEN CORPORATION
By:____________________________________
Name:
Title:
PMI MOTION TECHNOLOGIES GmbH
By:____________________________________
Name:
Title:
FLEET NATIONAL BANK,
individually and as Agent
By:____________________________________
Name:
Title:
ABN AMRO Bank N.V., individually and as
Fronting Bank
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
By:____________________________________
Name:
Title:
<PAGE>
RATIFICATION OF GUARANTY
The undersigned guarantors hereby acknowledges and consents to the
foregoing Third Amendment as of March 10, 2000, and agrees that the Guaranty
dated as of December 31, 1999 from each of the undersigned in favor of the Agent
and each of the Banks remains in full force and effect, and each Guarantor
confirms and ratifies all of its obligations thereunder.
KOLLMORGEN SECURITIES CORPORATION
By:____________________________________
Title:
Address:
KOLLMORGEN MAGNEDYNE CORPORATION
By:____________________________________
Title:
Address:
KOLLMORGEN OVERSEAS DEVELOPMENT CORPORATION
By:____________________________________
Title:
Address:
KOLLMORGEN INTERNATIONAL LLC
By:____________________________________
Title:
Address:
<PAGE>
PROTO-POWER CORPORATION
By:____________________________________
Title:
Address:
<PAGE>
EXHIBIT 10(e)
June 4, 1999
Kollmorgen Corporation
1601 Trapello Road
Waltham, MA 02154
Attention: Robert Cobuzzi
Chief Financial Officer
Re: Money Market Lending Arrangement
--------------------------------
Ladies and Gentlemen:
BankBoston, N.A. (the "Bank") is pleased to make available to Kollmorgen
Corporation (the "Borrower") a $10,000,000 demand, discretionary revolving
credit facility on the following terms and conditions:
1. Revolving Credit Facility. This revolving credit facility shall
-------------------------
commence on the date hereof and expire on April 30, 2000 (the "Termination
Date"). Subject to the terms and conditions hereof, the Bank, may, in its
discretion, make revolving loans ("Loans") to the Borrower from time to time
until the close of business on the Termination Date, in such amounts as the
Borrower may request, provided that the minimum amount of each such Loan shall
--------
be not less than $250,000 and integral multiples in excess thereof, and the
aggregate amount of all advances outstanding at any time shall not exceed
$10,000,000. The Borrower may request Loans by notifying the Bank not later
than 11:00 a.m. on any business day on which a "Fixed Rate Loan" is to be made,
specifying the effective date and amount of each such Loan. If the Bank is then
willing to lend to the Borrower, the Bank will make each requested Loan by
crediting the proceeds thereof to the demand deposit account of the Borrower
maintained with the Bank.
2. Evidence of Indebtedness. All Loans will be evidenced by a promissory
------------------------
note in the form attached hereto as Exhibit A (the "Note"). The Borrower hereby
---------
authorizes the Bank to record each Loan and the corresponding information on its
book and records, and, absent manifest error, this record shall be conclusive
and binding.
3. Interest Rates. The Loans shall bear interest at the Bank's quoted
--------------
fixed rates (each a "Fixed Rate Loan") for the amounts and for the interest
periods requested up to 90 days (but not to extend beyond the Termination Date),
it being understood that the Bank is under no obligation to quote such rates and
from time to time may not quote rates on some or all maturities. All of such
interest will be payable at the end of each applicable interest period and when
the applicable Loan is repaid in full (whether on demand, by prepayment,
acceleration or otherwise). All such interest will be computed
<PAGE>
on the basis of a 360-day year and paid for the actual number of days elapsed
including holidays and days on which the Bank is not open for the conduct of
banking business.
4. Borrowing and Interest Rate Procedure. Requests for Loans from time
-------------------------------------
to time shall be made pursuant to a notice by telephone or facsimile
transmission (promptly confirmed in writing in the form attached to this Letter
Agreement). The Borrower may request interest periods to be applicable to any
Fixed Rate Loans of up to 90 days; and no Fixed Rate Loan shall have an interest
period that extends beyond the Termination Date. If prior to the end of any
interest period the Bank is willing to continue such Loan but does not receive a
notice of election of interest period to be applicable for a subsequent period
within the applicable time limits specified above, or if, when such notice must
be given an event of default exists under the Note, the Fixed Rate Loans shall
be converted to Loans bearing the Bank's base rate on the last day of such
interest period.
5. Payments and Prepayment. All Loans shall be payable on demand or, if
-----------------------
demand is not earlier made, on the Termination Date. The Borrower may
voluntarily prepay any Loans, in whole or in part, at any time and without
prepayment penalties; provided that if the Borrower shall prepay any Fixed Rate
--------
Loan prior to the last day of the then applicable interest period, the Borrower
shall reimburse the Bank for any resulting loss or expense incurred by it as a
result of such prepayment, including without limitation any loss reasonably
incurred in obtaining, liquidating or employing of deposits from third parties.
The Borrower shall pay the amount of such loss or expense upon presentation of a
statement in the amount thereof, which statement shall be deemed true and
correct absent manifest error. Any interest accrued on the amounts prepaid to
the date of such prepayment must be paid at the time of any such prepayment.
Prior to the Termination Date, if the Bank shall then be willing to make Loans
to the Borrower, any amounts prepaid may be reborrowed.
All payments and prepayments of principal and all other amounts payable
hereunder shall be made by the Borrower to the Bank at its head office in
immediately available lawful currency of the United States, on or before 2:00
p.m. (Boston, Massachusetts time) on the due date thereof, free and clear of,
and without any deduction or withholding for, any taxes or other payments. The
Bank may, and the Borrower hereby authorizes the Bank to, debit the amount of
any payment not made by such time to the demand deposit account of the Borrower
with the Bank.
6. Use of Funds. Proceeds of Loans may be used solely for general
------------
corporate purposes. No portion of any Loan shall be used for the purpose of
"purchasing" or "carrying" "margin stock", as such terms are defined in
Regulation U of the Board of Governors of the Federal Reserve System.
7. Availability of Loans. The availability of Loans under this facility
---------------------
is subject to receipt by the Bank of the following:
<PAGE>
(a) in the case of the initial Loan under this credit facility, receipt
by the Bank of the following:
(i) the enclosed copy of this Letter Agreement and the Note,
duly executed by the Borrower;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Borrower with respect to resolutions of the Board of Directors
authorizing the execution and delivery of the Loan Documents and
identifying the officer(s) authorized to execute, deliver and take all
other actions required under this Loan Documents, and providing
specimen signatures of such officers;
(iii) such other documentation as the Bank may request; and
(b) in the case of each Loan under this credit facility,
(i) the representations and warranties contained in Section 8
shall be true and accurate in all material respects on and as of the
date of each Loan as though made at and as of each such date (except to
the extent that such representations and warranties expressly relate to
an earlier date), and no default under this Letter Agreement or the
Note shall have occurred and be continuing, or would result from such
Loan; and there shall have occurred no material adverse change in the
assets, liabilities, financial condition, business or prospects of the
Borrower, as determined by the Bank acting in good faith;
(ii) the resolutions referred to in clause (a)(ii) shall remain
in full force and effect; and
(iii) no change shall have occurred in any law or regulation or
interpretation thereof that, in the opinion of counsel for the Bank,
would make it illegal or against the policy of any governmental agency
or authority for the Bank to make Loans hereunder.
The making of each Loan shall be deemed to be a representation and warranty by
the Borrower on the date of the making of such Loan as to the accuracy of the
facts referred to in clause (b) above.
8. Representations and Warranties. To induce the Bank to make Loans
------------------------------
hereunder, the Borrower represents and warrants that:
(a) it is duly organized, validly existing and in good standing under
the laws of Delaware and has all requisite power and authority to own its
property
<PAGE>
and conduct its business as is now conducted and is duly qualified and in
good standing as a foreign corporation and is duly authorized to do
business in each jurisdiction where the nature of its properties or
business requires such qualification except where the failure to be so
qualified would not have a materially adverse effect on the business,
assets or financial condition of the Borrower;
(b) the execution, delivery and performance of this Letter Agreement
and the Note and the transactions contemplated hereby and thereby: (i) are
within the Borrower's corporate power and authority; (ii) have been
authorized by all necessary corporate proceedings; (iii) do not require the
consent or approval of the shareholders of the Borrower, any governmental
authority or any other party; (iv) will not contravene any provision of the
charter documents of the Borrower, or any law, rule or regulation
applicable to the Borrower; and (v) will not constitute a default under any
other agreement, order or undertaking binding on the Borrower;
(c) this Letter Agreement and the Note constitute the legal, valid,
binding and enforceable obligations of the Borrower, except as the same may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
laws affecting the enforcement of creditors' rights generally and except to
the extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which
any proceeding therefor may be brought;
(d) there is no litigation, proceeding or investigation pending, or, to
the best of the Borrower's knowledge after due inquiry, threatened, against
the Borrower which, if adversely determined, would result in a material
judgment not substantially covered by insurance or would otherwise have a
material adverse effect on the assets, business or prospects of the
Borrower;
(e) all financial statements previously furnished to the Bank by the
Borrower were prepared in accordance with generally accepted accounting
principles and fairly present the financial condition of the Borrower as at
the close of business on the date thereof and the results of operations for
the fiscal period then ended. Since the date of such statements, there has
been no change in the assets, liabilities, financial condition or business
of the Borrower other than in the ordinary course of business; and
(f) the Borrower has good and marketable title to all its respective
properties, assets and rights of every name and nature purported to be
owned by it.
9. Notices. All notices hereunder shall be in writing and shall be deemed
-------
to have been duly made or given when delivered by hand, when properly deposited
in the mail postage prepaid, when sent by facsimile or when delivered to
overnight courier
<PAGE>
addressed as follows: if to the Bank at: BankBoston, N.A.,
100 Federal Street, Boston, Massachusetts 02110, Attention: Harvey H. Thayer,
Jr. - Mailstop 01-10-02 and if to the Borrower at the address specified above,
Attention: Chief Financial Officer, or such other address as either party
directs the other in writing.
10. Expenses. The Borrower shall pay on demand all reasonable expenses of
--------
the Bank in connection with the preparation, negotiation and closing of this
Letter Agreement and the Note and all reasonable expenses of the Bank in
connection with the amendment, waiver, default or collection of the Borrower's
obligations to the Bank or in connection with the Bank's exercise, preservation
or enforcement of any of its rights, remedies or options thereunder, including,
without limitation, fees of outside legal counsel or the allocated costs of in-
house legal counsel, accounting, consulting, brokerage or other similar
professional fees or expenses; and the amount of all such expenses shall, until
paid, bear interest at the rate applicable to the Loans (including any default
rate).
11. Assignment. The Borrower shall not sell, transfer, or assign any of
----------
its interest in this Agreement without the prior written consent of the Bank.
The Bank may sell or transfer its interests hereunder or grant participations
therein, without the prior written consent of the Borrower. In the case of any
such participation, the Borrower agrees that any such participant shall be
entitled to the benefits of Sections 6 and 12 hereof to the same extent as if
such participant were the Bank hereunder; provided the Borrower may, for all
--------
purposes of this Letter Agreement, treat the Bank as the person entitled to
exercise all rights hereunder and to receive all payments with respect thereto.
12. Setoff. As more fully set forth in the Note, and regardless of the
------
adequacy of any collateral, any amounts owing from the Bank to the Borrower,
including deposits (general or special, time or demand, provisional or final),
may, at any time, be set off against the obligations of the Borrower to the
Bank.
13. Waivers. The Borrower waives presentment, demand, notice of dishonor,
-------
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Letter Agreement or the
Note. No delay or omission on the part of the Bank in exercising any right
hereunder or under the Note shall operate as a waiver of such right or of any
other right hereunder or thereunder. No waiver of any right shall be effective
unless in writing and signed by the Bank nor shall a waiver on one occasion be
construed as a bar to or waiver of any such right on any future occasion.
14. Miscellaneous. This Letter Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Letter Agreement
shall be deemed to be a contract executed under seal and shall be governed by
and construed in accordance with the laws of The Commonwealth of Massachusetts,
without regard to the conflicts of laws principles thereof.
<PAGE>
If the foregoing satisfactorily sets forth the terms and conditions of this
revolving credit facility, please execute and return the enclosed copy of this
Letter Agreement and enclosed promissory note. We are pleased to provide this
revolving credit facility and look forward to working with you.
Sincerely,
BANKBOSTON, N.A.
By:
--------------------------
Its Authorized Officer
Acknowledged and accepted:
Kollmorgen Corporation
By:
--------------------------
Title:
<PAGE>
COMMERCIAL PROMISSORY NOTE
$10,000,000.00 Boston,
Massachusetts
June 30, 1999
ON DEMAND, FOR VALUE RECEIVED, the undersigned promise(s) to pay to the
order of BANKBOSTON, N.A. (together with any successors or assigns, the "Bank"),
a national banking association with its Head Office at 100 Federal Street,
Boston, Massachusetts 02110, the principal amount of Ten MILLION and no/100
DOLLARS ($10,000,000.00), or, if less, the aggregate principal amount advanced
to the undersigned by the Bank under this Note and unpaid on the date of demand
(or, if demand is not earlier made, on the "Termination Date" described in that
certain Letter Agreement of even date (the "Letter Agreement") between the
undersigned and the Bank), with interest thereon at a per annum rate equal to
the Fixed Rate, as described in the Letter Agreement. Interest shall be
calculated on the basis of a 360-day year for the actual number of days elapsed
including holidays and days on which the Bank is not open for the conduct of
banking business, and shall be paid on the dates and in the manner described in
the Letter Agreement.
SECTION 1. PAYMENT TERMS.
1.1 PAYMENTS; PREPAYMENTS. All payments hereunder shall be made by the
undersigned to the Bank in United States currency at the Bank's address
specified above (or at such other address as the Bank may specify), in
immediately available funds, on or before 2:00 p.m. (Boston, Massachusetts time)
on the due date thereof. Payments received by the Bank prior to the occurrence
of an Event of Default (as defined in Section 2) will be applied first to fees,
-----
expenses and other amounts due hereunder (excluding principal and interest);
second, to accrued interest; and third to outstanding principal; after the
- ------ -----
occurrence of an Event of Default, payments will be applied to the Obligations
under this Note as the Bank determines in its sole discretion. The undersigned
may from time to time pay all or a portion of the amount owed earlier than it is
due, without premium or other charge.
1.2 DEFAULT RATE. To the extent permitted by applicable law, upon and after
the occurrence of an Event of Default (whether or not the Bank has accelerated
payment of this Note), interest on principal and overdue interest shall, at the
option of the Bank, be payable on demand at a rate per annum equal to 2% above
the greater of the rate of interest otherwise payable hereunder or the rate
announced from time to time by the Bank at its Head Office as its base rate.
<PAGE>
1.3 DEPOSIT ACCOUNT. The undersigned shall maintain with the Bank a
commercial demand deposit account. The undersigned requests and authorizes the
Bank to debit such account for amounts due hereunder on each date such amounts
become due. The undersigned shall maintain sufficient collected balances in
this account to pay any such amounts as they become due.
SECTION 2. DEFAULTS AND REMEDIES.
2.1 DEFAULT. The occurrence of any of the following events or conditions
shall constitute an "Event of Default" hereunder:
(a) (i) default in the payment when due of the principal of or interest
on this Note, or (ii) any other default in the payment or performance of this
Note or of any other Obligation, or (iii) default in the payment or
performance of any obligation of any Obligor to others for borrowed money or
in respect of any extension of credit or accommodation or under any lease;
(b) failure of any representation or warranty herein or in any agreement,
instrument, document or financial statement delivered to the Bank in
connection herewith to be true and correct in any material respect upon the
date when made or deemed to have been made or repeated;
(c) default or breach of any condition under any mortgage, security
agreement, assignment of lease, or other agreement securing, constituting or
otherwise relating to any collateral for the Obligations;
(d) failure to furnish the Bank promptly on request with financial
information about, or to permit inspection by the Bank of any books, records
and properties of, any Obligor;
(e) merger, consolidation, sale of all or substantially all of the assets
or change in control of any Obligor; or
(f) any Obligor generally not paying its debts as they become due; the
dissolution, termination of existence or insolvency of any Obligor; the
appointment of a trustee, receiver, custodian, liquidator or other similar
official for such Obligor or any substantial part of its property or the
assignment for the benefit of creditors by any Obligor; or the commencement
of any proceedings under any bankruptcy or insolvency laws by or against any
Obligor.
As used herein, "Obligation" means any obligation hereunder, under the Letter
Agreement, or otherwise of any Obligor to the Bank or to any of its affiliates,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter
<PAGE>
arising; and "Obligor" means the undersigned, any guarantor or any other person
primarily or secondarily liable hereunder or in respect hereof, including any
person or entity who has pledged or granted to the Bank a security interest in,
or other lien on, property on behalf of the undersigned as collateral for the
Obligations.
2.2 REMEDIES. Upon an Event of Default described in Section 2.1(f)
immediately and automatically, and upon or after the occurrence of any other
Event of Default at the option of the Bank, all Obligations of the undersigned
shall become immediately due and payable without notice or demand. All rights
and remedies of the Bank are cumulative and are exclusive of any rights or
remedies provided by law or in equity or any other agreement, and may be
exercised separately or concurrently.
SECTION 3. MISCELLANEOUS.
3.1 WAIVER; AMENDMENT. No delay or omission on the part of the Bank in
exercising any right hereunder shall operate as a waiver of such right or of any
other right under this Note. No waiver of any right or any amendment hereto
shall be effective unless in writing and signed by the Bank, nor shall a waiver
on one occasion bar or waive the exercise of any such right on any future
occasion. Without limiting the generality of the foregoing, the acceptance by
the Bank of any late payment shall not be deemed to be a waiver of the Event of
Default arising as a consequence thereof. Each Obligor waives presentment,
demand, notice, protest, and all other demands and notices in connection with
the delivery, acceptance, performance, default or enforcement of this Note or of
any collateral for the Obligations, and assents to any extensions or
postponements of the time of payment and to any other indulgences under this
Note or with respect to any such collateral, to any substitutions, exchanges or
releases of any such collateral, and to any additions or releases of any other
parties or persons primarily or secondarily liable hereunder, that from time to
time may be granted by the Bank in connection herewith.
3.2 SET-OFF. Regardless of the adequacy of any collateral or other means of
obtaining repayment of the Obligations, the Bank is hereby authorized at any
time and from time to time, without notice to the undersigned (any such notice
being expressly waived by the undersigned) and to the fullest extent permitted
by law, to set off and apply any amounts owing from the Bank to the Borrower,
including deposits (general or special, time or demand, provisional or final)
against the Obligations of the undersigned, although such Obligations may be
contingent or unmatured.
3.3 TAXES. The undersigned agrees to indemnify the Bank and hold it harmless
from and against any transfer taxes, documentary taxes, assessments or charges
made by any governmental authority by reason of the execution, delivery, and
performance of this Note or any collateral for the Obligations.
3.4 BANK RECORDS. The entries on the records of the Bank (including any
appearing on this Note) shall be conclusive evidence of the aggregate principal
amount outstanding under this Note and interest accrued thereon, absent manifest
error.
<PAGE>
3.5 GOVERNING LAW; CONSENT TO JURISDICTION. This Note is intended to take
effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of The Commonwealth of Massachusetts, without regard
to its conflicts of law rules. The undersigned agrees that any suit for the
enforcement of this Note may be brought in the courts of such state or any
Federal Court sitting in such state and consents to the non-exclusive
jurisdiction of each such court and to service of process in any such suit being
made upon the undersigned by mail at the address specified below. The
undersigned hereby waives any objection that it may now or hereafter have to the
venue of any such suit or any such court or that such suit was brought in an
inconvenient court.
3.6 SEVERABILITY; AUTHORIZATION TO COMPLETE; PARAGRAPH HEADINGS. If any
provision of this Note shall be invalid, illegal or unenforceable, such
provisions shall be severable from the remainder of this Note and the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. The Bank is hereby authorized, without further
notice, to fill in any blank spaces on this Note, and to date this Note as of
the date funds are first advanced hereunder. Paragraph headings are for the
convenience of reference only and are not a part of this Note and shall not
affect its interpretation.
3.7 JURY WAIVER. THE BANK (BY ITS ACCEPTANCE OF THIS NOTE) AND THE
UNDERSIGNED AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A)
SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER ACTION
BASED UPON, OR ARISING OUT OF, THIS NOTE, ANY RELATED INSTRUMENTS, ANY
COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN, OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH SHALL BE SUBJECT TO
NO EXCEPTIONS. NEITHER THE BANK NOR THE UNDERSIGNED HAS AGREED WITH OR
REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
IN WITNESS WHEREOF, the undersigned has caused its duly authorized
representative to execute this Note as of the date and year first above written.
KOLLMORGEN CORPORATION
By:
--------------------------
Its:
--------------------
Address:
1601 Trapello Road
Waltham, Massachusetts 02154
<PAGE>
EXHIBIT 10(p)
INCENTIVE STOCK OPTION AGREEMENT
* * * * * * *
This AGREEMENT, entered into as of this 15th day of August, 1999,
(hereinafter called the "Option Date") between KOLLMORGEN CORPORATION, a
corporation organized under the laws of the State of New York (hereinafter
called the "Corporation"), and Willy Verbrugghe of
, an employee of the Corporation or of a subsidiary or affiliate of
the Corporation (hereinafter called the "Optionee").
WITNESSETH THAT:
---------------
WHEREAS, the Corporation by due corporate action and with the written
consent of the holders of at least a majority of the stock of the Corporation
entitled to vote adopted the 1991 Long Term Incentive Plan (such Plan, as
amended, hereinafter called the "Plan"); and
WHEREAS, the Plan is administered by the Personnel and Compensation
Committee of the Corporation's Board of Directors (hereinafter called the
"Committee"), which is composed of individuals who are not employees of the
Corporation or otherwise eligible to receive stock options; and
WHEREAS, the Committee has determined on the date hereof that it would be in
the best interests of the Corporation to grant to the Optionee the option
contained in this Agreement because of the incentives it will generate in the
Optionee to promote the long range interests of the Corporation; and
WHEREAS, the Optionee wishes to accept such option, upon the terms and
conditions hereinafter provided; and
<PAGE>
WHEREAS, the Committee has determined that the option price hereinafter
provided for is not less than 100% of the fair market value of the Common Stock
of the Corporation on the date hereof;
NOW, THEREFORE, in consideration of the premises it is agreed as follows:
1. Option Grant. Subject to the terms and conditions hereof and to the
------------
terms and conditions of the Plan, which are hereby incorporated herein by
reference, the Corporation hereby grants to the Optionee, and the Optionee
hereby accepts, an incentive stock option (hereinafter called the "Option")
within the meaning of Section 422(A)(b) of the Internal Revenue Code of 1986, as
amended, to purchase 70,000 shares of Common Stock, $2.50 par value, of the
Corporation (hereinafter called the "Optioned Shares") at a price of $11.25 per
share (hereinafter called the "Option Price").
2. Period of Option, and Conditions of its Exercise.
------------------------------------------------
(a) Unless the Option be terminated earlier as provided in this Option
Agreement, the term of the Option and of this Option Agreement shall commence as
of the date hereof and terminate at the close of business on the day immediately
preceding the tenth anniversary of such date. Upon any termination of the
Option, all rights of the Optionee hereunder shall cease. Except as expressly
provided in paragraph 3, this Option may be exercised as follows:
i) up to 10% of the Optioned Shares on or after twelve (12) months
following the Option Date;
ii) up to an additional 10% of the Optioned Shares on or after
eighteen (18) months following the Option Date;
iii) up to an additional 20% of the Optioned Shares on or after
twenty-four (24) months following the Option Date; and,
<PAGE>
iv) up to an additional 20% of the Optioned Shares on or after the
third, fourth and fifth anniversary of the Option Date;
provided, however, that the Committee may accelerate the date upon which the
option may be first exercisable if in its opinion such acceleration is advisable
in order to effectuate the purposes for which the Option was granted. Events
which the Committee may consider in arriving at such an opinion shall include,
by way of example and not limitation, any merger or consolidation of the
Corporation or any transfer by the Corporation of substantially all of its
assets or any change or proposed change in the control of the Corporation.
Notwithstanding the foregoing, upon a determination by the Committee that there
has been a sale of substantially all of the Corporation's assets or a
dissolution or liquidation of the Corporation, or a "Change in Control" of the
Corporation (as defined below) this Option shall immediately become exercisable
in full. For this purpose 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 Corporation representing 30% or more of the combined voting power of the
Corporation's then outstanding securities entitled to vote in the election of
directors of the Corporation; (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
Corporation'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 cease for any reason to constitute a majority thereof;
(iii) there occurs a reorganization, merger, consolidation or other corporate
<PAGE>
transaction involving the Corporation (a"Transaction"), in each case, with
respect to which the shareholders of the Corporation immediately prior to such
Transaction do not, immediately after the Transaction, own more than 50 percent
of the combined voting power of the Corporation or other corporation resulting
from such Transaction; or (iv) there is a "change in control" of the Corporation
within the meaning of Section 280G of the Internal Revenue Code and the
Regulations
(b) Nothing in this Option Agreement shall confer upon the Optionee any
right to continue in the employ of the Corporation or any subsidiary or
affiliate thereof or interfere in any way with the right of the Corporation or
any subsidiary or affiliate thereof to terminate the employment of the Optionee
at any time.
3. Death or Termination of Employment of Optionee.
----------------------------------------------
(a) If the employment of the Optionee by the Corporation or a subsidiary or
affiliate thereof shall terminate by reason of his death, the Option may be
exercised prior to the earlier of (i) the expiration date of the Option or (ii)
the expiration of one year after the date of the Optionee's death (or such
longer period, not exceeding one additional year, as the Committee may approve),
by the person or persons (hereinafter called the "Beneficiary") to whom the
Optionee's rights under the Option pass by will or the laws of descent or
distribution (including his estate during the period of administration),
provided, however, that the Beneficiary shall be entitled to exercise the Option
only to the same extent exercisable by the Optionee on the date of his death.
(b) If, prior to the first anniversary of the Option Date, the Optionee's
employment with the Corporation or any subsidiary or affiliate thereof shall be
terminated for any reason, this Option Agreement, the Option and all rights to
purchase Optioned Shares pursuant hereto shall forthwith terminate and become
null and void.
(c) If, on or after the first anniversary of the Option Date, the full-time
employment of the Optionee by the Corporation or any
<PAGE>
subsidiary or affiliate thereof shall terminate for any reason other than (i)
the death of the Optionee or (ii) circumstances which, in the sole and absolute
opinion of the Committee, constitute cause for discharge of the Optionee, the
Option may be exercised by the Optionee at any time prior to the earlier of (i)
the expiration date of the Option or (ii) the expiration of three months after
the date of such termination of employment, to the extent the Option was
exercisable by the Optionee on the date of such termination of employment.
(d) If the employment of the Optionee by the Corporation or any subsidiary
or affiliate thereof shall terminate under circumstances which, in the sole and
absolute opinion of the Committee, constitute cause for discharge, this Option
Agreement, the Option, and all rights to purchase shares pursuant hereto, shall
forthwith terminate and become null and void.
(e) If the Optionee is employed by a subsidiary or affiliate of the
Corporation which ceases to be such a subsidiary or affiliate, the Optionee's
employment shall be deemed to terminate upon the date of such cessation, unless
he forthwith becomes or remains an employee of the Corporation or of another
subsidiary or affiliate thereof.
(f) To the extent that the Option is not exercised within the applicable
periods in the cases set forth in subparagraphs (a), (b) and (c) of this
paragraph 3, this Option Agreement, the Option, and all rights to purchase
shares pursuant thereto, shall forthwith terminate and become null and void.
(g) Whether employment has been terminated for the purposes of this
Agreement shall be determined by the Committee, whose determination shall be
final, binding and conclusive.
(h) Anything in the Plan or herein contained notwithstanding, to the extent
that (i) any formal written employment or termination agreement between the
Corporation and the Optionee which is formally executed by both the Corporation
and the Optionee contains terms
<PAGE>
governing the Options hereunder specifically or options in general in the event
of a termination of the Optionee's employment and (ii) the terms of such
employment or termination agreement applicable to such options in the event of a
termination of the Optionee's employment are more favorable to the Optionee than
the terms of this Agreement, then such terms of such employment or termination
agreement shall control the terms of this Agreement.
4. Non-Transferability. During the Optionee's lifetime the Option shall be
-------------------
exercisable only by him and neither the Option nor any other right granted to
the Optionee hereunder shall be transferable by the Optionee other than by will,
the laws of descent and distribution, or a Qualified Domestic Relations Order
under ERISA and the Code. In the event of any attempt by the Optionee to
alienate, assign, pledge, hypothecate or otherwise dispose of this Option or of
any right hereunder, except as provided for herein, or in the event of any levy
of any attachment, execution or similar process upon the rights or interest
hereby conferred, the Corporation may terminate this Option Agreement by notice
to the Optionee and it shall thereupon become null and void.
5. Manner of Exercising Option. The Option shall be exercised in the
---------------------------
following manner: the Optionee (or the Beneficiary) shall give to the
Corporation notice in writing, substantially in the form set forth in Exhibit A
hereto, of his intention to purchase, specifying the number of Optioned Shares
as to which he desires to exercise the Option, the number and denomination of
the stock certificates that he desires, and the date on which he desires to
complete his purchase (the "Completion Date"), which shall not be less than five
business days thereafter. The Optionee (or the Beneficiary) shall pay the
Corporation on the Completion Date either (i) in cash by Federal Reserve Wire
Transfer or by check, or (ii) through the delivery of shares of the
Corporation's Common Stock having a fair market value on the date of exercise
equal to the full purchase price of the shares purchased, or (iii) by a
combination of (i) and (ii) above, against delivery of one or more certificates
therefor.
<PAGE>
6. Issuance and Delivery of Shares. Against payment for the shares
-------------------------------
purchased, the Corporation will issue and deliver to the Optionee (or the
Beneficiary) on the Completion Date, one or more certificates for the shares
purchased. If and so long as any Common Stock of the Corporation is listed on
any securities exchange, any other provisions of this Option Agreement
notwithstanding, the Corporation shall not be required to make delivery to the
Optionee (or the Beneficiary) of certificates for shares so purchased until such
shares have been listed (or authorized for listing upon official notice of
issuance) on the securities exchange on which outstanding shares of Common Stock
of the Corporation are then listed nor (whether listed or not) until there has
been compliance with such laws and regulations as the Corporation may deem
applicable, including, without limitation, the Securities Act of 1933, the 1934
Act and the rules and regulations issued thereunder.
7. Rights as Shareholder. The Optionee or a transferee of the Option shall
---------------------
have no rights as a shareholder with respect to any share covered by the Option
until he shall have become the holder of record of such share, and, subject to
paragraph 8 hereof, no adjustment shall be made for dividends or distributions
or other rights in respect of such share for which the record date is prior to
the date upon which he shall become the holder of record thereof.
8. Recapitalizations, Reorganizations, etc.
----------------------------------------
(a) The existence of the Option shall not affect in any way the right or
power of the Corporation or its shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Corporation's capital structure or its business, or any merger or consolidation
of the Corporation, or any issue of stock or of options, warrants or rights to
purchase stock or of bonds, debentures, preferred or prior preference stocks
ahead of or affecting the stock or the rights thereof or convertible into or
exchangeable for stock, or the dissolution or liquidation of the Corporation, or
any sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
<PAGE>
(b) The shares with respect to which the Option is granted are shares of
stock of the Corporation as presently constituted, but if, and whenever, prior
to the delivery by the Corporation of all of the shares of the stock with
respect to which the Option is granted, the Corporation shall effect a
subdivision or consolidation of shares, or other capital adjustment, the payment
of a stock dividend or other increase or reduction of the number of shares of
the stock outstanding, without receiving compensation therefor in money,
services or property, the number and price of shares remaining under the Option
shall be appropriately adjusted. Such adjustment shall be made by the
Committee, whose determination as to what adjustment shall be made, and the
extent thereof, shall be final, binding and conclusive. Any such adjustment may
provide for the elimination of any fractional share which might otherwise become
subject to the Option.
(c) Upon a merger or consolidation of the Corporation with any other entity,
pursuant to which the Corporation is not the surviving corporation or pursuant
to which the Corporation is the surviving corporation and holders of Common
Stock of the Corporation receive any consideration in exchange for their shares
of Common Stock of the Corporation, the Option shall be terminated (whether or
not vested) and the Optionee shall receive (i) the consideration to which the
Optionee would have been entitled pursuant to the terms of the agreement of
merger or consolidation, if immediately prior to such merger or consolidation
the Optionee had been the holder of record of a number of shares of stock of the
Corporation equal to the number of Optioned Shares to which the Option relates,
minus (ii) the Option Price. The Committee shall have the authority to resolve
any questions regarding the application of the foregoing sentence and its
determination shall be final, binding and conclusive.
In the event of a liquidation or dissolution of the Corporation pursuant to
which the Committee has not, under Section 2 of the Option Agreement, caused the
Option to vest at least 20 days prior to such liquidation or dissolution, the
Option shall be terminated (whether or not vested) and the Optionee shall
receive (i) the consideration to
<PAGE>
which the Optionee would have been entitled, if immediately prior to the
liquidation or dissolution the Optionee had been the holder of record of a
number of shares of stock of the Corporation equal to the number of Optioned
Shares to which the Option relates, minus (ii) the Option Price. The Committee
shall have the authority to resolve any questions regarding the application of
the foregoing sentence and its determination shall be final, binding and
conclusive.
(d) Except as hereinbefore expressly provided, the issue by the Corporation
of shares of stock of any class, or securities convertible into or exchangeable
for shares of stock of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of options, rights or
warrants to subscribe therefor, or to purchase the same, or upon conversion of
shares or obligations of the Corporation convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of stock subject to the Option.
9. Change in Option Terms. The Committee may, with the consent of the
----------------------
Optionee (or the Beneficiary), modify or change the terms of this Option
Agreement, including the Option Price, in a manner which does not conflict with
the provisions of the Plan; provided that the Option Price as so changed or
modified shall not be less than 100% of the fair market value of the Common
Stock of the Corporation on the date of such modification or change.
10. Definition of "Year", "Subsidiary" and "Affiliate". For all purposes
--------------------------------------------------
of this Option Agreement:
(a) A "year" shall be a period of 365 consecutive days (or 366 consecutive
days if a 29th of February shall fall during such period). The first
day of any period shall commence at 12:01 o'clock A.M., Eastern Standard
Time, on such day, and the last day of such period shall terminate at
12:00 o'clock midnight. If the last day of any period shall fall on a
Saturday, Sunday
<PAGE>
or legal holiday in the State of New York, such period shall be deemed
to end on the next business day thereafter.
(b) A "subsidiary" shall be a corporation as defined in Section 424(f) of
the Internal Revenue Code.
(c) An "affiliate" shall be a joint venture, partnership or other entity
(other than a corporation), 50 percent or more of which is owned
directly or indirectly by the Corporation.
11. Notices. Any notice given under this Option Agreement shall be in
-------
writing and shall be deemed given when delivered personally, or when sent by
certified mail, postage prepaid, in the case of the Optionee to his address
hereinabove set forth or such other address as he may designate by notice given
to the Corporation, and in the case of the Corporation, to its Corporate Office
at 1601 Trapelo Road, Waltham, MA 02154, Attention: Secretary, or such other
address as may then be applicable by notice given to the Optionee.
12. Failure to Enforce not a Waiver. The failure of the Corporation to
-------------------------------
enforce at any time any provision of this Option Agreement or the Plan shall in
no way be construed to be a waiver of such provision as to any future event or
of any other provision hereof or of the Plan.
13. Governing Law. This Option Agreement and its interpretation and
-------------
performance shall be controlled solely by the laws of the State of New York.
14. Date of Granting of the Option. The date of this Option Agreement
------------------------------
shall be deemed for all purposes the date of the granting of the Option, unless
and except where the grant is conditioned upon any event, in which case the date
of satisfaction on which such event occurs shall be deemed the date of the
granting of the Option.
15. Power of the Committee. The Committee shall have all the powers
----------------------
delegated to it by the provisions of the Plan including, without
<PAGE>
limitation, the power to construe this Option Agreement and the Plan, and the
power to determine whether a termination of the Optionee's employment was for
reasons constituting cause for discharge, and any determinations of the
Committee shall be conclusive.
16. Provisions of the Plan. The Option provided for herein is granted
----------------------
pursuant to the Plan, and the Option and this Option Agreement are in all
respects governed by, and subject to all of the terms and provisions of, the
Plan. Any term used herein shall, unless the context plainly requires
otherwise, have the meaning assigned to it in the Plan. The Corporation agrees
to maintain a copy of the Plan during the term of this Option Agreement at its
principal office for inspection by the Optionee at any time during normal
business hours.
IN WITNESS WHEREOF, the Corporation has caused this Option to be signed by
its corporate officer thereunto duly authorized, and the Optionee has signed
this Option Agreement, all as of the date first above written.
KOLLMORGEN CORPORATION
By -------------------------
Vice President
-------------------------
Optionee
S.S. #
---------------------
<PAGE>
EXHIBIT A
---------
[Sample form of letter to be sent by Optionee
(or Beneficiary)]
[ Date ]
Kollmorgen Corporation
Attention: Secretary
1601 Trapelo Road
Waltham, MA 02154
Re: Exercise of Stock Option
Dear Sirs:
Pursuant to the terms of the Option Agreement between us dated
, 19 , in which you have granted me an option to purchase a
- ---------------- ---
certain number of shares of your Common Stock, of the par value of $2.50 per
share, on certain terms and conditions, I hereby give notice that I elect to
exercise such option to the extent of shares and that I desire to
-------------
complete this purchase on , 19 . On that date I shall pay
------------------ ---
you the sum of Dollars
---------------------------------------------
($ ) in full payment for such shares. In addition, on that date I
-----------
shall pay you all applicable federal, state and local taxes, if any, required
under withholding tax rules and regulations. I request that such shares be
evidenced by stock certificate(s) in the following denomination(s):
----------
.
- ------------------------------------
Very truly yours,
[name and address]
S.S.#
NOTE: The above form should be appropriately modified in the case of use by a
person to whom the rights of a deceased Optionee have passed by will or
the laws of descent and distribution.
<PAGE>
EXHIBIT 10(s)
2000 ANNUAL INCENTIVE BONUS PLAN
The 2000 Annual Incentive Bonus Plan (the "Plan") for corporate officers, which
is directly linked to the financial performance of the Corporation, is designed
to provide additional cash and stock compensation when specific financial
performances are achieved or exceeded. The Plan provides awards to individuals
when the Corporation meets its operating plan in terms of primary earnings per
share, cash flow, and critical objectives as follows: 60% of the bonus is
dependent on earnings per share, 20% on cash flow, and 20% on individual
objectives. Bonuses range from 30% of base pay when the plan is met to a cap of
100% of base pay when the plan is exceeded. 80% of the bonus is delivered in the
form of cash compensation and 20% in the form of restricted stock units issued
pursuant to the 1998 Management Stock Incentive Plan.
<PAGE>
EXHIBIT 10(v)
July 27, 1999
Mr. Willy L. Verbrugghe
144 Knoll Drive
Collegeville, PA 19426
Dear Willy:
I am pleased to offer you the position as President of the Industrial &
Commercial Motion Control Group and Corporate Vice President of Kollmorgen
Corporation, with a home base in Waltham, MA, reporting to me, at a monthly
salary of $22,916.67. In addition to your base salary, Kollmorgen will provide
you with a monthly car allowance of $1,000, grant you an option for 70,000
shares as of your date of hire, and make you a participant in the annual bonus
plan for Kollmorgen executives beginning in the year 2000 with a target bonus
equal to 40% of your base salary.
In lieu of an annual bonus for 1999, Kollmorgen will pay you the sum of $75,000,
one half payable in a lump sum within thirty days of your date of hire, the
remainder to be paid in January 2000. Should Kollmorgen terminate your
employment for any reason, other than for cause or following a change in
control, you will receive your annual base salary in a lump sum as a severance
payment. Kollmorgen will execute a separate retention agreement with you
regarding employment following a change in control (double trigger with a 2.5
times payout).
Kollmorgen will provide you with relocation assistance as follows:
1. Closing cost for your current home (including reasonable realtor fees),
2. Closing costs for the purchase of a new home (including a maximum of 2
points on a new mortgage),
3. Moving costs for household goods,
4. Temporary living expenses not to exceed $200 per day, and
5. Gross up of the additional tax liability.
The total relocation assistance provided by Kollmorgen will not exceed $75,000.
As a regular, full time, at will Kollmorgen employee, you will be eligible for
benefits, a summary of which follows:
1. Medical - You will be eligible for medical coverage effective the first of
the month following your date of hire. Employees currently pay 20% of the
premium cost through pre-tax payroll deductions.
2. Dental - You will be eligible for dental coverage effective the first of the
month following your date of hire. Employees currently pay 20% of the premium
cost through pre-tax payroll deductions.
<PAGE>
Mr. Willy L. Verbrugghe
July 27, 1999
Page 2
3. Flexible Spending Accounts - You may elect to contribute on a pre-tax basis
to either or both the medical and dependent care flexible spending accounts.
4. Life Insurance - Kollmorgen provides twice your annual salary in life
insurance at no cost to you. You have the option of purchasing through payroll
deduction an additional one or two times your annual salary in life insurance.
Guaranteed issue is capped at $500,000.
5. Long Term Disability - This coverage is available to you at cost through
payroll deductions effective the first of the month following your date of hire.
6. Pension Plan - You are automatically enrolled in the pension plan after one
year of service. No contributions are required of employees to participate.
7. 401(k) Plan - You are eligible to participate in the plan immediately upon
starting. Kollmorgen currently matches pre-tax contributions at the rate of
$0.50 on the dollar, capping its contribution when you put in 4% of your base
salary. You will be vested in the company matching contributions following one
year of service.
8. Holidays - There are eleven paid holidays during the year. A number of
holidays are clustered around the December holidays such that the office is
normally closed between Christmas and New Year's. In 1998, you will be eligible
for two additional holidays to be scheduled at your choosing.
9. Vacation - You will be immediately eligible for three weeks of vacation per
year. Vacation accrual will otherwise follow the standard vacation policy.
10. Educational Assistance - You will be eligible for this plan following three
months of service. Courses must be approved in advance by your supervisor.
Tuition, fees, and books are eligible for reimbursement with a passing grade.
If you should have any questions concerning this offer, please don't hesitate to
contact me. I would be pleased to provide you with whatever additional detail
you may require.
<PAGE>
Mr. Willy L. Verbrugghe
July 27, 1999
Page 3
We are pleased to extend this offer to you and await your response. Upon
acceptance of this offer, kindly return a signed copy to my attention.
Sincerely, Agreed and accepted:
Gideon Argov ---------------------------
President, Chief Executive Officer
& Chairman
<PAGE>
EXHIBIT 21
Subsidiaries of the Company
As of March 24, 2000, 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
<TABLE>
<CAPTION>
<S> <C> <C>
Kollmorgen Overseas Development
Corporation Delaware 100
Proto-Power Corporation Delaware 100
Kollmorgen Tandon (India) India 100
Tianjin Kollmorgen Industrial Peoples' Republic
Drives Corporation of China 83
Artus Group France 100
Kollmorgen Artus
Societe Anonyme Cryla
Kollmorgen Seidel Servo Drives GmbH Germany 100
Kollmorgen Servotronix, Ltd. Israel 100
Kollmorgen Magnedyne Corporation Delaware 100
Calzoni S.p.A. Italy 100
SEMCOM, a.s. Czech Republic 100
SMB s.r.o Czech Republic 100
SMB GmbH Germany 100
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-34707 and 2-90655) and Form S-8 (File Nos. 333-
21379, 333-21409, 333-41585, 333-64733 and 2-98020), of Kollmorgen Corporation
of our report dated January 22, 2000, except as to the information described in
Note 20 which is as of March 24, 2000, relating to the financial statements,
which appears in this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 29, 2000
<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, 1999,
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, 2000.
/s/ Jerald G. Fishman
-----------------------------------
Jerald G. Fishman
<PAGE>
EXHIBIT 24
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, 1999,
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, 2000.
/s/ Herbert L. Henkel
---------------------------------
Herbert L. Henkel
<PAGE>
EXHIBIT 24
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, 1999,
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, 2000.
/s/ James H. Kasschau
---------------------------------
James H. Kasschau
<PAGE>
EXHIBIT 24
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, 1999,
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, 2000.
/s/ J. Douglas Maxwell, Jr.
---------------------------------
J. Douglas Maxwell, Jr.
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned:
ROBERT N. PARKER 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, 1999,
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, 2000.
/s/ Robert N. Parker
---------------------------------
Robert N. Parker
<PAGE>
EXHIBIT 24
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, 1999,
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, 2000.
/s/ George P. Stephan
---------------------------------
George P. Stephan
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,170
<SECURITIES> 0
<RECEIVABLES> 56,139
<ALLOWANCES> 920
<INVENTORY> 30,008
<CURRENT-ASSETS> 104,998
<PP&E> 128,346
<DEPRECIATION> 93,986
<TOTAL-ASSETS> 216,361
<CURRENT-LIABILITIES> 77,869
<BONDS> 29,299
0
0
<COMMON> 26,955
<OTHER-SE> 30,027
<TOTAL-LIABILITY-AND-EQUITY> 216,361
<SALES> 234,498
<TOTAL-REVENUES> 253,945
<CGS> 165,333
<TOTAL-COSTS> 179,748
<OTHER-EXPENSES> 70,988
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,345
<INCOME-PRETAX> 1,763
<INCOME-TAX> 533
<INCOME-CONTINUING> 1,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,230
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.12
</TABLE>
