<PAGE>
IMO INDUSTRIES INC.
------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 18, 1995
------
To the Stockholders of Imo Industries Inc.:
The Annual Meeting of Stockholders of Imo Industries Inc. (the "Company")
will be held at 10 a.m., local time, on Thursday, May 18, 1995 at the
Princeton Marriott, Forrestal Village, 201 Village Boulevard, Princeton, New
Jersey, for the following purposes:
1. To elect two Class III directors, to serve until the expiration of
their three-year terms and until their successors are elected;
2. To consider and vote upon a proposal to amend the Company's Equity
Incentive Plan for Key Employees;
3. To consider and vote upon a proposal to approve the Company's 1995
Equity Incentive Plan for Outside Directors;
4. To consider and vote upon the election of Ernst & Young LLP as
auditors for the Company for its 1995 fiscal year; and
5. To consider such other matters as may properly come before the
Annual Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on March 24, 1995
as the record date for determining the stockholders entitled to notice of
and to vote at the Annual Meeting.
A copy of the Company's Annual Report for its fiscal year ended December
31, 1994 is being mailed to stockholders together with this Notice.
Whether or not you expect to attend the Annual Meeting in person, please
fill in, sign and return the enclosed form of proxy in the envelope
provided.
By Order of the Board of Directors,
/s/ THOMAS J. BIRD
-------------------------
THOMAS J. BIRD
Executive Vice President,
General Counsel and
Secretary
April 5, 1995
Lawrenceville, New Jersey
<PAGE>
IMO INDUSTRIES INC.
------
This Proxy Statement and the accompanying form of proxy, which are first
being mailed to stockholders on or about April 5, 1995, are furnished in
connection with the solicitation by the Board of Directors of Imo Industries
Inc. (the "Company") of proxies to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 10 a.m., local time, on
Thursday, May 18, 1995 and at any adjournment thereof, at the Princeton
Marriott, Forrestal Village, 201 Village Boulevard, Princeton, New Jersey.
The Company's principal executive offices are located at 1009 Lenox Drive,
Lawrenceville, New Jersey 08648.
Shares represented by proxies in the accompanying form, if properly signed
and returned, will be voted in accordance with the specifications made
thereon by the stockholders. Any proxy not specifying to the contrary will
be voted for the election of the nominees for directors named below and in
favor of the adoption of proposals 2, 3 and 4 referred to in the Notice of
Annual Meeting. A stockholder who signs and returns a proxy in the
accompanying form may revoke it at any time before it is voted by giving
written notice thereof to the Secretary of the Company.
As of the close of business on March 24, 1995, the Company had outstanding
17,025,193 shares of Common Stock, $1.00 par value. A majority of the
outstanding shares of Common Stock will constitute a quorum at the Annual
Meeting.
Only holders of Common Stock of record at the close of business on March
24, 1995 will be entitled to notice of and to vote at the Annual Meeting.
Each holder of shares of Common Stock will have the right to one vote for
each share standing in such holder's name on the books of the Company as of
the close of business on the record date.
If a stockholder is a participant in the Company's Employees Stock Savings
Plan and the accounts are registered in the same name, the proxy card will
also serve as voting instructions to the trustees of the plan as to the
voting of shares held in the plan. With respect to shares held in the plan
for which proxy cards are not returned, those shares will be voted by the
trustee in the same proportion as shares for which voting instructions have
been received.
The cost of solicitation of proxies in the accompanying form will be borne
by the Company, including expenses in connection with preparing and mailing
this Proxy Statement. Such solicitation will be made by mail and may also be
made on behalf of the Company by the Company's regular officers and
employees in person or by telephone or other means of communication.
Georgeson & Company Inc. has been retained by the Company to assist in the
solicitation of proxies at a fee, including expenses, of approximately
$12,500. The Company, upon request therefor, will reimburse brokers or
persons holding shares in their names or in the names of nominees for their
reasonable expenses in sending proxies and proxy material to beneficial
owners.
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 1, 1995, the amount and
percentage of the Company's Common Stock beneficially owned by each person
who is known to the Company to be the beneficial owner of more than 5% of
the Company's outstanding Common Stock.
<TABLE>
<CAPTION>
Shares Percentage of
Name and Beneficially Outstanding
Address Owned Common Stock
-------------- -------------
<S> <C> <C>
FMR Corp. ................................ 2,047,500(1) 12.1%
82 Devonshire Street .....................
Boston, MA 02109 .........................
The Prudential Insurance Company of
America ................................. 1,828,480(2) 10.6%
Prudential Plaza .........................
Newark, New Jersey 07102-3777 ............
State of Wisconsin Investment Board ...... 1,607,000 9.5%
P.O. Box 7842 ............................
Madison, Wisconsin 53707...................
C.S. McKee & Co. ......................... 1,138,050 6.7%
1 Gateway Center .........................
Pittsburgh, Pennsylvania 15222 ...........
</TABLE>
- ------
(1) As reported as beneficially owned by FMR Corp. as of December 31, 1994
in a filing made with the Securities and Exchange Commission.
(2) Of these shares, 200,000 shares are purchasable upon exercise of a
currently exercisable warrant.
OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the amount and percentage of the Company's
outstanding Common Stock beneficially owned on March 1, 1995 by each
director, nominee for director and executive officer named in the Summary
Compensation Table set forth below under "Executive Compensation" and by all
directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares Percentage of
Name of Individual Beneficially Outstanding
or Identity of Group Owned(1) Common Stock(2)
---------------
<S> <C> <C>
Donald K. Farrar .......................................... 216,770(3) 1.3%
James B. Edwards .......................................... 81,000(4) --
J. Spencer Gould. ......................................... 102,200(5) --
Richard J. Grosh .......................................... 80,856(6) --
Carter P. Thacher ......................................... 105,000(4) --
Donald C. Trauscht ........................................ -- --
Arthur E. Van Leuven ...................................... 46,000(7) --
William M. Brown .......................................... 24,145(8) --
John J. Carr .............................................. 62,417(9) --
Brian Lewis ............................................... 19,255(10) --
Gary E. Walker ............................................ 27,191(11) --
All directors and executive officers as a group (16
persons) ................................................. 847,927(12) 4.8%
</TABLE>
2
<PAGE>
- ------
(1) Information furnished by the directors and executive officers. Unless
otherwise indicated, such persons have sole voting and sole investment
power with respect to these shares.
(2) Less than 1% unless otherwise indicated.
(3) This total includes 70,000 shares owned by Mr. Farrar pursuant to
restricted stock awards under the Company's Equity Incentive Plan for
Key Employees and 1,770 shares owned by Mr. Farrar through the
Company's Employees Stock Savings Plan.
(4) This total includes 80,000 shares as to which the named individual
holds currently exercisable options to acquire under the Company's
Equity Incentive Plan for Outside Directors.
(5) This total includes 80,000 shares as to which Mr. Gould holds currently
exercisable options to acquire under the Company's Equity Incentive
Plan for Outside Directors. This total also includes 200 shares that
are held by Mr. Gould's wife, and Mr. Gould disclaims beneficial
ownership of these shares.
(6) This total includes 80,000 shares as to which Dr. Grosh holds currently
exercisable options to acquire under the Company's Equity Incentive
Plan for Outside Directors. This total also includes 400 shares that
are held by Dr. Grosh's wife, and Dr. Grosh disclaims beneficial
ownership of these shares.
(7) This total includes 40,000 shares as to which Mr. Van Leuven holds
currently exercisable options to acquire under the Company's Equity
Incentive Plan for Outside Directors and 6,000 shares held by a trust
of which Mr. Van Leuven is trustee and settlor.
(8) This total includes 15,286 shares as to which Mr. Brown holds currently
exercisable options to acquire under the Company's Equity Incentive
Plan for Key Employees and 3,859 shares owned by Mr. Brown through the
Company's Employees Stock Savings Plan.
(9) This total includes 46,250 shares as to which Mr. Carr holds currently
exercisable options to acquire under the Company's Equity Incentive
Plan for Key Employees and 4,067 shares owned by Mr. Carr through the
Company's Employees Stock Savings Plan.
(10) This total includes 18,255 shares as to which Mr. Lewis holds currently
exercisable options to acquire under the Company's Equity Incentive
Plan for Key Employees.
(11) This total includes 22,693 shares as to which Mr. Walker holds
currently exercisable options to acquire under the Company's Equity
Incentive Plan for Key Employees and 3,798 shares owned by Mr. Walker
through the Company's Employees Stock Savings Plan.
(12) This total includes the shares purchasable upon the exercise of the
options referred to in footnotes (4) through (11) above and an
additional 45,352 shares purchasable upon the exercise of options by
other executive officers included in this group.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than
10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and
Exchange Commission. Based solely on its review of the copies of such forms
received by it, and written representations from certain reporting persons
that no year-end reports on Forms 5 under Section 16(a) were required for
those persons, the Company believes that, during the period January 1, 1994
through December 31, 1994, all filing requirements applicable to its
officers and directors were complied with.
3
<PAGE>
ELECTION OF DIRECTORS
The Company's By-Laws provide that the directors of the Company shall be
divided into three classes, designated as Class I, Class II and Class III,
and that at each annual meeting of stockholders of the Company successors
to the class of directors whose term expires at that annual meeting will be
elected for a three-year term. The classes are staggered so that the term
of one class expires each year. The terms of the Class III directors expire
in 1995, and each third year thereafter; the terms of the Class I directors
expire in 1996 and each third year thereafter; and the terms of the Class II
directors expire in 1997 and each third year thereafter. Accordingly, the
Class III directors are to be elected at the Annual Meeting.
The number of directors constituting the entire Board of Directors is
determined by the vote of a majority of the members of the Board of
Directors and is currently fixed at seven members. Two Class III directors
are to be elected at the Annual Meeting. The Class III directors will serve
for a term of three years and until their successors have been duly elected.
The Board of Directors has nominated Donald K. Farrar and Donald C.
Trauscht for election as Class III directors, both of whom are incumbent
directors. All proxies will be voted for the election of these nominees
unless authority to vote for the election of a nominee is withheld. If any
nominee becomes unavailable for any reason, it is intended that the proxies
will be voted for a substitute nominee designated by the Board of Directors.
The Board of Directors has no reason to believe that either nominee will be
unable or unwilling to serve as a director if elected and does not intend to
nominate any person in addition to or in lieu of these nominees.
The two candidates for Class III directors receiving the highest number of
votes cast at the Annual Meeting will be elected. Stockholders are not
entitled to cumulate votes in the election of directors. Shares held by
brokers or nominees as to which instructions have not been received from the
beneficial owners or persons entitled to vote and as to which the broker or
nominee does not have discretionary voting power, i.e., broker non-votes,
and abstentions will not have any effect on the election of directors
inasmuch as they will not represent votes cast at the Annual Meeting for the
purpose of electing directors.
Under the Company's By-Laws, no stockholder may nominate a candidate for
election as a director unless information concerning such candidate
equivalent to the information contained herein about the Board of Directors'
nominees has been submitted to the Board of Directors at least 45 days
before the date of the meeting of stockholders for the election of directors
at which such nomination is proposed to be made. Any vacancy occurring on
the Board of Directors for any reason may be filled by a majority of the
directors then in office until the expiration of the term of the class of
directors in which the vacancy exists.
4
<PAGE>
The names of the nominees for Class III directors and the Class I and
Class II directors who will continue in office after the Annual Meeting
until the expiration of their respective terms, together with certain
information regarding them, are as follows:
<TABLE>
<CAPTION>
Principal Director Year Term
Name Age Occupation Since Will Expire
- -------------------- ----- ----------------------------------- ---------- -------------
<S> <C> <C> <C> <C>
Nominees for Class III Directors
Donald K. Farrar ... 56 Chairman of the Board of Directors, 1993 1998*
President and Chief Executive Officer
of the Company
Donald C. Trauscht . 61 Chairman and Chief Executive Officer 1995 1998*
of Borg-Warner Security Corporation
- ------
* If elected at the Annual Meeting.
Directors Continuing in Office
Class I Directors
J. Spencer Gould. .. 72 Retired; formerly Vice President, 1986 1996
Finance and Chief Financial Officer of
The Stanley Works
Richard J. Grosh ... 67 Independent consultant; formerly 1987 1996
Chairman and Chief Executive Officer
of Ranco, Inc.
Arthur E. Van Leuven 69 Retired; formerly Chairman and Chief 1990 1996
Executive Officer of Transamerica
Finance Group, Inc. and Executive
Vice President of Transamerica
Corporation
Class II Directors
James B. Edwards ... 67 President of the Medical University of 1986 1997
South Carolina
Carter P. Thacher .. 68 Chairman of Wilbur-Ellis Company 1986 1997
</TABLE>
Donald K. Farrar has served as the Chief Executive Officer and President
of the Company since September 1993 and as the Company's Chairman of the
Board since June 1994. From 1985 until December 1989, Mr. Farrar served as
Senior Executive Vice President, Operations and a director of Textron, Inc.
Prior thereto, he served in various positions, including President, Chief
Operating Officer and a director of the Avco Corporation group of companies
until its 1985 acquisition by Textron. From January 1990 until joining the
Company, Mr. Farrar was a private investor.
James B. Edwards is the President of the Medical University of South
Carolina located in Charleston, South Carolina. Prior to assuming this
position in November 1982, Dr. Edwards served as Governor of the State of
South Carolina from January 1975 through January 1979. From February 1979
through December 1981, Dr. Ed- wards was in private practice as a
maxiofacial surgeon. In January 1981, Dr. Edwards was named United States
Secretary of Energy and held that position until November 1982. Dr. Edwards
serves as a director of Wachovia Bank of South Carolina, Phillips Petroleum
Company, Brendle's Inc., SCANA Corporation, Encyclopaedia Britannica, Inc.,
WMX Technologies, Inc. and National Data Corporation.
5
<PAGE>
J. Spencer Gould is retired. From May 1982 to November 1987 Mr. Gould was
Vice President, Finance and Chief Financial Officer of The Stanley Works, a
manufacturer of tools, hardware and related products, based in New Britain,
Connecticut. From 1957 through April 1982, Mr. Gould was a senior partner
with Arthur Young & Company. Mr. Gould serves as a director of Arrow
Electronics, Inc.
Richard J. Grosh is an independent consultant. From 1976 to 1987 he
served as Chairman and Chief Executive Officer of Ranco, Inc., a
manufacturer of automated controls located in Columbus, Ohio.
Carter P. Thacher is the Chairman of Wilbur-Ellis Company, an
export/import company based in San Francisco, California, the principal
business of which is the domestic sale and distribution of agricultural
chemical products. Mr. Thacher has served in this position since January
1967, and from January 1967 to December 1988 he also served as Chief
Executive Officer.
Donald C. Trauscht was appointed a Class III director by the Board of
Directors effective April 1, 1995 to fill a vacancy. He is the Chairman,
Chief Executive Officer, a director and former President of Borg-Warner
Security Corporation. Mr. Trauscht has held various positions with Borg-
Warner Corporation since 1967, including Chairman and Chief Executive
Officer of Borg-Warner Corporation and other executive positions in finance,
strategy, business development and acquisitions. Prior to joining Borg-
Warner Corporation, he served as President of Langevin Company, a California
electronics manufacturer. Mr. Trauscht is also a director of Baker Hughes
Incorporated, Esco Electronics Corporation, Borg-Warner Automotive, Inc.,
Thiokol Corporation and Blue Bird Corporation.
Arthur E. Van Leuven is retired. From 1977 to 1990 Mr. Van Leuven served
as Chairman and Chief Executive Officer of Transamerica Finance Group, Inc.,
and from 1984 to 1990 he was additionally an Executive Vice President and a
director of Transamerica Corporation, an insurance and financial service
company based in San Francisco, California. From 1992 to 1993, Mr. Van
Leuven served as the Chairman and President of IGYS Sys- tems, Inc., located
in Los Alamitos, California.
During 1994, the Board of Directors held 13 meetings. None of the
directors attended fewer than 75% of the aggregate of the total number of
meetings of the Board of Directors plus the total number of meetings of all
committees of the Board of Directors on which he served that were held
during 1994.
DIRECTOR COMPENSATION
In addition to expenses of attendance, which are paid to all directors,
directors of the Company who are not also employees of the Company are
currently paid an annual retainer of $18,000 for their services, a fee of
$850 for each Board of Directors meeting attended, and a fee of $850 for
each committee meeting attended, except that directors who attend more than
one committee meeting in any one day are paid the fee for a single committee
meeting, and directors who attend Board or committee meetings by telephone
conference are entitled to receive $425 per meeting attended. Chairmen of
committees are paid an additional annual fee of $1,500. To reflect more
typical industry practice, commencing May 18, 1995, fees for attendance at
meetings of the Board of Directors will be increased from $850 to $1,000 per
meeting attended and from $425 to $500 per Board meeting attended by
telephone conference, and annual fees for chairmen of committees will be
increased from $1,500 to $2,000. Directors who are also employees of the
Company are not separately compensated for services rendered as directors.
During 1994, in addition to standard directors fees paid to non-employee
directors, the Company paid consulting fees to two former directors of the
Company, each of whom was previously an executive officer, for providing
consulting services to permit the Company to benefit during the time of
transition from such person's knowledge, expertise and services while an
active employee. William J. Holcombe, who retired as a director in July 1994
and as Chairman of the Board in June 1994, was paid $466,667 in consulting
6
<PAGE>
fees during 1994 pursuant to an agreement dated January 1, 1993 and amended
on July 19, 1994. This agreement expired on December 31, 1994. Stephen F.
Agocs, who retired as a director on December 31, 1994, was paid $30,000 in
consulting fees during 1994 pursuant to a consulting agreement that
terminated in April 1994.
Under the Company's Equity Incentive Plan for Outside Directors (the "1988
Director Plan"), each person who was an outside director prior to July 1,
1990 was granted an option to purchase 80,000 shares of the Company's Common
Stock, and each person who became an outside director after that date and
prior to March 23, 1995 was granted an option to purchase 40,000 shares. The
exercise price of each option granted under the 1988 Director Plan was equal
to 100% of the fair market value of a share of the Company's Common Stock on
a date five business days after the option was granted. Options for the
purchase of 80,000 shares of the Company's Common Stock have been granted to
four of the Company's outside directors at an exercise price of $16.1875 per
share, and options for the purchase of 40,000 shares of the Company's Common
Stock have been granted to another outside director at an exercise price of
$10.375 per share.
The Board of Directors proposes to replace the 1988 Director Plan with the
1995 Equity Incentive Plan for Outside Directors (the "1995 Director Plan").
Outside directors who join the Board after March 22, 1995 are not entitled
to receive stock options under the 1988 Director Plan. Options currently
outstanding under the 1988 Director Plan will continue in effect and may be
exercised in accordance with their respective terms.
If the 1995 Director Plan is approved by the stockholders at the Annual
Meeting, the compensation to be paid by the Company to its outside directors
will change. In lieu of receiving an annual cash retainer of $18,000, each
outside director will receive annual compensation consisting of a cash
retainer of $12,000, restricted stock awards of 1,000 shares of the
Company's Common Stock and non-qualified stock options exercisable for the
purchase of 4,000 shares of the Company's Common Stock. For additional
information, see "Approval of the 1995 Equity Incentive Plan for Outside
Directors."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has the following committees:
Audit Committee. The Audit Committee is comprised of not fewer than three
members of the Board of Directors, all of whom must be outside directors.
Its primary functions are to: (i) recommend the appointment of independent
auditors and review the fees charged by them; (ii) consult with independent
auditors with regard to the scope and timing of the annual audit; (iii)
review the audited financial statements, audit report and management letter;
(iv) consult with independent auditors and internal audit management with
regard to the adequacy of internal controls; (v) consult with Company
management regarding the performance and adequacy of the internal auditing
staff; and (vi) perform such collateral advisory and consulting services as
the Board of Directors may request or the Audit Committee deems appropriate
for the purpose of maintaining sound and adequate financial reporting and
auditing practices. The members of the Audit Committee are Mr. Gould,
Chairman, Mr. Thacher and Dr. Grosh. During 1994, the Audit Committee held
five meetings.
Compensation Committee. The Compensation Committee is comprised of not
fewer than three members of the Board of Directors, all of whom must be
outside directors. Its primary functions are to: (i) recommend and approve
compensation philosophy and guidelines for the Company's executive and
managerial group, including the Company's chief executive officer and chief
operating officer; (ii) approve an appropriate compensation level for the
chief executive officer and the chief operating officer based on personal
performance and responsibilities as well as compensation practices for like
executives in competitive industries and other industries, subject to final
approval of the Board of Directors; (iii) review and approve the chief
7
<PAGE>
executive's recommendations for the compensation of individuals in the
management group, subject to final approval of the Board of Directors; (iv)
perform all of the foregoing with respect to the adoption and implementation
of any bonus system or a stock option plan applicable to the executive and
managerial group; (v) review and advise the Board of Directors on management
succession planning; (vi) undertake studies with Company employees or outside
consultants to determine the competitiveness of Company benefit plans as to
content and cost; (vii) make recommendations to the Board of Directors and
management, as appropriate, as to amendments, discontinuations and initiations
of benefit plans; (viii) independently, or with the cooperation of the Audit
Committee, maintain an active level of knowledge as to the funding status of
the various pension plans of the Company as well as the performance of the
investment mediums for those plans; and (ix) perform such collateral advisory
and consulting services as the Board of Directors may request or the
Compensation Committee deems appropriate to its stated purposes. The members
of the Compensation Committee are Dr. Grosh, Co-Chairman, Mr. Thacher, Co-
Chairman, Dr. Edwards and Mr. Gould. During 1994, the Compensation Committee
held six meetings.
Executive Committee. The Executive Committee is comprised of not fewer than
three members of the Board of Directors, one of whom must be the Chairman of
the Board and the majority of whom must be outside directors. Its function is
to act on behalf of the full Board of Directors between Board meetings, and it
has commensurate authority to so act by majority vote. The Executive Committee
does not have the power to amend the Certificate of Incorporation, amend the
By-Laws, declare dividends, issue stock, or authorize or recommend to the
stockholders the merger or dissolution of the Company. Likewise, the Executive
Committee does not have the power to sell, lease or exchange all or
substantially all of the property and assets of the Company or to recommend
such action to the stockholders. The members of the Executive Committee are
Mr. Van Leuven, Chairman, Dr. Grosh and Mr. Farrar. During 1994, the Executive
Committee held no meetings.
Nominating Committee. The Nominating Committee is comprised of not fewer
than three members, one of whom shall be the Chairman of the Board. Its
primary functions are to: (i) recommend to the Board of Directors individuals
to fill Board vacancies; (ii) develop specifications and criteria for Board
membership; (iii) consider and advise the Board of Directors on matters
relating to the composition and organization of the Board of Directors,
including the formation, composition and function of committees of the Board;
and (iv) perform such collateral advisory and consulting services as the Board
of Directors may request or the Nominating Committee deems appropriate to its
stated purposes. The members of the Nominating Committee are Dr. Edwards,
Chairman, Mr. Thacher and Mr. Van Leuven. During 1994, the Nominating
Committee held two meetings.
The Board of Directors may from time to time by resolution create such
other committees for such purposes and with such powers and duties as the
Board of Directors prescribes by resolution.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors (the
"Committee") has furnished the following report on compensation with respect
to the executive officers of the Company, as defined under the rules of the
Securities and Exchange Commission.
The Committee is comprised of the non-employee directors of the Company
listed at the end of this report. No member of the Committee has any insider
or interlocking relationship with the Company, as these terms are defined
under rules of the Securities and Exchange Commission. The Committee is
responsible for developing and recommending the Company's executive
compensation principles, policies and programs to the Board of Directors. In
addition, the Committee recommends to the Board of Directors, on an annual
basis, the compensation to be paid to the Chief Executive Officer (the "CEO")
8
<PAGE>
other than compensation established pursuant to provisions of his employment
contract and, with advice from the CEO, to each of the other executive
officers of the Company, including the executive officers named below in the
Summary Compensation Table.
The Committee works with an outside compensation consultant and supports
its compensation decisions by analysis of published surveys and periodic
special studies.
COMPENSATION PHILOSOPHY
This report reflects the Company's compensation philosophy as adopted by
the Committee and endorsed by the Board of Directors. The Company's
compensation programs have been designed to support and reinforce its long-
term business strategy and link pay to stockholder value. The programs
provide executive officers and other key employees with the opportunity to
earn market competitive salaries and incentive compensation related to
performance expectations approved by the Board. The objectives of the
Company's executive compensation program, as developed by the Committee and
subject to periodic review, are to:
o Align compensation program design with the goals and key performance
measures and expectations of the Company and each business unit.
o Attract and retain high-quality executives with experience in the
Company's markets.
o Reward executives based on performance as measured by corporate and
business unit financial results, strategic achievements and individual
contributions.
o Align executives' interests with the long-term interests of
stockholders by enabling significant Company stock ownership.
The Company achieves these goals through a compensation strategy of
competitive salaries, annual incentive and stock ownership opportunities.
Section 162(m) of the Internal Revenue Code (the "Code") precludes tax
deductions for compensation paid in excess of $1 million to certain executive
officers unless specified conditions are met. Based on current pay levels and
the design of existing compensation plans, the Committee believes that any
tax deductions that may be lost by reason of Section 162(m) for such
compensation would not be material for the foreseeable future. As discussed
below, it is the Committee's intent to have the Company's Equity Incentive
Plan for Key Employees (the "Equity Incentive Plan") conform to Section
162(m) conditions that permit tax deductions.
PAY POSITIONING
The Committee's executive compensation program is designed to provide an
opportunity for compensation, through the three components described below,
that varies with performance relative to a peer group of 36 companies. The
peer group serves as the comparison group for pay and includes most of the
companies that are in the performance comparison reflected in the performance
graph shown below. Companies were selected for the peer group based on five
criteria, which are: (i) the company's stock is publicly traded, (ii) the
company operates with multiple lines of business, (iii) the company
manufactures engineered industrial products, (iv) the company operates
globally, with a mix of domestic and international businesses, and (v) the
company has overall revenues within a range of $200 million to $8 billion.
The pay levels determined from these 36 companies are adjusted to reflect the
Company's revenue size. Of the 36 companies in the peer group, nine are
included in the S&P Manufacturing (Diversified Industrials) Index, which is
reflected in the performance graph shown below. The Committee believes that
comparison to these pay and performance groups is appropriate. Competitive
levels of pay for purposes of compensation comparison are obtained from
compensation consultants.
9
<PAGE>
Total cash compensation (base salary plus annual incentive) is targeted
at the median of the peer group total cash compensation for comparable
executive position responsibilities and company and business unit size.
Total cash compensation is sufficiently variable so that performance that is
above targeted performance, as approved annually by the Board, will result
in pay that is above median levels of total cash compensation, and
performance that is below targeted levels will result in pay that is below
median levels of total cash compensation. Long-term incentive compensation
has been targeted to be comparable to the median of the peer group, after
adjustment for the Company's revenue size.
PAY MIX AND MEASUREMENT FOR EXECUTIVE OFFICERS
The compensation of executive officers of the Company includes: (i) base
salary, (ii) annual incentive cash bonuses ("Executive Incentive
Compensation"), and (iii) long-term incentive compensation in the form of
stock equity awards under the Equity Incentive Plan. In general, the
proportion of an executive's compensation that is Executive Incentive
Compensation increases with the level of responsibility of the officer.
Executive officers also receive various benefits, including life, medical
and disability insurance, and pension plans, similar to those generally
available to all employees of the Company.
BASE SALARIES
The Committee seeks to set base salaries for the Company's executive
officers at levels that are competitive with median levels for executives
with comparable roles and responsibilities, including revenue size, within
the peer group. The Company maintains an executive salary administration
program which uses external and internal comparisons to set salary grades
and ranges based on these median levels. Individual executive officer
salaries are reviewed annually by the Committee, which may approve increases
from time to time based on individual performance and positioning within the
salary range.
Base salary increases were granted during 1994 to certain executive
officers reporting to the CEO. Such increases, together with no increases to
other executive officers, resulted in actual salaries that are consistent
with the Company's pay level policy.
EXECUTIVE INCENTIVE COMPENSATION
The Committee administers an annual cash incentive program for executive
officers, as well as other management employees. Executive officers are
either corporate executives or group executives designated by the Company's
Board of Directors who are responsible for a significant business segment.
Each year the Committee recommends to the Company's Board of Directors an
individual and aggregate target cash bonus amount for executive officers
that reflects approximate median levels of the peer group companies. Actual
awards vary from each target bonus amount for executive officers based on
the financial performance of the Company and, for group executives, on the
financial and strategic performance of the group business segment, as
compared to goals established by the Committee and approved by the Board of
Directors. Awards also vary based on individual performance related to non-
financial performance objectives.
For 1994, an incentive award formula was established at the beginning of
the year by the Board of Directors, which was based on corporate net income
excluding extraordinary items and divestiture gains and losses. A threshold
performance level was established below which no incentive awards would be
paid, with the award pool increasing as net income exceeded the threshold.
Because 1994 was a recovery year for the Company, the amount that would be
generated by the formula was expected to result in below target awards for
the year. From the award pool generated, individual incentive awards were
approved for group executives based on group financial performance compared
to the business plan, improvements in revenue, earnings and return on
investment and achievement of other objectives. Those factors were
considered
10
<PAGE>
as a whole without assigning specific relative importance to any such
factors. Incentive awards for corporate executive officers were approved
based on individual performance. Actual awards approved for executive officers,
excluding the CEO, expressed as a percentage of target award, ranged from 44%
to 92%, with an average of 80% of target award.
EQUITY INCENTIVE PLAN
The Equity Incentive Plan authorizes the Committee to award stock options
(both non-qualified and incentive options), stock appreciation rights and
restricted stock or restricted stock unit awards to key executives.
Awards under the Equity Incentive Plan are designed to strengthen the
alignment of the long-term interests of the Company's executives with those of
its stockholders by directly linking executive pay to stockholder return.
Since the adoption of the Equity Incentive Plan, non-qualified options have
been granted from time to time, including during 1994, at not less than fair
market value or repriced to fair market value on the date of grant. Both the
size of such grants and the proportion relative to the total number of option
shares granted are a function of the recipient's level of responsibility
within the Company, stock option (and/or long-term incentive) grants provided
to comparable executives within the peer group companies and the judgment of
the Committee.
The average number of option shares granted to executive officers,
excluding the CEO, in 1994 was 14,000 shares.
CHIEF EXECUTIVE OFFICER COMPENSATION
The principles guiding compensation for the CEO are the same as those set
forth for other executive officers.
In 1994, the Committee engaged a consultant to determine the effect of the
Company's reduced-size restructuring on target salary and incentive
opportunity levels relative to the Company's pay positioning policy. At Mr.
Farrar's request, to bring his salary into alignment with the Company's pay
positioning policy and to base a higher portion of his total compensation on
long-term improvements in stockholder value, the following modifications were
made to Mr. Farrar's employment agreement: (i) his base salary decreased from
$500,000 to $450,000; (ii) he received a one-time award of 40,000 shares of
restricted stock that vests over a nine-year period; and (iii) he received a
one-time grant of stock options to purchase 50,000 shares of the Company's
Common Stock, which options also vest over a nine-year period. Mr. Farrar also
received incentive compensation for 1994 of $210,000, or 93% of target award,
reflecting overall corporate performance and the Board's assessment of
individual performance relative to restructuring and other corporate
objectives. As with other executive officers, no specific relative importance
was assigned to any one factor. In addition, consistent with the policy of
aligning executive pay opportunity with stockholder interests, Mr. Farrar
received a normal annual grant of 100,000 option shares.
Submitted by the Compensation
Committee of the Company's Board of
Directors:
Richard J. Grosh, Co-Chairman
Carter P. Thacher, Co-Chairman
James B. Edwards
J. Spencer Gould
11
<PAGE>
PERFORMANCE GRAPH
The following graph sets forth a comparison of five-year cumulative total
return among the Company, the S&P 500 Index, the S&P SmallCap 600 Index and
the S&P Manufacturing (Diversified Industrials) Index. The S&P SmallCap 600
Index is included in the performance graph for the first time inasmuch as
the Company is one of the constituent companies in this newly created index.
The comparison of total return on investment (change in year-end stock price
plus reinvested dividends) for each of the periods assumes that $100 was
invested on December 31, 1989 in each of the Company, the S&P 500 Index, the
S&P SmallCap 600 Index and the S&P Manufacturing (Diversified Industrials)
Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Among Imo Industries Inc.,
the S&P 500 Index, the S&P SmallCap 600 Index, and
the S&P Manufacturing (Diversified Industrials) Index
$250 |------------------------------------------------------------------|
| |
| |
| |
| |
200 |-------------------------------------------------------------*----|
| * |
| |
| |
| * & & |
150 |-------------------------------------------------#-----------#----|
| # |
| * & |
| # |
| & |
100 |----X----------&--------------------------------------------------|
| # X |
| * |
| X X |
| X |
50 |-------------------------------------X----------------------------|
| |
| |
| |
| |
0 |----|----------|---------|-----------|-----------|-----------|----|
1989 1990 1991 1992 1993 1994
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
* = S&P 600 100 90 134 162 192 202
& = S&P Manufacturing 100 99 122 132 160 165
# = S&P 500 100 97 126 136 150 152
X = Imo Industries Inc. 100 73 73 46 65 86
12
<PAGE>
The following table sets forth certain information with respect to
compensation paid or accrued by the Company during each of the three fiscal
years ended December 31, 1994, December 31, 1993 and December 31, 1992 to
the chief executive officer of the Company and the other four most highly
compensated executive officers of the Company who served in 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
----------- Awards -----------
Annual Compensation Securities
-------------------------- Restricted Stock Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Awards($) Options(#) Compensation($)(1)
- --------------------------- ------ ------------ ---------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Donald K. Farrar(2) ....... 1994 $450,000 $210,000 $390,000(3) 150,000 $ 9,000
Chairman, President and ... 1993 151,282 0 221,250(3) 150,000 390
Chief Executive Officer ...
John J. Carr .............. 1994 240,000 85,000 -- 25,000 6,480
Executive Vice President .. 1993 228,000(4) 22,000 -- 25,000 1,123
Pumps, Power Transmission & 1992 225,000 53,200 -- 0 4,596
Controls Group ............
William M. Brown(5) ....... 1994 230,000 85,000 -- 25,000 6,210
Executive Vice President .. 1993 218,500(4) 0 -- 39,570 51,076(7)
and Chief Financial Officer 1992 105,000 40,000 -- 30,000(6) 50,491(7)
Gary E. Walker(8) ......... 1994 216,667 70,000 -- 0 3,862
Executive Vice President .. 1993 190,000(4) 0 -- 22,693 624
Turbomachinery Group ...... 1992 172,500 0 -- 0 562
Brian Lewis(9) ............ 1994 198,900 70,000 -- 25,000 3,167
Executive Vice President .. 1993 185,250(4) 0 -- 37,005 2,947
Morse Controls (Worldwide) 1992 211,496 0 -- 0 3,367
</TABLE>
- ------
(1) For 1994, the amounts set forth in this column consist of life insurance
premiums paid by the Company on behalf of such persons.
(2) Mr. Farrar joined the Company as Chief Executive Officer and President in
September 1993. As an employee director, Mr. Farrar is not paid any
director fees in connection with his service as a member of the Board.
(3) Mr. Farrar's 1993 restricted stock award for 30,000 shares of Common
Stock has a performance-based acceleration-of-vesting feature designed
to align Mr. Farrar's interests with those of the stockholders. The
restrictions terminate in all events on September 13, 2003; however,
this restricted stock will vest prior to that date if the per share
price of the Company's Common Stock reaches at least $12 and remains at
or above that level for 30 consecutive days at any time during the
period September 13, 1998 through September 13, 2000. Mr. Farrar's 1994
restricted stock award for 40,000 shares vests as to 20% of the shares,
or 8,000 shares, on December 31, 1995, and in increments of 10% of the
shares, or 4,000 shares, each December 31 thereafter commencing December
31, 1996 and ending December 31, 2003, except that all shares covered by
such award will vest in any event on the first day of the month
preceding Mr. Farrar's 65th birthday (i.e., on May 1, 2003) if he
remains an employee of the Company or one of its affiliates until that
date. Any
13
<PAGE>
dividends paid on the shares of restricted stock during the respective
restriction periods will be paid to Mr. Farrar. As of December 31, 1994,
the 70,000 shares of restricted stock held by Mr. Farrar had a value of
$857,000 based upon the $12.25 closing price of the Company's Common
Stock on December 30, 1994.
(4) Salaries paid in 1993 to Messrs. Carr, Brown, Walker and Lewis reflect a
voluntary 10% salary reduction for six months as part of the Company's
cost reduction program.
(5) Mr. Brown joined the Company as Executive Vice President and Chief
Financial Officer in June 1992.
(6) The options granted in 1992 were terminated and replaced in 1993 with
repriced options. The repriced options are included in the 1993 share
amounts set forth in this column.
(7) These amounts include special payments made to Mr. Brown pursuant to his
employment agreement, including $50,000 upon entry into employment and
an additional $50,000 one year later.
(8) Mr. Walker's employment by the Company terminated on March 31, 1995.
(9) Mr. Lewis is paid by Imo Industries (UK) Limited, a United Kingdom
subsidiary of the Company, locally in pounds sterling, translated to
U.S. dollars in this table at an exchange rate of 1.53 for 1994, 1.49
for 1993 and 1.78 for 1992.
The following table sets forth information with respect to options granted
to the persons named in the Summary Compensation Table above during the
fiscal year ended December 31, 1994.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- -------------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options
Options Granted to Exercise or Grant Date
Granted Employees in Base Price Expiration Present
Name (#)(1) Fiscal Year ($/Sh) Date Value($)(2)
- ---------------- ------------ -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Donald K. Farrar 100,000 23.9% $9.75 11/25/04 $401,700
50,000(3) 11.9% 9.75 11/25/04 200,850
John J. Carr ... 25,000 6.0% 9.75 11/25/04 100,425
William M. Brown 25,000 6.0% 9.75 11/25/04 100,425
Gary E. Walker . 0 -- -- -- --
Brian Lewis .... 25,000 6.0% 9.75 11/25/04 100,425
</TABLE>
- ------
(1) Except as described in note (3) below, each option becomes exercisable in
increments of 25% of the shares underlying such options commencing on
the first, second, third and fourth anniversaries of the date of the
option grant. All unvested options will vest in full upon the
determination by the committee administering the Equity Incentive Plan
that a change in control of the Company has occurred or upon the
liquidation or dissolution of the Company.
(2) The Company hired an outside advisor to value its stock options based
upon the Black-Scholes model, a widely used and accepted formula for
valuing traded stock options. Under this model, the value of stock
options will increase directly with the appreciation of the per share
market price of the Company's Common Stock as stockholders' return on
investment increases. There is no gain to the executives, however, if
the per share market price of the Company's Common Stock does not
increase or
14
<PAGE>
declines. The following assumptions were used to calculate the Black-
Scholes value: a ten-year option term, 38.17% stock price volatility, 7.0%
risk-free rate of return, annual dividend yield of 3.0% and an exercise
price equal to stock price on the date of grant of $9.75. The advisor has
used the historical annual dividend yield and stock price volatility rate
as assumptions for the Black-Scholes model. These are not projections, and
therefore there is no guarantee that these assumptions will be the actual
annual dividend yield or stock price volatility rate over the next 10
years.
(3) These options become exercisable as follows: 20%, or 10,000 shares, first
become exercisable on December 31, 1995; thereafter, the options become
exercisable in increments of 10%, or 5,000 shares, each succeeding
December 31, commencing December 31, 1996 and ending December 31, 2003.
All unvested options will vest in full upon the determination by the
committee administering the Equity Incentive Plan that a change in control
of the Company has occurred or upon the liquidation or dissolution of the
Company.
The following table sets forth information with respect to options held at
December 31, 1994 by the persons named in the Summary Compensation Table
above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Value Underlying Unexercised In-the-Money Options
Acquired on Realized Options at FY-End(#) at FY-End($)(1)
-------------------------------- -------------------------------
Name Exercise (#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ------------- ---------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald K. Farrar 25,000 $34,375 0 275,000 $ 0 $984,375
John J. Carr .... 0 -- 46,250 43,750 240,469 153,906
William M. Brown 0 -- 15,286 49,284 74,519 180,885
Gary E. Walker .. 7,619 24,672 22,693 0 110,628 0
Brian Lewis ..... 0 -- 17,191 44,814 83,806 159,093
</TABLE>
- ------
(1) Represents the difference between the aggregate exercise price and the
aggregate market value as of December 31, 1994.
(2) Represents the difference between the aggregate exercise price and the
aggregate market value on the date of exercise.
EMPLOYMENT AGREEMENTS
Donald K. Farrar has an employment agreement with the Company for a term
that ends on August 31, 1995. The employment agreement originally provided
for an annual salary of not less than $500,000. Pursuant to the employment
agreement, in 1993 Mr. Farrar received grants of non-qualified options under
the Equity Incentive Plan for 100,000 shares and 50,000 shares, plus a
30,000 share restricted stock award under this plan. The vesting of the
50,000 and 30,000 share awards is subject to the attainment of a certain per
share price levels by the Company's Common Stock during defined periods. The
employment agreement was amended in 1994 to provide for an annual salary of
not less than $450,000. Pursuant to the amendment, in 1994 Mr. Farrar was
granted an option to purchase 50,000 shares of Common Stock of the Company,
vesting over a nine-year period, and was awarded 40,000 shares of restricted
stock, also vesting over a nine-year period. The employment agreement
further provides that if, during the term of the agreement, the Company
terminates Mr. Farrar's employment without good cause, the Company will be
obligated to pay Mr. Farrar a monthly sum equal to the highest monthly
salary rate paid to him under the agreement for the remaining term of the
agreement, but in no event for less than twelve months after termination.
15
<PAGE>
The Company has termination agreements with various executive officers of
the Company, including Messrs. Farrar, Carr, Brown and Lewis, in order to
reinforce and encourage the continued dedication and attention of such
persons to their assigned duties without distractions arising from a
potential change in control. The termination agreements are operative upon
the occurrence of a "change in control" of the Company, which would be
deemed to occur if (i) any person is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 35% or
more of the combined voting power of the Company's then outstanding
securities, (ii) individuals who constituted the Board of Directors of the
Company at the beginning of the term of such agreement, including any new
director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors
still in office who were directors at the beginning of the term of such
agreement or their successors cease, for any reason, to constitute a
majority thereof or (iii) more than 50% of the assets of the Company,
including the business for which such executive's services are principally
performed, are disposed of by the Company pursuant to a partial or complete
liquidation of the Company, a sale of assets or otherwise. As part of the
termination agreements, each executive has agreed that, subject to the terms
of his termination agreement, in the event of a "potential change in
control" of the Company the executive will remain in the employ of the
Company or its subsidiaries during the pendency of any such "potential
change in control" and for a period of one year after the occurrence of an
actual "change in control." A "potential change in control" would be deemed
to occur if (i) the Company enters into an agreement, the consummation of
which would result in a "change in control" of the Company, (ii) any person,
including the Company, publicly announces an intention to take or to
consider taking actions which if consummated would constitute a "change in
control" or (iii) the Board of Directors adopts a resolution to the effect
that a "potential change in control" has occurred. If an executive's
employment is terminated within three years of a change in control (i) by
the Company other than for cause, retirement or disability or (ii) by the
executive for "good reason," the executive will be entitled to a lump sum
payment equal to 2.99 times his average taxable compensation from
the Company during the five fiscal years of the Company immediately
preceding the change in control, as well as bonuses declared but not yet
paid, amounts in settlement of outstanding stock options, a lump sum payment
of certain retirement benefits and continuing life, disability, accident and
health insurance coverage for a three-year period after such termination.
"Good reason" is broadly defined in the agreements to include any change in
duties or responsibilities, reduction in compensation or benefits or
relocation. The agreements, however, provide that no amount is to be paid to
any person which would result in such a payment being subject to an excise
tax under the Code and being nondeductible by the Company for federal income
tax purposes. If the employment of all of the above-named executive officers
were to be terminated under circumstances requiring payments under such
agreements, such officers would currently be entitled to receive
approximately $3,642,220.
In May 1994, the Company entered into a severance agreement with Mr.
Walker to ensure Mr. Walker's continued employment by the Company's
Turbomachinery Group pending its contemplated sale by the Company. The
severance agreement provides that, if Mr. Walker's employment is terminated
within 12 months following the sale of the Company's Turbomachinery Group,
the Company would provide the following: (i) a monthly severance payment
equal to Mr. Walker's base salary for a period of up to 18 months, except
that any income received by him from other employment will reduce the amount
of the severance payments for the then remaining severance period, (ii) a
continuation of certain employee and executive benefits during the severance
period; and (iii) the acceleration of the vesting date for any unvested
stock options held by Mr. Walker as of the date of his termination of
employment. Mr. Walker was also eligible to receive a special divestiture
bonus upon completion of the sale of the Turbomachinery Group as an
incentive to stay with the Company and assist in successful completion of
the sale. Mr. Walker's employment terminated on March 31, 1995.
16
<PAGE>
PENSION PLANS
The following table shows the estimated maximum annual retirement benefits
payable to a covered participant under the Imo Industries Inc. U.S. Salaried
Plan (the "Salaried Plan") and under a non-qualified supplemental executive
retirement plan (the "Supplemental Plan"), which provides benefits that
would otherwise be denied to participants by reason of certain Code
limitations on qualified plan benefits, upon normal retirement at December
31, 1994 after selected periods of service (collectively referred to
hereinafter as the "Salaried Pension Plans"). Benefits were calculated
assuming participants and their spouses elect a straight-life annuity rather
than a joint and survivor or other form of annuity, in which case benefits
would generally be lower than shown in the table. Benefits are not subject
to any deduction for Social Security or other offset amounts.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Final Years of Service
Average ----------------------------------------------------------------------------
Earnings 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
- ------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 16,401 $ 24,602 $ 32,802 $ 41,003 $ 44,511 $ 48,019
150,000 25,401 38,102 50,802 63,503 69,011 74,519
200,000 34,401 51,602 68,802 86,003 93,511 101,019
250,000 43,401 65,102 86,802 108,503 118,011 127,519
300,000 52,401 78,602 104,802 131,003 142,511 154,019
350,000 61,401 92,102 122,802 153,503 167,011 180,519
400,000 70,401 105,602 140,802 176,003 191,511 207,019
450,000 79,401 119,102 158,802 198,503 216,011 233,519
500,000 88,401 132,602 176,802 221,003 240,511 260,019
550,000 97,401 146,102 194,802 243,503 265,011 286,519
600,000 106,401 159,602 212,802 266,003 289,511 313,019
700,000 124,401 186,602 248,802 311,003 338,511 366,019
800,000 142,401 213,602 284,802 356,003 387,511 419,019
900,000 160,401 240,602 320,802 401,003 436,511 472,019
1,000,000 178,401 267,602 356,802 446,003 485,511 525,019
1,100,000 196,401 294,602 392,802 491,003 534,511 578,019
</TABLE>
Final average earnings are based upon the highest five consecutive years
of compensation during the participant's last ten years of service. The
annual compensation taken into account under the Salaried Pension Plans is
the monthly salary in effect on January 1 of each year multiplied by 12 (or,
if fewer, the number of months of employment in that year), plus the amount
of any bonus earned during the previous year. This compensation differs from
the annual compensation set forth in the Summary Compensation Table, which
includes bonuses earned in the same salary year. With respect to the year
ended December 31, 1994, covered compensation under the Salaried Plan for
the persons named in the Summary Compensation Table did not differ by more
than 10% from their respective annual compensation shown in such table
except for the following persons: Mr. Farrar, $500,000; Mr. Brown, $230,000;
Mr. Carr, $262,000; and Mr. Walker, $200,000.
As of December 31, 1994, the persons named in the Summary Compensation
Table had the following years of benefit service as defined under the
Salaried Pension Plans: Mr. Farrar, 1.3 years; Mr. Brown, 2.4 years; Mr.
Carr, 27.1 years; and Mr. Walker, 6.3 years. Effective January 1, 1992, Mr.
Lewis was transferred to the Morse Controls Limited Pension and Life
Assurance Plan (the "Morse Controls Plan"), a United Kingdom pension plan.
17
<PAGE>
The Morse Controls Plan, to which both Imo Industries (UK) Limited and Mr.
Lewis contribute, provides a normal retirement pension of 1/45th of the
final average salary for each year of pensionable service. Based upon his
years of benefit service at December 31, 1994 of 22.9 years, Mr. Lewis's
estimated annual benefit under this plan together with vested benefits under
the Salaried Plan is $100,760 assuming translation of such amount from
pounds sterling into U.S. dollars at an exchange rate of 1.53.
While the Company was a wholly owned subsidiary of Transamerica
Corporation, the Company's employees participated in the Pension Plan for
Salaried U.S. Employees of Transamerica Corporation and Affiliates (the
"Transamerica Pension Plan"). The Transamerica Pension Plan provides that
employees of the Company will continue to vest in their benefits accrued
prior to December 31, 1986, as calculated under the Transamerica Pension
Plan, taking into account only benefit service credited and compensation
earned prior to December 31, 1986, and will continue to receive credit
toward the service requirement for subsidized early retirement benefits and
pre-retirement death benefits, based upon their service with the Company
after December 31, 1986. Accrued benefits under the Salaried Plan will be
offset by any vested benefits under the Transamerica Pension Plan.
The benefits shown in the Pension Plan Table do not reflect the applicable
limitations imposed by Sections 415 and 401(a)(17) of the Code. Benefits
payable pursuant to the Salaried Pension Plans are restricted in accordance
with the limitations of Sections 415 and 401(a)(17) of the Code; however,
the Company maintains the Supplemental Plan under which the Company makes
supplemental pension payments to employees whose benefits under the Salaried
Plan are reduced by the limitations imposed under Section 415 and 401(a)(17)
of the Code. The Company is responsible for all liabilities with respect to
supplemental benefit payments accrued by employees of the Company. In July
1991, the Company's Board of Directors approved the establishment of a
grantor trust (the "Trust") under Section 671 of the Code. The purpose of
the Trust is to meet the Company's obligations to pay benefits to those
entitled thereto under the Supplemental Plan. Pursuant to the terms of the
Trust, the Company will from time to time irrevocably transfer to the Trust
assets that will be held in the Trust, subject to the claims of the
Company's creditors, until paid to participants and beneficiaries of the
Supplemental Plan in accordance with the terms of the Supplemental Plan.
During fiscal 1994, the Company did not transfer any assets to the Trust.
AMENDMENT TO THE EQUITY INCENTIVE PLAN FOR KEY EMPLOYEES
The Board of Directors has determined to amend the Equity Incentive Plan,
subject to stockholder approval at the Annual Meeting, to: (i) increase the
total number of shares for which grants may be made to 3,050,000 shares, in
order to make additional shares available under the Equity Incentive Plan in
the future for key employees and (ii) limit the total number of shares that
may be subject to grants or awards to any individual employee on a
cumulative basis during the period that the Equity Incentive Plan is in
effect to no more than 90% of the shares available to be issued under the
Equity Incentive Plan in order to qualify grants and awards made under the
Equity Incentive Plan as performance-based compensation for purposes of
Section 162(m) of the Code. If the amendment is not approved by the
stockholders at the Annual Meeting, the Equity Incentive Plan will remain in
force as originally adopted.
The purpose of the Equity Incentive Plan is to attract and retain key
employees who demonstrate outstanding competence and upon whose judgment,
initiative and efforts the Company is largely dependent for the success and
growth of its business. The Equity Incentive Plan permits the granting of
options to purchase Common Stock of the Company ("Options"), including
Options intended to qualify as incentive stock options under Section 422 of
the Code ("Incentive Stock Options") and Options not intended to so qualify
("Non-Qualified Stock Options"), restricted stock awards or restricted unit
awards (collectively "Awards") and stock appreciation rights ("SARs") to key
employees of the Company and its affiliates.
18
<PAGE>
The total number of shares of the Company's Common Stock that may be the
subject of Options, Awards and SARs granted under the Equity Incentive Plan
may not currently exceed 2,200,000 shares in the aggregate. As of March 1,
1995: (i) Non-Qualified Stock Options to purchase an aggregate of 595,927
shares had been exercised, (ii) Non-Qualified Stock Options for the purchase
of an aggregate of 1,461,959 shares were outstanding, and (iii) Restricted
Stock Awards for an aggregate of 70,000 shares were outstanding. No
Incentive Stock Options or SARs have been granted under the Equity Incentive
Plan. Therefore, a total of only 72,114 shares of Common Stock are currently
available for grants under the Equity Incentive Plan.
The amendment will increase the number of shares currently available for
grants and awards under the Equity Incentive Plan in furtherance of the
purposes of the plan for the next several years. No determination has been
made as to the allocation of grants with respect to the additional shares to
specific employees. The Company believes that the additional shares will be
required to satisfy anticipated annual stock option grants over the next
four to five years.
The number of persons who are currently eligible to participate in the
Equity Incentive Plan is approximately 40 persons, including executive
officers of the Company. Through March 1, 1995 Non-Qualified Stock Options
to purchase shares of the Company's Common Stock have been received as
follows:
Mr. Farrar, 300,000 shares, of which 25,000 shares have been exercised; Mr.
Carr, 130,000 shares, of which 40,000 shares have been exercised; Mr. Brown,
64,570 shares; Mr. Walker, 30,312 shares, of which 7,619 shares have been
exercised; Mr. Lewis, 62,005 shares; all current executive officers as a
group, 735,466 shares, of which 72,619 shares have been exercised; and all
employees, excluding executive officers, as a group, 1,322,420 shares, of
which 523,308 shares have been exercised. Mr. Farrar has received options to
purchase more than 5% of the shares available under the Equity Incentive
Plan, as amended. Mr. Farrar has also been awarded 70,000 shares of
restricted stock through March 1, 1995.
The closing price per share of the Company's Common Stock on March 24,
1995, as reported on the New York Stock Exchange, was $6.75.
If an Option or Award expires or is cancelled for any reason without
having been fully exercised or vested, the number of shares or restricted
units subject to such Option or Award that had not been purchased or become
vested may again be made subject to an Option or Award under the Equity
Incentive Plan. Appropriate adjustments in outstanding Options, Awards or
SARs and in the number or kind of shares or units subject to the Equity
Incentive Plan are provided for in the event of a stock split, stock
dividend, share combination or spin-off and certain other types of corporate
transactions involving the Company, including mergers, consolidations,
reorganizations and recapitalizations.
The Equity Incentive Plan is administered by the Compensation Committee,
which currently consists of four directors of the Company, none of whom is
eligible to receive Options, SARs or Awards under the Equity Incentive Plan
and who qualify as outside directors for purposes of Section 162(m) of the
Code. The Compensation Committee is authorized to select from among the
eligible employees those individuals who are key employees and those to whom
Options, SARs and Awards are to be granted and to determine the number of
shares or units to be subject to and the terms and conditions of the
Options, SARs or Awards. The Compensation Committee is also authorized to
adopt, amend and rescind rules relating to the administration of the Equity
Incentive Plan and to the interpretation of Options, SARs and Awards.
INCENTIVE AND NON-QUALIFIED OPTIONS
In consideration of the grant of an Option, the optionee must agree to
remain in the employ of the Company or an affiliate for at least one year
after the Option is granted. However, such agreement will not restrict the
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Company's right to terminate such employment at any time. The price of the
shares subject to Options will be set by the Compensation Committee but
may not be less than 100% of the fair market value of such shares on the
date the Option is granted as determined by the Compensation Committee.
Unless otherwise provided in the option agreement or as may be otherwise
determined by the Compensation Committee, an Option may not be exercised
during the first year after its grant. Thereafter, Options will become
exercisable in such installments, which may be cumulative, as the
Compensation Committee may deter- mine. The Compensation Committee may
accelerate the exercisability of any installments and may provide that some
or all installments will become immediately exercisable in certain
circumstances. Unless the Compensation Committee accelerates exercisability,
no Option that is unexercisable at the time an optionee's employment
terminates may thereafter become exercisable. Except in certain limited
circumstances, no Option may be exercised after ten years from the date of
grant.
An outstanding Non-Qualified Option that has become exercisable generally
terminates three years after the termination of employment due to retirement
or total disability, one year after death and three months after employment
termination for any reason other than retirement, total disability or death.
Incentive Stock Options that have become exercisable generally will
terminate one year after termination of employment due to total disability
or death and three months after an employment termination for any other
reason. No Option may be assigned or transferred, except by will or by the
applicable laws of descent and distribution. During the lifetime of the
optionee, the Option may be exercised only by the optionee.
The Equity Incentive Plan authorizes the Compensation Committee to grant
to the optionee, in exchange for the surrender and cancellation of such
Options, new Options having option prices lower or higher than the option
price provided in the surrendered Options, and containing such other terms
and conditions as the Compensation Committee may deem appropriate.
The Compensation Committee will determine whether Options granted are to
be Incentive Stock Options meeting the requirements of Section 422 of the
Code. Incentive Stock Options may be granted only to eligible employees of
the Company and its subsidiaries. Any such optionee must own less than 10%
of the outstanding voting securities of the Company or of any of its
subsidiaries and may not receive Incentive Stock Options for shares that
first become exercisable in any calendar year with an aggregate fair market
value determined at the date of grant in excess of $100,000. In no event may
an Incentive Stock Option be exercised after ten years from the date of
grant. The Compensation Committee does not currently intend to grant
Incentive Stock Options under the Equity Incentive Plan.
The option price must be paid in full at the time of exercise unless
otherwise determined by the Compensation Committee. Payment must be made in
cash or, in the discretion of the Compensation Committee, by delivery of
shares of the Company's Common Stock valued at their then fair market value
or a combination of cash and stock. It is the policy of the Compensation
Committee that any taxes required to be withheld must also be paid at the
time of exercise. During 1994, the Compensation Committee authorized the
Company to establish a Simultaneous Exercise and Sale of Options program
through its transfer agent. Pursuant to this program, an optionee may sell
all or a portion of the exercised option shares and simultaneously pay to
the Company the exercise price of the option and required tax withholding
amounts.
Subject to provisions under Section 16(b) of the Exchange Act with
respect to executive officers, the Compensation Committee may, in lieu of
delivering all or a portion of the shares as to which an Option has been
exercised, elect to pay the optionee an amount equal to the "appreciation
value," which
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is the difference between the option price for the shares as to which such
election is made and the fair market value of such shares on the date the
Option was exercised. The appreciation value may be paid in cash or in shares
of the Company's Common Stock or a combination there-of. The Compensation
Committee does not currently intend to make "appreciation payments" as
described herein.
In the case of a Non-Qualified Stock Option, the Compensation Committee
may, in lieu of delivering shares or paying the optionee the appreciation
value, elect to defer payment and credit the amount of such appreciation value
to the account of the optionee on the Company's books and either to treat the
amount in such account as if it had been invested in the manner from time to
time determined by the Compensation Committee or, for the Company's
convenience, to contribute the amount in such account to a trust
that invests for the accounts of participants in a manner determined by the
Compensation Committee. The Compensation Committee currently does not intend
to credit optionees and invest such amounts as described herein.
RESTRICTED STOCK AWARDS
The Equity Incentive Plan permits the grant of Restricted Stock Awards,
which are restricted Common Stock bonuses that vest in accordance with the
Equity Incentive Plan. Shares awarded as Restricted Stock Awards will be
issued in the name of the grantee and will be delivered to the grantee, or
an escrow holder, if any, as soon as reasonably practicable after the Award
is made and after the grantee has executed an award agreement and any other
documents that the Compensation Committee in its discretion may require,
without the payment of any cash consideration by the grantee. Upon delivery,
the grantee, or escrow holder, if any, will have all the rights of a
stockholder with respect to such shares, including the right to vote the
shares and receive dividends and other distributions with respect to the
shares. Such shares may not be sold, transferred, otherwise disposed of or
pledged until they become vested. Upon termination of the grantee's
employment, all such shares that are not then vested will automatically be
forfeited and transferred to the Company at no cost to the Company. The
Compensation Committee may also impose other restrictions and conditions on
the shares.
RESTRICTED UNIT AWARDS
The Equity Incentive Plan permits the grant of Restricted Unit Awards,
which are bonuses credited to the grantee's account and payable, at the
Compensation Committee's discretion, in cash or the Company's Common Stock
or a combination thereof. No shares will actually be issued to the grantee
at the time a Restricted Unit Award is made. Rather, the Company will
establish a separate account for each grantee and record in such account the
number of such units awarded to the grantee. When the Company pays a cash
dividend on its Common Stock, an amount will be credited to each such
account equal to the cash dividend paid on one share of Common Stock for
each unit then in the account (the "Dividend Equivalents").
Each Restricted Unit Award agreement will specify a date or dates on which
payment of the value of vested units and Dividend Equivalents is to be made
with respect to such units in the grantee's account. As soon as reasonably
practicable after the payment date, the Company will deliver to the grantee
one share of the Company's Common Stock for each vested unit then credited
to the grantee's account and cash equal to the vested Dividend Equivalents
so credited. The Compensation Committee may, however, in its discretion,
elect to pay the grantee cash in lieu of delivering all or part of such
Common Stock. If a cash payment is made, the amount of such cash payment
will, in respect to each vested unit for which such cash payment is made, be
equal to the fair market value of a share of Common Stock on the payment
date. The terms of a Restricted Unit Award may allow the grantee to request,
and the Compensation Committee may permit, deferral of payment of vested
units and Dividend Equivalents, in which case the Compensation Committee may
determine to credit interest annually on Dividend Equivalents. No Restricted
Unit Awards have been granted under the Equity Incentive Plan.
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VESTING OF AWARDS
Shares awarded as Restricted Stock Awards and units awarded as Restricted
Unit Awards, including Dividend Equivalents, will vest at such time or times
and on such terms, conditions and performance criteria as the Compensation
Committee may determine. However, such shares or units may vest no earlier
than twelve months after the date of award and only if, on the date of the
vesting, the grantee is then and has continuously been an employee of the
Company or an affiliate from the date of award. The Compensation Committee,
in its discretion, may determine that in the event of the grantee's death or
total disability while an employee, the unvested portion of all shares or
units awarded to the grantee, including Dividend Equivalents, will thereupon
immediately vest. The Compensation Committee may also accelerate the
vesting of shares or units, including Dividend Equivalents, in its
discretion and on such terms or conditions as it deems appropriate, and may
provide that some or all invested shares and units will immediately vest and
be payable in the event of a change in control of the Company.
STOCK APPRECIATION RIGHTS
SARs may be granted by the Compensation Committee under the Equity
Incentive Plan in connection with an Option, either at the time of grant or
by amendment to the related option agreement. Each SAR will be subject to
the same terms and conditions as the related Option and to such additional
conditions as the Compensation Committee may determine. SARs are
exercisable only to the extent the Option is exercisable and will become
nonexercisable and be forfeited if and to the extent the related Option is
exercised or becomes unexercisable.
A SAR entitles the optionee to surrender to the Company unexercised the
related Option, or any portion thereof, and to receive from the Company in
exchange therefor a cash payment and/or Common Stock of the Company equal to
the appreciation value of the number of shares called for by the Option, or
portion thereof, which is surrendered. Payments to be made upon the exercise
of a SAR may, in the Compensation Committee's discretion, be in cash, in
shares of the Company's Common Stock or partly in cash and partly in shares.
Cash will always be paid in lieu of fractional shares, if any.
The Compensation Committee may determine when SARs will be exercisable,
provided that a SAR will not be exercisable prior to the time the related
Option could be exercised and, except in the event of death or total
disability, will not be exercisable for a period of six months from the date
of grant of such SAR. A SAR may be exercised in whole or in part only upon
surrender of a proportionate part of the related Option by the optionee. The
Compensation Committee has not granted any SARs under the Equity Incentive
Plan.
AMENDMENT AND TERMINATION
The Equity Incentive Plan is not limited in duration, except that no
Incentive Stock Option may be granted under the Equity Incentive Plan after
October 14, 1996. Without stockholder approval, no amendments may be made to
the Equity Incentive Plan to extend this date, to increase the limit on the
aggregate number of shares or units subject to the Equity Incentive Plan,
except to reflect adjustments in capitalization as described herein, to
extend the term of an Option beyond ten years from the date of its grant or
otherwise to increase materially the benefits accruing to participants under
the Equity Incentive Plan. In all other respects, the Equity Incentive Plan
can be amended, modified, suspended or terminated by the Board of Directors
of the Company or the Compensation Committee.
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FEDERAL INCOME TAX CONSEQUENCES
The Equity Incentive Plan is not qualified under Section 401(a) of the
Code. The following description, which is based on existing laws, sets forth
generally certain of the federal income tax consequences of Options and
Awards under the Equity Incentive Plan. This description may differ from the
actual tax consequences of participation in the Equity Incentive Plan.
An employee receiving an Option will not recognize income for federal
income tax purposes upon the grant of the Option, nor will the Company be
entitled to any deduction on account of such grant. In the case of Non-
Qualified Stock Options, the optionee will recognize ordinary taxable income
for federal income tax purposes upon the exercise of the Non-Qualified Stock
Option in an amount equal to the difference between the option price and the
fair market value of the shares on the date of exercise. When the optionee
disposes of the shares acquired upon exercise of the option, the employee
will generally recognize capital gain or loss equal to the difference
between (i) the selling price of the shares and (ii) the sum of the option
price and the amount included in the employee's income when the Option was
exercised. Such gain will be long-term or short-term depending upon whether
the shares were held for more or less than one year after the date of
exercise.
Incentive Stock Options granted under the Equity Incentive Plan are
intended to qualify as incentive stock options under Section 422 of the
Code. A purchase of shares upon exercise of an Incentive Stock Option will
not result in recognition of income at that time. However, the excess of the
fair market value of the shares purchased over the exercise price will
constitute an item of tax preference. This tax preference will be included
in the optionee's computation of his alternative minimum tax.
If the optionee does not dispose of the shares issued to him upon the
exercise of an Incentive Stock Option within one year of such issuance or
within two years from the date of the grant of such Option, whichever is
later, then any gain or loss realized by the optionee on a later sale or
exchange of such shares generally will be a long-term capital gain or long-
term capital loss. If the optionee sells the shares during such period, the
sale will be referred to as a "disqualifying disposition." In that event,
the optionee will recognize ordinary income for the year in which the
disqualifying disposition occurs equal to the amount, if any, by which the
lesser of the fair market value of such shares on the date of exercise of
such Option or the amount realized from the sale exceeded the amount the
optionee paid for such shares. Any additional gain realized generally will
be capital gain, which will be long-term or short-term depending on the
holding period for the shares. If the optionee disposes of the shares by
gift during such period, the transfer will be treated as a disqualifyng
disposition subject to the rules described herein.
If the purchase price upon exercise of an Option is paid with shares
already owned by the optionee, generally no gain or loss will be recognized
with respect to the shares used for payment and the additional shares
received will be taxed as described herein. However, if payment of the
purchase price upon exercise of an In- centive Stock Option is made with
shares acquired upon exercise of an Incentive Stock Option before the shares
used for payment have been held for the two-year or one-year period
described herein, use of such shares as payment will be treated as a
"disqualifying disposition" of the shares used for payment subject to the
rules described herein.
If, on exercise of an Option, the Compensation Committee elects to pay the
appreciation value in cash or stock in lieu of delivering shares pursuant to
such exercise, the optionee would also recognize ordinary income equal to
the amount of cash and/or the fair market value of the shares paid to such
optionee as the appreciation value.
No taxable income is recognized upon receipt of a SAR. If a SAR is
exercised and cash is received, the employee will recognize ordinary income
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equal to the cash received. However, when an employee receives shares upon
exercise of a SAR, the employee will recognize ordinary income equal to the
fair market value of the shares on the date such shares are received. When the
shares are sold, the employee will recognize capital gain or loss equal to the
difference between (i) the selling price of the shares and (ii) the amount
included in the employee's income when the SAR was exercised. Depending upon
the length of time the employee held the shares after the date the shares were
issued to him, the gain or loss will be long-term or short-term.
An employee receiving a Restricted Stock Award will not have taxable income
upon receipt of the restricted stock but will generally recognize ordinary
income when the shares are no longer subject to forfeiture upon termination of
employment, except that the employee may elect under Section 83(b) of the Code
within 30 days after grant to recognize ordinary income for federal income tax
purposes at the time the Award is received. In the event a Section 83(b)
election is made, however, no deduction will be allowed if the shares are
later forfeited upon termination of employment. The amount of such ordinary
income will be the fair market value of the shares at the time the income is
recognized.
An employee receiving a Restricted Unit Award should not have taxable
income when the units or the Dividend Equivalents are credited to his account.
Instead, the employee generally would recognize ordinary income equal to the
fair market value of the shares on the payment date, or the amount of cash if
the Compensa- tion Committee elects a cash payment, including the value of the
Dividend Equivalents credited to the employee's account when the shares and/or
cash are delivered or paid in accordance with the terms of the award
agreement.
Any gain or loss recognized upon the sale of shares acquired pursuant to
an Award will generally be treated as capital gain or loss and will be long-
term or short-term depending upon the holding period of the shares. Under
current law, any gain realized by an employee other than long-term capital
gain is taxable at a maximum federal income tax rate of 39.6%. Long-term
capital gain is taxable at a maximum federal income tax rate of 28%.
The Company will be entitled to a tax deduction in connection with an
Option, Award or SAR under the Equity Incentive Plan only in an amount equal
to the ordinary income realized by the optionee and at the time such optionee
recognizes such income, provided that applicable tax withholding requirements
are met.
VOTE REQUIRED
Approval of the amendment to the Equity Incentive Plan will require the
affirmative vote of the holders of a majority of the outstanding shares of the
Company's Common Stock present in person or represented by proxy at the Annual
Meeting and entitled to vote. Abstentions are considered shares of stock
present in person or represented by proxy at the meeting and entitled to vote
and are counted in determining the number of votes necessary for a majority.
An abstention will therefore have the practical effect of voting against
approval of the amendment because it represents one fewer vote for approval of
the amendment. Broker non-votes are not considered shares present in person or
represented by proxy and entitled to vote on the amendment and will have no
effect on the vote. The Board of Directors recommends a vote FOR the approval
of the amendment to the Equity Incentive Plan.
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APPROVAL OF THE 1995 EQUITY INCENTIVE PLAN
FOR OUTSIDE DIRECTORS
DESCRIPTION OF 1995 DIRECTOR PLAN
The Board of Directors of the Company adopted the 1995 Director Plan on
March 23, 1995, subject to the approval of the stockholders at the Annual
Meeting. The purpose of the 1995 Director Plan is to assist the Company in
attracting and retaining highly qualified outside directors, to compensate
them for their services to the Company and, in so doing, to strengthen the
alignment of the interests of the outside directors with the interests of
the stockholders by ensuring ongoing ownership of the Company's Common
Stock. An outside director is a director of the Company who is not an
employee of the Company or of any of its affiliates.
The 1995 Director Plan provides for: (i) the grant to each outside
director of a restricted stock award of 1,000 shares of Common Stock
annually commencing July 1, 1995, to be issued in four installments of 250
shares each on the first business day of each calendar quarter with respect
to services rendered during the previous calendar quarter, provided the
outside director served as a member of the Board during the preceding
calendar quarter, and (ii) an annual grant of a non-qualified stock option
to purchase 4,000 shares of the Company's Common Stock on the first business
day after the conclusion of the Company's annual meeting of stockholders,
but in no event later than July 1 of such year. A person who is elected or
appointed an outside director after the first business day after the
conclusion of the Company's annual meeting of stockholders but on or before
December 31 of such year will, on the business day following such director's
election or appointment, be granted an option to purchase 4,000 shares of
Common Stock under the 1995 Director Plan. Awards of restricted stock and
grants of options are made automatically, and no action by the Board of
Directors will be required. The total number of shares of the Company's
Common Stock that may be the subject of grants under the 1995 Director Plan
may not exceed 240,000 shares in the aggregate.
No options or restricted stock awards have as yet been granted under the
1995 Director Plan. The total number of shares to be allocated under the
1995 Director Plan in 1995 to the six current directors who are not
executive officers of the Company is 27,000 shares, consisting of the
issuance of 500 shares to each outside director in partial payment of such
director's annual retainer fee and options to purchase 4,000 shares to be
granted to each outside director. The issuance of such restricted stock
awards and stock options is subject to approval of the 1995 Director Plan by
the stockholders of the Company.
The closing price per share of the Company's Common Stock on March 24,
1995, as reported on the New York Stock Exchange was $6.75.
If an option expires or is cancelled for any reason without having been
fully exercised or vested, the number of shares subject to such option that
had not been purchased or become vested may again be made subject to an
option under the 1995 Director Plan. Appropriate adjustments in outstanding
options and in the number or kind of shares subject to the 1995 Director
Plan are provided for in the event of a stock split, stock dividend, share
combination, spin-off and certain other types of corporate transactions
involving the Company, including mergers, consolidations, reorganizations
and recapitalizations.
The 1995 Director Plan is administered by the Board of Directors. The
Board has the power to interpret and to adopt rules for the administration,
interpretation and application of the 1995 Director Plan. The Board does not
have any discretion to determine who will be granted options and restricted
stock awards under the 1995 Director Plan, to determine the number of
options or restricted stock awards to be granted to each outside director or
to determine the timing of such grants.
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Without stockholder approval, no amendments may be made to the 1995
Director Plan to increase the limit on the total number of shares subject to
the 1995 Director Plan, except to reflect adjustments in capitalization as
described herein, to extend the term of an option beyond the maximum period
permitted by the 1995 Director Plan or otherwise to increase materially the
benefits accruing to participants under the 1995 Director Plan. In all other
respects, the 1995 Director Plan can be amended, modified, suspended or
terminated by the Board of Directors of the Company.
RESTRICTED STOCK AWARDS
Restricted stock awards consist of shares of Common Stock that are issued
in the name of the outside director but that are held in escrow by the
Company until the director retires or otherwise terminates his service as a
member of the Board of Directors. Upon the issuance of shares under a
restricted stock award, the outside director will have all rights of a
stockholder with respect to such shares, including the right to vote the
shares and receive dividends and distributions with respect to the shares,
except that such shares may not be sold, transferred or otherwise disposed
of until the outside director retires or otherwise terminates his service as
a member of the Company's Board of Directors.
NON-QUALIFIED STOCK OPTIONS
The exercise price of each option granted under the 1995 Director Plan
will be 100% of the fair market value of a share of the Company's Common
Stock on the date that the option is granted.
No option granted under the 1995 Director Plan may be exercised during the
first year after its grant; thereafter, options will become exercisable
cumulatively in four equal installments on the first, second, third and
fourth anniversaries of the date of grant. No option that is not exercisable
at the time an optionee ceases to be an outside director of the Company may
thereafter become exercisable, except that options will vest in full upon an
outside director's retirement from the Board after attaining the age of 72
years. In general, no option may be exercised after ten years from the date
of grant. The 1995 Director Plan provides that the Board will make
appropriate and equitable adjustments in the number and kind of shares that
may be issued on the exercise of options to maintain optionees'
proportionate interest in the event of a reorganization, merger,
consolidation, recapitalization, reclassification, stock split, stock
dividend, spin-off or combination of shares. Such adjustment to an
outstanding option will be made without change in the total price applicable
to the option or the unexercised portion hereof.
Upon the occurrence of a change in control of the Company, all
outstanding options will become immediately exercisable. The 1995 Director
Plan defines a change in control to mean a change in the power to direct or
cause the direction of management and policies of the Company arising from
any person becoming the beneficial owner of 35% or more of the combined
voting power of the Company's then outstanding securities or from the
disposition of more than 50% of the Company's assets.
An outstanding option that has become exercisable generally terminates
three years after an optionee ceases to be an outside director. No option
may be assigned or transferred, except by will or by the applicable laws of
descent and distribution. During the lifetime of the optionee, an option may
be exercised only by the optionee. The option price must be paid in full in
cash at the time of exercise.
FEDERAL INCOME TAX CONSEQUENCES
The 1995 Director Plan is not qualified under Section 401(a) of the Code.
The following description, which is based on existing laws, sets forth
generally certain of the federal income tax consequences of options and
restricted stock awards granted under the 1995 Director Plan. This
description may differ from the actual tax consequences of participation in
the 1995 Director Plan.
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An optionee will not recognize income for federal income tax purposes upon
the receipt of the option, nor will the Company be entitled to any deduction
on account of such grant. Such optionee will recognize ordinary taxable
income for federal income tax purposes at the time of exercise in the amount
by which the fair market value of such shares then exceeds the option price.
When the optionee disposes of the shares acquired upon exercise of the
option, the optionee will generally recognize capital gain or loss equal to
the difference between (i) the amount received upon disposition of the
shares, and (ii) the sum of the option price and the amount included in the
optionee's income when the option was exercised. Such gain will be long term
or short term depending upon whether the shares were held for more or less
than one year after the date of exercise.
Upon receipt of shares of restricted stock, a director will recognize
ordinary income for federal income tax purposes. Any gain or loss recognized
upon the sale of the shares will generally be treated as capital gain or
loss and will be long-term or short-term depending upon the holding period
of the shares.
Under current law, any gain realized by a director other than long-term
capital gain is taxable at a maximum federal income tax rate of 39.6%. Long-
term capital gain is taxable at a maximum federal income tax rate of 28%.
The Company will be entitled to a tax deduction in connection with an
option or restricted stock award under the 1995 Director Plan only in an
amount equal to the ordinary income realized by the optionee and at the time
such optionee recognizes such income, provided that applicable tax
withholding requirements are met.
VOTE REQUIRED
Approval of the 1995 Director Plan will require the affirmative vote of
the holders of a majority of the outstanding shares of the Company's Common
Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote. Abstentions are considered shares of stock present in
person or represented by proxy at the meeting and entitled to vote and are
counted in determining the number of votes necessary for a majority. An
abstention will therefore have the practical effect of voting against
approval of the 1995 Director Plan because it represents one fewer vote for
approval of the plan. Broker non-votes are not considered shares present in
person or represented by proxy and entitled to vote on the 1995 Director
Plan and will have no effect on the vote. The Board of Directors recommends
that the stockholders vote FOR the approval of the 1995 Director Plan.
ELECTION OF INDEPENDENT AUDITORS
Unless instructed to the contrary, it is intended that votes will be cast
pursuant to the proxies for the election of Ernst & Young LLP as the
Company's independent auditors for its 1995 fiscal year. Election of Ernst &
Young LLP will require the affirmative vote of the holders of a majority of
the shares of Common Stock represented in person or by proxy at the Annual
Meeting. The Board of Directors recommends a vote FOR the approval of the
election of Ernst & Young LLP as the Company's auditors for its 1995 fiscal
year.
Representatives of Ernst & Young LLP will attend the Annual Meeting and
will have the opportunity to make a statement, if they desire to do so, and
will be available to respond to any appropriate questions presented by
stockholders at the Annual Meeting.
ANNUAL REPORT
A copy of the Company's Annual Report for its fiscal year ended December
31, 1994 is being mailed to the Company's stockholders with this Proxy
Statement.
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STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Any stockholder who, in accordance with and subject to the provisions of
the proxy rules of the Securities and Exchange Commission, wishes to submit
a proposal for inclusion in the Company's proxy statement for its 1996
Annual Meeting of Stockholders must deliver such proposal in writing to the
Secretary of the Company at the Company's principal executive offices at
1009 Lenox Drive, Lawrenceville, New Jersey 08648, not later than December
7, 1995.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the Notice of Annual
Meeting, but if any matters are properly presented, it is the intention of
the persons named in the accompanying proxy to vote on such matters in
accordance with their judgment.
By Order of the Board of Directors,
/s/ THOMAS J. BIRD
------------
THOMAS J. BIRD
Executive Vice President,
General Counsel and Secretary
Date: April 5, 1995
28
AMENDED AND RESTATED
EQUITY INCENTIVE PLAN
FOR KEY EMPLOYEES
As Amended Through May 18, 1995
IMO INDUSTRIES INC., a corporation organized under the
laws of the State of Delaware, hereby sets forth the Equity
Incentive Plan for Key Employees. The Plan permits the grant
of stock options, stock appreciation rights, restricted stock
and restricted unit awards. The Committee of the Board of
Directors that administers the Plan may select and grant to
key employees of the Company and its Affiliates, the type of
option, stock appreciation right or award which the Company
determines to be most effective in advancing the interests of
the Company through the motivation and retention of those key
employees upon whose judgment, initiative and continued
efforts the Company is largely dependent for the successful
conduct of its business.
1. DEFINITIONS
Whenever the following terms are used in the Plan they
shall have the meaning specified below unless the context
clearly indicates to the contrary.
"Affiliate" shall mean any corporation in which the
Company owns, directly or indirectly, 25% or more of the
voting stock.
"Award" shall mean an award of restricted stock or
restricted units granted under the provisions of Section 5 of
the Plan.
"Board" shall mean the Board of Directors of the
Company.
"Change of Control" shall mean a change in the power to
direct or cause the direction of the management and policies
of the Company, whether through the ownership of voting
securities, contract, or otherwise.
"Code" shall mean the Internal Revenue Code of 1986, as
amended. Reference to a specific section of the Code shall
include such section, any valid regulation promulgated
thereunder and any comparable provision of any future
legislation amending, supplementing or superseding such
section.
"Committee" shall mean the committee appointed by the
Board (pursuant to Section 2(a) of the Plan) to administer
the Plan.
"Company" shall mean Imo Industries Inc., a Delaware
corporation.
"Director" shall mean a member of the Board.
"Employee" shall mean any salaried, full-time employee
of the Company, or of any corporation which is then an
Affiliate, whether such employee is so employed at the time
the Plan is adopted or becomes so employed subsequent to the
adoption of the Plan.
"Fair Market Value" shall be either (i) the mean between
the highest and lowest sale prices of the Company's Common
Stock quoted in the New York Stock Exchange Composite
Transactions Index (the "Index") for the date in question, as
published in The Wall Street Journal, or (ii) the closing
price of the Company's Common Stock quoted in the Index for
the date in question. If no sale prices are quoted in the
Index for such date, the next preceding date for which such
sale prices are quoted shall be used. The Committee shall
determine in each case which definition shall apply.
"Grantee" shall mean an Employee to whom an Award is
granted.
"Incentive Stock Option" shall mean an Option designated
as such by the Committee which meets the requirements of
Section 422 of the Code.
"Option" shall mean an option to purchase Common Stock
of the Company granted under the provisions of Section 4 of
the Plan and, where applicable, shall include an Incentive
Stock Option.
"Optionee" shall mean an Employee to whom an Option is
granted.
"Plan" shall mean this Amended and Restated Equity
Incentive Plan for Key Employees.
"Restricted Stock Award" shall mean an award of
restricted Common Stock of the Company granted under the
provisions of Section 5(d) of the Plan.
"Restricted Unit Award" shall mean an Award of
restricted units granted under the provisions of Section 5(e)
of the Plan.
"Retirement" shall mean a Termination of Employment by
reason of the Employee's retirement at or after his or her
earliest permissible retirement date pursuant to and in
accordance with his or her employer's regular retirement plan
or practice.
"Secretary" shall mean the Corporate Secretary or an
Assistant Secretary of the Company.
"Stock Appreciation Right" shall mean a right granted
under the provisions of Section 6 of the Plan.
"Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of
the corporations other than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of
the other corporations in such chain.
"Termination of Employment" shall mean a cessation of
the employee-employer relationship between an Employee and
the Company or an Affiliate for any reason, including, but
not by way of limitation, a termination by resignation,
discharge, death, Total Disability or Retirement or the
disaffiliation of an Affiliate, but excluding any such
termination where there is a simultaneous reemployment by the
Company or an Affiliate.
"Total Disability" shall mean permanent and total
disability as determined in accordance with Section 72(m)(7)
of the Code.
2. ADMINISTRATION
(a) Appointment of Committee. The Committee shall
consist of at least three Directors, appointed by and holding
office at the pleasure of the Board. No Options, Stock
Appreciation Rights or Awards may be granted to any member of
the Committee during the term of his or her membership on the
Committee. A Director shall be eligible to serve on the
Committee only if he or she is not then eligible and has not
at any time within one year prior thereto been eligible for
selection as a person (i) to whom Options or Awards may be
granted or (ii) to whom stock may be allocated or (iii) to
whom stock options may be granted pursuant to any other plan
of the Company or of any Affiliate entitling the participants
therein to acquire stock of the Company or any Affiliate;
provided, however, that a Director may participate in and be
eligible to receive stock, awards and/or options pursuant to
any other plan of the Company or of any Affiliate if such
participation or eligibility would not disqualify the
Director from being a "disinterested person" for purposes of
Rule 16b-3 under the Securities Exchange Act. The duties and
responsibilities of the Committee may be assigned by the
Board to a standing committee of the Board; provided,
however, that all of the members of such standing committee
must satisfy all of the eligibility requirements set forth
above for membership on the Committee.
(b) Duty and Power of Committee. It shall be the duty
of the Committee to conduct the general administration of the
Plan in accordance with its provisions. The Committee shall
have the power to determine which Employees are key Employees
and to interpret the Plan, the Options, the Stock
Appreciation Rights and the Awards, and to adopt rules for
the administration, interpretation and application of the
Plan as are consistent therewith and to interpret, amend or
revoke any such rules.
(c) Matters Relating to Termination of Employment. The
Committee, in its absolute discretion, shall determine the
effect of all matters and questions relating to Termination
of Employment, including, but not by way of limitation, the
question of whether a Termination of Employment resulted from
Retirement or Total Disability, and all questions of whether
particular leaves of absence constitute Terminations of
Employment.
(d) Transfer Restrictions. The Committee, in its
absolute discretion, may impose such restrictions on the
transferability of the stock issued upon the exercise of an
Option or issued as an Award as it deems appropriate, and any
such restrictions shall be set forth in the respective Option
or Award agreement and may be referred to on the certificates
evidencing such shares.
(e) Committee Actions. The Committee may act either by
vote of a majority of its members at a meeting or by a
memorandum or other written instrument signed by all members
of the Committee.
(f) Compensation; Professional Assistance; Good Faith
Actions. Members of the Committee may receive reasonable
compensation for their services as members, and all expenses
and liabilities they incur in connection with the
administration of the Plan shall be borne by the Company.
The Committee may, with the approval of the Board, employ
attorneys, consultants, accountants, or other persons. The
Committee, the Company and officers and directors of the
Company shall be entitled to rely upon the advice, opinions
or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in
good faith shall be final and binding upon all Optionees,
Grantees, the Company and all other interested persons. No
member of the Committee shall be personally liable for any
action, determination, or interpretation made in good faith
with respect to the Plan, the Options, the Stock Appreciation
Rights or the Awards, and all members of the Committee shall
be fully protected by the Company in respect to any such
action, determination or interpretation.
3. SHARES SUBJECT TO THE PLAN
(a) Limitations. The shares of stock issuable pursuant
to Options, Stock Appreciation Rights, Restricted Stock
Awards or Restricted Unit Awards shall be shares of the
Company's $1.00 par value Common Stock. The total number of
such shares that may be subject to Options, Stock
Appreciation Rights and Awards granted under the Plan shall
not exceed 3,050,000 in the aggregate. Moreover, no key
Employee shall be granted Options, Stock Appreciation Rights
or Awards with respect to a number of shares, determined on a
cumulative basis, that exceeds 90% of the aggregate number of
shares that are available to be issued under the Plan
pursuant to this Section 3(a).
(b) Effect of Unexercised or Cancelled Options or Stock
Appreciation Rights, Unvested Restricted Stock or Unit
Awards. If an Option, Stock Appreciation Right or Award
expires or is cancelled for any reason without having been
fully exercised or vested, the number of shares or units
subject to such Option, Stock Appreciation Right or Award
that were not purchased or did not vest prior to such
expiration or cancellation may again be made subject to an
Option, a Stock Appreciation Right or an Award granted
hereunder (to the same Optionee or Grantee or to a different
Optionee or Grantee), provided that a surrender of all or
part of an Option in connection with the exercise of a Stock
Appreciation Right shall not be considered a termination and
the shares covered by such Option or the surrendered portion
may not be reallocated by the Committee.
(c) Changes in Company's Shares. In the event that the
outstanding shares of Common Stock of the Company are
hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities
of the Company, or of another corporation by reason of
reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend, spin-off or
combination of shares, appropriate adjustments shall be made
by the Committee in the aggregate number and kind of shares
and units that may be issued on exercise of Options or Stock
Appreciation Rights or granted as Awards.
4. STOCK OPTIONS
(a) Granting of Options.
(1) Eligibility. Any key Employee of the Company
or of any corporation which is then an Affiliate shall be
eligible to be granted Options.
(2) Granting of Options.
(A) Subject to the provisions of Section
4(a)(2)(C), the Committee shall from time to time, in its
absolute discretion:
(i) Select from among the eligible key
Employees Employees to whom Options should be granted and
determine the number of shares to be subject to such options.
(ii) Determine the terms and conditions of
such Options, consistent with the Plan.
(iii) Determine whether such Options are to
be Incentive Stock Options or not, provided any Incentive
Stock Option must meet all the applicable requirements of
Section 422 of the Code.
(B) Upon the selection of a key Employee to be
granted an Option, the Committee shall authorize the Company
to grant such Option and may impose such conditions on the
grant of such Option, as it deems appropriate.
(C) Among the factors that the Committee shall
take into account in determining to whom Options should be
granted and the number of shares to be subject to such
Options shall be the losses, if any, incurred by eligible key
Employees due to the cancellation of their non-vested and
unexercised vested options previously issued under the stock
option plans maintained by Transamerica Corporation.
(b) Terms of Options.
(1) Option Agreement. Each Option shall be
evidenced by a written stock option agreement which shall be
executed by the Optionee and the Company and which shall
contain the terms and conditions determined by the Committee.
Notwithstanding anything to the contrary in the Plan, stock
option agreements evidencing Incentive Stock Options shall
contain such terms and conditions, among others, as may be
necessary in the opinion of the Committee to qualify them as
Incentive Stock Options under Section 422 of the Code.
(2) Option Price. The price of the shares subject
to each Option shall be set by the Committee; provided,
however, that the price shall not be less than 100% of the
Fair Market Value for such shares on the date the Option is
granted as determined by the Committee.
(3) Date of Grant. The date on which an Option
shall be granted shall be the date of the Committee's
authorization of such grant or such later date as may be
determined by the Committee at the time such grant is
authorized.
(4) Commencement of Exercisability.
(A) Except as may be otherwise provided in
the stock option agreement evidencing an Option or as may be
otherwise determined by the Committee, no Option may be
exercised in whole or in part during the first year after
such Option is granted.
(B) Subject to the provisions of Section
4(b)(4)(A) and (C), Options shall become exercisable at such
times and in such installments (which may be cumulative) as
the Committee shall provide in the terms of each individual
Option; provided, however, that in the stock option agreement
evidencing an Option or after an Option is granted, the
Committee may, on such terms and conditions as it may
determine to be appropriate and notwithstanding the
provisions of Section 4(b)(4)(A) and (C), accelerate the time
at which such Option or any portion thereof may be exercised.
(C) No portion of an Option which is
unexercisable (except an Incentive Stock Option which is
unexercisable solely by virtue of the sequential exercise
restriction contained in Section 4(b)(10)(C)) at the time of
the Optionee's Termination of Employment shall thereafter
become exercisable; provided, however, that this does not
limit the discretion of the Committee to provide in the terms
of an Option that there will be an acceleration of
exercisability upon the occurrence of certain types of
Terminations of Employment.
(5) Replacement Options. The Committee, in its
absolute discretion, may grant to holders of outstanding
Options, in exchange for the surrender and cancellation of
such Options, new Options having option prices lower (or
higher) than the option price provided in the Options so
surrendered and cancelled and containing such other terms and
conditions as the Committee may deem appropriate.
(6) Expiration of Options.
(A) Except as otherwise provided in Section
4(b)(6)(B), each Option shall terminate on the expiration of
ten years from the date the Option was granted.
Notwithstanding the foregoing or any other provision of the
Plan, no Incentive Stock Option may be exercised after the
expiration of ten years from the date the Option was granted.
(B) Each Option or portion thereof which has
become exercisable may be exercised until the first to occur
of the following events:
(i) The expiration of three months from
the date of the Optionee's Termination of Employment unless
such Termination of Employment results from the Optionee's
death, Total Disability or Retirement, and except as provided
in (iv) below; or
(ii) The expiration of three years from
the date of the Optionee's Termination of Employment by
reason of Total Disability; provided no Incentive Stock
Option may be exercised after the expiration of one year from
the Optionee's Termination of Employment by reason of Total
Disability, and except as provided in (iv) below; or
(iii) The expiration of three years from
the date of the Optionee's Retirement; provided no Incentive
Stock Option may be exercised after the expiration of three
months from the date of the Optionee's Retirement, and except
as provided in (iv) below; or
(iv) The expiration of one year from the
date of the Optionee's death, if such death occurs while the
Optionee is in the employ of the Company or an Affiliate or
within the three-month, one-year or three-year period
referred to in (i), (ii) or (iii) above, whichever is
applicable.
(C) Subject to the provisions of subparagraphs
(A) and (B) of this Section 4(b)(6), the Committee shall
provide, in the terms of each individual Option, when such
Option expires and becomes unexercisable.
(7) Consideration. In consideration of the
granting of the Option, the Optionee shall agree, in the
written stock option agreement, to remain in the employ of
the Company or an Affiliate for a period of at least one year
after the Option is granted.
(8) Adjustments in Outstanding Options. In the
event that the outstanding shares of the stock subject to
Options are increased or decreased or changed into or
exchanged for a different number or kind of shares of the
Company, or other securities of the Company, or of another
corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock
split-up, stock dividend, spin-off or combination of shares,
the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which all
outstanding Options, or portions thereof then unexercised,
shall be exercisable, to the end that after such event the
Optionee's proportionate interest shall be maintained as
before the occurrence of such event. Such adjustment in an
outstanding Option shall be made without change in the total
price applicable to the Option or the unexercised portion of
the Option (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices)
and with any necessary corresponding adjustment in option
price per share and provided that any such adjustment in
respect to an Incentive Stock Option shall be made in such
manner as not to constitute a "modification" as defined in
Section 425 of the Code. Any such adjustment made by the
Committee shall be final and binding upon all Optionees, the
Company and all other interested persons.
(9) Change of Control. In its absolute discretion
and on such terms and conditions as it deems appropriate, and
notwithstanding the provisions of Section 4(b)(4), the
Committee may provide in the terms and conditions of any
Option that such Option may be exercised at any time on or
following a Change of Control.
(10) Certain Additional Provisions for Incentive
Stock Options. Notwithstanding anything to the contrary in
the Plan, each Incentive Stock Option must meet the following
requirements:
(A) The Optionee at the time the Option is
granted is an Employee of the Company or a Subsidiary of the
Company.
(B) The Optionee (together with persons whose
stock ownership is attributed to the Optionee pursuant to
Section 425(d) of the Code) at the time the Option is granted
does not own stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company
or of any of its Subsidiaries.
(C) If granted prior to January 1, 1987, the
Option by its terms is not exercisable while there is
outstanding (within the meaning of Section 422 of the Code)
any other Incentive Stock Option which was granted before the
granting of such Option to the Employee to purchase stock in
the Company or any Subsidiary of the Company (within the
meaning of Section 425 of the Code) or in a predecessor
corporation of any such corporations.
(D) If granted prior to January 1, 1987, the
aggregate Fair Market Value (determined as of the time the
Option is granted) of the stock for which any Employee is
granted Incentive Stock Options in any calendar year prior to
January 1, 1987 (under all plans of the Company and its
Subsidiaries) shall not exceed $100,000 plus any unused limit
carryover in such year as determined under Section 422 of the
Code.
(E) If granted after December 31, 1986, no
Option may be granted to an Employee which, when aggregated
with all other Incentive Stock Options granted after December
31, 1986 to such Employee by the Company and its
Subsidiaries, would result in stock having an aggregate Fair
Market Value (determined for each share of stock as of the
time the Option covering such share is granted) in excess of
$100,000 becoming first available for purchase upon exercise
of the Option during any calendar year.
(F) The Option may not be exercised after the
expiration of three months after the Optionee ceases to be
employed by the Company or a Subsidiary.
(11) Substitute Options. Options may be granted
under the Plan from time to time in substitution for Options
held by employees of other corporations who are about to
become Employees of the Company as the result of a merger or
consolidation of the employing corporation with the Company
or the acquisition by the Company or any Affiliate of the
assets of the employing corporation or the acquisition by the
Company or any Affiliate of stock of the employing
corporation as a result of which it becomes an Affiliate of
the Company. The terms and conditions of substitute Options
so granted may vary from the terms and conditions set forth
in the Plan to such extent as the Committee at the time of
grant may deem appropriate in order to conform, in whole or
in part, to the provisions of the options in substitution for
which Options are being granted, but no such variation shall
be such as to affect the qualified status of any such Option
which has been granted in substitution for an incentive stock
option under Section 422 of the Code.
(c) Exercise of Options.
(1) Person Eligible to Exercise. During the
lifetime of the Optionee, only he or she may exercise an
Option granted to him or her or any portion thereof. After
the death of the Optionee, any exercisable portion of an
Option may be exercised by his or her personal representative
or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent
and distribution. The Company may require appropriate proof
from any such other person of his or her right or power to
exercise the Option or any portion thereof.
(2) Fractional Shares; Partial Exercise. The
Company shall not be required to issue fractional shares on
exercise of an Option and the Committee may, by the terms of
the Option, require any partial exercise thereof to be with
respect to a specified minimum number of shares.
(3) Manner of Exercise. An exercisable Option, or
any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his or her office of all of the
following:
(A) Notice in writing signed by the Optionee
or other person then entitled to exercise such Option or
portion thereof, stating that such Option or portion is
exercised, such notice complying with all applicable rules
established by the Committee;
(B) Full cash payment for the shares with
respect to which such Option or portion is thereby exercised
and which are to be delivered to him or her pursuant to such
exercise; provided, at the discretion of the Committee,
payment may be made in whole or in part in shares of Common
Stock of the Company which Common Stock will be valued at its
then Fair Market Value as determined by the Committee or in
whole or in part pursuant to such other arrangement,
including any deferred payment arrangement or simultaneous
exercise and sale arrangement, as the Committee, in its
absolute discretion, determines; and
(C) Such representations and documents as the
Committee, in its absolute discretion, deems necessary or
advisable to effect compliance with all applicable provisions
of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The
Committee may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on
share certificates and issuing stop-transfer orders to
transfer agents and registrars.
(4) Right to Elect to Pay Profit or to Credit
Profit in Lieu of Delivering Option Shares. The Committee,
in its absolute discretion, may elect (in lieu of delivering
all or a portion of the shares of Common Stock as to which an
Option has been exercised) if the Fair Market Value of the
Common Stock exceeds the exercise price of the Option (i) to
pay the Optionee in cash or in shares of the Company's Common
Stock, or a combination of cash and Common Stock, an amount
equal to the excess of the Fair Market Value of the Company's
Common Stock on the exercise date over the option price or,
in the case of an Option which is not an Incentive Stock
Option, (ii) to defer payment and to credit the amount of
such excess on the Company's books for the account of the
Optionee and either (a) to treat the amount in such account
as if it had been invested in the manner from time to time
determined by the Committee, with dividends or other income
thereon being deemed to have been so reinvested or (b) for
the Company's convenience, to contribute the amount in such
account to a trust, which may be revocable by the Company,
for investment in the manner from time to time determined by
the Committee and set forth in the instrument creating such
trust. The election pursuant to this Section 4(c)(4) shall
be made by giving written notice to the Optionee (or other
person exercising the Option). Shares of the Company's
Common Stock paid pursuant to this subparagraph will be
valued at the Fair Market Value on the exercise date. For
purposes of any cash payment to an Optionee who is subject to
Section 16(b) of the Securities and Exchange Act of 1934 and
who exercises an Option during a "window period," for
purposes of this Section 4(c)(4) the Fair Market Value of the
Common Stock on the exercise date shall be deemed to be that
value determined by the Committee in its discretion which is
not less than the lowest Fair Market Value, nor more than the
highest Fair Market Value, of a share of Common Stock on any
day during such "window period." "Window period" shall mean
the ten-day period defined in Rule 16b-3(e)(3) under the
Securities and Exchange Act of 1934. For purposes of the
limitations in Section 3(a), the number of shares which are
paid or credited pursuant to this Section 4(c)(4) shall not
be counted, but the full number of shares as to which the
Option was exercised shall be counted even though the
Committee has made an election under this Section 4(c)(4) in
respect to some or all of the shares.
(5) Conditions to Issuance of Stock Certificates.
The shares of Common Stock deliverable upon exercise of an
Option, or any part thereof, may be either previously
authorized but unissued shares or issued shares which have
then been reacquired by the Company. The Company shall not
be required to issue or deliver any certificate or
certificates for shares of Common Stock purchased upon the
exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(A) The admission of such shares to listing
on all stock exchanges on which such class of stock is then
listed;
(B) The completion of any registration or
other qualification of such shares under any state or federal
law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory
body, which the Company shall, in its absolute discretion,
deem necessary or advisable;
(C) The obtaining of any approval or other
clearance from any state or federal governmental agency which
the Company shall, in its absolute discretion, determine to
be necessary or advisable;
(D) The provision for any income tax
withholding which the Company shall, in its absolute
discretion, determine to be necessary or advisable; and
(E) The lapse of such reasonable period of
time following the exercise of the Option as the Company may
determine, in its absolute discretion, from time to time to
be necessary or advisable for reasons of administrative
convenience.
(6) Rights of Stockholders. An Optionee shall not
be, nor have any of the rights or provisions of, a
stockholder of the Company in respect to any shares which may
be purchased upon the exercise of any Option or portion
thereof unless and until certificates representing such
shares have been issued by the Company to such Optionee.
5. AWARDS
(a) Eligibility. Any key Employee of the Company or of
any corporation which is then an Affiliate shall be eligible
to be granted awards.
(b) Award Procedure. The Committee shall from time to
time in its absolute discretion:
(1) Select from among the eligible key Employees
the Employees to whom awards shall be granted, determine
whether such awards are to be Restricted Stock Awards or
Restricted Unit Awards (or both) and determine the number of
shares or units to be covered by such awards; and
(2) Determine the terms and conditions of such
Awards, consistent with the Plan.
(c) Award Agreements. Each Award shall be evidenced by
a written agreement, executed by the Grantee and the Company,
which shall contain such restrictions, terms and conditions
as the Committee may require and (without limiting the
generality of the foregoing) such agreements reflecting
Restricted Stock Awards may impose an escrow condition and/or
require that an appropriate legend be placed on share
certificates.
(d) Restricted Stock Awards.
(1) Shares Subject to Award. The shares of Common
Stock awarded as a Restricted Stock Award may be either
previously authorized but unissued shares or issued shares
which have then been reacquired by the Company. Such awarded
shares shall be issued in the name of the Grantee and
delivered to him or her (or the escrow holder, if any) as
soon as reasonably practicable after the Award is made (and
after the Grantee has executed the Award agreement and any
other documents which the Committee, in its absolute
discretion, may require) without the payment of any cash
consideration by such Grantee. Unless and until the shares
so awarded to the Grantee shall have vested in the manner set
forth in Section 5(f), below, such shares shall not be sold,
transferred or otherwise disposed of and shall not be pledged
or otherwise hypothecated. Upon the Termination of
Employment of the Grantee, all of such shares which are not
then vested shall thereupon be forfeited and automatically
transferred to and reacquired by the Company at no cost to
the Company. The Committee may also impose such other
restrictions and conditions on the shares as it deems
appropriate.
(2) Rights as Stockholder.
(A) Upon delivery of the shares of Common
Stock awarded to the Grantee (or the escrow holder, if any)
as a Restricted Stock Award, the Grantee shall have all the
rights of a stockholder with respect to such shares,
including the right to vote the shares and receive all
dividends, or other distributions paid or made with respect
to the shares.
(B) In the event that as a result of a stock
dividend, stock-split, reclassification, recapitalization,
combination of shares or the adjustment in the capital stock
of the Company or otherwise, or as a result of a merger,
consolidation, spin-off or other reorganization, the
Company's Common Stock shall be increased, reduced or
otherwise changed, and by virtue of any such change a Grantee
shall in his or her capacity as owner of unvested shares of
stock which have been awarded to him or her as a Restricted
Stock Award (the "prior shares") be entitled to new or
additional or different shares of stock or securities (other
than rights or warrants to purchase securities); such new or
additional or different shares or securities shall thereupon
be considered to be unvested Restricted Stock Awards and
shall be subject to all of the conditions and restrictions
which were applicable to the prior shares pursuant to the
Plan.
(C) If a Grantee receives rights or warrants
with respect to any shares which were awarded to him or her
as Restricted Stock Awards, such rights or warrants or any
shares or other securities acquired by the exercise of such
rights or warrants may be held, exercised, sold or otherwise
disposed of by the Grantee free and clear of the restrictions
and obligations provided in the Plan.
(e) Restricted Unit Awards.
(1) Restricted Unit Account. In the case of
Restricted Unit Awards, no shares of Common Stock shall be
issued to the Grantee at the time the Award is made, and no
fund shall be set aside by the Company for the payment of any
such Award; but rather the Company shall establish and
maintain a separate written account for each Grantee and
shall record in such account the number of Restricted Units
awarded to such Grantee. Whenever the Company pays a cash
dividend upon its Common Stock, there shall be credited to
each such Grantee's account an amount equal to the cash
dividend paid upon one share of Common Stock for each
Restricted Unit then in his or her account (hereinafter
referred to as "Dividend Equivalents").
(2) Payment of Restricted Units. Each Restricted
Unit Award agreement shall specify a date or dates on which
payment of the value of vested Restricted Units (and Dividend
Equivalents with respect to such vested Restricted Units) in
the Grantee's account is to be made. As soon as reasonably
practicable after the payment date, the Company shall deliver
to the Grantee one share of the Company's Common Stock for
each vested Restricted Unit credited to his or her account
and cash equal to the vested Dividend Equivalents credited to
his or her account; provided, however that the Committee may,
in its absolute discretion, elect to pay the Grantee cash or
part cash and part Common Stock in lieu of delivering only
Common Stock for the vested Restricted Units. If a cash
payment is made in lieu of delivering Common Stock the amount
of such cash payment shall (in respect to each vested
Restricted Unit for which a cash payment is to be made) be
equal to the Fair Market Value of the Company's Common Stock
on the payment date. The shares of Common Stock delivered in
payment, in whole or in part, of a Restricted Unit may be
either previously authorized but unissued shares or issued
shares which have then been reacquired by the Company.
Payments to be made hereunder shall, if the Grantee is then
deceased, be made to the Grantee's estate or others as may be
designated in writing by the Grantee, with the approval of
the Committee.
(3) Deferral of Payment. The Restricted Unit
Award agreement may permit a Grantee to request the payment
of vested Restricted Units (and Dividend Equivalents with
respect to such Restricted Units) be deferred beyond the
payment date specified in the agreement. It shall be at the
Committee's sole discretion whether or not to permit such
deferment and to specify the terms and conditions which are
not inconsistent with the Plan, to be contained in the
agreement. In the event of such deferment, the Committee may
determine that interest shall be credited annually on the
Dividend Equivalents at a rate to be determined by the
Committee. The Committee may also determine to compound such
interest.
(4) Adjustments in Capitalization. The Committee
shall make an appropriate adjustment in the number of kind of
Restricted Units then credited to the account or accounts of
any Grantee due to changes in the Company's outstanding
Common Stock by reason of a merger, consolidation, spin-off
or other reorganization, recapitalization, reclassification,
stock split-up, stock dividend, or combination of shares and
any such adjustment made by the Committee shall be final and
binding upon all Grantees, the Company and all other
interested persons.
(5) No Trust Fund. Grantees of Restricted Unit
Awards shall not have any interest in any fund or specific
asset of the Company by reason of such Award. No trust fund
shall be created in connection with the Plan or any
Restricted Unit Award thereunder, and there shall be no
required funding of amounts which may become payable under
any such Award.
(f) Vesting of Awards. Shares awarded as Restricted
Stock Awards and units awarded as Restricted Unit Awards
(including Dividend Equivalents with respect to such
Restricted Unit Awards) shall vest at such time or times and
on such terms, conditions and performance criteria, as the
Committee may determine; provided, however, that (i) no such
shares or units shall vest until 12 months from the date of
Award and (ii) the vesting of such shares or units shall
occur only if the Grantee on the date of the vesting is then
and has continuously been an Employee from the date of the
Award. In the event of Termination of Employment as a result
of the death or Total Disability of a Grantee, the Committee,
in its absolute discretion, may determine that the unvested
portion of some or all shares awarded to him or her as
Restricted Stock Awards and some or all units awarded to him
or her as Restricted Unit Awards (including unvested Dividend
Equivalents) shall thereupon immediately vest. The Committee
may also decide at any time in its absolute discretion and on
such terms and conditions as it deems appropriate, to
accelerate the vesting of shares awarded as Restricted Stock
Awards and units awarded as Restricted Unit Awards (including
unvested Dividend Equivalents).
6. STOCK APPRECIATION RIGHTS
(a) Eligibility. Any key Employee of the Company or of
any corporation which is then an Affiliate shall be eligible
to be granted Stock Appreciation Rights.
(b) Grant of Stock Appreciation Rights. Stock
Appreciation Rights may be granted by the Committee under the
Plan in connection with an Option, either at the time of
grant or by amendment to the related stock option agreement.
Each Stock Appreciation Right shall be subject to the same
terms and conditions as the related Option and to such
additional conditions as the Committee shall determine, shall
be exercisable only to the extent the Option is exercisable
and shall become nonexercisable and be forfeited if and to
the extent the related Option is exercised or becomes
unexercisable.
(c) Exercise of Stock Appreciation Rights. A Stock
Appreciation Right shall entitle the Optionee to surrender to
the Committee unexercised the related Option, or any portion
thereof, and to receive from the Company in exchange therefor
a cash payment and/or Common Stock having an aggregate Fair
Market Value equal to the excess of the Fair Market Value of
one share of Common Stock over the option price per share
provided for in the related Option, multiplied by the number
of shares called for by the Option, or portion thereof, which
is surrendered. The Committee shall have the sole discretion
to determine the form in which payment is to be made upon the
exercise of a Stock Appreciation Right (i.e., whether in
cash, in shares of Common Stock or partly in cash and partly
in shares). In no event will fractional shares be issued but
cash will be paid in lieu thereof.
(d) Window Period Exercises for Cash. Notwithstanding
the provisions of Section 6(c), above, the Committee shall
have the ability, in its discretion, to fix the Fair Market
Value of a share of Common Stock for purposes of determining
the amount of cash and the number of shares, if any, to be
received upon the exercise of a Stock Appreciation Right
during any "window period" (which consists of a period
beginning on the third business day following the date of
release of quarterly or annual sales and earnings information
by the Company and ending on the twelfth business day
following such release date) for payment wholly or partly in
cash at an amount not greater than the highest Fair Market
Value, nor less than the lowest Fair Market Value, of a share
of Common Stock during such window period.
(e) Relation to Options. Stock Appreciation Rights
shall be exercisable at such time as may be determined by the
Committee, provided that a Stock Appreciation Right shall not
be exercisable prior to the time the related Option could be
exercised and, except in the event of death or Total
Disability, shall not be exercisable for a period of six
months from the date of grant of such right. A Stock
Appreciation Right may be exercised in whole or in part only
upon surrender of a proportionate part of the related Option
by the Optionee.
(f) Expiration or Termination. Each Stock Appreciation
Right and all rights and obligations thereunder shall
terminate and may no longer be exercised upon the termination
or exercise of the related Option.
(g) Shares May Be Used Only Once. Shares subject to an
Option to which a Stock Appreciation Right is related shall
be used not more than once to calculate the cash or shares to
be received by the Optionee pursuant to an exercise of such
Stock Appreciation Right.
(h) Effect of Death or Other Termination of Employment.
In the event of the Termination of Employment of a recipient
of a Stock Appreciation Right, his or her Stock Appreciation
Right shall be exercisable only to the extent and upon the
conditions that the related Option is exercisable under the
applicable provisions of Section 4(b)(6) hereof.
(i) Adjustment in Outstanding Options. In the event
that the Options to which any Stock Appreciation Rights are
related are adjusted pursuant to the provisions of Section
4(b)(8), then the Committee shall make an appropriate and
equitable adjustment in the number of such Stock Appreciation
Rights, to the end that after such event the Optionee shall
be in the same position with respect to the Options as he or
she was prior to the occurrence of such event.
7. MISCELLANEOUS PROVISIONS
(a) Options, Stock Appreciation Rights and Awards Not
Transferable. No Option or interest or right therein or part
thereof and no Stock Appreciation Right, Restricted Stock
Award or Restricted Unit Award shall be liable for the debts,
contracts, or engagements of the Optionee, Grantee or his or
her successors in interest or shall be subject to disposition
by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means, whether such disposition be
voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted
disposition thereof shall be null and void and of no effect;
provided, however, that nothing in this Section 7(a) shall
prevent transfers by will or by the applicable laws of
descent and distribution.
(b) Employment. Nothing in the Plan or in any Option,
Stock Appreciation Right or Award shall confer upon any
Employee the right to continue in the employ of the Company
or any Affiliate or shall interfere with or restrict in any
way the rights of the Company and Affiliates to discharge any
Employee at any time for any reason whatsoever, with or
without good cause.
(c) Effect of a Change of Control. The Committee may,
in its absolute discretion, provide that in the event of a
Change of Control, some or all shares and units awarded under
the Plan as Restricted Stock Awards or Restricted Unit Awards
including unvested Dividend Equivalents shall immediately
vest.
(d) Amendment, Suspension or Termination of the Plan.
The Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to
time by the Board or the Committee. However, without
approval of the Company's stockholders given within 12 months
before or after the action by the Board or the Committee, no
action of the Committee or Board may, except as provided in
Section 3(c), increase the limits imposed in Section 3(a) on
the maximum number of shares which may be the subject of
Options, Stock Appreciation Rights and Awards granted under
the Plan, amend Section 4(b)(6)(A) or (B) to permit the
exercise of an Option after expiration of ten years from the
date the Option was granted, or extend the limit imposed in
this subsection on the period during which Incentive Stock
Options may be granted or otherwise materially increase the
benefits accruing to participants under the Plan. Neither
the amendment, suspension, nor termination of the Plan shall,
without the consent of the Optionee or the Grantee, alter or
impair any rights or obligations under any Option, Stock
Appreciation Right or Award theretofore granted. No Option,
Stock Appreciation Right or Award may be granted during any
period of suspension nor after termination of the Plan, and
in no event may any Option intended to be an Incentive Stock
Option be granted under the Plan more than ten years after
the date the adoption of the Plan was approved by the Board.
(e) Effect upon Other Compensation Plans. The adoption
of the Plan shall not affect any other stock option,
compensation or incentive plans in effect for the Company or
any Affiliate and the Plan shall not preclude the Board from
establishing any other forms of incentive or compensation for
Employees of the Company or any Affiliate.
(f) Compliance with Rule 16b-3. To the extent that
Rule 16b-3 under the Securities Exchange Act of 1934 applies
to Options or Awards granted under the Plan, it is the intent
of the Company that the Plan comply in all respects with the
requirements of Rule 16b-3, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to
give effect to such intention and that if the Plan shall not
so comply, whether on the date of adoption or by reason of
any later amendment to or interpretation of Rule 16b-3, the
provisions of the Plan shall be deemed to be automatically
amended so as to bring them into full compliance with such
rule.
(g) Titles. Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or
construction of the Plan.
IMO INDUSTRIES INC.
1995 EQUITY INCENTIVE PLAN
FOR OUTSIDE DIRECTORS
IMO INDUSTRIES INC., a corporation organized under the
laws of the State of Delaware, hereby sets forth the 1995
Equity Incentive Plan for Outside Directors. The Plan
provides for the grant of restricted stock awards and
nonqualified stock options to Outside Directors. The Plan
shall become effective upon the approval of the Plan by
stockholders of the Company in accordance with Section 6(d).
1. Definitions. Whenever the following terms are used
in the Plan they shall have the meanings specified below
unless the context clearly indicates to the contrary:
"Board" shall mean the Board of Directors of the
Company.
"Change in Control" shall mean a change in the power to
direct or cause the direction of the management and policies
of the Company arising from (1) any "person" (including a
"person" as defined in Sections 13(d)(3) and 14(d) of the
Exchange Act) becoming the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing 35% or more of the
combined voting power of the Company's then outstanding
securities or (2) more than 50% of the assets of the Company
being disposed of by the Company pursuant to a partial or
complete liquidation of the Company, a sale of assets
(including stock of a subsidiary or subsidiaries) of the
Company or otherwise.
"Code" shall mean the Internal Revenue Code of 1986, as
amended. Reference to a specific section of the Code shall
include such section, any valid regulation promulgated
thereunder and any comparable provision of any future
legislation amending, supplementing or superseding such
section.
"Common Stock" shall mean the Common Stock, $1.00 par
value, of the Company.
"Company" shall mean Imo Industries Inc., a Delaware
corporation.
"Director" shall mean a member of the Board.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Fair Market Value" shall mean the average between the
highest and lowest sale prices of the Company's Common Stock
quoted in the New York Stock Exchange Composite Transactions
Index (the "Index") for the date in question, as published in
The Wall Street Journal. If no sale prices are quoted in the
Index for such date, the next preceding date for which such
sale prices are quoted shall be used.
"Grantee" shall mean an Outside Director to whom a
Restricted Stock Award is granted.
"Option" shall mean an option granted under the
provisions of Section 4 of the Plan to purchase Common Stock
of the Company.
"Optionee" shall mean an Outside Director to whom an
Option is granted.
"Outside Director" shall mean a Director who, at the
time he becomes a Director, is not also an employee of the
Company or any affiliate of the Company.
"Plan" shall mean this 1995 Equity Incentive Plan for
Outside Directors.
"Restricted Stock Award" shall mean a restricted stock
award granted under the provisions of Section 5 of the Plan.
"Secretary" shall mean the Corporate Secretary or an
Assistant Secretary of the Company.
"Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of
the corporations other than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of
the other corporations in such chain.
"Termination of Service" shall mean a cessation of an
Outside Director's service as a member of the Board, whether
as a result of resignation, failure to be reelected, removal
for cause, death or any other reason.
"Total Disability" shall mean a permanent and total
disability as determined in accordance with Section 72(m)(7)
of the Code.
2. Administration.
(a) Administration by the Board. The Plan shall be
administered by the Board.
(b) Duty and Power of Board Under the Plan. It shall
be the duty of the Board to conduct the general
administration of the Plan in accordance with its provisions.
The Board shall have the power to interpret the Plan, the
Options and the Restricted Stock Awards and to adopt rules
for the administration, interpretation and application of the
Plan as are consistent therewith and to interpret, amend or
revoke any such rules. The Board shall not have any
discretion to determine who will be granted Options or
Restricted Stock Awards or to determine the number of Options
or Restricted Stock Awards to be granted to any Outside
Director, the timing of such grant or the exercise price of
any Option.
(c) Board Actions. The Board may act either by vote of
a majority of its members present at a meeting of the Board
at which a quorum is present or by a memorandum or other
written instrument signed by all members of the Board.
(d) Compensation; Professional Assistance; Good Faith
Actions. Members of the Board shall not receive any
compensation for their services in administering the Plan,
but all expenses and liabilities they incur in connection
with the administration of the Plan shall be borne by the
Company. The Board may employ attorneys, consultants,
accountants or other persons. The Board, the Company and the
officers and directors of the Company shall be entitled to
rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and
determinations made by the Board in good faith shall be final
and binding upon all Optionees and Grantees, the Company and
all other interested persons. No member of the Board shall
be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan,
and all members of the Board shall be fully protected and
indemnified by the Company in respect to any such action,
determination or interpretation.
3. Shares Subject to the Plan.
(a) Limitations. The shares of stock issuable pursuant
to Options or Restricted Stock Awards shall be shares of the
Company's Common Stock. The total number of such shares that
may be subject to Options or Restricted Stock Awards granted
under the Plan shall not exceed 240,000 in the aggregate.
(b) Effect of Unexercised or Cancelled Options. If an
Option expires or is cancelled for any reason without having
been fully exercised or vested, the number of shares subject
to such Option which were not purchased or did not vest prior
to such expiration or cancellation may again be made subject
to an Option or Restricted Stock Award granted hereunder.
(c) Changes in the Company's Shares. In the event that
the outstanding shares of Common Stock of the Company are
hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities
of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend (either in
shares of the Company's Common Stock or of another class of
the Company's stock), spin-off or combination of shares,
appropriate adjustments shall be made by the Board in the
aggregate number and kind of shares that may be issued on
exercise of Options or upon the grant of Restricted Stock
Awards.
4. Stock Options.
(a) Granting of Options.
(i) Eligibility. Each Outside Director shall be
eligible to be granted Options.
(ii) Granting of Options. Each Outside Director on
the first business day following the election of directors at
each annual meeting of stockholders of the Company shall, on
such date, be granted an Option for the purchase of 4,000
shares of Common Stock. Each person appointed or elected an
Outside Director after the first business day following the
election of directors at each annual meeting of stockholders
of the Company but on or before December 31 of such year
shall, on the business day following the date of appointment
or election to the Board, be granted an Option for the
purchase of 4,000 shares of Common Stock.
(iii) Form of Option. All Options granted under
this Plan shall be non-statutory options not intended to
qualify under Section 422 of the Code.
(b) Terms of Options.
(i) Option Agreement. Each Option shall be
evidenced by a written stock option agreement that shall be
executed by the Optionee and the Company and that shall
contain such terms and conditions as the Board determines are
required by the Plan.
(ii) Option Price. The exercise price of the
shares subject to each Option shall be 100% of the Fair
Market Value for such shares on the date the Option is
granted.
(iii) Date of Grant. The date on which an Option
shall be granted shall be the date determined under Section
4(a)(ii).
(iv) Commencement of Exercisability.
(A) No Option may be exercised in whole or in
part during the first year after such Option has been
granted. Thereafter, except as otherwise provided in Section
4(b)(iv)(B) or 4(b)(vii), the Option shall become exercisable
in four equal cumulative annual installments of 1,000 shares
each, commencing on the first anniversary of the grant date
and continuing on each of the next three anniversaries of the
grant date.
(B) No portion of an Option that is
unexercisable at the time of the Optionee's Termination of
Service shall thereafter become exercisable; provided,
however, in the event that an Optionee's Termination of
Service is due to the Optionee's retirement from the Board
after reaching the age of 72 years in accordance with the By-
Laws of the Company, all Options held by such Optionee shall
become exercisable, if not otherwise exercisable, on the date
of such Termination of Service.
(v) Expiration of Options.
(A) Except as otherwise provided in Section
4(b)(v)(B), each Option shall terminate on the expiration of
ten years from the date the Option was granted.
(B) Each Option, or portion thereof, which
has become exercisable may be exercised until the expiration
of three years from the date of the Optionee's Termination of
Service, except that, in the event of an Optionee's removal
for cause, all Options shall terminate immediately upon such
Optionee's Termination of Service.
(vi) Adjustment in Outstanding Options. In the
event that the outstanding shares of the Common Stock of the
Company are increased or decreased or changed into or
exchanged for a different number or kind of shares of the
Company, or other securities of the Company, or of another
corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock
split-up, stock dividend (either in shares of the Company's
Common Stock or of another class of the Company's stock),
spin-off or combination of shares, the Board shall make an
appropriate and equitable adjustment in the number and kind
of shares as to which all outstanding Options, or portions
thereof then unexercised, shall be exercisable, to the end
that after such event the Optionee's proportionate interest
shall be maintained as before the occurrence of such event.
Such adjustment in an outstanding Option shall be made
without change in the total price applicable to the Option or
the unexercised portion of the Option (except for any change
in the aggregate price resulting from rounding-off of share
quantities or prices) and with any necessary corresponding
adjustment in Option price per share. Any such adjustment
made by the Board shall be final and binding upon all
Optionees, the Company and all other interested persons.
(vii) Change in Control. In the event of a Change
in Control each outstanding Option shall become immediately
exercisable, regardless of whether the Option had otherwise
become exercisable pursuant to Section 4(b)(iv).
(c) Exercise of Options.
(i) Person Eligible to Exercise. During the
lifetime of the Optionee, only he or she may exercise an
Option granted to him or her or any portion thereof. After
the death of the Optionee, any exercisable portion of an
Option may be exercised by his or her personal representative
or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent
and distribution. The Company may require appropriate proof
from any such other person of his or her right or power to
exercise the Option or any portion thereof.
(ii) Fractional Shares. The Company shall not be
required to issue fractional shares on exercise of an Option.
(iii) Manner of Exercise. An exercisable Option, or
any exercisable portion thereof, may be exercised solely by
delivery to the Secretary or his or her office of all of the
following:
(A) Notice in writing signed by the Optionee
or other person then entitled to exercise such Option or
portion thereof, stating that such Option or portion is
exercised, such notice complying with all applicable rules
established by the Board;
(B) Full cash payment for the shares with
respect to which such Option or portion is thereby exercised
and which are to be delivered to him or her pursuant to such
exercise; provided, at the discretion of the Committee,
payment may be made in whole or in part in shares of Common
Stock of the Company which Common Stock will be valued at
its then Fair Market Value or in whole or in part pursuant to
such other arrangement, including simultaneous exercise and
sale arrangement, as the Committee, in its absolute
discretion, determines; and
(C) Such representations and documents as the
Board, in its absolute discretion, deems necessary or
advisable to effect compliance with all applicable provisions
of the Securities Act of 1933, as amended, and any other
federal or state securities laws or regulations. The Board
may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on
share certificates and issuing stop-transfer orders to
transfer agents and registrars.
(iv) Conditions to Issuance of Stock Certificates.
The shares of Common Stock deliverable upon exercise of an
Option, or any part thereof, may be either previously
authorized but unissued shares or issued shares which have
then been reacquired by the Company. In addition to the
satisfaction of the other applicable provisions of the Plan,
the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock
purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
(A) The admission of such shares to listing
on all stock exchanges on which such class of stock is then
listed;
(B) The completion of any registration or
other qualification of such shares under any state or federal
law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body
which the Company shall, in its absolute discretion, deem
necessary or advisable;
(C) The obtaining of any approval or other
clearance from any state or federal governmental agency which
the Company shall, in its absolute discretion, determine to
be necessary or advisable;
(D) The provision for any income tax
withholding which the Company shall, in its absolute
discretion, determine to be necessary or advisable; and
(E) The lapse of such reasonable period of
time following the exercise of the Option as the Company may
determine, in its absolute discretion, from time to time to
be necessary or advisable for reasons of administrative
convenience.
(v) Rights of Stockholders. An Optionee shall not
be, nor have any of the rights of, a stockholder of the
Company in respect to any shares that may be purchased upon
the exercise of any Option or portion thereof unless and
until certificates representing such shares have been issued
by the Company to such Optionee.
5. Restricted Stock Awards.
(a) Granting of Awards.
(i) Eligibility. Each Outside Director shall be
eligible to be granted Restricted Stock Awards.
(ii) Granting of Awards. Each Outside Director
shall be granted annual Restricted Stock Awards for the
purchase of 1,000 shares of Common Stock, such Restricted
Stock Awards to be made in four installments of 250 shares
each on the first business day of each calendar quarter,
commencing July 1, 1995, provided that the Outside Director
served as a member of the Board during any portion of the
preceding calendar quarter.
(b) Terms of Restricted Stock Awards.
(i) Restricted Stock Agreement. Each Restricted
Stock Award shall be evidenced by a written Restricted Stock
Agreement that shall be executed by the Grantee and the
Company and that shall contain such restrictions, terms and
conditions as are required by the Plan.
(ii) Restrictions on Transfer. The shares of
Common Stock comprising the Restricted Stock Awards may not
be sold or otherwise transferred by the Grantee until the
Grantee's Termination of Service. Although the shares of
Common Stock comprising each Restricted Stock Award shall be
registered in the name of the Grantee, physical possession
and custody of the stock certificate representing such shares
shall be retained by the Company until the Termination of
Service of the Grantee, and the Company reserves the right to
place a restricted legend on the stock certificate. Upon the
Termination of Service of the Grantee, certificates
representing the shares of Common Stock issued pursuant to
all Restricted Stock Awards made to the Grantee hereunder
shall be delivered to the Grantee. None of such shares of
Common Stock shall be subject to forfeiture.
(iii) Rights as Stockholder.
(A) Subject to the restrictions on transfer
set forth in Section 5(b)(ii) hereof, a Grantee shall have
all the rights of a stockholder with respect to the shares of
Common Stock issued pursuant to Restricted Stock Awards made
hereunder, including the right to vote the shares and receive
all dividends and other distributions paid or made with
respect to the shares.
(B) In the event of changes in the capital
stock of the Company by reason of stock dividends, split-ups
or combinations of shares, reclassifications, mergers,
consolidations, reorganizations or liquidations while the
shares comprising a Restricted Stock Award shall be subject
to restrictions on transfer, any and all new, substituted or
additional securities to which the Grantee shall be entitled
by reason of the ownership of a Restricted Stock Award shall
be subject immediately to the terms, conditions and
restrictions of the Plan.
(C) If a Grantee receives rights or warrants
with respect to any shares comprising a Restricted Stock
Award, such rights or warrants or any shares or other
securities acquired by the exercise of such rights or
warrants may be held, exercised, sold or otherwise disposed
of by the Grantee free and clear of the restrictions and
obligations set forth in the Plan.
(iv) Conditions to Issuance of Stock Certificates.
The shares of Common Stock comprising a Restricted Stock
Award, or any part thereof, may be either previously
authorized but unissued shares or issued shares which have
then been reacquired by the Company. In addition to the
satisfaction of the other applicable provisions of the Plan,
the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock
comprising a Restricted Stock Award or portion thereof prior
to fulfillment of all of the following conditions:
(A) The admission of such shares to listing
on all stock exchanges on which such class of stock is then
listed;
(B) The completion of any registration or
other qualification of such shares under any state or federal
law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body
which the Company shall, in its absolute discretion, deem
necessary or advisable;
(C) The obtaining of any approval or other
clearance from any state or federal governmental agency which
the Company shall, in its absolute discretion, determine to
be necessary or advisable;
(D) The provision for any income tax
withholding which the Company shall, in its absolute
discretion, determine to be necessary or advisable; and
(E) The lapse of such reasonable period of
time following the grant of the Restricted Stock Award as the
Company may determine, in its absolute discretion, from time
to time to be necessary or advisable for reasons of
administrative convenience.
6. Miscellaneous Provisions.
(a) No Assignment or Transfer. No Option or Restricted
Stock Award, or interest or right therein or part thereof,
shall be liable for the debts, contracts, or engagements of
the Optionee or Grantee or his or her successors in interest
nor shall they be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or
any other means, whether such disposition is voluntary or
involuntary or by operation of law by judgment, levy,
attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted
disposition thereof shall be null and void and of no effect;
provided, however, that nothing in this Section 6(a) shall
prevent transfers by will or by the applicable laws of
descent and distribution.
(b) Amendment, Suspension or Termination of the Plan.
The Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to
time by the Board. However, without approval of the
Company's stockholders given within 12 months before or after
the action by the Board, no action of the Board may, except
as provided in Section 4(b)(vi), materially modify the
requirements as to eligibility to participate in the Plan,
increase the limits imposed in Section 3(a) on the maximum
number of shares that may be the subject of Options and
Restricted Stock Awards granted under the Plan, amend Section
4(b)(v)(A) or (B) to extend the period during which an Option
may be exercised or otherwise materially increase the
benefits accruing to Outside Directors under the Plan. The
provisions of the Plan relating to the amount, price and
timing of the grants of Options and Restricted Stock Awards
shall not be amended more than once in any six-month period,
other than to comport with changes in the Code. Neither the
amendment, suspension nor termination of the Plan shall,
without the consent of the Optionee or Grantee, alter or
impair any rights or obligations under any outstanding Option
or Restricted Stock Award. No Option or Restricted Stock
Award may be granted during any period of suspension nor
after termination of the Plan.
(c) Compliance with Rule 16b-3. To the extent that
Rule 16b-3 under the Exchange Act applies to Options or
Awards granted under the Plan, it is the intent of the
Company that the Plan comply in all respects with the
requirements of Rule 16b-3, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to
give effect to such intention and that if the Plan shall not
so comply, whether on the date of adoption or by reason of
any later amendment to or interpretation of Rule 16b-3, the
provisions of the Plan shall be deemed to be automatically
amended so as to bring them into full compliance with such
rule.
(d) Stockholder Approval. Notwithstanding anything to
the contrary set forth herein, no Option may be exercised and
no Restricted Stock Award may be granted until the Plan shall
have been approved by the affirmative vote of the holders of
a majority of the shares of the Company's outstanding Common
Stock present or represented and entitled to vote at a duly
convened meeting of stockholders.
(e) Titles. Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or
construction of the Plan.
IMO INDUSTRIES INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 18, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints Thomas J. Bird and
David C. Christensen, and each or either of them, proxies of the undersigned,
with full power of substitution, to vote all of the shares of Imo Industries
Inc. (the "Company") which the undersigned may be entitled to vote at the
Annual Meeting of Stockholders of the Company to be held at the Princeton
Marriott, Forrestal Village, 201 Village Boulevard, Princeton, New Jersey,
on Thursday, May 18, 1995 at 10 a.m. and at any adjournment thereof, as
shown on the voting side of this card.
________________
SEE REVERSE
SIDE
_________________
x Please mark your votes as in this example. 2327
This proxy will be voted as specified. If a choice is not specified, this
proxy will be voted FOR the nominees for Class III Directors and FOR
Proposals 2, 3 and 4.
1. Election of all nominees for Class III Directors listed hereon.
FOR WITHHELD
/ / / /
Nominees: Donald K. Farrar
Donald C. Trauscht
For all nominees listed hereon, except vote withheld from the following
nominee(s):
_________________________________________
2. Amendment of the Equity Incentive Plan for Key Employees. The Board of
Directors recommends a vote FOR this proposal.
FOR AGAINST ABSTAIN
/ / / / / /
3. Approval of the 1995 Equity Incentive Plan for Outside Directors. The
Board of Directors recommends a vote FOR this proposal.
FOR AGAINST ABSTAIN
/ / / / / /
4. ELECTION OF ERNST & YOUNG LLP as the independent public accountants for
the Company's 1995 fiscal year. The Board of Directors recommends a vote
FOR this proposal.
FOR AGAINST ABSTAIN
/ / / / / /
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment
thereof.
This proxy should be dated, signed by the stockholder
exactly as his name appears hereon and returned promptly
in the enclosed envelope. Persons signing in a fiduciary
capacity should so indicate.
Please sign exactly as name(s) appear hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such.
_____________________________________________________
_____________________________________________________
SIGNATURE(S) DATE
