FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number - 1-9294
Imo Industries Inc.
(Exact name of registrant as specified in its charter)
Delaware 21-0733751
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1009 Lenox Drive, Building Four West
Lawrenceville, New Jersey 08648
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 609-896-7600.
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
Aggregate market value of the voting stock held by
non-affiliates of the Registrant computed by reference to the
closing price of such stock on the New York Stock Exchange, Inc.
on March 14, 1997 .........................$51,376,077
Shares of Registrant's common stock, $1.00 par value, outstanding
as of March 14, 1997 .......................17,125,359
DOCUMENTS INCORPORATED BY REFERENCE
Identification of Documents Part into which Incorporated
Portions of the Company's Proxy Items 10,11,12 of Part III
Statement for its Annual Meeting of
Stockholders to be held May 20, 1997
TABLE OF CONTENTS
PART I
Item
1. Business..............................................
General...........................................
History...........................................
Industry Segments.................................
Discontinued Operations...........................
Restructuring Plans...............................
Competition.......................................
Product Distribution and Customers................
Backlog...........................................
Raw Materials.....................................
Patents, Licenses and Trademarks..................
Research and Development..........................
Environmental Matters.............................
Employees.........................................
2. Properties............................................
3. Legal Proceedings.....................................
4. Submission of Matters to a Vote of Security Holders...
Executive Officers of the Registrant.....................
PART II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters......................
6. Selected Financial Data...............................
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........
8. Financial Statements and Supplementary Data...........
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...............
PART III
10. Directors and Executive Officers of the Registrant...
11. Executive Compensation...............................
12. Security Ownership of Certain Beneficial Owners
and Management......................................
13. Certain Relationships and Related Transactions.......
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-k.................................
Exhibit Index............................................
Signatures...............................................
PART I
Item 1. Business.
General
Imo Industries Inc. (hereinafter with its subsidiaries
referred to as the "Company") is an integrated multinational
industrial manufacturer of a broad range of industrial
products through its five core business segments - Power
Transmission, Pumps, Instrumentation, Morse Controls and
Roltra-Morse. The Company's products are designed to regulate
and control motion, transfer liquids and monitor fluids. The
Company markets its products on a worldwide basis to a
diverse customer base. In November 1996, the Company
announced that it was withdrawing Roltra-Morse from
divestiture because threats made by an unsuccessful bidder
made it impossible for the Company to receive fair value for
the business. As a result of this announcement, Roltra-Morse
has been reclassified as a continuing operation and the
Company has re-focused its operations on its five core
business segments, as follows:
The Power Transmission business segment designs and produces
electronic adjustable-speed motor drives, gears and speed
reducers.
The Pumps business segment designs and produces a broad range
of rotary pumps, including a proprietary line of two and
three-screw pumps.
The Instrumentation business segment designs and produces
transducers and switches for sensing, measuring and
controlling pressure, temperature and liquid level and flow.
The Morse Controls business segment designs and produces push-
pull cable and remote control systems.
The Roltra-Morse business segment designs and produces
automotive products including actuators, window controls,
latches and door panels/assemblies.
In addition to the five segments comprising the Company's
continuing core operations, the Company has a sixth business
segment entitled Other included in its continuing operations
for financial reporting purposes. This segment includes
operations previously sold and non-operating assets to be
sold as part of the Company's asset divestiture program.
The Company's Electro-Optical Systems and Turbomachinery
businesses are accounted for as discontinued operations and,
accordingly, have been excluded from the Company's segments.
The Company sold its Turbomachinery and most of its Electro-
Optical Systems businesses in 1995. The previously reported
financial information has been reclassified to reflect the
Roltra-Morse business segment as a continuing operation.
History
The Company, founded in 1901 in the United States by Dr.
Carl Gustaf Patrick de Laval, a Swedish scientist, was
acquired by Transamerica Corporation ("Transamerica") in
1963. In 1964, Transamerica merged its existing wholly owned
manufacturing subsidiary, General Metals Corporation, into
the Company. At the close of business on December 18, 1986,
Transamerica distributed all of the issued and outstanding
shares of the Company Common Stock to holders of record of
Transamerica Common Stock on the basis of one share of
Company Common Stock for each ten shares of Transamerica
Common Stock held (the "Distribution") and since that time
the Company has operated on a stand-alone basis as a publicly
traded company.
Industry Segments
A description of the principal products and services offered
by each core business segment of the Company, as well as the
principal markets for such products and services, are set
forth below. Certain information in response to this item
with respect to net sales, operating profit, and identifiable
assets of each of these segments and by geographic area is
contained in Note 10 of the Notes to Consolidated Financial
Statements included in Part IV of this Form 10-K Report as
indexed at Item 14(a)(1). Information regarding the
businesses sold and held for sale and the discontinued
operations is provided later in this section and is contained
in Notes 2 and 3 to the Consolidated Financial Statements.
Power Transmission
The Power Transmission business segment operations produce
speed reducers and loose gearing that are recognized as
leading products in their market niches. This segment is
comprised of two units: Boston Gear, a leading producer of
gears and speed reducers, and Fincor Electronics, a producer
of adjustable-speed motor controllers. Speed reducers are
used to reduce the output speed and increase the torque of
power trains in numerous products, ranging from industrial
machinery to exercise treadmills. Adjustable-speed motor
controllers are used for the accurate control of electric
motor speed, torque, shaft position and direction of rotation
in applications such as ski lifts, textile machinery,
overhead cranes and large printing presses. These operations
also produce worm gear sets used as speed reducers by
original equipment manufacturers and by oil and gas and
industrial machinery customers.
Pumps
The Pumps business segment is the largest worldwide
manufacturer of rotary screw pumps. The three businesses that
comprise the Pumps segment -- Imo Pump, Imo AB, and Warren
Pumps Inc. -- design and manufacture screw-type fuel, lube
oil and hydraulic pumps for use primarily by the marine,
process, oil and gas and elevator industries. The segment's
three-screw pumps are the leading low-noise-level pumps used
in United States Navy vessels and in many commercial vessels.
These pumps are also used to power hydraulic elevators,
lubricate diesel engines and fuel gas turbines. The
segment's two-screw pumps are used by the pulp and paper
industry and in other high-viscosity process applications.
Instrumentation
The Instrumentation business segment operations design and
manufacture products that perform a wide variety of critical
sensing, measuring, monitoring and control functions. This
business segment is comprised of two units: Gems Sensors, a
leading producer of level and flow switches, and
TransInstruments, a leading producer of pressure transducers
in Europe.
Tank level indicators, level switches, solid state relays and
flow meters are manufactured principally for marine and
general industrial applications. These products are used in
ocean-going tankers, military vessels, petrochemical
facilities and industrial and commercial products around the
world. Hundreds of varieties of liquid-level monitors,
indicators and switches are manufactured for use by more than
30,000 customers. Pressure transducers are used to measure
pressure as a continuous function and are sold to a wide
segment of the general industrial market.
Morse Controls
The Morse Controls business segment is a leading worldwide
manufacturer of precision mechanical and electronic control
products and systems that are primarily used for pleasure
marine and industrial vehicle applications.
This segment produces, among other products; push-pull cable
and control systems used to control and actuate functions,
such as steering and valve adjustment, and as an alternative
to electrical systems. Applications include throttle control
and steering systems for both off-the-road vehicles and
pleasure boats.
Roltra-Morse
The Roltra-Morse business segment is Italy's leading
manufacturer of latches, lifters and cables for automobile
doors, windows, trunks, and seats. Its product line also
includes pre-assembled door panels that carry all functional
components.
Roltra-Morse products also include remote cable gear control
systems that employ push-pull cables to transmit motion from
the gear lever to the transmission. The segment also offers
a broad range of flexible cables for both auto and industrial
vehicle applications.
Discontinued Operations
In January 1994 and in August 1994, the Board of Directors
approved the Company's plans to sell its Electro-Optical
Systems operations and its Turbomachinery operations,
respectively. In accordance with APB Opinion No. 30, the
disposals of these business segments have been accounted for
as discontinued operations and, accordingly, their operating
results have been segregated and reported as Discontinued
Operations in the accompanying Consolidated Statements of
Income.
Electro-Optical Systems
On January 3, 1995, the Company completed the sale of its
Baird Analytical Instruments Division to Thermo Instruments
Systems Inc. for approximately $12.3 million, which was used
to repay a portion of the Company's domestic senior debt
outstanding under its previous credit facility (the "Old
Credit Agreement"). On June 2, 1995, the Company completed
the sale of the Optical Systems and Ni-Tec divisions of Varo
Inc. and the Optical Systems division of Baird Corporation,
which represented the major part of its Electro-Optical
Systems business, to Litton Industries for approximately book
value. The proceeds were used on June 2, 1995 to reduce
amounts outstanding under the Old Credit Agreement by $8
million and to redeem $40 million of the Company's then
outstanding 12.25% senior subordinated debentures on July 6,
1995.
The Company entered into a definitive agreement in September
1996 to sell the Varo Electronic Systems division, the
remaining portion of its former Electro-Optical Systems
business, to a small defense contractor for approximately net
book value. This agreement expired in November 1996 and was
subsequently renegotiated and reinstated in January 1997.
The buyer has secured the necessary financing to purchase
this business. The Company expects the sale to be completed
in the second quarter of 1997, and intends to use the
proceeds to reduce debt. The sale of this business will
complete the disposal of the Electro-Optical Systems
business.
Turbomachinery
On January 17, 1995, the Company completed the sale of its
Delaval Turbine and TurboCare divisions and its 50% interest
in the Dutch partnership Delaval-Stork, to Mannesmann Demag.
The final adjusted purchase price was $119 million of which,
$109 million was received at closing, with the remainder
earning interest to the Company and to be received at
specified future contract dates subject to adjustment as
provided in the sale agreement. It is management's
expectation that there will be no further adjustment to the
purchase price. A portion of the proceeds were used by the
Company to pay off its domestic senior debt in January 1995
and in March 1995 the Company redeemed $40 million of its
then outstanding 12.25% senior subordinated debentures with
the remainder of the proceeds.
See Note 2 to the Consolidated Financial Statements located
in Part IV of this Form 10-K Report as indexed at Item 14
(a)(1) for additional details regarding the discontinued
operations.
Restructuring Plans
Asset Sales
In October 1992, the Company announced a plan to strengthen
its balance sheet through the sale of certain businesses and
the application of the proceeds to reduce debt. Pursuant to
this plan, the Company divested its Heim Bearings, Aerospace,
Barksdale Controls and CEC Instruments businesses. These
proceeds, net of related expenses, were used to repay senior
debt in the amount of $81.9 million in 1993 and $13.2 million
in 1994, in accordance with the terms of the 1993
restructured credit facilities.
In the fourth quarter of 1993, management initiated a
strategy to reposition the Company on its less capital
intensive businesses that exhibited strong brand name
recognition, a broad customer base and market leadership,
with less dependence on U.S. Government sales. In connection
with this strategy, the Company divested its Turbomachinery
and substantially all of its Electro-Optical Systems
businesses in 1995 and had planned to sell its Roltra-Morse
business in 1996. The Company used these 1995 proceeds, net
of related expenses, to repay senior debt outstanding under
its Old Credit Agreement in the amount of $89.7 million and
to redeem $80 million of its then outstanding 12.25% senior
subordinated debentures (See above discussion regarding
Discontinued Operations). During 1996, the Company completed
the sales of five of its non-operating real estate holdings
for net proceeds of $8.6 million. The proceeds were used to
repay the Company's domestic senior debt.
Other than the remaining Electro-Optical Systems business as
discussed in the Discontinued Operations discussion above, the
remaining assets currently held for sale include non-strategic
business units of the Company's Power Transmission and Morse
Controls segments, as well as certain non-operating real estate
originally identified for sale in October 1992. The operating
units produced income before taxes of $.1 million for the full
year 1996, net of $2.3 million of interest expense, which has
been allocated, based on net assets of approximately $21.5
million. The fourth quarter of 1996 includes a charge of $17.1
million to adjust the value of these non-strategic businesses to
their expected net realizable values. The Company targets
completion of these sales over the next 12 months and intends to
apply the proceeds to reduce debt.
Cost Reduction Programs
1996 Program. The fourth quarter of 1996 includes a charge
of $7.4 million in continuing operations for restructuring
measures taken at several of the Company's European
operations to further reduce operating expenses. The Company
completed an evaluation of its Roltra-Morse operations during
the fourth quarter to determine what structural and other
changes were necessary to position this business for
profitable future growth. The portion of the charge related
to Roltra-Morse was $6.2 million, which includes severance
and certain other costs, and a write-off of goodwill. These
restructuring measures at Roltra-Morse are expected to reduce
operating expenses, improve the effectiveness of engineering
resources and produce cost savings in 1997. The remaining
restructuring charges relate to severance costs and other
expenses related to further restructuring at the Company's
Gems European operations and Morse German operation.
The 1996 cost reduction program is expected to reduce
expenses by approximately $2.6 million in 1997 and $3.8
million annually thereafter. This program includes a
reduction of 126 employees in Europe, or 3.3% of the total
number of Company employees at the end of 1996. The required
cash outlay related to this program was $.4 million in 1996
and the expected cash requirements during 1997 are $3.1
million. The remainder represents non-cash charges.
1995 Program. In the fourth quarter of 1995, the Company
recorded a charge to continuing operations of $5.2 million,
including severance and other expenses related to a Company-
wide program to reduce general and administrative costs.
This program includes a reduction of 65 employees, or 2% of
the total number of Company employees, including a reduction
of the corporate headquarters staff by 20%. This program
reduced general and administrative expenses by approximately
$2.7 million in 1996, and is expected to reduce general and
administrative expenses by approximately $3.2 million in
1997, $4.1 million in 1998 and annually thereafter. The
required cash outlays related to this program were $.6
million and $3.1 million in 1995 and 1996, respectively. The
expected final cash outlay during 1997 related to the
restructuring of the Company's Morse German operation, which
was delayed in 1996, is $.3 million. The remainder
represents non-cash charges.
See "Recent Events", "Restructuring Plans" and "Liquidity and
Capital Resources" sections of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in
Part II, Item 7, and Note 3 to the Consolidated Financial
Statements located in Part IV of this Form 10-K Report as
indexed at Item 14(a)(1) for additional details regarding the
asset divestiture and restructuring programs.
Competition
The Company's products and services are marketed on a
worldwide basis. Approximately 90% of the Company's products
are marketed outside of the United States through wholly
owned subsidiaries, sales offices and several joint ventures.
Most markets in which the Company operates are highly
competitive. The principal elements of competition for the
products manufactured in each of the Company's business
segments are design features, product quality, customer
service and price.
Product Distribution and Customers
The Company's products are sold primarily through the
Company's direct sales forces. During 1996, sales by the
Company's direct sales forces were approximately 28%, 75%,
88%, 87% and 100% of the Power Transmission, Pumps,
Instrumentation, Morse Controls and Roltra-Morse segments,
respectively. The Company's remaining sales are made through
distributors, dealers and agents.
The Roltra-Morse segment had sales to one commercial customer
(Fiat S.p.A. and its subsidiaries) that accounted for 95%,
90% and 95% of segment sales, and 16%, 19% and 21% of
consolidated sales in 1996, 1995 and 1994, respectively.
None of the other business segments is dependent on any
single customer or a few customers, the loss of which would
have a material adverse effect on the respective segments, or
on the Company as a whole. No customer other than Fiat
S.p.A. and its subsidiaries accounted for 10% or more of
consolidated sales in 1996, 1995 or 1994.
Backlog
The Company's continuing operations' backlog of unfilled
orders at month end February 1997 and 1996 and at December
31, 1996, 1995 and 1994, by business segment, was as follows:
February 28, February 29, December 31,
1997 1996 1996 1995 1994
(Dollars in millions)
Power Transmission $ 8.2 $ 9.0 $7.7 $8.5 $9.6
Pumps 37.9 34.3 31.6 33.7 28.9
Instrumentation 18.2 20.9 18.4 18.3 19.2
Morse Controls 21.8 21.6 21.3 21.9 22.8
Roltra-Morse 24.0 23.1 24.9 28.0 27.6
$110.1 $108.9 $103.9 $110.4 $108.1
Backlog is considered significant only to the Warren Pumps
business of the Pumps segment, given that the products of
that operation require long lead times for manufacture, and
to the Roltra-Morse segment, the backlog of which is directly
tied to a major customer's production schedule. Of the total
backlog from continuing operations at December 31, 1996, the
Company believes that all but approximately $1.4 million of
its orders will be filled in 1997.
Raw Materials
The Company obtains raw materials, component parts and
supplies from a variety of sources, generally from more than
one supplier. The Company's principal raw materials are
metals and plastics. The Company's suppliers and sources of
raw materials are based in both the United States and foreign
countries and the Company believes that its sources of raw
materials are adequate for its needs for the foreseeable
future. The loss of any one supplier would not have a
material adverse effect on the Company's financial condition
or results of operations.
Patents, Licenses and Trademarks
The Company owns numerous unexpired U.S. patents (currently
having a term of 17 years from the date of issuance and
expiring at various times in the future) and foreign patents
(having an initial term that is governed by the law of the
country and expiring at various times in the future),
including counterparts of certain of its U.S. patents, in
major industrial countries of the world. The Company's
products are marketed under various trade names and
registered U.S. and foreign trademarks (having an initial
term that is governed by the law of the country and expiring
at various times in the future). The Company, however, does
not consider any one patent or trademark or any group thereof
essential to its business as a whole, or to any of its
business segments. The Company relies, to an extent, on
proprietary product knowledge and manufacturing processes in
its operations.
Following the removal of the distinctive modifier
"Transamerica" from the corporate name prior to the
Distribution, the Company changed its name to "Imo Delaval
Inc." in 1986 and to "Imo Industries Inc." in 1989. The
Company's use of the name "Delaval" is restricted as a result
of a contract by which the Company's assets were acquired
from their former Swedish owner preceding the acquisition of
the Company by Transamerica. In January 1995, the Company
transferred its rights to use the "Delaval" name in
connection with certain products of the Turbomachinery
segment to Mannesmann Demag as part of the divestiture of its
Turbomachinery business.
Research and Development
The Company's ongoing research and development programs
involve the development of new technologies to enhance the
performance or lower the cost of manufacturing its products,
and the redesign of existing product lines either to increase
their efficiency or to lower their manufacturing cost.
Expenditures for research and development charged against
continuing operations for 1996, 1995 and 1994 by business
segment were as follows:
Year Ended December 31,
1996 1995 1994
(Dollars in millions)
Power Transmission $ .6 $ .7 $ .7
Pumps 2.1 1.5 1.8
Instrumentation 1.2 .9 .7
Morse Controls 1.7 1.7 1.3
Roltra-Morse 3.7 2.9 1.5
Other --- --- .1
$9.3 $7.7 $6.1
Environmental Matters
In connection with the Company's separation from Transamerica
in 1986, three of the Company's properties required
compliance with the New Jersey Environmental Cleanup
Responsibility Act, which was amended by the Industrial Site
Recovery Act ("ISRA"). ISRA required that the Company's
three New Jersey industrial establishments undergo an
approved remediation by the New Jersey Department of
Environmental Protection and Energy (the "NJ DEP").
Remediation has been completed at two sites and final closure
approvals have been sought. As a result of the sale of a
portion of the third establishment, this site has been
divided into two separate sites for ISRA compliance. Both
sites have undergone cleanup but the NJ DEP has requested and
received from the Company additional sampling information.
If further cleanup is required, the Company does not expect
it to have a material adverse effect on its financial
condition.
The Company has been identified in a number of instances as a
"Potentially Responsible Party" by the U.S. Environmental
Protection Agency, and in one instance the State of
Washington, with respect to the disposal of hazardous wastes
at a number of facilities that have been targeted for clean-
up pursuant to the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA") or similar State
law. Although CERCLA and corresponding State law liability
is joint and several, the Company believes that its liability
will not have a material adverse effect on the financial
condition of the Company since it believes that it either
qualifies as a de minimis or minor contributor at each site.
Accordingly, the Company believes that the portion of
remediation costs that it will be responsible for will
therefore not be material.
The Company has operations in numerous locations, some of
which require environmental remediation. The Company,
however, does not know of or believe that any such matters or
the cost of any required corrective measure, either
individually or in the aggregate, will have a material
adverse effect on the financial condition of the Company.
There can be no assurance, however, that these matters, or
other environmental matters not currently known to the
Company will not have such a material adverse effect.
Employees
At December 31, 1996, the Company employed approximately
3,900 persons worldwide, of which 3,700 relate to continuing
operations. Approximately 2,000 persons were employed in the
United States, and approximately 1,900 persons were employed
outside of the United States. Approximately 1,800 of the
employees associated with continuing operations are located
in the United States. There are approximately 900 persons
worldwide covered by collective bargaining agreements with
various unions expiring at various dates in 1997 through
1999. The Company considers its relations with its employees
to be satisfactory.
Item 2. Properties.
The Company's continuing operations have 27 manufacturing
facilities in 9 states in the United States, the United
Kingdom, Germany, Italy, France, Poland, Singapore, Sweden,
Switzerland, and Australia of which 18 are owned and 9 are
leased. In addition, the Company owns 7 closed manufacturing
facilities (approximately .8 million square feet of building
space on 110 acres of land) that are being offered for sale.
The properties owned by the Company consist of approximately
2.2 million square feet of building space, inclusive of the
.8 million square feet of the closed facilities, on
approximately 324 acres (including 169.6 acres of undeveloped
land). The leases expire over a period of years from 1998 to
2054 with renewal options for varying terms contained in 3 of
the leases. The Company's executive office, which is leased
by the Company, is located in Lawrenceville, New Jersey, and
occupies approximately 37,140 square feet.
The Company believes that its machinery, plants and offices
are in satisfactory operating condition and are adequate for
the uses to which they are put. The Company believes that
its properties have sufficient capacity to substantially
increase their current utilization without incurring
significant additional capital expenditures.
The manufacturing facilities of the Company (excluding those
held for sale) by business segment are summarized below:
Square Feet of
Building Space
Number of Plants (In thousands)
Owned Leased Owned Leased
Power Transmission 4 --- 366 ---
Pumps 4 1 570 2
Instrumentation 3 --- 107 ---
Morse Controls 5 5 335 268
Roltra-Morse 2 3 55 260
Continuing Operations 18 9 1,433 530
Discontinued Operations --- 2 --- 140
18 11 1,433 670
Item 3. Legal Proceedings.
In August 1985, the Company was named as defendant in a
lawsuit filed in the U.S. District Court, Southern District
of New York, by Long Island Lighting Company ("LILCO")
following the severing of a crankshaft in a diesel generator
sold to LILCO by the Company. LILCO's complaint contained 11
counts, including counts for breach of warranty, negligence
and fraud, and sought $250 million in damages. In various
decisions from 1986 through 1990, 10 of the original 11
counts and various additional amended counts were dismissed,
with only the original breach of warranty count remaining.
In September 1993, the Second Circuit Court of Appeals
affirmed a previous trial court decision entering a judgment
against the Company in the amount of $18.3 million, and in
October 1993, the judgment was satisfied by payment to LILCO
of approximately $19.3 million (which amount included
approximately $1.0 million of post-judgment interest) by
International Insurance Company ("International") and Granite
State Insurance Co. ("Granite State").
In January 1993, the Company was served with a complaint in a
case brought in the U.S. District Court for the Northern
District of California by International alleging that, among
other things, because International policies did not cover
the matters in question in the LILCO case, it was entitled to
recover $10 million in defense costs previously paid in
connection with such case and $1.2 million of the judgment
which was paid on behalf of the Company. In June 1995, the
Court entered a judgment in favor of International awarding
it $11.2 million, plus interest from March 1995 (the
"International Judgment"). The International Judgment,
however, was not supported by an order, and in July 1995, the
court vacated the International Judgment as being premature
because certain outstanding issues of recoverability of the
$10 million in defense costs had not been finally determined.
The Company is awaiting a final decision. If the
International Judgment is reinstated, the Company intends to
appeal. If the ultimate outcome of this matter is
unfavorable, the Company will record a charge for the
judgment amount plus accrued interest.
The Company and one of its subsidiaries are two of a large
number of defendants in a number of lawsuits brought in
various jurisdictions by approximately 6,100 claimants who
allege injury caused by exposure to asbestos. Although
neither the Company nor any of its subsidiaries has ever been
a producer or direct supplier of asbestos, it is alleged that
the industrial and marine products sold by the Company and
the subsidiary named in such complaints contained components
which contained asbestos. Suits against the Company and its
subsidiary have been tendered to their insurers who are
defending under their stated reservation of rights. In
addition, the Company and the subsidiary are named in cases
involving approximately 20,000 claimants which in 1996 were
"administratively dismissed" by the U.S. District Court for
the Eastern District of Pennsylvania. Cases that have been
"administratively dismissed" may be reinstated only upon a
showing to the Court that (i) there is satisfactory evidence
of an asbestos-related injury; and (ii) there is probative
evidence that the plaintiff was exposed to products or
equipment supplied by each individual defendant in the case.
Should settlements for these claims be reached at levels
comparable to those reached by the Company in the past, they
would not be expected to have a material effect on the
Company.
There are lawsuits pending against the Company in the U.S.
District Court for the Western District of Pennsylvania
alleging component failures in equipment sold by its former
diesel engine division and claiming damages of approximately
$3.0 million, and in the Circuit Court of Cook County,
Illinois, alleging performance shortfalls in products
delivered by the Company's former Delaval Turbine Division
and claiming damages of approximately $8.0 million. Each
lawsuit is in the discovery stage and the Cook County suit is
scheduled for trial in late 1997.
The major portion of the Company's former Electro-Optical
Systems business was sold to Litton Industries in a
transaction, which closed on June 2, 1995. The sales
contract between the Company and Litton Industries provided
certain representations and warranties as to the status of
the business at the time of the sale. By letters dated
November 19, 1996 and November 26, 1996, Litton has notified
the Company of claims under the representations and warranty
provisions for: (1) environmental losses of unspecified
amounts, and (2) anticipated losses in excess of $9 million
under a U.S. Government contract as a result of the Company's
alleged failure to notify Litton of a reasonably anticipated
loss under a bid that was pending at the time of transfer of
the business. The contract was subsequently awarded to the
Company's Varo subsidiary and thereafter transferred to
Litton. The Company has preliminarily analyzed the
supporting documentation provided by Litton and has notified
Litton that it disputes the nature, validity, and amount of
the claims of losses and objects to the timeliness of
submission of notice to the Company with respect to the
claims. The Company believes the claims are without merit
and intends to vigorously defend against the claims.
The operations of the Company, like those of other companies
engaged in similar businesses, involve the use, disposal and
clean-up of substances regulated under environmental
protection laws. In a number of instances the Company has
been identified as a Potentially Responsible Party by the
U.S. Environmental Protection Agency, and in one instance by
the State of Washington, with respect to the disposal of
hazardous wastes at a number of facilities that have been
targeted for clean-up pursuant to CERCLA or similar State
law. Although CERCLA and corresponding State law liability
is joint and several, the Company believes that its liability
will not have a material adverse effect on the financial
condition of the Company since it believes that it either
qualifies as a de minimis or minor contributor at each site.
Accordingly, the Company believes that the portion of
remediation costs that it will be responsible for will not be
material. For additional information see section entitled
Environmental Matters in Part I, Item 1 of this Form 10-K
Report.
With respect to the litigation and claims described in the
preceding paragraphs, management of the Company believes that
it either expects to prevail, has adequate insurance coverage
or has established appropriate reserves to cover potential
liabilities. There can be no assurance, however, as to the
ultimate outcome of any of these matters.
The Company is also involved in various other pending legal
proceedings arising out of the ordinary course of the
Company's business. None of these legal proceedings is
expected to have a material adverse effect on the financial
condition of the Company. A range of possible outcomes for
all of these legal proceedings currently cannot be estimated.
However, if all or substantially all of these legal
proceedings were to be determined adversely to the Company,
there could be a material adverse effect on the financial
condition of the Company.
See Note 14 to the Consolidated Financial Statements located
in Part IV of this Form 10-K Report as indexed at Item
14(a)(1) for additional details relating to Contingencies.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security
holders during the fourth quarter of 1996.
Executive Officers of the Registrant
The following table sets forth information concerning the
names, ages and principal occupations of the executive
officers of the Company:
Name Age Principal Occupation
Donald K. Farrar * 58 Chairman, Chief Executive Officer and
President
Thomas J. Bird, Jr. 53 Executive Vice President, General Counsel
and Secretary
William M. Brown 54 Executive Vice President, Chief Financial
Officer and Corporate Controller
John J. Carr 54 Executive Vice President
Donald N. Rosenberg 56 Senior Vice President, Human Resources
Robert A. Derr II 51 Vice President and Treasurer
Frederick W. Wojtowicz 45 Vice President and Director of Tax
* This executive officer is a director of the Company whose
current term as a director will expire in 1998.
Donald K. Farrar joined the Company as Chief Executive
Officer and President in September 1993 and was elected
Chairman in June 1994. Prior to joining the Company, Mr.
Farrar held various positions with Textron, Inc. and Avco
Corporation for 24 years. He served as President, Chief
Operating Officer and director of Avco until its 1985
acquisition by Textron. Thereafter, he served as Senior
Executive Vice President, Operations and a director of
Textron, Inc. until December 1989. From January 1990 until
joining the Company, Mr. Farrar was a private investor.
Thomas J. Bird, Jr. was promoted to his current position in
October 1994. Mr. Bird served as Senior Vice President,
General Counsel and Secretary from June 1992 to October 1994,
and as Vice President and Associate General Counsel from July
1990 to June 1992. Prior to joining the Company in July
1990, Mr. Bird held various positions with General Electric
Company for 18 years, most recently as Group Counsel, RCA
Aerospace and Defense division from August 1987 to February
1988 and as General Counsel to GE Aerospace of General
Electric Company from February 1988 until joining the
Company.
William M. Brown joined the Company as Executive Vice
President and Chief Financial Officer in June 1992, and
assumed the additional responsibility of Corporate Controller
in January 1996. Prior to joining the Company, Mr. Brown held
various positions with ITT Corporation for 25 years, most
recently as Corporate Assistant Controller and General
Auditor from December 1986 to April 1991 and as Corporate
Vice President and Assistant Controller from April 1991 until
joining the Company.
John J. Carr was promoted to his current position in July
1989. From July 1985 to July 1989, Mr. Carr was a Group
Vice President of the Company. Mr. Carr is responsible for
the Morse Controls, Pumps, Power Transmission and
Instrumentation business segments of the Company.
Donald N. Rosenberg joined the company in his current
position in May 1996. Previously, he was Director, Global
Compensation, Benefits and HR Systems for Halliburton Energy
Services from 1995 to May 1996. From 1992 to 1995, Mr.
Rosenberg was an independent human resources consultant, with
Jostens Inc. as a primary client. Prior to 1992, Mr.
Rosenberg held various positions with Xerox Corporation for
25 years, most recently as Corporate Manager, U.S. and
International Compensation.
Robert A. Derr II joined the Company as Vice President and
Corporate Controller in 1988. Mr. Derr was promoted to Vice
President and Treasurer in January 1996. Prior to joining
the Company, Mr. Derr held various positions with The Stanley
Works for nine years, most recently as Director of Corporate
Accounting from 1982 to 1986 and as the Controller of the
Vidmar Division of The Stanley Works from 1986 until joining
the Company.
Frederick W. Wojtowicz was promoted to his current position
in October 1994. Mr. Wojtowicz served as Executive Director
of Tax from July 1988 to October 1994. Prior to joining the
Company in July 1988, Mr. Wojtowicz held various positions
with Ernst & Young LLP, most recently as Senior Tax Manager.
Each of these executive officers will hold office until his
successor is chosen and qualifies or until his earlier
resignation or removal. Any officer may be removed at any
time by the Board of Directors without prejudice to any
contract rights that he may have.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company's common stock (the "Common Stock") is listed on
the New York Stock Exchange (stock symbol IMD). The
following table sets forth, for the quarters indicated, the
high and low closing price per share for the Common Stock as
reported on the New York Stock Exchange Composite Tape and
the amount of per share cash dividends declared by the
Company during each quarter on its Common Stock.
Declared
Dividend
High Low Per Share
1995:
1st Quarter 11-1/2 6-1/4 ---
2nd Quarter 9-1/8 6-1/2 ---
3rd Quarter 9-7/8 8-1/4 ---
4th Quarter 9 5-3/4 ---
1996:
1st Quarter 7-5/8 5-3/4 ---
2nd Quarter 8-1/8 5-3/8 ---
3rd Quarter 5-7/8 4-7/8 ---
4th Quarter 5-1/2 2-3/4 ---
1997:
1st Quarter 3-7/8 2-7/8 ---
(through March 14, 1997)
The last sale price for the Company's Common Stock as
reported by the New York Stock Exchange on March 14, 1997,
was $3 per share. As of March 14, 1997, there were
approximately 18,490 holders of record of the Company's
Common Stock.
Two of the Company's long-term debt agreements contain, among
other provisions, a restriction on retained earnings
available for payment of dividends. Under the most
restrictive provisions the Company is prohibited from
declaring or paying cash dividends through at least April 30,
2003.
Item 6. Selected Financial Data.
(Dollars in millions except per share amounts)
Year Ended December 31, (a) 1996 1995* 1994* 1993* 1992*
Net sales $468.6 $472.4 $463.9 $494.2 $573.2
Gross profit 132.6 131.9 130.8 144.5 143.9
Selling, general and
administrative expenses 95.2 87.9 86.8 108.5 112.7
Research and development
expenses 9.3 7.7 6.2 9.2 9.9
Unusual items 24.6 10.2 --- 15.7 16.7
Income from continuing
operations before
interest expense, income
taxes, minority interest,
extraordinary item and
change in accounting
principle 4.9 29.3 40.5 12.0 7.0
Interest expense 33.3 31.5 34.0 38.4 44.5
Income (loss) from
continuing operations
before extraordinary
item and cumulative
effect of change in
accounting principle (41.8) 12.5 3.6 (40.1) (25.8)
Discontinued operations,
net of taxes (8.1) 21.6 5.6 (212.4) (29.2)
Extraordinary item (8.5) (4.4) (5.3) (18.1) ---
Cumulative effect of
change in accounting
principle, net of taxes (b) --- --- --- --- (27.6)
Net income (loss) (58.4) 29.7 3.9 (270.6) (82.6)
Earnings (loss) per share:
Continuing operations
before extraordinary
item and cumulative
effect of change in
accounting principle (2.44) .73 .22 (2.37) (1.53)
Discontinued operations (.48) 1.27 .32 (12.58) (1.73)
Extraordinary item (.49) (.26) (.31) (1.07) ---
Cumulative effect of
change in accounting
principle --- --- --- --- (1.64)
Net income (loss) (3.41) 1.74 .23 (16.02) (4.90)
Cash dividends per share --- --- --- --- .375
Capital expenditures 18.0 20.9 9.2 10.4 15.0
Depreciation and
amortization expense 19.8 19.1 22.0 23.2 24.2
Working capital 44.1 62.8 135.2 107.1 111.0
Total assets:
Continuing operations 396.8 422.0 414.3 454.9 583.8
Discontinued operations 14.8 12.9 145.0 141.7 328.0
Total assets 411.6 434.9 559.3 596.6 911.8
Total long-term debt
including current portion 266.9 233.9 394.0 362.3 399.4
Shareholders' equity
(deficit) (54.9) 5.3 (28.0) (35.7) 239.4
(a) The notes to the consolidated financial statements located in Part IV
of this Form 10-K Report as indexed at Item 14(a)(1) should be read
in conjunction with this summary.
(b) In 1992, the Company adopted FASB Statement No. 106 "Employer's
Accounting for Postretirement Benefits Other Than Pensions."
*Restated to conform to 1996 presentation.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis of the Company's
consolidated results of operations and financial condition
should be read in conjunction with the audited Consolidated
Financial Statements included elsewhere in this Form 10-K
Report.
Recent Events
In April 1996, the Company refinanced all of its domestic
debt. Under the terms of the refinancing, the Company issued
$155 million of 11.75% senior subordinated notes due in 2006
(the "Notes"), priced at a discount to yield 12%. The
Company also entered into an agreement for $175 million in
senior secured credit facilities with a group of lenders (the
"New Credit Agreement"), which provides for a $70 million
revolving credit facility (including a letter of credit sub-
facility) through April 30, 2001. In addition, the New
Credit Agreement provided a $25 million term loan amortizing
to April 2001, a $35 million term loan amortizing to April
2001, and a $45 million term loan amortizing to April 2003.
See "Liquidity and Capital Resources" for further details.
On November 11, 1996 the Company announced the withdrawal
from its divestiture program of the Roltra-Morse business,
the Company's Italian subsidiary, because threats made by an
unsuccessful bidder for the business to revoke certain
license agreements made it impossible for the Company to
receive fair value for the business. The Company has filed a
lawsuit to resolve this matter. Roltra-Morse has been
reclassified as a continuing operation and prior years
results have been restated to reflect this change.
The Company had a net loss of $58.4 million on sales of
$468.6 million for the year ended December 31, 1996, largely
as a result of nonrecurring charges as described in the
paragraphs below. In 1995 and 1994, net income was $29.7
million and $3.9 million, on sales of $472.4 million and
$463.9 million, for each of these years, respectively. Net
income (loss) per share by component is summarized below:
Earnings (loss) per share: 1996 1995 1994
Continuing Operations
Before Extraordinary Item $ (2.44) $ .73 $ .22
Discontinued Operations (.48) 1.27 .32
Extraordinary Item (.49) (.26) (.31)
Net income (loss) $ (3.41) $ 1.74 $ .23
Both the fourth quarter and the full year 1996 results were
negatively impacted by the withdrawal of Roltra-Morse from
sale. Roltra-Morse had an operating loss before interest,
taxes and minority interest of $10.2 million for the fourth
quarter of 1996 and an $8.9 million loss for the year,
compared to income of $6.3 million for the full year 1995.
The 1996 loss corresponds to a decrease in sales for the year
of $18.9 million or 19%, reflecting the decline in Fiat auto
sales in Italy, the principal market for the auto components
produced by Roltra-Morse. In addition, the 1996 loss includes
$6.2 million in restructuring charges and write-off of
goodwill. These restructuring measures are expected to reduce
operating expenses, improve the effectiveness of engineering
resources and produce cost savings in 1997.
In addition to the Roltra-Morse operating results, the 1996
results were severely impacted by $27.1 million of other non-
cash charges, necessitated by the withdrawal of Roltra-Morse
from sale. These charges included a $17.1 million fourth
quarter charge to reflect the expected realizable values of
other assets approved for sale in replacement of Roltra-Morse
and the third quarter reversal of $10 million of favorable
tax benefits that had been associated with the planned Roltra-
Morse divestiture.
The 1996 results also reflect largely non-cash charges of
$8.1 million related to discontinued operations previously
sold, and $8.5 million related to the Company's debt
refinancing in April 1996.
The third and fourth quarter 1996 losses placed the Company
in technical violation of certain covenants under the New
Credit Agreement. The Company initially received a waiver of
these violations through December 20, 1996, which waiver was
extended through February 20, 1997. On February 19, 1997,
the Company reached an agreement with its senior lenders to
amend the covenants of the New Credit Agreement under which
all previous defaults have been permanently waived and the
Company intends to sell approximately $50.0 million of non-
core assets, about one third of which is non-operating real
estate, and use the proceeds to reduce senior debt.
On March 21, 1997, the Company announced that it had retained
Credit Suisse First Boston to help it explore strategic
alternatives including the possibility of a merger or sale of
the Company. The impact of this action, if any, on the
remaining asset sales is uncertain at this time.
Restructuring Plans
Background
In October 1992, the Company determined that it needed to de-
lever its balance sheet through the sale of certain
businesses and the application of the proceeds from the
divestitures to reduce debt. Pursuant to this decision, the
Company divested its Heim Bearings, Aerospace, Barksdale
Controls and CEC Instruments businesses. In 1993, management,
under Donald K. Farrar, who became Chief Executive Officer in
September 1993, initiated a strategy to reposition the
Company to focus on its less capital intensive businesses
that exhibited strong brand name recognition, a broad
customer base and market leadership with less dependence on
U.S. Government sales. In connection with this strategy, the
Company divested its Turbomachinery and most of its Electro-
Optical Systems businesses during 1995 and had planned to
sell its Roltra-Morse business in 1996. See "Liquidity and
Capital Resources" for further details.
In January 1997, other assets were identified and approved
for sale in replacement of the previously planned sale of
Roltra-Morse. These assets include non-strategic business
units within the Company's Power Transmission and Morse
Controls segments.
1996 Asset Sales
During 1996, the Company completed the sales of five of its
non-operating real estate holdings for net proceeds of $8.6
million. The proceeds were used to repay the Company's
domestic senior debt.
Remaining Asset Sales
The Company entered into a definitive agreement in September
1996 to sell the Varo Electronic Systems division, the
remaining portion of its former Electro-Optical Systems
business, to a small defense contractor for approximately net
book value. This agreement expired in November 1996 and was
subsequently renegotiated and reinstated in January 1997.
The buyer has secured the necessary financing to purchase
this business. The Company expects to complete the sale in
the second quarter of 1997 and will use the net proceeds to
reduce debt.
Assets currently held for sale include non-strategic business
units of the Company's Power Transmission and Morse Controls
segments, as well as certain non-operating real estate
originally identified for sale in October 1992. The fourth
quarter of 1996 includes a charge of $17.1 million to adjust
the value of these assets to the expected net realizable
values. The Company targets completion of these sales over
the next 12 months and will apply the net proceeds to reduce
debt.
Cost Reduction Programs
1996 Program. The fourth quarter of 1996 includes a charge
of $7.4 million to continuing operations for restructuring
measures taken at several of the Company's European
operations to further reduce operating expenses. The Company
completed an evaluation of its Roltra-Morse operations during
the fourth quarter to determine what structural and other
changes were necessary to position this business for
profitable future growth. The portion of the charge related
to Roltra-Morse was $6.2 million, which includes severance,
certain other costs and a write-off of goodwill. The
restructuring measures at Roltra-Morse are expected to reduce
operating expenses, improve the effectiveness of engineering
resources and produce cost savings in 1997. The remaining
restructuring charges relate to severance costs and other
expenses related to further restructuring at the Company's
Gems European operations and Morse German operation.
The 1996 cost reduction program is expected to reduce
expenses by approximately $2.6 million in 1997 and $3.8
million annually thereafter. This program includes a
reduction of 126 employees in Europe, or 3.3% of the total
number of Company employees at the end of 1996. The required
cash outlay related to this program was $.4 million in 1996
and the expected cash requirements during 1997 are $3.1
million. The remainder represents non-cash charges.
1995 Program. In the fourth quarter of 1995, the Company
recorded a charge to continuing operations of $5.2 million,
including severance and other expenses related to a Company-
wide program to reduce general and administrative costs.
This program included a reduction of 65 employees, or 2% of
the total number of Company employees at the end of 1995,
including a reduction of the corporate headquarters staff by
20%. This program reduced general and administrative
expenses by approximately $2.7 million in 1996, and is
expected to reduce general and administrative expenses by
approximately $3.2 million in 1997, $4.1 million in 1998 and
annually thereafter. The 1996 benefit realized from this
program was offset by certain increases in selling and other
expenses. See "Results of Operations" below. The required
cash outlays related to this program were $.6 million and
$3.1 million in 1995 and 1996, respectively. The expected
final cash outlay during 1997 related to the restructuring of
the Company's Morse German operation which was delayed in 1996, is
$.3 million. The remainder represents non-cash charges.
Results of Operations
The Company's remaining Electro-Optical Systems business is accounted
for as a discontinued operation. Accordingly, the operating
results of this business have been segregated and reported as
Discontinued Operations in the audited Consolidated Financial
Statements included elsewhere in this Form 10-K Report. The
discussion that follows concerns only the results of
continuing operations, which are grouped into five business
segments for management and segment reporting purposes: Power
Transmission, Pumps, Instrumentation, Morse Controls and
Roltra-Morse.
1996 Compared to 1995
Sales. Net sales from continuing operations in 1996 were
$468.6 million, compared with $472.4 million in 1995. Sales
increases of 14.0%, 3.7% and 4.5% in the Pumps,
Instrumentation and Morse Controls segments, respectively,
were offset by decreases of 5.9% in the Power Transmission
segment and 19.1% in the Roltra-Morse segment in 1996
compared with 1995. See "Segment Operating Results" below.
Gross Profit. The gross profit in 1996 increased slightly to
28.3% of sales compared with 27.9% in 1995. See "Segment
Operating Results" below.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased $7.4 million,
or 8.4%, in 1996 over the 1995 level. The net increase
reflects approximately $2.0 million in additional costs
related to the recent acquisitions of RMH in late December
1995 and Imo Pompes SA in March 1996, other net increases
of approximately $8.6 million from the Company's operating
segments and approximately $1.0 million in costs associated
with the unsuccessful attempt to sell Roltra-Morse. These
increases were partially offset by a decrease in expenses of
$2.7 million associated with the cost reduction program
adopted in the fourth quarter of 1995, net reductions of
approximately $1.2 million to previously recorded provisions,
and a net reduction of approximately $.5 million in other
expenses. The net increase of $8.6 million from the
operating segments reflects increased selling expenses of
$2.0 million primarily related to planned increases at the
Pumps and Instrumentation segments and increased general and
administrative expenses of $6.6 million related primarily to
the Roltra-Morse segment representing a series of
individually insignificant items and the effect of expense
reductions experienced in 1995 which did not recur in 1996.
See also discussion of Pensions and Retiree Medical and Life
Insurance under "Other Operating Results" below.
Interest Expense. Average borrowings in 1996 were
approximately $2.8 million higher than in 1995. Total
interest expense (before allocation to discontinued
operations) of $35.1 million in 1996 was $1.3 million, or
3.6%, less than in 1995, principally due to the refinancing
of the corporate debt at more favorable interest rates.
Interest expense for continuing operations excludes interest
expense allocated to discontinued operations of $1.8 million
in 1996 and $5.0 million in 1995.
Income (Loss) from Continuing Operations. The Company had a
loss from continuing operations of $41.8 million, or $2.44
per share, in 1996, which included unusual charges of $24.6
million and a reversal of a previously recognized deferred
tax benefit of $10.0 million. A significant portion of the
1996 loss is attributable to the poor results of the
Company's Roltra-Morse business and to the fact that the
Company was unable to sell this business as previously
planned. In 1995, income from continuing operations was
$12.5 million, or $.73 per share, which included unusual
charges of $10.2 million and a deferred tax benefit of $17.0
million. See "Other Operating Results" for discussion
regarding Unusual Items and Provision for Income Taxes.
Income (Loss) from Discontinued Operations. The Company had
a loss from discontinued operations of $8.1 million, or $.48
per share, in 1996 as compared to income of $21.6 million
(net of income tax expense of $5.2 million), or $1.27 per
share, in 1995.
Operating results from discontinued operations was income of
$.4 million and a loss of $1.4 million in 1996 and 1995,
respectively. Results from operations for the discontinued
operations include allocations for interest of $1.8 million
in 1996 and $5.0 million in 1995. The 1996 net income was
netted against the increase in estimated reserve
requirements, while the 1995 net loss, including allocated
interest, was charged against the reserve for anticipated
losses previously established by the Company.
The loss on sale of discontinued operations of $8.1 million
in 1996 represents charges recorded by the Company in the
third and fourth quarters of 1996 related to changes in
estimates on legal and other reserve requirements of retained
liabilities associated with its former Electro-Optical and
Turbomachinery businesses. The Company performs a review of
the assumptions used in determining the estimated loss from
discontinued operations on a quarterly basis. Management
believes that the recorded amount is adequate. The amounts
of the recorded liabilities, which are based on current
estimates, may differ from actual results. The gain on sale
of discontinued operations recorded in 1995 includes an
aggregate net gain of $21.6 million on the sale of the
Company's former Turbomachinery business and substantially
all of its former Electro-Optical Systems business.
The Company retained certain liabilities upon the 1995 sales
of the Electro-Optical Systems and Turbomachinery businesses
of approximately $21.0 million and $28.0 million,
respectively. Required cash outlays in 1996 and 1995 were
$6.5 million and $5.7 million, related to the former Electro-
Optical Systems business, and $4.1 million and $14.1 million,
related to the former Turbomachinery business. The expected
1997 cash requirements are approximately $4.6 million and
$3.9 million for liabilities related to the Electro-Optical
Systems and Turbomachinery sales, respectively.
Net Income (Loss). The net loss in 1996 was $58.4 million
compared with income of $29.7 million in 1995. Net loss per
share in 1996 was $3.41 compared with net income per share of
$1.74 in 1995.
1995 Compared to 1994
Sales. Net sales from continuing operations in 1995 were
$472.4 million, compared with $463.9 million in 1994. Sales
from core operations (excluding operations sold in 1994 that
were not accounted for as discontinued operations) increased
2.9% in 1995 compared with the 1994 level of $459.1 million.
All sales in 1995 were from core operations. The Company's
Power Transmission, Pumps, Instrumentation and Morse Controls
business segments contributed to this 1995 sales increase,
partially offset by a decrease in sales from the Roltra-Morse
business compared to 1994. See "Segment Operating Results"
below.
Gross Profit. The gross profit in 1995 remained relatively
constant at 27.9% of sales compared with 28.2% in 1994. See
"Segment Operating Results" below.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses as a percent of sales
remained relatively constant at 18.6% in 1995 compared with
18.7% in 1994. General and administrative expenses decreased
in 1995 due principally to a full year of cost savings
attributable to a year-end 1993 cost reduction program. A
portion of the savings was offset by increased selling
expenses resulting from the Instrumentation segment's efforts
to expand marketing of transducer products in the United
States and Gems products in Europe, as well as to increase
sales in the Far East markets. Research and development
expenditures were 1.3% of sales in both 1995 and 1994.
Interest Expense. Average borrowings in 1995 were
approximately $120 million lower than in 1994. As a result,
total interest expense (before allocation to discontinued
operations) of $36.4 million in 1995 was $15.3 million, or
30%, less than in 1994. Interest expense for continuing
operations excludes interest expense allocated to
discontinued operations of $5.0 million in 1995 and $17.4
million in 1994.
Income from Continuing Operations. The Company had income
from continuing operations of $12.5 million, or $.73 per
share, in 1995, which included unusual charges of $10.2
million and a deferred tax benefit of $17.0 million. In
1994, income from continuing operations was $3.7 million, or
$.22 per share. See "Other Operating Results" for discussion
regarding Unusual Items and Provision for Income Taxes.
Income from Discontinued Operations. The Company had income
from discontinued operations of $21.6 million (net of income
tax expense of $5.2 million), or $1.27 per share, in 1995 as
compared to income of $5.6 million (net of income tax expense
of $.8 million), or $.32 per share, in 1994. The income
recorded in 1995 includes an aggregate net gain of $21.6
million on the sale of the Company's former Turbomachinery
business and substantially all of its former Electro-Optical
Systems business. Results from operations for the
discontinued operations include allocations for interest of
$5.0 million and $17.4 million for 1995 and 1994,
respectively.
Net Income. Net income in 1995 was $29.7 million compared
with $3.9 million in 1994. Net income per share in 1995 was
$1.74 compared with a net income per share of $.23 in 1994.
Other Operating Results
Unusual Items. During the fourth quarter of 1996, the
Company recognized unusual charges of $24.6 million in income
from continuing operations. Restructuring charges totaled
$7.4 million, including $4.6 million in severance benefits
and other expenses related to measures taken to further
reduce general and administrative costs and $2.8 million
related to the impairment of certain long-lived assets ($.9
million included in the Instrumentation segment, $.3 million
included in the Morse Controls segment and $6.2 million
included in the Roltra-Morse segment). Additionally, a
charge of $17.1 million was recognized related to the write-
down of other assets approved for sale in replacement of
Roltra-Morse and certain non-operating real estate to net
realizable value (included in Corporate Expense). Of the
$24.6 million of unusual charges, the required cash outlay in
1996 was $.4 million and the expected cash requirements
during 1997 are $4.1 million. The remainder represents non-
cash charges.
During the fourth quarter of 1995, the Company recognized
unusual charges of $10.2 million in income from continuing
operations. These charges include $5.2 million in severance
benefits and other expenses related to a Company-wide program
to reduce general and administrative costs ($.9 million
included in the Instrumentation segment, $1.5 million
included in the Morse Controls segment, $1.2 million included
in the Roltra-Morse segment, and $1.6 million included in
Corporate Expense). In addition, the unusual charges include
$5.0 million related to the write-down of non-operating real
estate to net realizable value (included in Corporate
Expense). Of the $10.2 million of unusual charges, the
required cash outlays in 1995 and 1996 were $.6 million and
$3.1 million, respectively, and the expected cash
requirements during 1997 are $.3 million. The remainder
represents non-cash charges.
Extraordinary Items. As a result of the 1996 refinancing of
the Company's domestic debt, the twelve months ended December
31, 1996 include an extraordinary charge of $8.5 million
after-tax, representing the charges incurred in connection
with the early extinguishment of debt as well as the write-
off of previously deferred loan costs.
The twelve months ended December 31, 1995 include an
extraordinary charge of $4.4 million after-tax, representing
charges related to the early extinguishment of portions of
the Company's debt under its previous credit facility (the
"Old Credit Agreement") and its formerly outstanding 12.25%
senior subordinated debentures.
The twelve months ended December 31, 1994 include an
extraordinary charge of $5.3 million after-tax, $.31 per
share, representing fees and charges related to
extinguishment of debt in connection with the restructuring
of the Company's credit facilities in August 1994.
Provision for Income Taxes. Income tax expense from
continuing operations was expense of $13.7 million for 1996,
a benefit of $13.9 million for 1995, and expense of $2.4
million for 1994. The 1996 amount includes current tax
expense of $3.7 million representing foreign and state income
taxes. Additionally, as a result of withdrawing Roltra-Morse
from sale in 1996 the Company recognized a provision of $10.0
million against deferred tax benefits previously recognized
based on an anticipated gain on the sale. In 1995, the
Company reduced the valuation allowance applied against the
net operating loss carryforwards by $17.0 million based upon
reasonable and prudent tax planning strategies and future
income projections including the planned sale of Roltra-
Morse. As a result of withdrawing Roltra-Morse from sale in
1996, the Company recorded a provision of $10.0 million
against deferred tax benefits previously recognized based on
an anticipated gain on this sale. This reduced the deferred
tax benefit to $5.1 million at December 31, 1996, to a level
where management believes that it is more likely than not
that the tax benefit will be realized. The total amount of
future taxable income in the U.S. necessary to realize the
asset is approximately $14.0 million. The Company expects to
generate this income principally through the implementation
of reasonable tax planning strategies and future income
projections, including an anticipated reduction of interest
expense of approximately $2.5 million in 1997 and $5.0
million annually thereafter. This interest cost savings is
based on debt reductions from proceeds of the planned sale of
approximately $50.0 million of non-core assets. See "Recent
Events" above. Although the Company has a history of prior
losses, these losses were primarily attributable to divested
businesses and unusual items. The remaining valuation
allowance is necessary due to the uncertainty of future
income estimates.
The 1995 amount includes current tax expense of $3.1 million
representing foreign and state income taxes, as the Company
is utilizing existing U.S. net operating loss carryforwards
on its domestic earnings. This amount is offset by a
deferred tax benefit in 1995 of $17.0 million, representing a
reduction, taken when Roltra-Morse was approved to be held
for sale, in the deferred tax valuation allowance against
U.S. net operating loss carryforwards. The 1994 income tax
expense represents foreign and state income taxes.
The Company establishes valuation allowances in accordance
with the provisions of FASB Statement No. 109, "Accounting
for Income Taxes." The Company continually reviews the
adequacy of the valuation allowance and is recognizing these
benefits only as reassessment indicates that it is more
likely than not that the benefits will be realized.
The Company has net operating loss carryforwards of
approximately $106 million expiring in years 2002 through
2011, and minimum tax credits of approximately $2.1 million,
which may be carried forward indefinitely. Included in the
net operating loss carryforwards are foreign tax credits of
approximately $7.4 million, expiring through 2001, which for
financial and tax reporting purposes, are reflected as
deductible foreign taxes. These carryforwards are available
to offset future taxable income. These existing tax loss
carryforwards will allow the Company's future earnings to be
essentially free from the payment of U.S. taxes for the
foreseeable future.
Taxes have not been provided on the unremitted earnings of
foreign subsidiaries since it is the Company's intention to
indefinitely reinvest these earnings overseas. The amount of
foreign withholding taxes that would be payable on remittance
of these earnings is approximately $.9 million.
Pensions and Retiree Medical and Life Insurance. In March
1994, the Company amended its policy regarding retiree
medical and life insurance plans. This amendment, which
affects some current retirees and all future retirees, phased
out the Company subsidy for retiree medical and life
insurance over the three-year period ended December 31, 1996.
The Company amortized the associated reserves to income from
continuing operations over the phase-out period. The pre-tax
amounts amortized to income from continuing operations were
$4.3 million, $4.6 million and $4.4 million in 1996, 1995 and
1994, respectively. The Company did not experience a
significant increase or decrease in cash requirements related
to this change in policy during this phase-out period.
Effective with the December 31, 1996 measurement date, the
Company revised certain assumptions including the discount
rate, the expected long-term rate of return on assets and
mortality assumptions to reflect current market and
demographic conditions. These changes are not expected to
have a material effect on future year's pension expense or
Company expenses related to retiree medical and life
insurance.
Segment Operating Results
Operating results by business segment for the years 1996,
1995 and 1994 are summarized below:
Power Transmission: 1996 1995 1994
(in millions)
Net Sales $ 89.5 $ 95.1 $ 93.3
Segment Operating
Income 9.0 11.3 8.9
Power Transmission segment net sales and operating income
decreased 5.9% and 21.0%, respectively, in 1996 compared with
1995. The sales decrease was due to a market shift from DC
to AC drives and a downturn in the U.S. gear market in 1996,
resulting in major customers' adjusting their inventory
levels, after a relatively strong year in 1995. The 21.0%
decrease in segment operating income resulted from the sales
decrease and the higher unabsorbed costs experienced at the
decreased volumes.
In 1996, the segment successfully launched two compact new AC
variable speed drives for controlling electric motors from
1/6-to-1-horsepower, a range that covers 40% of the total
market for packaged drives in North America. Designed
primarily for use on pumps and ventilator fans, the new
"micro" inverter has more features and a lower price than
competitive units.
Power Transmission segment net sales remained strong across
substantially all markets in 1995, increasing 1.9% over 1994,
despite a nearly $2.0 million decline in sales to the
printing market. Operating income rose more than 25% for the
year, largely as a result of cost containment efforts and a
shift in product mix, which resulted in a higher level of
manufacturing activity.
Pumps: 1996 1995 1994
(in millions)
Net Sales $ 107.6 $ 94.4 $ 90.4
Segment Operating
Income 11.5 9.9 10.4
Pumps segment net sales increased 14.0% and operating income
increased 16.7% in 1996 compared with the prior year. The
results of Imo Pompes SA, a French licensee acquired in March
1996, contributed 5.7% and 9.7% to the net sales and segment
operating income increases in 1996. Additionally, the
segment is experiencing continued growth in its U.S.
industrial markets and strong export demand, driven by
products in crude oil transfer, power generation and general
industrial markets, as well as increased demand in the U.S.
marine market.
Pumps segment net sales in 1995 were up 4.4% from 1994, 2.1%
of which was the result of effects of foreign exchange rate
changes. However, segment operating income decreased 5.4%
due to a shift in product mix. Startup costs related to a new
line of corrosive-resistant composite pumps also adversely
affected income, as did expenses caused by now resolved
technical difficulties related to a custom, high performance
product order.
Instrumentation: 1996 1995 1994
(in millions)
Net Sales $ 78.9 $ 76.1 $ 72.2
Segment Operating
Income (1) 7.4 6.7 9.8
(1) The Instrumentation segment's operating income includes
unusual charges of $.9 million in both 1996 and 1995.
Instrumentation segment net sales increased 3.7% in 1996,
while operating income increased 9.3% compared to the prior
year. The segment's operating income continues to benefit
from the operational improvements made at a factory in
England, which were part of the 1995 restructuring program,
and increased demand in the U.S. Partially offsetting this
increase is the slowdown experienced in the European market
in general and a problem of delayed shipments from the U.K.
facility. A new management team has been put into place at
the Gems European operation, and the operation is beginning
to show improved results, particularly in relation to solving
the problem of delayed shipments from the U.K. facility.
Operating income was also negatively impacted in 1996 by $.9
million of restructuring charges for additional measures
being implemented in Europe.
The Instrumentation segment experienced a double-digit growth
rate in its industrial business in 1995, offset by a 40% drop
in sales to the U.S. Navy. The result was an overall
increase in net sales of 5.4% for the year. 1995 earnings
were negatively impacted by the costs associated with a
restructuring of this segment's European operations coupled
with a significant investment in new marketing and sales
initiatives.
During 1995, the Instrumentation segment closed its plant in
Frankfurt, Germany and shifted production of certain products
into a lower-cost manufacturing facility in the U.K. Total
fourth quarter costs relating to this relocation exceeded
$1.2 million, including $.9 million of unusual items. In
response to the growing global markets for fluid sensor
products, the Company spent an additional $2.0 million in
1995 to upgrade its sales and marketing organization and
launched several new marketing initiatives. The marketing
efforts included an aggressive new trade-advertising program
designed to produce a continuing source of new sales leads.
Morse Controls: 1996 1995 1994
(in millions)
Net Sales $ 112.5 $ 107.7 $ 100.1
Segment Operating
Income (1) 8.6 5.3 5.7
(1) The Morse Controls segment's operating income includes
unusual charges of $.3 million and $1.5 million in 1996 and
1995, respectively.
Morse Controls segment net sales of $112.5 million were up
4.5% for 1996, as compared with 1995 net sales. Segment
operating income increased 62.2% compared to the 1995 period.
Excluding unusual charges in both periods, operating income
increased 30.9% in 1996. The segment has been favorably
affected in 1996 by the acquisition of a Swedish manufacturer
of specialized electronic controls, which was completed in
late December 1995, and accounted for 4.9% of the net sales
increase and 16.6% of the segment operating income increase
of 30.9% (excluding unusual charges). Operating income also
started to experience benefits in 1996 from improvements at
the segment's operation in Germany, which was restructured to
consolidate facilities and reduce costs as part of the
restructuring program adopted in late 1995.
Morse Controls segment net sales of $107.7 million were up
7.6% for 1995, as compared with $100.1 million in net sales
in 1994, due to increases in the mobile equipment, aviation
and other general industrial markets. 1995 segment
operating income of $5.3 million decreased $.4 million as
compared with the 1994 level of $5.7 million. In the fourth
quarter of 1995, the segment recorded unusual charges of $1.5
million related to a major downsizing of its European
operations, and non-cash adjustments of $1.5 million,
principally related to inventory. Excluding unusual items
and non-cash charges, segment operating income increased to
$8.3 million in 1995, as compared with $5.7 million in 1994.
Roltra-Morse: 1996 1995 1994
(in millions)
Net Sales $ 80.2 $ 99.1 $ 103.1
Segment Operating
Income (1) (8.4) 6.0 9.2
(1) The Roltra-Morse segment's operating income includes
unusual charges of $6.2 million and $1.2 million in 1996 and
1995, respectively.
Roltra-Morse segment net sales decreased to $80.2 million in
1996, or 19.1%, from $99.1 million in 1995. Segment
operating results were a loss of $8.4 million in 1996
compared with segment operating income of $6.0 million in the
1995 period. Excluding unusual charges in both periods,
segment operating results were a loss of $2.2 million
compared with income of $7.2 million in 1995. This
significant decrease in net sales and operating income in
1996 was due to the decline in Fiat auto sales in Italy, the
major market for the auto components produced by Roltra-
Morse. The volumes were directly affected by weak auto sales
in Italy, where continuing political and economic uncertainty
and reduced government spending have depressed consumer
spending. Additionally, the strengthening of the lira had a
negative impact on exports.
During the fourth quarter of 1996, the Company completed an
evaluation of the Roltra-Morse operation to determine
structural and other changes to position this business for
profitable future growth. As a result of this evaluation,
unusual charges of $6.2 million were recorded in the fourth
quarter of 1996, consisting of restructuring charges and
goodwill write-offs. These measures were taken to reduce
operating expenses and improve the effectiveness of
engineering resources, which are expected to result in cost
savings of approximately $1.4 in 1997 and $2.2 million
annually thereafter. The 1995 unusual charges of $1.2
million related to the shutdown of a plant in southern Italy
and the related loss on the sale of that building.
Roltra-Morse has now expanded its manufacturing operations into
Poland, Brazil and Turkey to supply auto components to Fiat
and other auto makers, while maintaining its leading supplier
role in Italy. The popular new mid-size Fiat Marea, launched
in 1996, is fitted with Roltra-Morse window regulators, seat
latches and accelerator, clutch and brake cables. During
1996, new business was also secured from a number of other
European auto makers, including Opel, Saab, Porsche, Rover
and Rolls Royce. In 1996 the corporate headquarters funded
$3.5 million to Roltra-Morse for product growth, expansion
into Brazil and implementing restructuring cost improvements. In
the first quarter of 1997, an additional $6.5 million has
been funded to Roltra-Morse.
Company-Wide Fourth Quarter Results
Net sales from continuing operations in the fourth quarter of
1996 were $114.1 million, compared with $111.3 million in the
fourth quarter of 1995. The Company had a loss from
continuing operations of $32.2 million, or $1.87 per share,
in the fourth quarter of 1996 compared with income from
continuing operations of $3.2 million, or $.19 per share, in
the comparable 1995 period. Fourth quarter 1996 results
were severely impacted by unusual charges of $24.6 million
and a Roltra-Morse segment operating loss excluding unusual
charges of $3.5 million. Income from continuing operations in
the fourth quarter of 1995 benefited from a reduction in
deferred tax asset valuation allowances of $17.0 million,
partially offset by unusual charges of $10.2 million.
Power Transmission segment net sales of $22.4 million and
segment operating income of $2.2 million remained flat in the
fourth quarter of 1996 compared with the 1995 period.
Although 1995 was a relatively strong year as a whole, the
fourth quarter of 1995 started to show the effects of the
downturn in the U.S. gear market. This resulted in major
customers' adjusting their inventory levels in late 1995 and
maintaining these levels throughout 1996.
Pumps segment net sales of $27.5 million were up 10.9% in the
fourth quarter of 1996 compared to the same period in 1995.
Segment operating income increased 40.0% to $2.3 million,
when compared to the same period in 1995. The 1996 period
benefited from the results of Imo Pompes SA, a French
licensee acquired in March 1996. In addition the segment
experienced continued growth in its U.S. industrial markets
and strong export demand, driven by products in crude oil
transfer, power generation and general industrial markets, as
well as increased demand in the U.S. marine market.
Instrumentation segment fourth quarter 1996 net sales were
$19.9 million, an increase of 6.8%, compared with the same
period in 1995. Fourth quarter 1996 segment operating income
increased to $.4 million compared with $.2 million in the
fourth quarter of 1995. The 1996 and 1995 fourth quarter
periods were negatively impacted by unusual charges of $.9
million in both periods related to restructuring of the
segment's European operation. Excluding unusual charges in
both fourth quarter periods, operating income increased 12.2%
in the 1996 period. The North American operation's fourth
quarter results improved significantly compared with the 1995
period, with increases in net sales and segment operating
income of 25% and 48%, respectively. These positive
results were partially offset by decreased sales and
profitability in Europe in the fourth quarter of 1996.
The Gems European operation is beginning to show improved
results as a result of the new management team put into place
in 1996, particularly in relation to solving the problem of
delayed shipments from the U.K. facility.
Morse Controls segment net sales in the fourth quarter of
1996 were $25.7 million, an increase of 6.4% compared with
the 1995 period. Segment operating income was $1.2 million
for the three months ended December 31, 1996, compared with
an operating loss of $1.9 million in the fourth quarter of
1995. Unusual charges of $.3 million and $1.5 million in the
fourth quarters of 1996 and 1995, respectively, were recorded
related to a major downsizing of its European operations.
Additionally, fourth quarter 1995 results were negatively
impacted by approximately $1.5 million of non-cash
adjustments principally related to inventory.
Roltra-Morse segment net sales decreased 12.5% to $18.6
million in the fourth quarter of 1996 compared with the 1995
period. The segment had an operating loss of $9.8 million in
the fourth quarter of 1996, compared with break-even results
in the same period of 1995. This significant decrease in net
sales in 1996 was due to the decline in Fiat auto sales in
Italy, the major market for the auto components produced by
Roltra-Morse. The volumes were directly affected by weak
auto sales in Italy, where continuing political and economic
uncertainty and reduced government spending have depressed
consumer spending. Additionally, the strengthening of the
lira had a negative impact on exports.
The segment's operating results were negatively impacted by
the decreased volumes, in addition to unusual charges of $6.2
million which were recorded in the fourth quarter of 1996,
consisting of restructuring charges and goodwill write-offs.
The fourth quarter of 1995 included unusual charges of $1.2
million related to the shutdown of a plant in southern Italy
and the related loss on the sale of that building.
Liquidity and Capital Resources
Short-term and Long-term Debt
On April 29, 1996, the Company completed the refinancing of
its Old Credit Agreement, its 12% senior subordinated
debentures and its then remaining 12.25% senior subordinated
debentures. Under terms of the refinancing, the Company
issued $155 million of the Notes and also entered into the
New Credit Agreement under which the Company obtained a $70
million revolving credit facility (including a letter of
credit sub-facility) through April 30, 2001, a $25 million
term loan amortizing to April 2001, a $35 million term loan
amortizing to April 2001, and a $45 million term loan
amortizing to April 2003. Proceeds of the Notes and the New
Credit Agreement were used to redeem the remaining $70
million of the Company's 12.25% senior subordinated
debentures due 1997 and all $150 million of its 12% senior
subordinated debentures due 2001, together with accrued
interest and a prepayment premium for the latter issue, and
to refinance all obligations under the Old Credit Agreement.
The cost of issuance of the Notes and the implementation of
the New Credit Agreement, which totaled $9.5 million, is
being amortized over the terms of the respective agreements.
The Company reached agreement with its senior lenders to
amend the covenants of the New Credit Agreement on February
19, 1997. See "Recent Events" above for further discussion
regarding this amendment.
As a result of the refinancing, an extraordinary charge of
approximately $8.5 million was recorded in the second quarter
ended June 30, 1996, representing the costs incurred in
connection with the early extinguishment of debt and the
write-off of previously deferred loan costs.
The Company's domestic liquidity requirements are served by
the $70 million revolving credit facility (including a letter
of credit sub-facility) under the New Credit Agreement, while
its needs outside the U.S. continue to be covered by short
and intermediate term credit facilities from foreign banks.
As of December 31, 1996, there were $19.3 million of
revolving credit borrowings and $5.5 million of standby
letters of credit outstanding under the New Credit Agreement.
The Company also has, in the aggregate, foreign short-term
credit facilities of approximately $38.2 million. As of
December 31, 1996, $24.0 million was outstanding under those
foreign facilities.
At December 31, 1996, the Company also had outstanding under
the New Credit Agreement $22.5 million in a term loan
amortizing to April 2001, $28.1 million in a second term loan
amortizing to April 2001, and $44.8 million in a third term
loan amortizing to April 2003. In addition, the Company had
outstanding $155 million of the Notes.
While the inability to sell Roltra-Morse as planned was a
setback in completing the program the Company began in 1993
to reduce debt, the Notes and the New Credit Agreement
eliminated near-term debt maturities and the New Credit
Agreement provides the Company a liquidity source for the
foreseeable future. Management continues to review ways to
improve the capital structure of the Company. See "Recent
Events" above, for discussion regarding the March 21, 1997
announcement made by the Company.
Cash Flow
The Company's operating activities used cash of $13.2 million
in 1996, compared with a use of $30.0 million in 1995. The
use of cash in both periods is due principally to cash
related to discontinued operations and other divested
businesses. Net cash used in investing activities was $12.7
million in 1996, compared with cash provided of $145.5
million in 1995. Net proceeds from the sale of properties
held for sale in 1996 yielded $12.6 million; however, this
was more than offset by 1996 investments in capital equipment
and acquisitions. The 1995 net cash provided by investing
activities is principally a result of $174.9 million of net
proceeds generated from the sale of businesses and assets in
1995, partially offset by purchases of property, plant and
equipment and acquisitions. Cash and cash equivalents were
$4.9 million at December 31, 1996, a slight decrease from
$5.5 million at December 31, 1995.
Working capital at December 31, 1996 was $44.1 million, a
decrease of $18.7 million from the end of 1995, due
principally to an increase in notes payable at Roltra-Morse
and an increase in the current portion of long-term debt at
December 31, 1996. The ratio of current assets to current
liabilities was 1.3 at December 31, 1996, compared with 1.4
at December 31, 1995. Principally as a result of the 1996
loss, the Company's total debt as a percent of its total
capitalization was 121.5% at December 31, 1996, compared with
98.1% at December 31, 1995.
Capital expenditures of continuing operations decreased
slightly to $18.0 million compared with the 1995 level of
$20.9 million. In 1996 capital spending was used for the
purpose of maintaining and improving competitive advantages
at the Company's operations. The Company anticipates that
capital expenditures in 1997 will increase slightly over the
1996 level primarily to improve productivity. There were no
material outstanding commitments for the acquisition of
property, plant and equipment at December 31, 1996.
Management of the Company believes that cash flow from
operations, cash available from unused credit facilities and
cash generated by additional asset sales will be sufficient
to meet its foreseeable liquidity needs.
Seasonality; Customer Concentration; Inflation
General economic conditions worldwide continue to create
business opportunities for the coming year in many of the
markets in which the Company operates. With the exception of
the Roltra-Morse segment, management believes that because of
the nature of its industrial products and the fact that the
Company sells diverse products to many markets, the Company
is not significantly affected by the cyclical behavior, or
seasonality, of any particular market that it serves.
The Roltra-Morse segment had sales to one commercial customer
(Fiat S.p.A. and its subsidiaries) that accounted for 95%, 90%
and 95% of segment sales, and 16%, 19% and 21% of
consolidated sales in 1996, 1995 and 1994, respectively.
None of the other business segments is dependent on any
single customer or a few customers, the loss of which would
have a material adverse effect on the respective segments, or
on the Company as a whole. No customer other than Fiat S.p.A.
and its subsidiaries accounted for 10% or more of
consolidated sales in 1996, 1995 or 1994.
Approximately 35% of the property, plant and equipment of the
Company's continuing operations has been acquired over the
past five years and has a remaining useful life ranging from
five years to fifteen years for equipment to thirty years for
buildings. In addition, property, plant and equipment of the
businesses acquired by the Company have been adjusted to
their fair value at the time of acquisition. Assets acquired
in prior years are expected to be replaced at higher costs,
but this will take place over many years. The newer assets
will result in higher depreciation charges but, in many
cases, due to technological improvements, there will be
operating cost savings as well. The Company considers these
matters in establishing its pricing policies.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. Except for historical matters, the matters discussed
in this Form 10-K Report are forward-looking statements based
on current expectations and involve risks and uncertainties.
Forward-looking statements include, but are not limited to,
statements under the following headings: (i) Item 7 -
"Restructuring Plans" - the likelihood of closing the sale of
the Varo Electronic Systems Division and the impact of
various cost reduction programs; (ii) Item 5 - Legal
Proceedings - the future impact of legal proceedings on the
financial condition of the Company; (iii) Item 7 - "Segment
Operating Results" - the future performance of various
programs in each segment and the impact of such programs on
future sales and on operating income; and, (iv) Item 7 -
"Recent Events" and "Liquidity and Capital Resources" -
statements concerning the Company's ability to sell
approximately $50.0 million of non-core assets and non-
operating real estate and repay outstanding debt under the
New Credit Agreement and statements regarding the possibility
of a merger or sale of the Company and the impact of such an
action, if any, on the remaining asset sales. The Company
wishes to caution the reader that, in addition to the matters
described above, various factors such as delays in contracts
from key customers, demand and market acceptance risk for new
products, continued or increased competitive pricing and the
effects of under-utilization of plants and facilities,
particularly in Europe, and the impact of worldwide economic
conditions on demand for the Company's products, could cause
results to differ materially from those in any forward-
looking statement.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and supplementary data
required by Part II, Item 8 of Form 10-K are included in Part
IV of this Form 10-K Report as indexed at Item 14(a)(1).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Reference is made to the information to be set forth in the
section entitled "Election of Directors" in the Company's
Proxy Statement, for the Annual Meeting of Stockholders which
will be held on May 20, 1997 (the "Proxy Statement"), which
section is incorporated herein by reference. The Proxy
Statement will be filed with the Securities and Exchange
Commission not later than 120 days after December 31, 1996,
pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended.
The information under the caption "Executive Officers of the
Company," following Item 4 of Part I of this Form 10-K
Report, is incorporated herein by reference.
None of the executive officers or directors of the Company is
related to any of the other executive officers or directors
of the Company.
Item 11. Executive Compensation.
Reference is made to the information to be set forth in the
section entitled "Executive Compensation" in the Proxy
Statement, which section (except for its Compensation
Committee Report and its Performance Graph) is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Reference is made to the information to be set forth in the
section entitled "Beneficial Ownership of Common Stock" in
the Proxy Statement, which section is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
Not Applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a)(1) Financial Statements
The Financial Statements and Supplementary Data required by Part II,
Item 8 of Form 10-K are included in this Part IV of this Form 10-K
Report as follows:
Consolidated Financial Statements Page
Consolidated Statements of Income for the Years
Ended December 31, 1996, 1995 and 1994.....................F-1
Consolidated Balance Sheets at December 31, 1996 and 1995...F-2
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994.....................F-3
Consolidated Statements of Shareholders' Equity (Deficit)
for the Years Ended December 31, 1996, 1995 and 1994.......F-4
Notes to Consolidated Financial Statements..................F-5
Report of Independent Auditors..............................F-31
Quarterly Financial Information.............................F-32
(2) Financial Statement Schedules
The following consolidated financial statement schedule for the
year ended December 31, 1996, 1995 and 1994 is filed as part of
this Report and should be read in conjunction with the Company's
Consolidated Financial Statements.
Schedule Page
II Valuation and Qualifying Accounts.................. S-1
All other schedules for which provision is made in the applicable
regulation of the Securities and Exchange Commission are omitted
because they are not required under the related instructions or
because the required information is given in the financial
statements or notes thereto.
(3) Exhibits
The Exhibits listed in the accompanying Index to Exhibits are filed
as part of this Report.
(b) Reports on Form 8-K
On November 12, 1996, the Company filed a report on Form 8-K,
reporting under Item 5, disclosing the announcement that it was
withdrawing its Roltra-Morse business from sale, and disclosing its
restated third quarter 1996 results.
EXHIBIT INDEX
Exhibit No. Note No Description
3(i) (9) The Company's Restated Certificate of
Incorporation, as amended March 10, 1989 and
November 10, 1992
3(ii) The Company's Bylaws
4.1 (19) Indenture, dated as of April 15, 1996,
between the Company and IBJ Schroder Bank &
Trust Company, as Trustee
4.3 (19) Registration Rights Agreement, dated as of
April 23, 1996, between the Company and the
Initial Purchasers
4.3 (A) (3) Rights Agreement dated as of April 22, 1987
between the Company and Philadelphia National
Bank, as Rights Agent
(B) (9) Amendment dated December 16, 1991 between the
Company and First Chicago Trust Company of
New York
Management Contracts, Compensatory Plans and
Arrangements:
10.1 (15) Amended and restated Equity Incentive Plan for
Key Employees
10.2 (17) Amended and restated 1988 Equity Incentive Plan
for Outside Directors
10.3 (16) 1995 Equity Incentive Plan for Outside
Directors
10.4 (18) The Company's Supplemental Retirement Income
Plan
10.5 (9) Change in Control Agreement dated January 9,
1987 between the Company and John J. Carr
10.6 (9) Change in Control Agreement dated August 5,
1992 between the Company and William M. Brown
10.7 (9) Change in Control Agreement dated August 13,
1992 between the Company and Thomas J. Bird
10.8 (11) Change in Control Agreement dated September
13, 1993 between the Company and Donald K.
Farrar
10.9 Change in Control Agreement dated May 21, 1996
between the Company and Donald N. Rosenberg
10.10 Severance Agreement dated February 6, 1997
between Imo Industries (UK) Limited and Brian
Lewis
10.11 Consultancy Agreement dated February 13, 1997
between Imo Industries Inc. and Brian Lewis
Exhibit No. Note No. Description
Other Material Contracts:
10.12 (A) (4), (5) The Company's Salaried Employees Stock Savings
Plan as amended on July 1, 1987 and as amended
on June 14, 1988
(B) (8) Amendment dated March 16, 1989 to the Imo
Industries Inc. Employees Stock Savings Plan
(C) (6) Amendments dated September 6, 1990 and February
14, 1991 to the Imo Industries Inc. Employees
Stock Savings Plan
(D) (7) Amendment dated May 9, 1991 to the Imo
Industries Inc. Employees Stock Savings Plan
(E) (9) Amendments dated December 30, 1991 and August
3, 1992 to the Imo Industries Inc. Employees
Stock Savings Plan
(F) (13) Trust Agreement for the Imo Industries Inc.
Employees Stock Savings Plan as of March 1,
1995 between the Company and Eagle Trust
Company
10.13 (1) Distribution Agreement dated December 18, 1986
between Transamerica Corporation and the
Company
10.14 (1) Tax Agreement between the Company and
Transamerica Corporation
10.15(J) (10) Warrant dated July 15, 1993 issued by the
Company to The Prudential Insurance Company of
America
10.16 (2) Stock Purchase Agreement dated November 30,
1987 between the Company and TRIFIN B.V.
10.17 (6) Stock Purchase Agreement dated as of May 31,
1990 among United Scientific Holdings PLC,
United Scientific Inc. and the Company
10.18 (11) Stock Purchase Agreement dated as of October
28, 1993 among the Company, Imo Industries
GmbH, Mark Controls Corporation and Mark
Controls GmbH i. Gr., as amended
10.19(A) (19) Credit Agreement dated as of April 29, 1996
among the Company, as Borrower, Varo Inc., as
Guarantor, Warren Pumps Inc. as Guarantor, the
Institutions from time to time party thereto
as Lenders and Issuing Banks, and Citicorp
USA, Inc., as Agent
(B) First Amendment dated as of February 19, 1997
to the Credit Agreement dated as of April 29,
1996 among the Company, as Borrower, Varo Inc.,
as Guarantor, Warren Pumps, Inc. as Guarantor,
the Institutions from time to time party
thereto as Lenders and Issuing Banks, and
Citicorp USA, Inc., as Agent
Exhibit No. Note No. Description
10.20(A) (12) Asset Purchase Agreement dated as of November
4, 1994 by and among the Company, Imo
Industries International Inc. and Mannesmann
Capital Corporation
(B) (13) Agreement, Amendment and Waiver dated January
17, 1995 by and among the Company and
Mannesmann Capital Corporation
10.21 (13) Asset and Stock Purchase Agreement dated as of
January 1, 1995 by and among the Company and
Thermo Jarrell Ash Corporation
10.22 (14) Purchase and Sale Agreement among Litton
Industries, Inc., and Litton Systems, Inc. and
Imo Industries Inc., Baird Corporation, Optic-
Electronic International, Inc. and Varo Inc.
dated May 11, 1995 and amended and restated as
of June 2, 1995
10.23(A) Asset Purchase Agreement dated as of September
13, 1996 between Varo Inc. and Varo Acquisition
Corp.
(B) Reinstatement Agreement dated January 28, 1997
between Varo Inc. and Varo Acquisition Corp.
20 Proxy Statement for the Company's 1996 Annual
Meeting of Stockholders (incorporated by
reference to the Company's Proxy Statement to
be filed separately with the Commission
pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended)
21 Subsidiaries of the Company
23 Consent of Ernst & Young LLP dated March 25,
1997
27 Financial Data Schedule as of December 31, 1996
_______________________________________________
NOTES
(1) Incorporated by reference to the Company's Form 8 Amendment No. 2 filed
with the Commission on December 9, 1986 amending the Company's Form 10
as filed with the Commission on October 15, 1986.
(2) Incorporated by reference to the Company's Form 8-K filed with the
Commission on February 17, 1987.
(3) Incorporated by reference to the Company's Form 8-K filed with the
Commission on May 4, 1987
(4) Incorporated by reference to the Imo Industries Inc. Employees Stock
Savings Plan Form 11-K filed with the Commission on April 13, 1988.
(5) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 29, 1990.
(6) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 28, 1991.
(7) Incorporated by reference to the Company's Form S-8 filed with the
Commission on June 17, 1991.
(8) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 26, 1992.
(9) Incorporated by reference to the Company's Form 10-K filed with the
Commission on April 19, 1993.
(10) Incorporated by reference to the Company's Form 10-K/A filed with the
Commission on August 6, 1993 amending the Company's Form 10-K as filed
with the Commission on April 19, 1993.
(11) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 31, 1994.
(12) Incorporated by reference to the Company's Form 10-Q filed with the
Commission on November 14, 1994.
(13) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 29, 1995.
(14) Incorporated by reference to the Company's Form 8-K filed with the
Commission on June 19, 1995.
(15) Incorporated by reference to the Company's Form S-8 as filed with the
Commission on June 23, 1995, Registration No. 33-60533
(16) Incorporated by reference to the Company's Form S-8 as filed with the
Commission on June 23, 1995, Registration No. 33-60535
(17) Incorporated by reference to the Company's Form 10-Q filed with the
Commission on November 13, 1995.
(18) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 28, 1996.
(19) Incorporated by reference to the Company's Form S-4 (Registration No.
333-3477) filed with the Commission on May 10, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Imo Industries Inc. has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 27, 1997
IMO INDUSTRIES INC.
By: /s/ DONALD K. FARRAR
Donald K. Farrar
Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of Imo Industries Inc. and in the capacities
and on the dates indicated.
/s/ DONALD K. FARRAR Chief Executive Officer,
Donald K. Farrar President and Director
(principal executive officer) March 27, 1997
/s/ WILLIAM M. BROWN Executive Vice President,
William M. Brown Chief Financial Officer/
Corporate Controller
(principal financial and
accounting officer) March 27, 1997
/s/ JAMES B. EDWARDS Director March 27, 1997
James B. Edwards
/s/ RICHARD J. GROSH Director March 27, 1997
Richard J. Grosh
/s/ CARTER P. THACHER Director March 27, 1997
Carter P. Thacher
/s/ DONALD C. TRAUSCHT Director March 27, 1997
Donald C. Trauscht
/s/ ARTHUR E. VAN LEUVEN Director March 27, 1997
Arthur E. Van Leuven
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands except per share amounts)
<CAPTION>
Year Ended December 31, 1996 1995* 1994*
<S> <C> <C> <C>
Net Sales $ 468,645 $ 472,367 $ 463,891
Cost of products sold 336,017 340,469 333,098
Gross Profit 132,628 131,898 130,793
Selling, general and administrative
expenses 95,232 87,875 86,758
Research and development expenses 9,290 7,736 6,173
Unusual items 24,573 10,208 ---
Income from Operations 3,533 26,079 37,862
Interest expense 33,317 31,463 33,971
Interest income (1,524) (2,229) (1,714)
Other income (444) (739) (876)
Equity in (income) loss of
unconsolidated companies 552 (302) ---
Income (Loss) From Continuing
Operations Before Income
Taxes, Minority Interest
and Extraordinary Item (28,368) (2,114) 6,481
Income taxes (benefit):
Current 3,700 3,082 2,433
Deferred 10,000 (17,000) ---
Total Income Taxes (Benefit) 13,700 (13,918) 2,433
Minority Interest (295) (725) 393
Income (Loss) From Continuing
Operations Before
Extraordinary Item (41,773) 12,529 3,655
Discontinued operations:
Income from operations (net of
income tax expense of
$.8 million) --- --- 5,575
Estimated gain (loss) on disposal
(net of income taxes of $5.2
million in 1995) (8,142) 21,625 ---
Total Income (Loss) from
Discontinued Operations (8,142) 21,625 5,575
Extraordinary Item - Loss on
Extinguishment of Debt (8,455) (4,444) (5,299)
Net Income (Loss) $ (58,370) $ 29,710 $ 3,931
Earnings (loss) per share:
Continuing operations
before extraordinary item $ (2.44) $ .73 $ .22
Discontinued operations $ (.48) $ 1.27 $ .32
Extraordinary item $ (.49) $ (.26) $ (.31)
Net income (loss) $ (3.41) $ 1.74 $ .23
Weighted average number of shares
outstanding 17,100,359 17,048,622 16,926,071
See accompanying notes to consolidated financial statements.
*Restated to conform to 1996 presentation.
F-1
</TABLE>
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<CAPTION>
December 31, 1996 1995*
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 4,863 $ 5,539
Trade accounts and notes
receivable, less allowance of
$1,877 in 1996 and $2,197 in 1995 78,955 76,962
Inventories-net 94,433 97,151
Deferred income taxes 9,165 11,371
Net assets of discontinued
operations - current 7,214 6,810
Prepaid expenses and other current
assets 7,877 7,182
Total Current Assets 202,507 205,015
Property, Plant and Equipment - on
the basis of cost
Land 9,616 10,407
Buildings and improvements 43,474 44,786
Machinery and equipment 159,266 151,543
212,356 206,736
Less allowances for depreciation
and amortization (112,581) (104,938)
Net Property, Plant and Equipment 99,775 101,798
Intangible Assets, Principally
Goodwill 69,402 81,309
Investments in and Advances to
Unconsolidated Companies 9,872 5,481
Deferred Income Taxes - Long-Term --- 4,609
Net Assets of Discontinued
Operations - Noncurrent 7,615 6,066
Other Assets 22,443 30,644
Total Assets $411,614 $434,922
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 43,338 $ 37,068
Trade accounts payable 42,821 49,408
Accrued expenses and other
liabilities 42,632 43,222
Accrued costs related to
discontinued operations 8,586 3,055
Income taxes payable 6,011 7,109
Current portion of long-term debt 14,994 2,376
Total Current Liabilities 158,382 142,238
Long-Term Debt 251,860 231,561
Deferred Income Taxes 4,069 ---
Accrued Postretirement Benefits -
Long-Term 17,418 24,372
Accrued Pension Expense and Other
Liabilities 33,815 30,203
Total Liabilities 465,544 428,374
Minority Interest 954 1,206
Shareholders' Equity (Deficit)
Preferred stock: $1.00 par value;
authorized and unissued 5,000,000
shares --- ---
Common stock: $1.00 par value;
authorized 25,000,000 shares;
issued 18,796,897 and 18,756,397
in 1996 and 1995, respectively 18,797 18,756
Additional paid-in capital 80,466 80,275
Retained earnings (deficit) (134,962) (76,592)
Cumulative foreign currency
translation adjustments 2,057 2,724
Minimum pension liability
adjustment (2,503) (1,801)
Unearned compensation (719) ---
Treasury stock at cost - 1,672,788
shares in 1996 and 1995 (18,020) (18,020)
Total Shareholders' Equity (Deficit) (54,884) 5,342
Total Liabilities and
Shareholders' Equity (Deficit) $411,614 $434,922
See accompanying notes to consolidated financial statements.
* Restated to conform to 1996 presentation.
F-2
</TABLE>
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<CAPTION>
Year Ended December 31, 1996 1995* 1994*
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (58,370) $ 29,710 $ 3,931
Adjustments to reconcile net income
(loss) to net cash (used by) provided
by continuing operations:
Discontinued operations 8,142 (21,625) (5,575)
Depreciation 15,566 15,200 15,650
Amortization 4,268 3,902 6,343
Provision (credit) for deferred
income taxes 10,000 (17,000) ---
Extraordinary item 8,455 4,444 5,299
Unusual items 24,573 10,208 ---
Other 1,378 (642) 1,059
Other changes in operating
assets and liabilities:
(Increase) decrease in accounts
and notes receivable (176) 8,254 (6,957)
Decrease (increase) in inventories 3,294 (9,357) (1,583)
Decrease in recoverable income
taxes --- --- 3,826
Decrease in accounts payable and
accrued expenses (15,655) (13,173) (3,171)
Other operating assets
and liabilities (7,886) (15,670) (5,816)
Net cash (used by) provided by
continuing operations (6,411) (5,749) 13,006
Net cash (used by) provided by
discontinued operations (6,789) (24,264) 3,772
Net Cash (Used in) Provided by Operating
Activities (13,200) (30,013) 16,778
INVESTING ACTIVITIES
Net proceeds from sale of businesses and
sales of property, plant and equipment 12,570 174,922 13,568
Purchases of property, plant and
equipment (18,002) (20,871) (9,206)
Acquisitions, net of cash acquired (7,218) (7,002) ---
Net investing activities of discontinued
operations (69) (1,419) (3,995)
Other 30 (103) (675)
Net Cash (Used in) Provided by Investing
Activities (12,689) 145,527 (308)
FINANCING ACTIVITIES
Increase (decrease) in notes payable 6,159 23,607 (31,346)
Proceeds from long-term borrowings 266,895 5,257 86,951
Principal payments on long-term debt (233,350) (166,196) (56,759)
Payment of debt financing costs (14,660) (401) (11,277)
Proceeds from stock options exercised --- 535 415
Other 89 59 15
Net Cash Provided by (Used in) Financing
Activities 25,133 (137,139) (12,001)
Effect of exchange rate changes on cash 80 222 117
(Decrease) Increase in Cash and Cash
Equivalents (676) (21,403) 4,586
Cash and cash equivalents at
beginning of year 5,539 26,942 22,356
Cash and Cash Equivalents at
End of Year $ 4,863 $ 5,539 $ 26,942
See accompanying notes to consolidated financial statements.
*Restated to conform to 1996 presentation.
F-3
</TABLE>
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficit)
(Dollars in thousands)
<CAPTION>
Cumulative
Addit- Foreign Minimum
ional Retained Currency Pension Unearned
Common Paid-in Earnings Translation Liability Compen- Treasury
Stock Capital (Deficit) Adjustment Adjustment sation Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1994 * $18,584 $79,080 $(110,233) $ (3,361) $ (1,768) $ --- $(18,020) $(35,718)
Net income --- --- 3,931 --- --- --- --- 3,931
Foreign currency
translation
adjustments --- --- --- 2,063 --- --- --- 2,063
Minimum pension
liability
adjustment --- --- --- --- 915 --- --- 915
Shares issued
under stock
option plan 56 359 --- --- --- --- --- 415
Restricted shares
issued under
the equity
incentive plan 40 350 --- --- --- --- --- 390
Balance at
December 31,
1994 * 18,680 79,789 (106,302) (1,298) (853) --- (18,020) (28,004)
Net income --- --- 29,710 --- --- --- --- 29,710
Foreign currency
translation
adjustments --- --- --- 4,022 --- --- --- 4,022
Minimum pension
liability
adjustment --- --- --- --- (948) --- --- (948)
Shares issued
under stock
option plan 73 462 --- --- --- --- --- 535
Restricted shares
issued under
the equity
incentive plan 3 24 --- --- --- --- --- 27
Balance at
December 31,
1995 * 18,756 80,275 (76,592) 2,724 (1,801) --- (18,020) 5,342
Net income (loss) --- --- (58,370) --- --- --- --- (58,370)
Foreign currency
translation
adjustments --- --- --- (667) --- --- --- (667)
Minimum pension
liability
adjustment --- --- --- --- (702) --- --- (702)
Restricted shares
issued under
the equity
incentive plan 41 191 --- --- --- (166) --- 66
Other --- --- --- --- --- (553) --- (553)
Balance at
December 31,
1996 $18,797 $80,466 $(134,962) $ 2,057 $ (2,503) $ (719) $(18,020) $(54,884)
See accompanying notes to consolidated financial statements.
* Restated to conform to current year presentation.
F-4
</TABLE>
F-28
Imo Industries Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 Significant Accounting Policies
Consolidation: The consolidated financial statements
include the accounts of the Company and its majority-
owned subsidiaries. Significant intercompany
transactions have been eliminated in consolidation. The
Company uses the equity method to account for
investments in corporations in which it does not own a
majority voting interest but has the ability to exercise
significant influence over operating and financial
policies.
Translation of Foreign Currencies: Assets and
liabilities of international operations are translated
into U.S. dollars at current exchange rates. Income and
expense accounts are translated into U.S. dollars at
average rates of exchange prevailing during the year.
Translation adjustments are reflected as a separate
component of shareholders' equity.
Cash Equivalents: Cash equivalents include investments
in government securities funds and certificates of
deposit. Investment periods are generally less than one
month.
Inventories: Inventories are carried at the lower of
cost or market, cost being determined principally on the
basis of standards which approximate actual costs on the
first-in, first-out method, and market being determined
by net realizable value. Appropriate consideration is
being given to deterioration, obsolescence and other
factors in evaluating net realizable value.
Revenue Recognition: Revenues are recorded generally
when the Company's products are shipped.
Depreciation and Amortization: Depreciation and
amortization of plant and equipment are computed
principally by the straight-line method based on the
estimated useful lives of the assets as follows:
buildings, 10 to 35 years and machinery and equipment, 3
to 15 years.
Interest Expense: Interest expense incurred during the
construction of facilities and equipment is capitalized
as part of the cost of those assets. Total interest
paid by the Company amounted to $36.7 million in 1996,
$39.5 million in 1995 and $49.5 million in 1994. There
was no interest capitalized in 1996 and 1995. Interest
capitalized in 1994 was $.2 million.
Earnings Per Share: Earnings per share are based upon
the weighted average number of shares of common stock
outstanding. Common stock equivalents related to stock
options are excluded because their effect is not
material or is anti-dilutive.
Impact of Recently Issued Accounting Standards: In
February 1997, the FASB issued Statement No. 128,
"Earnings Per Share", which specifies the computation,
presentation, and disclosure requirements for earnings
per share. The Statement is effective for annual periods
ending after December 15, 1997 and early adoption is not
permitted. The Company does not believe the effect of
adoption will be material.
Intangible Assets: Goodwill of companies acquired is
being amortized on the straight-line basis over 40
years. The carrying value of goodwill is reviewed when
indicators of impairment are present, by evaluating
future cash flows of the associated operations to
determine if impairment exists. Goodwill related to
continuing operations at December 31, 1996 and 1995 was
$58.4 million and $75.2 million, respectively, net of
respective accumulated amortization of $16.7 million and
$17.9 million. As a result of the withdrawal of the
Company's Roltra-Morse business from sale during 1996,
certain other non-strategic businesses were approved for
sale in replacement of Roltra-Morse. Goodwill related to
these non-strategic businesses of approximately $13.6
million was written-off at December 31, 1996 as the
carrying values of these businesses were written down to
reflect expected realizable values. In addition,
goodwill associated with the Roltra-Morse business in
the amount of $2.8 million was written off at December
31, 1996, as part of the restructuring of the Roltra-
Morse operations (See Note 3). Patents are amortized
over the shorter of their legal or estimated useful
lives.
Management Estimates: The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements, and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Restatements: The Consolidated Financial Statements
and the notes thereto, have been restated to reflect the
Company's Roltra-Morse business segment as a continuing
operation due to its withdrawal from potential sale.
Certain prior year amounts have been reclassified to
conform to the current year presentation.
Note 2 Discontinued Operations
In January 1994 and in August 1994, the Board of
Directors approved the Company's plans to sell its
Electro-Optical Systems operations and its
Turbomachinery operations, respectively. In accordance
with APB Opinion No. 30, the disposals of these business
segments have been accounted for as discontinued
operations and, accordingly, their operating results
have been segregated and reported as Discontinued
Operations in the accompanying Consolidated Statements
of Income.
Discontinued operations include management's best
estimates of amounts expected to be realized at the time
of disposal. The amounts the Company will ultimately
realize could differ materially in the near term from
the amounts used to determine the gain or loss on
disposal of the discontinued operations.
Electro-Optical Systems
On January 3, 1995, the Company completed the sale of
its Baird Analytical Instruments Division to Thermo
Instruments Systems Inc. for approximately $12.3
million, which was used to repay a portion of the
Company's domestic senior debt outstanding under its
previous credit facility (the "Old Credit Agreement").
On June 2, 1995, the Company completed the sale of the
Optical Systems and Ni-Tec divisions of Varo Inc. and
the Optical Systems division of Baird Corporation, which
represented the major part of its Electro-Optical
Systems business, to Litton Industries for approximately
book value. The proceeds were used on June 2, 1995 to
reduce amounts outstanding under the Old Credit
Agreement by $8 million and to redeem $40 million of the
Company's then outstanding 12.25% senior subordinated
debentures on July 6, 1995.
The Company entered into a definitive agreement in
September 1996 to sell the Varo Electronic Systems
division, the remaining portion of its former Electro-
Optical Systems business, to a small defense contractor
for approximately net book value. This agreement
expired in November 1996 and was subsequently
renegotiated and reinstated in January 1997. The buyer
has secured the necessary financing to purchase this
business. The Company expects the sale to be completed
in the second quarter of 1997, and will use the proceeds
to reduce debt. The sale of this business will complete
the disposal of the Electro-Optical Systems business.
The Company retained certain liabilities related to the
Electro-Optical Systems business of approximately $21.0
million. At December 31, 1993, the Company provided for
estimated losses on disposal of this segment in the
amount of $168.0 million, which included a provision for
anticipated operating losses prior to disposal. During
1995, the Company recognized an additional $13.3 million
loss on disposal. The additional loss included $6.8
million related to the resolution of contingencies
associated with the sale of the business and fourth
quarter charges of $6.5 million recorded primarily to
write down remaining non-operating real estate to net
realizable value. During 1996, the Company recorded an
additional $5.2 million loss on disposal ($.8 million in
the fourth quarter), which related to changes in
estimates on legal and other reserve requirements
associated with retained liabilities of this business.
Turbomachinery
On January 17, 1995, the Company completed the sale of
its Delaval Turbine and TurboCare divisions and its 50%
interest in Delaval-Stork, to Mannesmann Demag. The
final adjusted purchase price was $119 million, of which
$109 million was received at closing, with the remainder
earning interest to the Company and to be received at
specified future contract dates subject to adjustment as
provided in the agreement. It is management's
expectation that there will be no further adjustment to
the purchase price. A portion of the proceeds were used
by the Company to pay off its domestic senior debt in
January 1995 and in March 1995 the Company redeemed $40
million of its then outstanding 12.25% senior
subordinated debentures with the remainder of the
proceeds.
The Company retained certain liabilities related to the
Turbomachinery business of approximately $28.0 million.
As a result of the sale of this business in 1995, the
Company recognized an estimated gain on disposal of
$35.0 million, net of income taxes of $5.2 million.
During 1996, the Company recorded an additional $2.9
million loss on disposal. The additional loss included
charges related to changes in estimates on legal and
other reserve requirements associated with retained
liabilities of this business.
The Company reviews quarterly the assumptions used in
determining the estimated gain or loss from discontinued
operations and the adequacy of the recorded liabilities.
Management believes that the recorded amount of
estimated liabilities related to the Discontinued
Operations at December 31, 1996 is adequate, however,
the amounts estimated may differ from actual results.
Net assets and liabilities of the Discontinued
Operations consist of the following:
December 31 (Dollars in thousands) 1996 1995
Current Assets:
Receivables $ 1,949 $ 2,959
Inventories 7,737 9,363
Other current assets 113 542
9,799 12,864
Current Liabilities:
Trade accounts payable 1,953 2,012
Other current liabilities 632 4,042
2,585 6,054
Net Current Assets $ 7,214 $ 6,810
Long-term Assets:
Property $ 2,024 $ 2,971
Other long-term assets 7,033 10,296
9,057 13,267
Long-term Liabilities 1,442 7,201
Net Long-term Assets $ 7,615 $ 6,066
Net Assets $14,829 $12,876
Net assets related to the Electro-Optical Systems
business are $14.4 million and $11.9 million as of
December 31, 1996 and 1995, respectively, and net assets
related to the Turbomachinery business are $.5 million
and $1.0 million as of December 31, 1996 and 1995,
respectively.
Total long-term debt of the Discontinued Operations
amounted to $1.5 million and $1.6 million as of December
31, 1996 and 1995, respectively. Of these amounts, $.1
million represents the current portion.
A condensed summary of operations for the Discontinued
Operations is as follows:
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
Net Sales $22,814 $60,199 $341,550
Income from operations
before income taxes
and minority interest --- --- 6,375
Income taxes --- --- 800
Income from operations $ --- $ --- $ 5,575
Operating results from the Discontinued Operations was
income of $.4 million, a loss of $1.4 million and a loss
of $.6 million in 1996, 1995 and 1994, respectively. The
Electro-Optical Systems business 1996 net income of $.4
million was offset by an increase in estimated reserve
requirements, while the 1995 and 1994 net losses of $1.0
million and $6.2 million, respectively, including
allocated interest, were charged against the reserve for
anticipated losses previously established by the
Company. The Turbomachinery business income in 1994 of
$5.6 million was recognized since an overall gain was
expected on that business.
The income from operations of the Discontinued
Operations for 1996, 1995 and 1994 includes allocated
interest expense of $1.8 million, $5.0 million, and
$17.4 million, respectively. Allocated interest expense
includes interest on debt of the Discontinued Operations
to be assumed by the buyer, and an allocation of
Corporate interest expense to the Discontinued
Operations based on the ratio of net assets to be sold
to the sum of the Company's consolidated net assets, if
positive, plus consolidated debt.
Note 3 Restructuring Plans
Asset Sales
In October 1992, the Company announced a plan to
strengthen its balance sheet through the sale of certain
businesses and the application of the proceeds to reduce
debt. Pursuant to this plan, the Company divested its
Heim Bearings, Aerospace, Barksdale Controls and CEC
Instruments businesses. These proceeds, net of related
expenses, were used to repay senior debt in the amount
of $81.9 million in 1993 and $13.2 million in 1994, in
accordance with the terms of the 1993 restructured
credit facilities.
In the fourth quarter of 1993, management initiated a
strategy to reposition the Company on its less capital
intensive businesses that exhibited strong brand name
recognition, a broad customer base and market leadership
with less dependence on U.S. Government sales. In
connection with this strategy, the Company divested its
Turbomachinery and substantially all of its Electro-
Optical Systems businesses in 1995. The Company used
these 1995 proceeds, net of related expenses, to repay
senior debt outstanding under its Old Credit Agreement
in the amount of $89.7 million and to redeem $80 million
of its then outstanding 12.25% senior subordinated
debentures (See Note 2). During 1996, the Company
completed the sales of five of its non-operating real
estate holdings for net proceeds of $8.6 million. The
proceeds were used to repay the Company's domestic
senior debt.
The Company expects to complete the sale of its Varo
Electronic Systems division, the remaining portion of
its former Electro-Optical Systems business, in the
second quarter of 1997, and intends to use the proceeds
to reduce debt (See Note 2).
The remaining assets currently held for sale include non-
strategic business units of the Company's Power
Transmission and Morse Controls segments which were
approved for sale in replacement of Roltra-Morse, as
well as certain non-operating real estate originally
identified for sale in October 1992. The operating units
produced income before taxes of $.1 million for the full
year 1996, net of $2.3 million of interest expense,
which has been allocated, based on net assets of
approximately $21.5 million. The fourth quarter of 1996
includes a charge of $17.1 million to adjust the value
of these non-strategic businesses to their expected net
realizable values (See Note 6). The Company targets
completion of these sales over the next 12 months and
intends to apply the proceeds to reduce debt.
Cost Reduction Programs
1996 Program
The fourth quarter of 1996 includes a charge of $7.4
million in continuing operations for restructuring
measures taken at several of the Company's European
operations to further reduce operating expenses (See
Note 6). The Company completed an evaluation of its
Roltra-Morse operations during the fourth quarter to
determine what structural and other changes were
necessary to position this business for profitable
future growth. The portion of the charge related to
Roltra-Morse was $6.2 million, which includes severance
and certain other costs, and a write-off of goodwill.
These restructuring measures at Roltra-Morse are
expected to reduce operating expenses, improve the
effectiveness of engineering resources and produce cost
savings in 1997. The remaining restructuring charges
relate to severance costs and other expenses related to
further restructuring at the Company's Gems European
operations and Morse German operation. This program
includes a reduction of 126 employees in Europe
consisting of both administrative and production
employees, or 3.3% of the total number of Company
employees at the end of 1996.
This program is expected to reduce expenses by
approximately $2.6 million in 1997 and $3.8 million
annually thereafter. The required cash outlay related
to this program was $.4 million in 1996 and the expected
cash requirements during 1997 are $3.1 million. The
remainder represents non-cash charges.
1995 Program
In the fourth quarter of 1995, the Company recorded a
charge to continuing operations of $5.2 million,
including severance and other expenses related to a
Company-wide program to reduce general and
administrative costs (See Note 6). This program
includes a reduction of 65 employees, or 2% of the total
number of Company employees, including a reduction of
the corporate headquarters staff by 20%. This program
reduced general and administrative expenses by
approximately $2.7 million in 1996, and is expected to
reduce general and administrative expenses by
approximately $3.2 million in 1997, and $4.1 million in
1998 and annually thereafter. The required cash outlays
related to this program were $.6 million and $3.1
million in 1995 and 1996, respectively. The final cash
outlay of $.3 million is expected during 1997. The
remainder represents non-cash charges.
Note 4 Inventories
Inventories are summarized as follows:
December 31 (Dollars in thousands) 1996 1995
Finished products $ 46,905 $ 39,332
Work in process 30,802 33,604
Materials and supplies 30,641 36,605
108,348 109,541
Less customers' progress payments 2,710 689
Less valuation allowance 11,205 11,701
$ 94,433 $ 97,151
Note 5 Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
December 31 (Dollars in thousands) 1996 1995
Accrued product warranty costs $ 2,596 $ 3,464
Accrued litigation and claims costs 2,132 1,674
Payroll and related items 17,610 16,077
Accrued interest payable 3,731 6,511
Accrued restructuring costs 3,422 4,076
Accrued divestiture costs 2,460 2,861
Other 10,681 8,559
$ 42,632 $ 43,222
Note 6 Unusual Items
During the fourth quarter of 1996, the Company
recognized unusual charges of $24.6 million ($1.44 per
share) in income from continuing operations. These
charges include $4.6 million related to the
restructuring and cost reduction programs within the
Company's operating units, $2.8 million related to the
impairment of certain long-lived assets, and $17.1
million related to the write-down of certain businesses
being held for sale and certain non-operating real
estate being held for sale to net realizable value (See
Note 3).
During the fourth quarter of 1995, the Company
recognized unusual charges of $10.2 million ($.59 per
share) in income from continuing operations. These
charges include $5.2 million in severance benefits and
other expenses related to a Company-wide program to
reduce general and administrative costs (See Note 3) and
$5.0 million related to the write-down of certain non-
operating real estate to net realizable value (See Note
3).
Note 7 Income Taxes
The components of income tax expense (benefit) from
continuing operations are:
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
Current:
Federal $ --- $ --- $ ---
Foreign 3,423 2,779 1,973
State 277 303 460
3,700 3,082 2,433
Deferred:
Federal 10,000 (17,000) ---
Foreign and State --- --- ---
10,000 (17,000) ---
$13,700 $(13,918) $2,433
Income tax expense for 1994 from discontinued operations
was $.8 million. There was no income tax expense for
discontinued operations in 1996 or 1995.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Significant components of the Company's deferred tax
assets and liabilities as of December 31, 1996 and 1995
are as follows:
December 31
(Dollars in thousands) 1996 1995
Current Long-term Current Long-term
Deferred tax assets:
Postretirement benefit
obligation $ 595 $ 6,367 $ 765 $ 8,940
Expenses not currently
deductible 21,516 7,185 19,101 9,895
Net operating loss
carryover --- 37,269 --- 30,041
Tax credit carryover --- 2,133 --- 5,033
Total deferred tax assets 22,111 52,954 19,866 53,909
Valuation allowance for
deferred tax assets (12,946) (31,119) (8,495) (23,180)
Net deferred tax assets 9,165 21,835 11,371 30,729
Deferred tax
liabilities:
Tax over book
depreciation --- 18,289 --- 18,593
Other --- 7,615 --- 7,527
Total deferred tax
liabilities --- 25,904 --- 26,120
Net deferred tax
assets (liabilities) $ 9,165 $ (4,069) $ 11,371 $ 4,609
At December 31, 1996, unremitted earnings of foreign
subsidiaries were approximately $23.6 million. Since it
is the Company's intention to indefinitely reinvest
these earnings, no U.S. taxes have been provided.
Determination of the amount of unrecognized deferred tax
liability on these unremitted earnings is not
practicable. The amount of foreign withholding taxes
that would be payable upon remittance of those earnings
is approximately $.9 million.
The components of income (loss) from continuing
operations before income taxes, minority interest and
extraordinary item:
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
United States $(16,061) $(8,084) $(2,322)
Foreign (12,307) 5,970 8,803
$(28,368) $(2,114) $6,481
U.S. income tax expense (benefit) at the statutory tax
rate is reconciled below to the overall U.S. and foreign
income tax expense (benefit).
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
Tax at U.S. federal income
tax rate $(9,929) $ (740) $ 2,268
State taxes, net of federal
income tax effect 188 197 299
Impact of foreign tax rates
and credits (238) 689 (1,108)
Net U.S. tax on distributions
of current foreign earnings 755 586 935
Goodwill amortization and
write-off 4,276 643 656
Change in valuation reserve 12,390 (21,685) ---
Nondeductible foreign losses 7,956 --- ---
Other (1,698) 6,392 (617)
Income tax expense (benefit) $13,700 $(13,918) $ 2,433
Net income taxes paid during 1996, 1995 and 1994 were
$4.8 million, $6.3 million and $.2 million,
respectively.
The Company has net operating loss carryforwards of
approximately $106 million expiring in years 2002
through 2011, and minimum tax credits of approximately
$2.1 million, which may be carried forward indefinitely.
Included in the net operating loss carryforwards are
foreign tax credits of approximately $7.4 million,
expiring through 2001, which, for financial and tax
reporting purposes, are reflected as deductible foreign
taxes. These carryforwards are available to offset
future federal taxable income.
The Company establishes valuation allowances in
accordance with the provisions of FASB Statement No.
109, "Accounting for Income Taxes." The Company
continually reviews the adequacy of the valuation
allowance and is recognizing these benefits only as
reassessment indicates that it is more likely than not
that the benefits will be realized.
In 1995, the Company reduced the valuation allowance
applied against the net operating loss carryforwards by
$17.0 million based upon reasonable and prudent tax
planning strategies and future income projections
including the planned sale of Roltra-Morse. As a result
of withdrawing Roltra-Morse from potential sale in 1996,
the Company recorded a provision of $10.0 million
against deferred tax benefits previously recognized
based on an anticipated gain on this sale. This reduced
the deferred tax benefit to $5.1 million at December 31,
1996, to a level where management believes that it is
more likely than not that the tax benefit will be
realized. The total amount of future taxable income in
the U.S. necessary to realize the asset is approximately
$14.0 million. The Company expects to generate this
income principally through the implementation of
reasonable tax planning strategies and future income
projections, including an anticipated reduction of
interest expense of approximately $2.5 million in 1997 and
$5.0 million annually thereafter. This interest cost savings
is based on debt reductions from proceeds of the planned
sale of approximately $50.0 million of non-core assets.
Although the Company has a history of prior losses,
these losses were primarily attributable to divested
businesses and unusual items. The remaining valuation
allowance is necessary due to the uncertainty of future
income estimates.
Note 8 Notes Payable and Long-Term Debt
On April 29, 1996, the Company completed the refinancing
of its domestic senior debt, its 12% senior subordinated
debentures and its remaining 12.25% senior subordinated
debentures. Under terms of the refinancing, the Company
issued $155 million of 11.75% senior subordinated notes
due 2006 (the "Notes"), priced at a discount to yield
12%. The Company also entered into an agreement for
$175 million in senior secured credit facilities with a
group of lenders (the "New Credit Agreement"). Initial
borrowings under the New Credit Agreement were
approximately $112 million. Proceeds of the Notes and
the New Credit Agreement were used to redeem the
remaining $70 million of the Company's 12.25% senior
subordinated debentures due 1997 and all $150 million of
its 12% senior subordinated debentures due 2001,
together with accrued interest and a prepayment premium
for the latter issue, and to refinance all obligations
under the Company's Old Credit Agreement. The costs of
issuance of the Notes and implementation of the New
Credit Agreement is being amortized over their
respective terms.
The Notes are not redeemable prior to May 1, 2001,
except that, until May 1, 1999, the Company may redeem,
at its option, up to an aggregate of $55 million of the
principal amount of the Notes at 110% of their principal
amount plus accrued interest with the net proceeds of
one or more public equity offerings provided that at
least $100 million of the principal amount of the Notes
remains outstanding after each such redemption. On or
after May 1, 2001, the Notes are redeemable at the
option of the Company, in whole or in part, at 106% of
their principal amount, plus accrued interest, declining
to 100% of their principal amount plus accrued interest
on or after May 1, 2004. Interest is payable semi-
annually on May 1 and November 1. The fair value of
these instruments at December 31, 1996, based on market
bid prices, was $ 144.2 million.
The New Credit Agreement, which is secured by the assets
of the Company's domestic operations and all or a
portion of the stock of certain subsidiaries, provides
for a $70 million revolving credit facility through
April 30, 2001, a $25 million term loan amortizing to
April 30, 2001 ("Term Loan A"), a $35 million term loan
amortizing to April 30, 2001 ("Term Loan B"), and a $45
million term loan amortizing to April 30, 2003 ("Term
Loan C"). The interest rates on the Term Loans are based
on the Company's current market rates. Consequently, the
carrying value of the Term Loans approximates fair
value.
Pursuant to the New Credit Agreement, net cash proceeds
from the asset sales must be applied to first repay Term
Loan B and then Term Loans A and C. During 1996,
proceeds from the sale of certain non-operating real
estate were used to repay $6.9 million of Term Loan B.
As of December 31, 1996, the Company had borrowings of
$19.3 million outstanding under the revolving credit
facility of the New Credit Agreement in addition to $5.5
million of outstanding standby letters of credit. The
Company's continuing operations currently have $38.2
million in foreign short-term credit facilities with
amounts outstanding at December 31, 1996 of $24.0
million. Due to the short-term nature of these debt
instruments it is the Company's opinion that the
carrying amounts approximate the fair value. The
weighted average interest rate on short-term notes
payable was 9.5% and 9.4% at December 31, 1996, and
1995, respectively.
Borrowings under the revolving credit facility of the
New Credit Agreement are due and payable in 2001,
concurrent with the expiration of the revolving credit
portion of the New Credit Agreement. Although the terms
of the New Credit Agreement require borrowings under the
revolving credit facility of this agreement to be
classified as current in accordance with generally
accepted accounting principles, it is the Company's
intent to defer repayment of these outstanding
borrowings beyond the next year and thereby not require
the use of current assets to satisfy this borrowing.
Long-term debt of continuing operations consists of the
following:
December 31
(Dollars in thousands) 1996 1995
Term Loan A, $1.25 million due quarterly
July 31, 1996 to April 30, 2001 (1) $ 22,500 $ ---
Term Loan B, $2.2 million due quarterly
July 31, 1997 to April 30, 2001 (2) (3) 28,122 ---
Term Loan C, $.125 million due quarterly
July 31, 1996 to April 30, 2001 and
$5.3 million due quarterly July 31,
2001 to April 30, 2003 (2) 44,750 ---
Senior subordinated debentures with
interest at 12.25%, due August 15,
1997 --- 70,000
Senior subordinated debentures with
interest at 12%, due November 1, 1999
to 2001 --- 150,000
Senior subordinated notes with
interest at 11.75%, due May 1, 2006,
net of unamortized discount of $2.1
million 152,858 ---
Other 18,624 13,937
266,854 233,937
Less current portion 14,994 2,376
$251,860 $231,561
(1) These loans bear interest at prime plus 1.0% or 1, 2,
3, or 6 months LIBOR plus 2.5%.
(2) These loans bear interest at prime plus 1.5% or 1, 2,
3, or 6 months LIBOR plus 3.0%.
(3) Last payment differs due to principal prepayments.
________________________________________________________
The aggregate annual maturities of long-term debt from
continuing operations, in thousands, for the four years
subsequent to 1997 are: 1998 - $15,809; 1999 - $17,172;
2000 - $15,396; and 2001 - $20,808.
Total debt of the Discontinued Operations, in thousands,
amounted to $1,491 and $1,604 as of December 31, 1996
and 1995, respectively. Of these amounts, $1,442 and
$1,555 represent the long-term portion.
The New Credit Agreement requires the Company to meet
certain objectives with respect to financial ratios.
The New Credit Agreement and the Notes contain
provisions which place certain limitations on dividend
payments and outside borrowings. Under the most
restrictive of such provisions, the New Credit Agreement
requires the Company to maintain certain minimum
consolidated net worth levels, interest coverage and
fixed charge coverage levels and the Company is
prohibited from declaring or paying cash dividends
through April 30, 2003. At December 31, 1996, the
Company was in violation of certain covenants under the
New Credit Agreement, which were subsequently amended.
The Company plans to sell approximately $50 million of
non-core assets, about one third of which is unused real
estate, and use the proceeds to reduce senior debt.
As a result of the refinancing, an extraordinary charge
of $8.5 million ($.49 per share) was recorded in the
second quarter of 1996. This charge represents the cash
costs of $5.1 million incurred in connection with the
early extinguishment of the debt as well as the write-
off of previously deferred loan costs.
In connection with the early repayment and redemption of
domestic senior debt and $80 million of 12.25% senior
subordinated debentures in 1995, the Company recorded a
$4.4 million ($.26 per share) charge as an extraordinary
item. The charge consisted of the write-off of deferred
debt expense associated with portions of the domestic
senior debt repaid and the 12.25% senior subordinated
debentures redeemed.
Bank, advisory and legal fees associated with the 1994
refinancing of the Old Credit Agreement amounted to
approximately $5.6 million in 1994. In addition, a $5.3
million ($.31 per share) charge related to the
extinguishment of senior debt under previous domestic
senior credit facilities was recorded as an
extraordinary charge in 1994. The $5.3 million charge
is comprised of a $3.7 million premium paid in 1994 on
the prepayment of its $30 million 12.75% senior
promissory note and the write-off of approximately $1.6
million of previously deferred loan costs.
Note 9 Shareholders' Equity
Equity Incentive Plans
The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in
accounting for its employee stock options because, as
discussed below, the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting
for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock
options equals the market price of the underlying stock
on the date of grant, no compensation expense is
recognized other than for restricted stock awards.
Under the Company's Equity Incentive Plan for Key
Employees, up to 3,050,000 shares of the Company's $1.00
par value common stock can be issued pursuant to the
granting of stock options, stock appreciation rights,
restricted stock awards and restricted unit awards to
key employees. Options can be granted at no less than
100 percent of the fair market value of the Company's
common stock on the date of grant or on the prospective
date fixed by the Board of Directors. None of these
options can be exercised for at least a one-year period
from the date of grant. After this waiting period, 25
percent of each option, on a cumulative basis, can be
exercised in each of the following four years.
Additionally, each option shall terminate no later than
10 years from the date of grant.
On August 17, 1993, the Board of Directors approved the
repricing of certain outstanding non-qualified stock
options granted on previous dates under the Plan. This
resulted in the replacement of 468,000 non-qualified
stock options at various exercise prices ranging from
$10.375 to $20.375, by 272,865 non-qualified stock
options at an exercise price of $7.375, the fair market
value at the date of the replacement grant, subject to
the market price of the Company's common stock exceeding
$10 per share for a period of 30 days. During 1994, the
aforementioned criterion was met. Vested dates are
based on the original grant dates of the replaced
options.
On June 20, 1994, certain additional outstanding non-
qualified stock options, granted on previous dates under
the Plan, were repriced pursuant to the August 17, 1993
Board of Directors approval. This resulted in the
replacement of 15,000 non-qualified stock options at
various exercise prices ranging from $11.625 to $20.375,
by 9,970 non-qualified stock options at an exercise
price of $10.25, the fair market value at the date of
the replacement grant. Vested dates are based on the
original grant dates of the replaced options.
On June 23, 1995, the Company's Equity Incentive Plan
for Key Employees was amended to increase the total
issuable shares by 850,000 to 3,050,000 and to prohibit
repricing without prior shareholder approval.
The Plan permits awards of restricted stock to key
employees subject to a restricted period and a purchase
price, if any, to be paid by the employee as determined
by the Committee administering the Equity Incentive
Plan. Grants of 35,000 shares and 40,000 shares of
restricted stock were made in 1996 and 1994,
respectively, all of which were outstanding as of
December 31, 1996. No such grants were made in 1995.
Vesting of such awards is subject to a defined vesting
period and to the Company's common stock achieving
certain performance levels during such period.
A summary of the Company's stock option activity under
the Equity Incentive Plan for Key Employees and related
information is as follows:
Year Ended Weighted- Weighted- Weighted-
December 31 1996 Average 1995 Average 1994 Average
(Shares in thousands) Exercise Exercise Exercise
Price Price Price
Options:
Granted 254 $4.08 250 $6.00 410 $9.74
Exercised --- --- (73) $7.32 (56) $7.37
Forfeited (292) $8.12 (210) $10.27 (159) $15.11
Repricing
Canceled --- --- --- --- (15) $14.83
Issued --- --- --- --- 10 $10.25
Outstanding at end of year 1,426 $7.32 1,464 $8.02 1,497 $8.65
Exercisable at end of year 718 $8.15 691 $8.24 654 $8.67
Available for grant at end
of year 868 865 55
Weighted-average fair
value of options granted
during the year $2.50 $3.53 ---
At December 31, 1996, the Company had outstanding
1,386,236 options with exercise prices ranging from
$3.375 to $9.75 and 40,060 options with exercise prices
ranging from $10.25 to $20.375. A summary by range for
the Plan is as follows:
$3.375 - $9.75 $10.25 - $20.375
Weighted-Average Exercise
Price $7.13 $13.96
Weighted-Average Remaining
term 7.6 years 4.6 years
Exercisable Options 680,486 37,310
Weighted-Average Exercise
Price of Exercisable Options $7.82 $14.21
During 1988, the Company adopted the Equity Incentive
Plan for Outside Directors. This Plan provided for the
granting of non-qualified stock options of up to 360,000
shares of the Company's common stock to directors of the
Company who are not employees of the Company or any of
its affiliates. Pursuant to this plan, options could be
granted at no less than 100 percent of the fair market
value of the Company's common stock on a date five
business days after the option is granted and no option
granted may be exercised during the first year after its
grant. After this waiting period, 25 percent of each
option, on a cumulative basis, can be exercised in each
of the following four years. Each option terminates no
later than 10 years from the date of grant. In February
1988, 320,000 stock options were granted at $16.19 per
share, all of which were exercisable as of December 31,
1996. In December 1990, 40,000 stock options were
granted at $10.375 per share, all of which were
exercisable as of December 31, 1996. In June 1995, the
Plan was amended to reduce the number of shares issuable
to an aggregate of 360,000 and to provide that no future
options could be granted thereunder.
In June 1995, the Company adopted the 1995 Equity
Incentive Plan for Outside Directors. This Plan
provides for the granting of restricted stock awards and
non-qualified stock options of up to 240,000 shares of
the Company's common stock to outside directors of the
Company who are not employees of the Company or any of
its affiliates. Pursuant to this Plan, each outside
director will be granted, on an annual basis, options to
purchase 4,000 shares of the Company's common stock. The
exercise price of the options will be 100 percent of the
fair market value of the common stock at the date of
grant and no option granted may be exercised during the
first year after its grant subject to certain plan
provisions. After this waiting period, the options
become exercisable in four equal annual installments of
1,000 shares. Additionally, each option terminates no
later than 10 years from the date of grant. This plan
also provides for the granting of an annual restricted
stock award of 1,000 shares of the Company's common
stock. Each award is made in four quarterly installments
of 250 shares beginning July 1, 1995. The shares
comprising the restricted stock awards may not be sold
or otherwise transferred by the outside director until
termination from service. Restricted stock awards of
5,500 and 3,000 were granted during 1996 and 1995,
respectively.
A summary of the Company's stock option activity under
the 1995 Equity Incentive Plan for Outside Directors and
related information is as follows:
Year Ended Weighted- Weighted-
December 31 1996 Average 1995 Average
(Shares in thousands) Exercise Exercise
Price Price
Options:
Granted 20 $7.88 24 $8.00
Exercised --- --- --- ---
Forfeited --- --- --- ---
Outstanding at end of year 44 $7.94 24 $8.00
Exercisable at end of year 6 $8.00 --- ---
Available for grant at end
of year 188 213
Weighted-average fair value
of options granted during
the year $5.58 $5.61
Exercise prices for options outstanding as of December
31, 1996 for this Plan ranged from $7.875 to $8.00. The
weighted-average remaining term of the stock options
granted under this Plan is 8.9 years.
Pro forma net income (loss) and earnings (loss) per
share determined as if the Company has accounted for its
employee stock options granted subsequent to December
31, 1994 under the fair value method of Statement 123
follows:
(Amounts in thousands except per share amounts) 1996 1995
Net income (loss) - as reported $(58,370) $29,710
Net income (loss) - pro forma $(58,643) $29,668
Earnings (loss) per share - as reported $(3.41) $1.74
Earnings (loss) per share - pro forma $(3.42) $1.74
The fair value for these options and restricted stock
awards was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-
average assumptions for the Equity Incentive Plans:
Equity Incentive Plan 1996 1995
for Key Employees ----------------------- -------
Stock Restricted Stock
Options Stock Awards Options
Expected stock price
volatility 0.528 0.510 0.495
Risk-free interest rate 6.16% 6.26% 5.93%
Expected life of equity
instrument 7 years 5 years 7 years
Expected dividend yield 0% 0% 0%
During 1995, there were no restricted stock awards under
the Equity Incentive Plan for Key Employees.
1995 Equity Incentive Plan 1996 1995
for Outside Directors ---------------------- ---------------------
Stock Restricted Stock Restricted
Options Stock Awards Options Stock Awards
Expected stock price
volatility 0.522 0.523 0.512 0.497
Risk-free interest rate 6.31% 5.93% 6.31% 5.93%
Expected life of equity
instrument 7 years 4 years 7 years 5 years
Expected dividend yield 0% 0% 0% 0%
The expected life of the restricted stock awards under
the Plan represents the weighted-average of the
remaining years until each of the members of the Board
of Directors attains the mandatory retirement age of 72.
This assumes that each of the directors will continue
their directorships until the mandatory retirement age.
The risk-free interest rates are based on U.S. Treasury
Notes on the date of grant with maturities equal to the
respective stock option and restricted stock award
expected lives.
The Black-Scholes option valuation model was developed
for use in estimating the fair value of traded options
and restricted stock awards. Option and restricted
stock valuation models require the input of highly
subjective assumptions including the expected stock
price volatility. Because changes in the subjective
input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models
do not necessarily provide a reliable single measure of
the fair value of stock options and restricted stock
awards granted by the Company.
For purposes of pro forma disclosures, the estimated
fair value of the options and restricted stock awards is
amortized to expense over the options' vesting period.
Because Statement 123 is applicable only to options
granted subsequent to December 31, 1994, its pro forma
effect will not be fully reflected until 1997.
Total compensation expense related to stock-based
compensation awards under Statement 123 for 1996 and
1995 was approximately $300,000 and $48,000,
respectively. Compensation expense recorded by the
Company under APB 25 in 1996 and 1995 for awards granted
during those years was approximately $27,000 and $6,000,
respectively.
Preferred Stock Purchase Rights
On April 22, 1987, the Board of Directors declared a
distribution of one Preferred Stock Purchase Right for
each share of common stock outstanding. Each right will
entitle the holder to buy from the Company a unit
consisting of 1/100 of a share of Junior Participating
Preferred Stock, Series A, at an exercise price of $70
per unit. The rights become exercisable ten days after
public announcement that a person or group has acquired
20 percent or more of the Company's common stock or has
commenced a tender offer for 30 percent or more of
common stock. The rights may be redeemed prior to
becoming exercisable by action of the Board of Directors
at a redemption price of $0.025 per right. If more than
35 percent of the Company's common stock becomes held by
a beneficial owner, other than pursuant to an offer
deemed in the best interest of the shareholders by the
Company's independent directors, each right may be
exercised for common stock, or other property, of the
Company having a value of twice the exercise price of
each right. If the Company is acquired by any person
after the rights become exercisable, each right will
entitle its holder to receive common stock of the
acquiring company having a market value of twice the
exercise price of each right. The rights expire on May
4, 1997. The Company is evaluating extending the rights
beyond the current expiration date.
Employees Stock Savings Plan
Up to 1,600,000 shares of the Company's common stock are
reserved for issuance under the Company's Employees
Stock Savings Plan. (See Note 11)
Common Stock Warrants
In July 1993, the Company issued warrants to purchase
200,000 shares of its common stock at $9.02 per share
(subject to adjustment in certain events), to one of its
senior lenders in connection with the restructuring of
its senior credit facilities. The warrants are
exercisable on or before December 31, 1998.
Note 10 Operations by Industry Segment and Geographic Area
The Company classifies its continuing operations into
five core business segments: Power Transmission, Pumps,
Instrumentation, Morse Controls and Roltra-Morse.
Detailed information regarding products by segment is
contained in the section entitled "Business" included in
Part I, Item 1 of this Form 10-K Report. A sixth
business segment entitled Other is included in
continuing operations for financial reporting purposes,
and includes operations previously sold as part of the
Company's asset divestiture program, such as units of
the Company's aerospace business and certain other non-
strategic businesses, which no longer fit into its core
business segments as redefined in 1993 and 1995. The
1995 and 1994 amounts have been restated to reflect
Roltra-Morse as a continuing operation. Information
about the business of the Company by business segment,
foreign operations and geographic area is presented
below:
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
Net Sales
Power Transmission $ 89,456 $ 95,075 $ 93,308
Pumps 107,567 94,375 90,428
Instrumentation 78,911 76,113 72,226
Morse Controls 112,488 107,664 100,075
Roltra-Morse 80,223 99,140 103,106
Other --- --- 4,748
Total net sales $ 468,645 $ 472,367 $ 463,891
Segment operating
income (loss)
Power Transmission $ 8,965 $ 11,348 $ 8,905
Pumps 11,538 9,884 10,447
Instrumentation 7,373 6,746 9,791
Morse Controls 8,581 5,292 5,743
Roltra-Morse (8,492) 6,002 9,188
Other --- --- (216)
Total segment operating
income 27,965 39,272 43,858
Equity in income (loss)
of unconsolidated
companies (552) 302 ---
Unallocated corporate
expenses (23,988) (12,454) (5,120)
Net interest expense (31,793) (29,234) (32,257)
Income (loss) from
continuing operations
before income taxes,
minority interest and
extraordinary item $ (28,368) $ (2,114) $ 6,481
A reconciliation of segment operating income to income
from operations follows:
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
Segment operating
income $ 27,965 $ 39,272 $ 43,858
Unallocated corporate
expenses (23,988) (12,454) (5,120)
Other income (444) (739) (876)
Income from operations $ 3,533 $ 26,079 $ 37,862
Segment operating income for the year ended December 31,
1996, includes $7.4 million of unusual charges, of which
$.9 million, $.3 million, and $6.2 million relate to the
Instrumentation, Morse Controls and Roltra-Morse
segments, respectively. Unallocated corporate expenses
include unusual charges of $17.1 million for the year
ended December 31, 1996.
Segment operating income for the year ended December 31,
1995, includes $3.6 million of unusual charges, of which
$.9 million, $1.5 million, and $1.2 million relate to
the Instrumentation, Morse Controls and Roltra-Morse
segments, respectively. Unallocated corporate expenses
include unusual charges of $6.6 million for the year
ended December 31, 1995.
The Roltra-Morse segment had sales to one commercial
customer (Fiat S.p.A. and its subsidiaries) that
accounted for 16%, 19% and 21% of consolidated sales in
1996, 1995, and 1994, respectively. No other customer
accounted for 10% or more of consolidated sales in 1996,
1995 or 1994.
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
Identifiable assets
Power Transmission $ 70,533 $ 86,343 $ 88,284
Pumps 73,806 69,347 63,172
Instrumentation 40,222 42,538 44,862
Morse Controls 110,141 111,482 107,471
Roltra-Morse 74,317 72,569 66,203
Other 10,800 13,321 18,054
Corporate 16,966 26,446 26,298
Discontinued Operations:
Electro-Optical 14,356 11,893 85,000
Turbomachinery 473 983 59,970
Total identifiable assets $ 411,614 $ 434,922 $ 559,314
Depreciation and
amortization
Power Transmission $ 4,438 $ 4,618 $ 4,778
Pumps 4,114 3,972 3,578
Instrumentation 1,593 1,840 1,464
Morse Controls 3,335 3,392 4,155
Roltra-Morse 4,843 3,880 3,390
Other --- --- 655
Corporate 1,511 1,400 3,973
Total depreciation and
amortization $ 19,834 $ 19,102 $ 21,993
Capital expenditures
Power Transmission $ 2,699 $ 3,384 $ 1,245
Pumps 4,568 7,367 2,164
Instrumentation 1,101 1,445 1,177
Morse Controls 2,554 2,131 1,080
Roltra-Morse 6,869 6,271 2,999
Other --- --- 39
Corporate 211 273 502
Total capital expenditures $ 18,002 $ 20,871 $ 9,206
The continuing operations of the Company on a geographic
basis are as follows:
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
Net sales
United States $254,720 $244,341 $246,601
Foreign
(principally Europe) 213,925 228,026 217,290
Total net sales $468,645 $472,367 $463,891
Segment operating income
United States $ 30,762 $ 29,642 $ 31,679
Foreign (2,797) 9,630 12,179
Total segment operating
income $ 27,965 $ 39,272 $ 43,858
Identifiable assets
Continuing Operations:
United States $209,551 $234,382 $238,916
Foreign 187,234 187,664 175,428
Discontinued Operations:
United States 14,829 12,876 141,053
Foreign --- --- 3,917
Total identifiable assets $411,614 $434,922 $559,314
Export sales
Asia $ 6,472 $ 4,060 $ 2,763
Canada 3,239 4,643 3,748
Europe 3,422 2,704 2,857
Latin America 978 483 861
Middle East &
North Africa 1,948 236 459
South America 6,822 2,736 2,368
Other 3,536 2,332 2,834
Total export sales $ 26,417 $ 17,194 $ 15,890
Note 11 Pension Plans
The Company and its subsidiaries have various pension
plans covering substantially all of their employees.
Benefits are based on either years of service or years
of service and average compensation during the years
immediately preceding retirement. It is the general
policy of the Company to fund its pension plans in
conformity with requirements of applicable laws and
regulations. Effective December 31, 1996 all domestic,
pay-related plans were merged into the Imo Industries
Inc. Retirement Plan for U.S. Salaried Employees.
Pension benefits were not affected by the merger.
Pension expense was $4.3 million in 1996, $4.2 million
in 1995 and $7.9 million in 1994, and includes
amortization of prior service cost and transition
amounts for periods of 5 to 15 years. The 1996 and 1995
expense includes costs related to retained pension
liabilities of discontinued operations. In 1994 these
amounts were charged to discontinued operations. The
Company included $2.0 million of curtailment and
settlement losses in its gain on disposal related to the
discontinued operations in 1995. Net pension expense
(including $5.7 million charged to discontinued
operations in 1994) is comprised of the following:
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
Service cost $ 4,282 $ 4,297 $ 7,237
Interest cost on projected
benefit obligation 14,471 13,429 14,158
Actual return on plan assets (20,868) (17,797) (449)
Net amortization and
deferral 6,374 4,274 (12,963)
Net pension expense $ 4,259 $ 4,203 $ 7,983
Assumptions used to determine the net pension expense of
the Company-sponsored defined benefit plans are as follows:
Year Ended December 31 1996 1995 1994
Weighted average discount rate 7.5% 8.5% 7.5%
Rate of increase in
compensation levels 5.3% 5.3% 5.3%
Expected long-term rate of
return on assets 9.0% 9.0% 9.0%
The following table sets forth the funded status and
amounts recognized in the consolidated balance sheet for
the defined benefit pension plans using discount rates
of 7.75% and 7.5% at December 31, 1996 and 1995,
respectively. The assumed rate of increase in compensation
levels was 5.3% in both years.
Year Ended December 31
(Dollars in thousands) 1996
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Benefits Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation $163,375 $ 29,395
Accumulated benefit
obligation $166,927 $ 29,783
Projected benefit obligation $182,288 $ 30,723
Plan assets at fair value 180,889 16,800
Plan assets in excess of (less
than) projected benefit
obligation (1,399) (13,923)
Unrecognized net (gain) or loss (2,908) 2,734
Prior service cost not yet
recognized in net periodic
pension cost 2,884 1,097
Unrecognized net (asset)
obligation at transition 1,836 4
Adjustment required to recognize
minimum liability --- (3,797)
Pension asset (liability)
recognized in the balance sheet $ 413 $(13,885)
Year Ended December 31
(Dollars in thousands) 1995
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Benefits Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation $117,455 $ 46,445
Accumulated benefit
obligation $124,808 $ 46,564
Projected benefit obligation $138,866 $ 47,454
Plan assets at fair value 148,275 35,226
Plan assets in excess of (less
than) projected benefit
obligation 9,409 (12,228)
Unrecognized net (gain) or loss (9,566) 107
Prior service cost not yet
recognized in net periodic
pension cost 2,812 956
Unrecognized net (asset)
obligation at transition 2,037 171
Adjustment required to recognize
minimum liability --- (3,132)
Pension asset (liability)
recognized in the balance sheet $ 4,692 $(14,126)
Effective with the December 31, 1996 measurement date,
the discount rate, expected long-term rate of return on
assets and mortality assumptions were revised to reflect
current market and demographic conditions. As a result
of these changes, the December 31, 1996 projected
benefit obligation increased by approximately $11.0
million. These changes had no effect on the 1996 pension
expense and are not expected to have a material effect
on future year's expense.
Plan assets at December 31, 1996 are invested in fixed
dollar guaranteed investment contracts, U.S. Government
obligations, fixed income investments, guaranteed
annuity contracts and equity securities whose values are
subject to fluctuations of the securities market.
The Company maintains two defined contribution
(Employees Stock Savings) plans covering substantially
all domestic, non-union employees. Eligible employees
may generally contribute from 1% to 12% of their
compensation on a pre-tax basis. Company contributions
to the plans are based on a percentage of employee
contributions. In July 1995, the Company restored its
matching contribution, previously suspended in July
1992, at 25% of the first 6% of each participant's pre-
tax contribution. The Company's expense for 1996 and
1995 was $.7 million and $.3 million, respectively.
Note 12 Postretirement Benefits
In addition to providing pension benefits, the Company
provides certain health care and life insurance benefits
for certain retired union employees. The Company's
unionized retiree benefits are determined by their
individually negotiated contracts. The Company's
contribution toward the full cost of the benefits is
based on the retiree's age and continuous unbroken
length of service with the Company. The Company's
policy is to pay the cost of medical benefits as claims
are incurred. Life insurance costs are paid as insured
premiums are due.
In March 1994, the Company amended its policy regarding
non-union retiree medical and life insurance. This
amendment, which affected all current and future non-
union retirees, phased out the Company subsidy for
retiree medical and life insurance over the three-year
period ended December 31, 1996. The pre-tax amount
amortized to income from continuing operations was $4.3
million, $4.6 million and $4.4 million in 1996, 1995 and
1994, respectively. The amendment did not result in a
significant increase or decrease in cash requirements
during the phase-out period.
The following tables set forth the plans' combined
status reconciled with the amounts included in the
consolidated balance sheet:
December 31
(Dollars in thousands) 1996
Life
Medical Insurance
Plans Plans Total
Accumulated postretirement
benefit obligation:
Retirees $ 7,551 $ 1,965 $ 9,516
Fully eligible active plan
participants 206 46 252
Other active plan
participants 395 47 442
8,152 2,058 10,210
Plan assets --- --- ---
Unrecognized prior service cost --- 1,605 1,605
Unrecognized net gain 6,502 801 7,303
Postretirement benefit
liability recognized in the
balance sheet $14,654 $ 4,464 $19,118
December 31
(Dollars in thousands) 1995
Life
Medical Insurance
Plans Plans Total
Accumulated postretirement
benefit obligation:
Retirees $11,780 $ 4,974 $16,754
Fully eligible active plan
participants 1,277 312 1,589
Other active plan
participants 1,011 81 1,092
14,068 5,367 19,435
Plan assets --- --- ---
Unrecognized prior service cost 3,109 3,924 7,033
Unrecognized net gain (loss) 2,379 (2,290) 89
Postretirement benefit
liability recognized in the
balance sheet $19,556 $ 7,001 $26,557
The 1996 accrued postretirement benefits amount is
classified as follows: $1.7 million current liabilities
and $17.4 million long-term liabilities. For 1995,
these amounts are $2.2 million current liabilities and
$24.4 million long-term liabilities.
Effective January 1, 1997, the Company subsidy for
medical coverage under the Warren Pump Union plan was
terminated. This termination resulted in a curtailment
gain of $.6 million for the year ended December 31,
1996.
Net periodic postretirement benefit cost (including $2.3
million to discontinued operations in 1994) included the
following components:
Year Ended December 31
(Dollars in thousands) 1996
Life
Medical Insurance
Plans Plans Total
Service cost $ 24 $ 2 $ 26
Interest cost 650 157 807
Amortization of prior
service cost (3,110) (2,318) (5,428)
Amortization of gain (449) (44) (493)
Net periodic postretirement
benefit cost $(2,885) $(2,203) $(5,088)
Year Ended December 31
(Dollars in thousands) 1995
Life
Medical Insurance
Plans Plans Total
Service cost $ 59 $ 5 $ 64
Interest cost 1,057 415 1,472
Amortization of prior
service cost (3,110) (2,319) (5,429)
Amortization of (gain) loss (166) 102 (64)
Net periodic postretirement
benefit cost $(2,160) $(1,797) $(3,957)
Year Ended December 31
(Dollars in thousands) 1994
Life
Medical Insurance
Plans Plans Total
Service cost $ 100 $ 7 $ 107
Interest cost 1,547 289 1,836
Amortization of prior
service cost (5,955) (1,967) (7,922)
Amortization of loss 543 103 646
Net periodic postretirement
benefit cost $(3,765) $(1,568) $(5,333)
Actual negotiated health care premiums were used in
calculating 1996, 1995 and 1994 health care costs. It
is expected that the annual increase in medical costs
will be 7.0% from 1996 to 1997, grading down in future
years by 1.0% per year until it reaches a future general
medical inflation level of 5%. The health care cost
trend rate assumption has a significant effect on the
amounts reported. For example, a 1% increase in the
health care trend rate would increase the accumulated
postretirement benefit obligation at December 31, 1996
by $.8 million and the net periodic cost by $.1 million
for the year. Effective January 1, 1995, the Company
changed its medical inflation rate to reflect actual
experience. Such change resulted in a reduction of the
1995 net periodic cost of $.8 million. The weighted
average discount rate used in determining the
accumulated postretirement benefit obligation was 7.75%
and 7.5% in 1996 and 1995, respectively.
Note 13 Leases
The Company leases certain manufacturing and office
facilities, equipment, and automobiles under long-term
leases. Future minimum rental payments required under
operating leases of continuing operations that have
initial or remaining noncancelable lease terms in excess
of one year, as of December 31, 1996, are:
(Dollars in thousands)
1997 $5,994
1998 4,961
1999 3,556
2000 1,781
2001 1,370
Thereafter 6,193
Total minimum lease payments $23,855
Total rental expense under operating leases charged
against continuing operations was $8.0 million in 1996,
$7.5 million in 1995 and $8.9 million in 1994.
Note 14 Contingencies
LILCO Litigation. In August 1985, the Company was named
as defendant in a lawsuit filed in the U.S. District
Court, Southern District of New York, by Long Island
Lighting Company ("LILCO") following the severing of a
crankshaft in a diesel generator sold to LILCO by the
Company. LILCO's complaint contained 11 counts,
including counts for breach of warranty, negligence and
fraud, and sought $250 million in damages. In various
decisions from 1986 through 1990, 10 of the original 11
counts and various additional amended counts were
dismissed, with only the original breach of warranty
count remaining. In September 1993, the Second Circuit
Court of Appeals affirmed a previous trial court
decision entering a judgment against the Company in the
amount of $18.3 million, and in October 1993, the
judgment was satisfied by payment to LILCO of
approximately $19.3 million (which amount included
approximately $1.0 million of post-judgment interest) by
International Insurance Company ("International") and
Granite State Insurance Co. ("Granite State").
In January 1993, the Company was served with a complaint
in a case brought in the U.S. District Court for the
Northern District of California by International
alleging that, among other things, because International
policies did not cover the matters in question in the
LILCO case, it was entitled to recover $10 million in
defense costs previously paid in connection with such
case and $1.2 million of the judgment which was paid on
behalf of the Company. In June 1995, the Court entered
a judgment in favor of International awarding it $11.2
million, plus interest from March 1995 (the
"International Judgment"). The International Judgment,
however, was not supported by an order, and in July
1995, the court vacated the International Judgment as
being premature because certain outstanding issues of
recoverability of the $10 million in defense costs had
not been finally determined. The Company is awaiting a
final decision. If the International Judgment is
reinstated, the Company intends to appeal. If the
ultimate outcome of this matter is unfavorable, the
Company will record a charge for the judgment amount
plus accrued interest.
Additional Litigation and Claims. The Company and one
of its subsidiaries are two of a large number of
defendants in a number of lawsuits brought in various
jurisdictions by approximately 6,100 claimants who
allege injury caused by exposure to asbestos. Although
neither the Company nor any of its subsidiaries has ever
been a producer or direct supplier of asbestos, it is
alleged that the industrial and marine products sold by
the Company and the subsidiary named in such complaints
contained components which contained asbestos. Suits
against the Company and its subsidiary have been
tendered to their insurers who are defending under their
stated reservation of rights. In addition, the Company
and the subsidiary are named in cases involving
approximately 20,000 claimants which in 1996 were
"administratively dismissed" by the U.S. District Court
for the Eastern District of Pennsylvania. Cases that
have been "administratively dismissed" may be reinstated
only upon a showing to the Court that (i) there is
satisfactory evidence of an asbestos-related injury; and
(ii) there is probative evidence that the plaintiff was
exposed to products or equipment supplied by each
individual defendant in the case. Should settlements for
these claims be reached at levels comparable to those
reached by the Company in the past, they would not be
expected to have a material effect on the Company.
There are lawsuits pending against the Company in the
U.S. District Court for the Western District of
Pennsylvania alleging component failures in equipment
sold by its former diesel engine division and claiming
damages of approximately $3.0 million, and in the
Circuit Court of Cook County, Illinois, alleging
performance shortfalls in products delivered by the
Company's former Delaval Turbine Division and claiming
damages of approximately $8.0 million. Each lawsuit is
in the discovery stage and the Cook County suit is
scheduled for trial in late 1997.
The major portion of the Company's former Electro-
Optical Systems business was sold to Litton Industries
in a transaction, which closed on June 2, 1995. The
sales contract between the Company and Litton Industries
provided certain representations and warranties as to
the status of the business at the time of the sale. By
letters dated November 19, 1996 and November 26, 1996,
Litton has notified the Company of claims under the
representations and warranty provisions for: (1)
environmental losses of unspecified amounts, and (2)
anticipated losses in excess of $9 million under a U.S.
Government contract as a result of the Company's alleged
failure to notify Litton of a reasonably anticipated
loss under a bid that was pending at the time of
transfer of the business. The contract was subsequently
awarded to the Company's Varo subsidiary and thereafter
transferred to Litton. The Company has preliminarily
analyzed the supporting documentation provided by Litton
and has notified Litton that it disputes the nature,
validity, and amount of the claims of losses and objects
to the timeliness of submission of notice to the Company
with respect to the claims. The Company believes the
claims are without merit and intends to vigorously
defend against the claims.
The operations of the Company, like those of other
companies engaged in similar businesses, involve the
use, disposal and clean-up of substances regulated under
environmental protection laws. In a number of instances
the Company has been identified as a Potentially
Responsible Party by the U.S. Environmental Protection
Agency, and in one instance by the State of Washington,
with respect to the disposal of hazardous wastes at a
number of facilities that have been targeted for clean-
up pursuant to CERCLA or similar State law. Although
CERCLA and corresponding State law liability is joint
and several, the Company believes that its liability
will not have a material adverse effect on the financial
condition of the Company since it believes that it
either qualifies as a de minimis or minor contributor at
each site. Accordingly, the Company believes that the
portion of remediation costs that it will be responsible
for will not be material.
With respect to the litigation and claims described in
the preceding paragraphs, management of the Company
believes that it either expects to prevail, has adequate
insurance coverage or has established appropriate
reserves to cover potential liabilities. There can be
no assurance, however, as to the ultimate outcome of any
of these matters.
The Company is also involved in various other pending
legal proceedings arising out of the ordinary course of
the Company's business. None of these legal proceedings
is expected to have a material adverse effect on the
financial condition of the Company. A range of possible
outcomes for all of these legal proceedings currently
cannot be estimated. However, if all or substantially
all of these legal proceedings were to be determined
adversely to the Company, there could be a material
adverse effect on the financial condition of the
Company.
The Company is self-insured for a portion of its product
liability and certain other liability exposures.
Depending on the nature of the liability claim, and with
certain exceptions, the Company's maximum self-insured
exposure ranges from $250,000 to $500,000 per claim with
certain maximum aggregate policy limits per claim year.
With respect to the exceptions, which relate principally
to diesel and turbine units sold before 1991, the
Company's maximum self-insured exposure is $5 million
per claim.
F-31
REPORT OF INDEPENDENT AUDITORS
Board of Directors,
Imo Industries Inc.
We have audited the accompanying consolidated balance sheets of
Imo Industries Inc. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, cash flows
and shareholders' equity (deficit) for each of the three years
in the period ended December 31, 1996. Our audits also included
the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing
the accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Imo Industries Inc. and subsidiaries
at December 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Princeton, New Jersey
February 19, 1997
F-32
Imo Industries Inc. and Subsidiaries
Quarterly Financial Information (Unaudited)
Quarterly financial information for 1996 and 1995 is as follows:
1st 2nd 3rd 4th
1996 (Dollars in thousands except Quarter Quarter Quarter Quarter
per share amounts) (a) (b) (b)
Net Sales $121,415 $119,988 $113,095 $114,147
Gross profit 35,558 34,582 30,893 31,595
Income (loss) before
extraordinary item:
Continuing Operations 1,940 856 (12,417) (32,152)
Discontinued Operations --- --- (7,349) (793)
Extraordinary Item --- (8,455) --- ---
Net income (loss) 1,940 (7,599) (19,766) (32,945)
Earnings (loss) per share:
Before extraordinary item:
Continuing Operations .11 .05 (.73) (1.87)
Discontinued Operations --- --- (.43) (.05)
Extraordinary Item --- (.49) --- ---
Net income (loss) .11 (.44) (1.16) (1.92)
1st* 2nd* 3rd* 4th*
1995 (Dollars in thousands except Quarter Quarter Quarter Quarter
per share amounts) (a)
Net Sales $124,372 $127,231 $109,428 $111,336
Gross profit 36,212 35,758 31,009 28,919
Income (loss) before
extraordinary item:
Continuing Operations 3,550 3,410 2,327 3,242
Discontinued Operations 39,613 --- (6,750) (11,238)
Extraordinary Item (4,140) --- (304) ---
Net income (loss) 39,023 3,410 (4,727) (7,996)
Earnings (loss) per share:
Before extraordinary item:
Continuing Operations .21 .20 .14 .19
Discontinued Operations 2.32 --- (.40) (.66)
Extraordinary Item (.24) --- (.02) ---
Net income (loss) 2.29 .20 (.28) (.47)
* Restated to conform to 1996 full year presentation.
(a) The notes to the consolidated financial statements located in Part IV
of this Form 10-K Report as indexed at Item 14(a)(1) should be read in
conjunction with this summary.
(b) Amounts previously reported have been restated to reflect Roltra-Morse
in continuing operations and the inclusion of Corporate interest
previously allocated to discontinued operations in continuing
operations. The effect of the restatement on 1st Quarter results was
an increase to sales of $22.0 million, a decrease to income (loss) from
continuing operations before extraordinary item and net income of
$.8 million ($.5 million related to previously allocated Corporate
interest) and a decrease to earnings (loss) per share continuing
operations and net income of $.05 cents. The effect of the restatement
on 2nd Quarter results was an increase to sales of $22.3 million, a
decrease to income (loss) from continuing operations before
extraordinary item and net income of $1.2 million ($.6 million related
to previously allocated Corporate interest) and a decrease to earnings
(loss) per share continuing operations and net income of $.07 cents.
<TABLE>
SCHEDULE II
IMO INDUSTRIES INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER - DEDUCTIONS - AT END
OF YEAR EXPENSES DESCRIBE DESCRIBE OF YEAR
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful
accounts $ 2,197 $ 333 $ --- $ 57 (1) $ 1,877
596 (3)
Inventory Valuation
Allowance $ 11,701 $ 1,453 $ 99 (1) $ 2,293 (5) $ 11,205
245 (2)
Valuation allowance for
deferred tax assets $ 31,675 $ 12,390 $ --- $ --- $ 44,065
Accrued product warranty
liability $ 3,464 $ 2,409 $ --- $ 24 (1) $ 2,596
288 (2)
2,965 (4)
YEAR ENDED DECEMBER 31, 1995: *
Allowance for doubtful
accounts $ 2,659 $ 394 $ 91 (1) $ 959 (3) $ 2,197
12 (6)
Inventory Valuation
Allowance $ 12,133 $ 2,454 $ 313 (1) $ 190 (2) $ 11,701
30 (6) 3,039 (5)
Valuation allowance for
deferred tax assets $ 68,910 $ --- $ --- $ 15,550 (2) $ 31,675
17,000 (7)
4,685 (8)
Accrued product warranty
liability $ 5,037 $ 1,563 $ 45 (1) $ 2,253 (2) $ 3,464
404 (2) 1,341 (4)
9 (6)
YEAR ENDED DECEMBER 31, 1994: *
Allowance for doubtful
accounts $ 2,951 $ 745 $ 13 (1) $ 179 (2) $ 2,659
871 (3)
Inventory Valuation
Allowance $ 11,821 $ 5,452 $ --- $ 764 (2) $ 12,133
4,376 (5)
Valuation allowance for
deferred tax assets $ 60,215 $ --- $ 8,695 (2) $ --- $ 68,910
Accrued product warranty
liability $ 4,050 $ 1,915 $ 17 (1) $ 945 (4) $ 5,037
* Restated to conform to the 1996 presentation (continuing operations).
(1) Foreign exchange adjustments.
(2) Reclassification and adjustments.
(3) Uncollectible accounts written off, net of recoveries.
(4) Product warranty claims honored during the year.
(5) Charges against inventory valuation account during the year.
(6) Opening balance of companies acquired during the year.
(7) Adjustment due to revaluation of realizable tax benefit.
(8) Utilization of net operating loss carryforwards by discontinued
operations.
S-1
</TABLE>
Amended and restated as of
March 20, 1997.
BY-LAWS
OF
IMO INDUSTRIES INC.
ARTICLE I
OFFICES
Section 1.1 The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State
of Delaware.
Section 1.2 The Corporation may also have offices at
such other places as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
SEAL
Section 2.1 The corporate seal shall have inscribed
thereon the name of the Corporation, and the words "Incorporated
March 2, 1959 Delaware." Said seal may be used by causing it or
a facsimile thereof to be impressed or affixed or otherwise
reproduced. The Secretary may have duplicate seals made and
deposited for use with such offices as the Board of Directors may
designate.
Section 2.2 It shall not be necessary to the validity
of any instrument executed by any authorized officer or officers
of the Corporation that the execution of such instrument be
evidenced by the corporate seal. All documents, instruments,
contracts and writings of all kinds signed on behalf of the
Corporation by any authorized officer or officers thereof shall
be as effectual and binding on the Corporation without the
corporate seal as if the execution of the same had been evidenced
by affixing the corporate seal thereto.
ARTICLE III
MEETINGS OF STOCKHOLDERS
Section 3.1 All meetings of the stockholders shall be
held at such office or place, within or without the State of
Delaware, as may be designated by the Board of Directors and as
shall be specified in the notice of the meeting.
Section 3.2 The annual meeting of the stockholders
shall be held on such day of the year and at such place and time
as shall be designated by the Board of Directors and specified in
the notice of the annual meeting. At the annual meeting the
stockholders shall elect a Board of Directors by a plurality vote
and by written ballot, and transact such other business as may
properly be brought before the meeting.
Section 3.3 The holders of a majority of the shares
of stock issued and outstanding and entitled to vote, present in
person or represented by proxy, shall be requisite and shall
constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by law, by
the Restated Certificate of Incorporation or by these By-Laws.
If, however, such majority shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to
vote, present in person or by proxy, shall have power to adjourn
the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum is
present or represented, any business may be transacted which
might have been transacted at the original meeting.
Section 3.4 At each meeting of the stockholders every
stockholder having the right to vote shall be entitled to vote in
person or by proxy appointed by an instrument in writing executed
by such stockholder or by his duly authorized attorney and
submitted to the Secretary at or before such meeting, but no such
proxy shall be voted or acted upon after three years from its
date, unless proxy provides for a longer period. Each
stockholder shall have one vote for each share of stock having
voting power, registered in his name on the books of the
Corporation; provided, however, that except where a date shall
have been fixed as a record date for the determination of
stockholders entitled to vote as provided in these By-Laws, no
share of stock shall be voted at any election for directors which
has been transferred on the books of the Corporation after the
close of business on the day next preceding the day on which
notice of such meeting is given. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a
meeting of stockholders, in his discretion, may require that any
votes cast at such meeting shall be cast by written ballot except
that all elections of directors by the stockholders shall be by
written ballot. When a quorum exists at any meeting, the vote of
the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one
for which, by express provision of statute or of the Restated
Certificate of Incorporation or of these By-Laws, a different
vote is required.
Section 3.5 Written notice of the annual meeting
shall be mailed to each stockholder entitled to vote thereat at
such address as appears on the records of the corporation, not
less than ten nor more than sixty days prior to the meeting.
Section 3.6 Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute,
may be called by the Chairman of the Board and shall be called by
him or the Secretary at the request in writing of a majority of
the Board of Directors then in office. Such request shall state
the purpose or purposes of the proposed meeting.
Section 3.7 Business transacted at all special
meetings shall be confined to the objects stated in the notice
thereof.
Section 3.8 Written notice of a special meeting of
stockholders, stating the time and place and object thereof,
shall be mailed, postage prepaid, at least ten but not more than
sixty days before such meeting, to each stockholder entitled to
vote thereat at such address as appears on the records of the
Corporation.
Section 3.9 The officer of the Corporation who has
charge of the stock ledger of the Corporation shall prepare and
make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the
name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder of
the Corporation who is present. The stock ledger of the
Corporation shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list
required by this Section 3.9 or the books of the Corporation, or
to vote in person or by proxy at any meeting of stockholders.
Section 3.10 In advance of any meeting of the
stockholders, the Board of Directors may appoint judges of
election, who need not be stockholders, to act at such meeting or
any adjournment thereof. If judges of election are not so
appointed, the chairman of any such meeting may make such
appointment at the meeting. The number of judges shall be one or
three. No person who is a candidate for office shall act as a
judge. The judges of election shall do all such acts as may be
proper to conduct the election or vote and such other duties as
may be prescribed by statute with fairness to all stockholders,
and, if requested by the chairman of the meeting, shall make a
written report of any matter determined by them and execute a
certificate as to any fact found by them. If there be three
judges of election, the decision, act or certificate of a
majority shall be the decision, act or certificate of all.
Section 3.11 Meetings of the stockholders shall not
be conducted pursuant to Robert's Rules of Order and shall be
conducted in such manner and by such practices and procedures as
the Chairman of such meeting shall, in his discretion, deem to be
fair and equitable.
Section 3.12 Any stockholder who wishes to nominate
an individual as a director of the Corporation must submit in
writing to the Board of Directors, at least 45 days before the
date of the meeting of stockholders for election of directors at
which such nomination is proposed to be made, information
concerning such candidate equivalent to the information contained
in the Corporation's Proxy Statement concerning the Board of
Directors' nominee; provided, however, that with respect only to
the 1987 annual meeting of stockholders such information must be
submitted at least ten days before the date of the 1987 annual
meeting of stockholders.
ARTICLE IV
DIRECTORS
Section 4.1 The business and affairs of the
Corporation shall be managed by or under the direction of the
Board of Directors. The specific number of directors shall be
fixed from time to time exclusively by the Board of Directors.
The directors shall be divided into three classes, designated
Class I, Class II and Class III, and each Class shall consist, as
nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. As of the
adoption (in December 1986) of these By-Laws, five directors have
been elected, of which one is a Class I Director with a term
expiring at the 1987 annual meeting of stockholders, two are
Class II Directors with terms expiring at the 1988 annual meeting
of stockholders, and two are Class III Directors with terms
expiring at the 1989 annual meeting of stockholders. At the 1987
annual meeting of stockholders, a Class I Director shall be
elected for a three-year term. At each succeeding annual meeting
of stockholders beginning in 1988, successors to the class of
directors whose term expires at that annual meeting shall be
elected for a three-year term. In case the Board of Directors
shall change the number of directors, any increase or decrease
shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible and
any additional directors of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class,
but in no case will a decrease in the number of directors shorten
the term of any incumbent director. A director shall hold office
until the annual meeting for the year in which such director's
term expires and until his or her successor shall be elected and
qualified, subject, however, to such director's prior death,
resignation, retirement, disqualification or removal from office.
Section 4.2 Any vacancy in the Board of Directors
which results from an increase in the number of directors may be
filled by a majority of the directors then in office, provided
that a quorum is present, and any other vacancy occurring in the
Board of Directors may be filled by a majority of the directors
then in office, even if less than a quorum, or by a sole
remaining director, and each director elected to fill a vacancy
not resulting from an increase in the number of directors shall
have the same remaining term as that of such director's
predecessor.
Notwithstanding the foregoing, whenever the holders of
any one or more classes or series of preferred stock issued by
the Corporation shall have the right, voting separately by class
or series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of vacancies
and other features of such directorships shall be governed by the
terms of the Corporation's Restated Certificate of Incorporation
applicable thereto, and such directors so elected shall not be
divided into classes unless expressly provided by the terms
thereof. The directors of the Corporation need not be
stockholders.
Section 4.3 The directors may hold their meetings and
have one or more offices, and keep the books of the Corporation
outside of Delaware or at such other offices of the Corporation
or other places as they may from time to time determine.
Section 4.4 Directors, in addition to expenses of
attendance, shall be allowed such compensation as may be fixed
from time to time by the Board of Directors; provided that
nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 4.5 In addition to the powers by these By-
Laws expressly conferred upon it, the Board may exercise all such
powers of the Corporation and do all such lawful acts and things
as are not by statute or by the Restated Certificate of
Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
Section 4.6 directors may hold office until age 72.
If any director will attain age 72 later than 24 months following
April 1 in the year in which such director would stand for
election or re-election, he may do so. If any director will
attain age 72 earlier than 24 months following April 1 in the
year in which such director would stand for election or re-
election, he may not do so. Nevertheless, directors who are also
employees of the Corporation or any of its subsidiaries shall be
limited to remaining a director for a period of one year
following termination of employment unless such employee-director
was the Chief Executive Officer of the Corporation immediately
preceding termination of employment, in which case only the age
72 limitation shall apply, as described herein. Nothing stated
herein shall affect the right to otherwise disqualify or remove a
director from office as stated in Section 4.1 hereof.
ARTICLE V
COMMITTEES
Section 5.1 The Board of Directors shall designate an
Executive Committee to consist of three or more directors to hold
office at the pleasure of the Board and may fill vacancies in, or
reconstitute the membership of, the Executive Committee.
Meetings of the Executive Committee for any purpose or purposes
may be called by the Chairman of the Board or the Chairman of the
Executive Committee, and shall be called by either of them at the
request in writing of at least two members of the Executive
Committee, to be held in such place as shall be designated from
time to time by the Chairman of the Board, the Chairman of the
Executive Committee or such members of the Executive Committee
and indicated in the notice of such meetings. At least twenty-
four hours' notice of such meetings shall be given to each member
of the Executive Committee either personally or by telegram or by
telephone.
The Executive Committee shall have full power to take
all action which the Board of Directors has power to take, except
as limited by Section 141 of the General Corporation Law of the
State of Delaware. All obligations incurred by the Corporation
pursuant to action of the Executive Committee shall be as valid
and legally binding upon the Corporation as those incurred
pursuant to the action of the Board of Directors. The Secretary
or a member of the Executive Committee shall keep minutes of all
its proceedings, all of which shall be reported as soon as
practicable to the Board of Directors, but in no event later than
the next meeting of the Board of Directors. The Chairman of the
Executive Committee shall preside at all meetings of the
Executive Committee and in his absence the Executive Committee
shall select from its members a Chairman of each meeting. The
presence of a majority of the members of the Executive Committee
(but in no event less than two) shall be necessary to constitute
a quorum for the transaction of business. A majority of the
members of the Executive Committee shall be "Independent
directors." Independent directors are directors who are not at
the time employees of the Company. The Chairman of the Board
shall at all times be a member, and may also be the Chairman of
the Executive Committee.
Section 5.2 The Board of Directors shall have an
Audit Committee and a Compensation Committee composed of
directors and having such purposes, powers and duties as the
Board shall prescribe. The Executive, Audit and Compensation
Committees are referred to as "Standing Committees." The Board
of Directors may from time to time create such other committees
of the Board composed of directors for such purposes and with
such powers and duties as the Board shall prescribe. Such other
committees are referred to as "Special Committees." A majority
of all the members of any Standing Committee or Special Committee
may take action on its behalf. The Chairman of any Standing or
Special Committee (except as provided in paragraph 5.1 with
respect to the Executive Committee) shall fix the time and place
of its meetings unless the Board of Directors shall otherwise
provide. The Board of Directors shall have power to change the
members of any such Standing or Special Committee at any time, to
fill vacancies, and to discharge any such Standing or Special
Committee, either with or without cause, at any time. The Board
may delegate to a Standing or Special Committee the full power of
the Board with respect to a particular matter.
Section 5.3 Members of the Executive Committee and of
any other Special or Standing Committee shall, in addition to
expenses of attendance, be allowed such compensation as may be
fixed from time to time by the Board of Directors.
Section 5.4 The term of a Standing Committee shall be
for one year unless otherwise prescribed by the Board.
ARTICLE VI
MEETINGS OF THE BOARD
Section 6.1 The organization meeting of each newly
elected Board of Directors may be held immediately following the
stockholders meeting at which such directors were elected without
the necessity of notice to such directors to constitute a legally
convened meeting or at such time and place as may be fixed by a
notice, or a waiver of notice, or a consent signed by all of such
directors.
Section 6.2 Regular meetings of the Board of
Directors shall be held without call or notice at such time and
place as shall from time to time be fixed by the Board.
Section 6.3 Special meetings of the Board may be
called by the Chairman of the Board on forty-eight hours' notice
to each director, either personally or in writing by mail, or by
telegram, or by telephone; special meetings shall be called by
the Chairman of the Board or the Secretary in like manner and on
like notice on the written request of three directors. Notice of
special meetings of the Board shall state the time and place of
the meeting but need not state the purpose thereof except as
otherwise expressly provided in these By-Laws.
Section 6.4 One or more directors may participate in
any meeting of the Board of Directors, or of any committee
thereof, by means of a conference telephone or similar
communications equipment which enables all persons participating
in the meeting to hear one another, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 6.5 At all meetings of the Board of
Directors, the presence, in person or by telephonic or similar
communications equipment, of a majority of the directors shall
constitute a quorum for the transaction of business, and the act
of a majority of the directors present at a duly convened meeting
at which a quorum is present shall be the act of the Board of
Directors, except as may be otherwise specifically provided by
statute or by the Restated Certificate of Incorporation or by
these By-Laws. If a quorum shall not be present, in person or by
telephonic or similar communications equipment, at any meeting of
the Board of Directors, the directors present may adjourn the
meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
Section 6.6 Any action required or permitted to be
taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members
of the Board of Directors or a committee thereof, as the case may
be, consent thereto in writing, and such consent or consents is
or are filed with the Secretary of the Corporation.
ARTICLE VII
OFFICERS
Section 7.1 The officers of the Corporation shall be
chosen by the directors and shall be a Chairman of the Board, a
President, one or more Vice-Presidents, a Treasurer, a Secretary,
and one or more Assistant Treasurers, and Assistant Secretaries.
The Board of Directors may also choose such other officers as
they may determine. Any number of offices may be held by the
same person.
Section 7.2 The Board of Directors, at its
organizational meeting after each annual meeting of stockholders,
shall choose a Chairman of the Board, a President, one or more
Vice-Presidents, the Secretary, the Treasurer, and such other
officers as they may determine, none of whom, except the Chairman
of the Board, need be members of the Board. At such meeting, the
Board of Directors shall also choose a Chairman of the Executive,
Audit and Compensation Committees, respectively.
Section 7.3 The Board may appoint such other officers
and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the
Board.
Section 7.4 The salary of the Chairman of the Board
shall be fixed by the Board of Directors. The salaries of all
officers of the Corporation may be fixed by the Board of
Directors or the Board may authorize the Chairman of the Board to
fix their salaries and report thereon to the Board.
Section 7.5 The officers of the Corporation shall
hold office until their successors are chosen and qualify or
until their earlier resignation or removal. Any officer elected
or appointed by the Board of Directors may be removed at any time
by the Board of Directors without prejudice to his contract
rights. If the office of any officers or officers becomes vacant
for any reason, the vacancy shall be filled by the Board of
Directors.
Section 7.6 In the case of the absence of any officer
of the Corporation, or for any other reason that the Board may
deem sufficient, the Board may delegate, for the time being, the
powers or duties, or any of them, of such officer to any other
officer.
ARTICLE VIII
THE CHAIRMAN OF THE BOARD
Section 8.1 The Chairman of the Board shall preside
at all meetings of the stockholders and of the Board of
Directors. The Chairman of the Board shall be an officer of the
Corporation.
Section 8.2 In the absence of disability of the
Chairman of the Board, the President shall perform the duties and
exercise the powers of the Chairman of the Board.
ARTICLE IX
THE PRESIDENT
Section 9.1 The President shall perform such duties
and have such powers as from time to time may be assigned to him
by the Board of Directors or the Chairman of the Board.
Section 9.2 In the absence or disability of
thePresident, a Vice-President designated by the Board of
Directors or by the Chairman of the Board shall perform the
duties and exercise the powers of the President.
ARTICLE X
VICE-PRESIDENTS
Section 10.1 The Vice-Presidents shall respectively
perform such duties and have such powers as may be assigned to
each of them by the Board of Directors or by the Chairman of the
Board.
ARTICLE XI
THE SECRETARY AND ASSISTANT SECRETARIES
Section 11.1 The Secretary shall attend all sessions
of the Board and all meetings of the stockholders and record all
votes and the minutes of all proceedings in a book to be kept for
that purpose; and shall perform like duties for the Standing
Committees when required. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and the
Board of Directors. The Secretary shall keep in safe custody the
seal of the Corporation, and shall have authority to affix the
same to any instrument requiring it.
Section 11.2 The Assistant Secretaries, in the order
of their seniority, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the
Secretary.
ARTICLE XII
THE TREASURER AND ASSISTANT TREASURERS
Section 12.1 The Treasurer shall have the custody of
the corporate funds and securities and shall deposit all moneys
and other valuable effects in the name and to the credit of the
Corporation, in such depositories as may be designated by the
Board of Directors.
Section 12.2 The Treasurer shall disburse the funds
of the Corporation as may be ordered by the Board or by the
Chairman of the Board, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board and
the Board of Directors, at the regular meetings of the Board, or
whenever they may require it, an account of all his transactions
as Treasurer.
Section 12.3 The Treasurer shall give the Corporation
a bond, if required by the Board of Directors, in a sum, and with
one or more sureties, satisfactory to the Board, for the faithful
performance of the duties of his office, and for the restoration
to the Corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his
control belonging to the Corporation; but the Board of Directors
may, if they see fit, dispense with such bond.
Section 12.4 The Assistant Treasurers, in the order
of their seniority shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the
Treasurer.
ARTICLE XIII
INDEMNIFICATION
Section 13.1 Subject to the Section 13.3, the
Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or
was a director, officer or employee of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, or employee of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to the
best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
Section 13.2 Subject to Section 13.3, the Corporation
shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a
director, officer, or employee of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
or employee of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Corporation; except
that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged
to be liable to the Corporation unless and only to the extent
that the Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 13.3 Any indemnification under this Article
XIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, or employee is proper
in the circumstances because he has met the applicable standard
of conduct set forth in Section 13.1 or Section 13.2 of this
Article XIII, as the case may be. Such determination shall be
made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit
or proceeding, or (ii) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or
(iii) by the stockholders. To the extent, however, that a
director, officer, or employee of the Corporation has been
successful on the merits or otherwise in defense of any action,
suit or proceeding described above, or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by
him in connection therewith, without the necessity of
authorization in the specific case.
Section 13.4 For purposes of any determination under
Section 13.3 of this Article XIII, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the
Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or
books of account of the Corporation or another enterprise, or on
information supplied to him by the officers of the Corporation or
another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise
or on information or records given or reports made to the
Corporation or another enterprise by an independent certified
public accountant or by an appraiser or other expert selected
with reasonable care by the Corporation or another enterprise.
The term "another enterprise" as used in this Section 13.4 shall
mean any other corporation or any partnership, joint venture,
trust or other entity of which such person is or was serving at
the request of the Corporation as a director, officer, or
employee. The provisions of this Section 13.4 shall not be
deemed to be exclusive or to limit in any way the circumstances
in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 13.1 or 13.2 of this
Article XIII, as the case may be.
Section 13.5 Notwithstanding any contrary determin-
ation in the specific case under Section 13.3 of this Article
XIII, and notwithstanding the absence of any determination
thereunder, any director, officer, or employee may apply to any
court of competent jurisdiction in the State of Delaware for
indemnification to the extent otherwise permissible under
Sections 13.1 or 13.2 of this Article XIII. The basis of such
indemnification by a court shall be a determination by such court
that indemnification of the director, officer, or employee is
proper in the circumstances because he has met the applicable
standards of conduct set forth in Sections 13.1 or 13.2 of this
Article XIII, as the case may be. Notice of any application for
indemnification pursuant to this Section 13.5 shall be given to
the Corporation promptly upon the filing of such application.
Section 13.6 Expenses incurred in defending or
investigating a threatened or pending action, suit or proceeding
shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, or employee
to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by the Corporation as
authorized in this Article XIII.
Section 13.7 The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections
of this Article XIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of
expenses may be entitled under any By-Law, agreement, contract,
vote of stockholders or disinterested directors or pursuant to
the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that
indemnification of, and advancement of expenses to, the persons
specified in Sections 13.1 and 13.2 of this Article XIII shall be
made to the fullest extent permitted by law. To this end, the
provisions of this Article XIII shall be deemed to have been
amended for the benefit of such persons effective immediately
upon any modification of the General Corporation Law of Delaware
which expands or enlarges the power or obligation of corporations
organized under such Law to indemnify, or advance expenses to,
such persons. The Corporation shall have authority to (i)
deposit funds in trust or in escrow, (ii) establish any form of
self-insurance, (iii) secure its indemnity obligation by grant of
a security interest or other lien on the assets of the
Corporation, or (iv) establish a letter of credit, guaranty or
surety arrangement for the benefit of such persons in connection
with the anticipated indemnification or advancement of expenses
contemplated in this Article XIII. The provisions of this
Article XIII shall not be deemed to preclude the indemnification
of, or advancement of expenses to, any person who is not
specified in Sections 13.1 or 13.2 of this Article XIII but whom
the Corporation has the power or obligation to indemnify, or to
advance expenses for, under the provisions of the General
Corporation Law of the State of Delaware, or otherwise. The
indemnification and advancement of expenses provided by, or
granted pursuant to, this Article XIII shall, unless otherwise
provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer and employee and shall inure
to the benefit of the heirs, executors and administrators of such
person. The undertaking of the Corporation to provide
indemnification and advancement of expenses, which is provided by
or granted pursuant to this Article XIII, shall constitute a
contractual obligation between the Corporation and each director,
officer and employee of the Corporation.
Section 13.8 The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director,
officer or employee of the Corporation, or is or was serving at
the request of the Corporation as a director, officer or employee
of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the
power of the obligation to indemnify him against such liability
under the provisions of this Article XIII.
Section 13.9 For purposes of this Article XIII,
references to the "Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers, and
employees so that any person who is or was a director, officer or
employee of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director,
officer or employee of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article XIII with respect
to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence
had continued.
Section 13.10 Notwithstanding any other provision of
these By-Laws, the repeal of any amendment of this Article XIII
which diminishes, impairs or otherwise adversely affects the
rights to indemnification or advancement of expenses afforded to
a director, officer or employee by, or granted pursuant to, this
Article XIII shall be effective only with respect to acts or
omissions occurring after the effective date of such repeal or
amendment. The provisions of this Article XIII in effect
immediately prior to such repeal or amendment shall be
determinative as to the rights to indemnification and advancement
of expenses afforded to such persons with respect to acts or
omissions occurring at any time prior to such repeal or
amendment.
ARTICLE XIV
CERTIFICATES OF STOCK
Section 14.1 The certificates of stock of the
Corporation shall be numbered and shall be entered in the books
of the Corporation as they are issued. They shall exhibit the
holder's name and number of shares and shall be signed by the
Chairman of the Board, the President or a Vice-President, and by
the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary. Where a certificate is countersigned (a) by
a transfer agent other than the Corporation or its employee, or
(b) by a registrar other than the Corporation or its employee,
any other signature on the certificate may be facsimile. In case
any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent
or registrar at the date of issue.
ARTICLE XV
TRANSFERS OF STOCK
Section 15.1 Transfers of stock shall be made on the
books of the Corporation only by the person named in the
certificate or by attorney, lawfully constituted in writing, and
upon surrender of the certificate therefor.
ARTICLE XVI
FIXING RECORD DATE
Section 16.1 In order that the Corporation may
determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may
fix, in advance, a record date, which shall not be more than
sixty nor less than ten days before the date of such meeting, nor
more than sixty days prior to any other action. A determination
of stockholders or record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournments of the
meeting; provided, however, that the Board of Directors may fix a
new record date for the adjourned meeting.
ARTICLE XVII
REGISTERED STOCKHOLDERS
Section 17.1 The Corporation shall be entitled to
treat the holder of record of any share of shares of stock as the
holder in fact thereof and accordingly shall not be bound to
recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided
by the laws of Delaware.
ARTICLE XVIII
LOST CERTIFICATES
Section 18.1 The Board of Directors may authorize the
issue of a new certificate of stock in the place or any
certificate theretofore issued by the Corporation, alleged to
have been lost, stolen or destroyed, and the Board of Directors
may, in their discretion, require the owner of the lost, stolen
or destroyed certificate, or his legal representatives, to give
the Corporation a bond sufficient to indemnify the Corporation
against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate and to
furnish some proof of the loss, theft or destruction of such
certificate as they shall deem proper and to comply with such
other regulations as the Board shall from time to time fix
including advertising such loss or destruction in such manner as
the Board of Directors may require. A new certificate may be
issued without requiring any bond when, in the judgment of the
Board of Directors, it is proper to do so.
ARTICLE XIX
INSPECTION OF BOOKS AND RECORDS
Section 19.1 The directors shall determine from time
to time whether, and if allowed, when and under what conditions
and regulations the books and records of the Corporation (except
such as may by statute be specifically open to inspection) or any
of them shall be open to the inspection of the stockholders, and
the stockholders' rights in this respect are and shall be
restricted and limited accordingly.
ARTICLE XX
CHECKS
Section 20.1 All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers as
the Board of Directors may from time to time designate.
ARTICLE XXI
FISCAL YEAR
Section 21.1 The fiscal year of the Corporation shall
be as determined by the Board of Directors.
ARTICLE XXII
DIVIDENDS
Section 22.1 Dividends upon the capital stock of the
Corporation, subject to the provisions of the Restated
Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to
law. Dividends may be paid in cash, in property, or in shares of
the capital stock.
Section 22.2 Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for
dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interests
of the Corporation.
ARTICLE XXIII
DIRECTORS' ANNUAL STATEMENTS
Section 23.1 The Board of Directors shall present at
each annual meeting of the stockholders a full and clear
statement of the business and affairs of the Corporation for the
preceding year.
ARTICLE XXIV
NOTICES
Section 24.1 Whenever under the provisions of these By-
Laws notice is required to be given to any director, committee
member, officer or stockholder, it shall not be construed to mean
personal notice, but such notice may be given, in the case of
stockholders, in writing, by mail, by depositing the same in the
post office or letter-box, in a postpaid sealed wrapper,
addressed to such stockholder, at such address as appears on the
books of the Corporation, or, in default of other address, to
such stockholder at the General Post Office in the City of
Wilmington, Delaware, and in the case of directors, committee
members and officers, by telephone, or by mail or by telegram to
the last business address known to the Secretary of the
Corporation, and such notice shall be deemed to be given at the
time when the same shall be thus mailed or telegraphed or
telephoned.
ARTICLE XXV
WAIVER OF NOTICE
Section 25.1 Whenever, under the provisions of these
By-Laws or of any law, the stockholders, directors or committees
are authorized to hold any meeting after notice or after a
particular notice, or after the lapse of any prescribed period of
time, such meeting may be held without notice or without said
particular notice or without such lapse of time by the written
waiver or waivers of notice and written consent or consents to
act, signed by every person entitled to such notice, or entitled
to be present at any such meeting or participate in any such
action, whether signed before or after the time stated therein.
Except as otherwise provided by law, attendance of a person at a
meeting shall constitute a waiver of notice of such meeting.
ARTICLE XXVI
AMENDMENTS
Section 26.1 These By-Laws may be amended or repealed
and new By-Laws may be adopted by (a) the affirmative vote of a
majority of the Board of Directors then in office, at any meeting
of the Board of Directors or (b) the affirmative vote of the
holders of at least eighty percent (80%) of the voting power of
all of the issued and outstanding shares of stock of the
Corporation which are entitled to vote either (i) at the annual
stockholders meeting or (ii) at any special stockholders meeting,
provided, in the case of the annual or any special meeting of
stockholders, a brief description of such proposed amendment or
repeal and adoption of new By-Laws is contained in the notice of
such annual or special stockholders meeting. Notwithstanding the
foregoing, the repeal or any amendment of Article XIII shall be
subject to the provisions of Section 13.10.
May 21, 1996
Mr. Donald N. Rosenberg
Senior Vice President
Human Resources
Imo Industries Inc.
1009 Lenox Drive
Lawrenceville, NJ 08648
Dear Mr. Rosenberg:
The Board of Directors (the "Board") of Imo Industries Inc. (the
"Company") considers it to be in the best interests of its
stockholders to foster the continuous employment of key
management personnel of the Company and its subsidiaries in the
event of a possible change in control of the Company.
In order to induce you, in the event of a possible change in
control of the Company, to remain in the employ of the Company or
its subsidiaries and to give your continued attention and
dedication to your assigned duties without distraction, and in
consideration of your agreement set forth in Section 2(ii)
hereof, the Company agrees that you shall receive the severance
benefits hereinafter set forth in the event your employment with
the Company or its subsidiaries is terminated subsequent to a
"change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on
the date hereof and shall continue in effect through December 31,
1996 provided, however, that commencing on January 1, 1997 and
each January 1 thereafter, the term of this Agreement shall
automatically be extended for one additional year unless not
later than November 1 of the preceding year, the Company shall
have given notice that it does not wish to extend this Agreement;
and provided, further, that notwithstanding any such notice by
the Company not to extend, this Agreement shall continue in
effect for the lesser of (i) a period of 36 months beyond the
term provided herein or (ii) a period of such number of months to
your 65th birthday, if a change in control of the Company, as
defined in Section 2 hereof, shall have occurred during such
term.
2. Change in Control.
(i) No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set
forth below, and your employment by the Company or its
subsidiaries shall thereafter have been terminated in accordance
with Section 3 hereof. For purposes of this Agreement, a "change
in control of the Company" shall be deemed to have occurred if
following the date hereof (A) any "person" (as defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) is or becomes 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; (B) during the term of this Agreement,
individuals who at the beginning of such term constitute the
board, including for this purpose 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 such term,
cease, for any reason to constitute a majority thereof; or (C)
more than 50% of the assets of the Company, including the
business or businesses for which your services are principally
performed, is 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.
(ii) For purposes of this Agreement, a "potential
change in control of the Company" shall be deemed to have
occurred if following the date hereof (A) the Company enters into
an agreement, the consummation of which would result in the
occurrence of a change in control of the Company, (B) 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 of the Company; or (C) the Board
of Directors adopts a resolution to the effect that a potential
change in control of the Company for purposes of this Agreement
has occurred. You agree that, subject to the terms and
conditions of this Agreement, in the event of a potential change
in control of the Company, you 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 of the Company.
However, nothing in this Agreement shall confer upon you any
right to continue in the employ of the Company or its
subsidiaries prior to an actual change in control of the Company
or shall interfere with or restrict in any way the rights of the
Company or its subsidiaries, which are hereby expressly reserved,
to discharge you at any time prior to an actual change in control
of the Company for any reason whatsoever, with or without cause.
3. Termination Following Change in Control. If any of the
events described in Section 2 hereof constituting a change in
control of the Company shall have occurred, you shall be entitled
to the benefits provided in Section 4 hereof upon the subsequent
termination of your employment by the Company or its subsidiaries
within three years of a change in control of the Company during
the term of this Agreement unless such termination is (A) because
of your Death or Retirement, (B) by the Company for Cause or
Disability, or (C) by you other than for Good Reason.
(i) Disability; Retirement. If, as a result of your
incapacity due to physical or mental illness, you shall have been
absent from your duties with the Company or its subsidiaries on a
full-time basis for six consecutive months, and within thirty
(30) days after written notice of termination is given, you shall
not have returned to the full-time performance of your duties,
the Company may terminate your employment with the Company or its
subsidiaries for "Disability". Termination by the Company or you
of your employment with the Company or its subsidiaries based on
"Retirement" shall mean termination in accordance with the
retirement policy of the Company, or the subsidiary of the
Company by which you are employed, generally applicable to its
salaried employees, including early retirement, or in accordance
with any retirement arrangement established with your consent
with respect to you.
(ii) Cause. Termination by the Company of your
employment with the Company or its subsidiaries for "Cause" shall
mean termination upon the willful engaging by you in misconduct
which is demonstrably and materially injurious to the Company and
its subsidiaries taken as a whole. No act, or failure to act, on
your part shall be considered "willful" unless done, or omitted
to be done, by you not in good faith and without reasonable
belief that your action or omission was in the best interest of
the Company or its subsidiaries. Notwithstanding the foregoing,
you shall not be deemed to have been terminated for Cause unless
and until there have been delivered to you a copy of a resolution
duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of
the Board called and held for the purpose (after reasonable
notice to you and an opportunity for you, together with your
counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of misconduct set
further above in this Subsection and specifying the particulars
thereof in detail.
(iii) Good Reason. You shall be entitled to
terminate your employment for Good Reason within three years of a
change in control of the Company during the term of this
Agreement. For purposes of this Agreement, "Good Reason" shall
mean any of the following events which occurs without your
express written consent.
(A) the assignment to you of any duties
inconsistent with your status as Senior Vice President of the
Company or a substantial alteration in the nature or status of
your responsibilities from those in effect immediately prior to a
change in control of the Company other than any such alteration
primarily attributable to the fact that the Company may no longer
be a public Company;
(B) a reduction by the Company in your annual
base salary as in effect on the date hereof or as the same may be
increased from time to time, except for across-the-board salary
reductions similarly affecting all executives of the Company and
its subsidiaries and all executives of any organization in
control of the Company;
(C) the relocation of the Company's principal
executive offices to a location outside the Lawrenceville, New
Jersey area or the Company requiring you to be based anywhere
other than Company's principal executive offices except for
required travel on the Company's business to an extent
substantially consistent with your present travel obligations;
(D) the failure by the Company to continue in
effect any compensation plan of the Company in which you
participate, including but not limited to the Company's Equity
Incentive Plan (the "Stock Option Plan") or any substitute or
additional plans adopted prior to the change in control, unless
an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan in
connection with the change in control of the Company, or the
failure by the Company to continue your participation therein;
(E) the failure by the Company or its
subsidiaries to continue to provide you with benefits
substantially similar to those enjoyed by you under the Company's
Salaried Employees Stock Savings Plan or any of the pension, life
insurance, medical, health and accident, or disability plans of
the Company or its subsidiaries in which you were participating
at the time of a change in control of the Company, or the taking
of any action by the Company or its subsidiaries which would
directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the
time of the change in control of the Company, or the failure by
the Company or its subsidiaries to provide you with the number of
paid vacation days to which you are entitled on the basis of
years of service with the Company or its subsidiaries in
accordance with the normal vacation policy of the Company or the
subsidiary by which you are employed as in effect at the time of
the change in control;
(F) the failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree to
perform this Agreement, as contemplated in Section 5 hereof; or
(G) any purported termination of your employment
which is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection (iv) below (and, if
applicable, Subsection (ii) above); and for purposes of this
Agreement, no such purported termination shall be effective.
Your right to terminate your employment pursuant to this
Subsection shall not be affected by your incapacity due to
physical or mental illness.
(iv) Notice of Termination. Any purported termination
by the Company or by you shall be communicated by written Notice
of Termination to the other party hereto in accordance with
Section 7 hereof. A "Notice of Termination" shall mean a notice
which indicates the specific termination provision in this
Agreement relied upon and sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of your employment.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the performance of your
duties on a full-time basis during such thirty (30) day period,
and (B) if your employment is terminated pursuant to Subsection
(ii) or (iii) above or for any other reason, the date specified
in the Notice of Termination (which shall be not less than thirty
(30) days from the date such Notice of Termination is given).
4. Compensation Upon Termination or During Disability.
(i) During any period that you fail to perform your
duties hereunder as a result of incapacity due to physical or
mental illness, you shall continue to receive your full base
salary at the rate then in effect until this Agreement is
terminated pursuant to Section 3(i) hereof. Thereafter, your
benefits shall be determined in accordance with the Company's
disability program (without regard to any amendment to such
disability program made subsequent to a change in control of the
Company and on or prior to the Date of Termination, which
amendment adversely affects in any way the computation of
benefits thereunder).
(ii) If your employment shall be terminated for Cause,
the Company shall pay you your full base salary through the Date
of Termination at the rate in effect at the time Notice of
Termination is given and the Company and its subsidiaries shall
have no further obligations to you under this Agreement.
(iii) If your employment by the Company shall be
terminated during the term of this Agreement (a) by the Company
other than for Cause, Retirement or Disability within a period of
three years of a change in control of the Company or (b) by you
for Good Reason within a period of three years of the occurrence
of such a change in control, then you shall be entitled to the
benefits provided below.
(A) the Company shall pay for your full base
salary through the Date of Termination at the rate in effect at
the time Notice of Termination is given;
(B) in lieu of any further salary payments to you
for periods subsequent to the Date of Termination, the Company
shall pay as severance pay to you, not later than the fifth day
following the Date of Termination, a lump sum severance payment
(together with the payments provided in Subsections (C), (D), (F)
and (G) below (the "Severance Payments")) equal to 299.999% of
your average taxable compensation from the Company during the
five taxable years of the Company, immediately preceding the
change in control of the Company (or, if your employment by the
Company began during such five-years period, during the portion
of the period following your employment); provided that, in the
event there are fewer than 36 whole or partial months remaining
from the Date of Termination to your 65th birthday, the amount
provided for in this Subsection (B) will be reduced by
multiplying it by a fraction the numerator of which is the number
of whole or partial months so remaining to your 65th birthday and
the denominator of which is 36;
(C) notwithstanding any provisions of the
Company's bonus plan, the Company shall pay to you, not later
than the fifth day following the Date of Termination, a lump sum
amount equal to the sum of (x) any incentive compensation which
has been allocated for the fiscal year preceding that in which
the Date of Termination occurs but has not yet been paid, and (y)
any award under the Company's bonus plan, if any, which has not
yet been paid for any other period which has closed prior to the
Date of Termination;
(D) in lieu of shares of common stock of the
Company ("Company Shares") issuable upon the exercise of
outstanding options ("Options"), if any, granted to you under the
Company's Stock Option Plan or any other stock option plan of the
Company (which Options shall be canceled upon the making of the
payment referred to below), the Company shall pay to you, not
later than the fifth day following the Date of Termination, a
lump sum equal to the sum of:
(x) in the case of Options which are
incentive stock options ("Incentive Stock Options"), as defined
under Section 422A of the Internal Revenue Code of 1986, as it
may hereafter be amended (the "Code"), granted after the date of
this Agreement, the product of (a) the difference (to the Extent
such difference is a positive number) obtained by subtracting the
per share exercise price of each such Incentive Stock Option held
by you (to the extent then exercisable) from the higher of (i)
the closing price of Company Shares as reported on the New York
Stock Exchange on the Date of Termination or (ii) the highest
price per Company Share actually paid in connection with any
change in control of the Company (but not more than the fair
market value per share, within the meaning of Section 422A of the
Code and the regulations promulgated thereunder), on the date of
payment thereof and (b) the number of Company shares covered by
each such Incentive Stock Option;
(y) in the case of all other Options (other
than Incentive Stock Options granted on or before the date of
this Agreement, with respect to which no provision is made herein
for payment and which Incentive Stock Options shall not be
canceled pursuant to this Agreement), the product of (a) the
difference (to the extent that such difference is a positive
number) obtained by subtracting the per share exercise price of
each such Option held by you whether or not then fully
exercisable from the higher of (i) the closing price of Company
Shares as reported on the New York Stock Exchange on the Date of
Termination, or (ii) the highest price per Company Share actually
paid in connection with any change in control of the Company, and
(b) the number of Company Shares covered by such Option;
(E) the Company shall also pay to you all legal
fees and expenses incurred by you as a result of such termination
(including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to
obtain or enforce any right or benefit provided by this
Agreement);
(F) the Company shall arrange to provide you, for
a 36-month period after such termination (or such lesser number
of months to your 65th birthday), with life, disability, accident
and health insurance substantially similar to those which you are
receiving immediately prior to the Notice of Termination.
Benefits otherwise receivable by you pursuant to this Section 4
(iii)(F) shall be reduced to the extent comparable benefits are
actually received by you during the 36-month period following
your termination (or such shorter number of months to your 65th
birthday), and any such benefits actually received by you shall
be reported by you to the Company; and
(G) in addition to the retirement benefits to
which you are entitled under the qualified and supplemental
pension plans of the Company or any of its subsidiaries in which
you participate (the "Pension Plans") or any successor plans
thereto, the Company shall pay you in one sum in cash on the
fifth day following the Date of Termination, a lump sum equal to
the actuarial equivalent of the excess of (x) the retirement
pension (determined as a straight life annuity commencing at age
65) which you would have accrued under the terms of the Pension
Plans (without regard to any amendment to the Pension Plans made
subsequent to a change in control of the Company and on or prior
to the Date of Termination, which amendment adversely affects in
any manner the computation of retirement benefits thereunder),
determined as if you were fully vested thereunder and had
accumulated (after the Date of Termination) 36 additional months
of benefit accrual and service credit thereunder at your highest
annual rate of compensation during the 12 months immediately
preceding the Date of Termination (but in no event shall you be
deemed to have accumulated additional months of service credit
after your 65th birthday), over (y) the vested retirement pension
(determined as a straight life annuity commencing at age 65)
which you had then accrued pursuant to the provisions of the
Pension Plans. For purposes of clause (x), the term
"compensation" shall include amounts payable pursuant to Section
4(iii)(B) hereof, and amounts payable pursuant to Section
4(iii)(B) hereof shall be deemed to represent 36 months of
compensation (or such lesser number of months of compensation to
your 65th birthday) for purposes of determining benefits under
the Pension Plans. For purposes of this Subsection, "actuarial
equivalent" shall be determined using the same methods and
assumptions utilized under the Pension Plans immediately prior to
the change in control of the Company;
(H) in the event that any payment or benefit
received or to be received by you in connection with either the
termination of your employment or a change in control of the
Company (whether payable pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the Company, any
successor to the Company or any corporation ("Affiliate")
affiliated with the Company or which becomes so affiliated
pursuant to the transactions resulting in a change in control of
the Company, both within the meaning of Section 1504 of the Code,
(collectively with the Severance Payments, "Total Payment"))
would not be deductible (in whole or part) by the Company or an
Affiliate as a result of Section 280G of the Code, the Severance
Payments shall be reduced (to zero, if necessary) until no
portion of the Total Payments is not deductible as a result of
Section 280G of the Code, or the Severance Payments are not
reduced to zero. For purposes of this limitation, (i) no portion
of the Total Payments, the receipt or enjoyment of which you
shall have effectively waived in writing prior to the date of
payment of the Severance Payments, shall be taken into account,
(ii) no portion of the Total Payments shall be taken into account
which in the opinion of tax counsel selected by the Company's
independent auditors and acceptable to you does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of
the Code, (iii) the Severance Payments shall be reduced only to
the extent necessary so that the Total Payments (other than those
referred to in clause (ii)) in their entirety constituted
reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code, in the opinion of the
tax counsel referred to in clause (ii), and (iv) the value of any
non-cash benefit or any deferred cash payment included in the
Total Payments shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
(iv) You shall not be required to mitigate the amount
of any payment provided for in this Section 4 by seeking other
employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any
compensation earned by you as the result of employment by another
employer or by retirement benefits after the Date of Termination
or otherwise.
(v) In addition to all other amounts payable to you
under this Section 4, you shall be entitled to receive all
benefits payable to you under the Pension Plans, and any other
plan or agreement relating to retirement benefits.
5. Letter of Credit Preceding Termination. In the event a
potential change in control of the Company shall have occurred,
the Company will promptly (and in no event more than seven days
thereafter) establish an irrevocable letter of credit (the
"Letter of Credit") in your favor in an amount equal to the
aggregate of the amounts which would be payable to you pursuant
to Subsections 4(iii)(B), (C), (D) and (E) hereof as if you were
immediately entitled to payment pursuant thereto plus $100,000,
such Letter of Credit to be issued by a commercial bank which is
not an affiliate of the Company, but which is a national banking
association or established under the laws of one of the states of
the United States, and which has equity in excess of $100 million
(the "Bank"). The Letter of Credit shall be in form and
substance reasonably satisfactory to you and the Company and will
provide that the Bank shall pay you the amount of your draft, at
sight, on presentation to the Bank of a statement, signed by you
or your authorized representative, setting forth (i) a statement
that pursuant to any or all of Subsections 4(iii), 4(iv) or 4(v)
of this Agreement you are entitled to payments of not less than
the amount of such draft and (ii) the Date of Termination of your
employment. Each time you shall draw on the Letter of Credit,
you shall provide the Company with a copy of such draft and the
accompanying statement referred to above. The Company shall
maintain the Letter of Credit in effect for a period of two years
from the date on which it is issued; provided, however, that if
during any such two-year period any event shall occur which,
pursuant to this Section 5, would have required the Company to
establish a Letter of Credit had none then existed, then the
Company shall maintain the Letter of Credit in effect for a
period to two years following such event, unless further extended
pursuant to this Section 5. During the period in which a Letter
of Credit is required to be maintained, the Company shall, at six-
month intervals commencing with the date the Letter of Credit is
established, calculate the amount which would be payable to you
pursuant to Subsections 4(iii) (B), (C), (D) and (E) hereof as if
you were immediately entitled to payment pursuant thereto. If
the amount so calculated plus $100,000 exceeds the amount
available to be drawn upon under the Letter of Credit then in
effect, the Company shall promptly (and in no event later than
seven days thereafter) cause the amount payable under the Letter
of Credit to be increased by the amount of such excess.
The payment by the Bank of the amount of your draft in
accordance with the terms hereof and of the Letter of Credit
shall not constitute a waiver by the Company of, or in any way
preclude the Company from asserting, any claim against you that
you are not entitled to some or all of such payment. In
addition, your drawing upon the Letter of Credit shall not
constitute a waiver by you, or in any way preclude you from
asserting, any claim against the Company that you are entitled to
amounts pursuant to this Agreement which were not paid by amounts
received under the Letter of Credit.
6. Successors; Binding Agreement.
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such assumption
and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same
terms as you would be entitled hereunder if you terminate your
employment for Good Reasons, except that for purposes of
implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to your devisee,
legatee or other designee or if there is no such designee, to
your estate.
7. Notice. Notices and all other communications provided
for in this Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by the United
States registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the
first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company, or to such other address as
either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address
shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless in writing and signed by
you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed
by the laws of the State of New Jersey.
9. Validity. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which
shall remain in full force and effect.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed
copy of this letter which will then constitute our agreement on
this subject.
IMO INDUSTRIES INC.
By: /s/ T. J. Bird
Name: T.J. Bird
Title: Executive Vice President
Agreed to this 21st day of May, 1996
/s/ Donald N. Rosenberg
Name
DATED 6th FEBRUARY 1997
B E T W E E N:
IMO INDUSTRIES (UK) LTD
- and -
BRIAN LEWIS
SEVERANCE AGREEMENT
THIS AGREEMENT dated this 6th day of February 1997
BETWEEN
IMO INDUSTRIES (UK) LIMITED, a company registered in
England, whose registered office is at Northumbrian
House, 14 Devonshire Square, London EC2M 4TE ("the
Company")
and
BRIAN LEWIS of "The Hyde", Mountnessing Road, Blackmore,
Ingatestone, Essex CM4 0NX ("the Executive")
IT IS AGREED as follows:
1. Termination
The employment of the Executive with the Company and all
Associated Companies terminated by reason of redundancy on 31
December 1996 ("the Termination Date"). The Executive
confirms that he has received all salary and holiday pay which
has accrued due up to and including the Termination Date. The
Executive shall also receive following termination a statutory
redundancy payment of 6,300.00 (Six Thousand, Three Hundred
Pounds).
2. Expenses
The Company shall reimburse the Executive for all business
expenses properly and reasonably incurred by him up to and
including the Termination Date, subject to his compliance with
the Company's rules and procedures relating to expenses and
the production of satisfactory VAT receipts.
3. Management Incentive Compensation Program
The Executive shall be a full year participant in the IMO
Management Incentive Compensation Program for 1996. Any bonus
awarded will be paid at the normal due date for such
payment(s), less usual deductions. The fact that the
Executive's employment has terminated will not be a factor in
determining or calculating any bonus payable under the said
Program and the performance of the IMO Industries group (being
the Associated Companies) will be taken into account in
determining the amount of any bonus. The amount of any such
bonus paid under the said Program will be included in the
Executive's pensionable earnings from the Company.
4. Termination Payment
The Company shall on its own behalf and on behalf of all
Associated Companies, without admission of any liability, make
a termination payment to the Executive in the sum of
146,000.00 (One Hundred and Forty Six Thousand Pounds) as
compensation for loss of employment in respect of possible
claims of the type referred to in Clause 10 below, less tax in
accordance with Clause 15 below, such payment to be made
within 5 working days after the date of this Agreement.
5. Pension
5.1. The Company will, by way of further compensation for
possible claims of the type referred to in Clause 10
below, but without any admission of liability, procure
that the Trustees of the Morse Controls Ltd Pension and
Life Assurance Plan ("the Plan") will enhance the
Executive's pension benefits under the Plan to provide
the Executive, on retirement on the Termination Date,
with an annual pension (prior to any commutation of
pension to provide a lump sum or any surrender of
pension to provide additional dependants' benefits, and
subject to Inland Revenue maximum benefit limits) of not
less than 108,000 (One Hundred and Eight Thousand Pounds),
and increasing in accordance with the rules of the Plan.
Benefits of those claiming under the Executive ("Dependants")
will be calculated accordingly. In calculating the pension of
108,000 (One Hundred and Eight Thousand Pounds) payable to the
Executive the Trustees shall be entitled to deduct the US benefit,
currently valued at US $26,508 per annum (15,490 Pounds applying an
exchange rate of 1 Pound = US $1.7113), which is payable to the
Executive under the Retirement Plan for Salaried US Employees of
IMO Industries Inc. and affiliates ("the US Plan"). A
deduction shall be applied on the same principles to any
benefits payable to the Dependant in respect of any US
benefit payable to the Dependant under the US Plan. The
additional cost to fund the enhanced benefits, as
determined by the Plan Actuaries, will be funded by the
Company.
5.2. If the Trustees of the Plan pay a pension either to the
Executive or to his Dependants which is less than the
relevant sum calculated in accordance with Clause 5.1
above, the Company will pay any deficiency to the
Executive or the Dependant (as appropriate) within seven
days of being notified of such shortfall.
5.3. For the avoidance of doubt, the total figure of 108,000 (One
Hundred and Eight Thousand Pounds) referred to in Clause
5.1 above does not include any pension to which the Executive
is entitled as a result of service with a previous, non-IMO
employer (currently estimated to be 7,593.38 Pounds per annum)
which the Executive will receive in addition.
6. Stock Options
The Company shall, by way of further compensation for possible
claims of the type referred to in Clause 10 below, but without
any admission of liability, procure that, subject to the rules
of the IMO Industries Inc. Equity Incentive Plan for Key
Employees, the Executive shall receive accelerated vesting of
all options granted to him under the said Plan, effective on
the Termination Date and exercisable within three years
thereafter, pursuant to Section (a)(6)(B)(iii) of the Plan.
7. Insurances
The Company will until 20 January 1999 continue to provide the
Executive with:
7.1. Life assurance on the terms set out for Executive
Members in the Deed of Amendment of the Morse Controls
Limited Pension and Life Assurance Plan ("the Plan")
dated 9 January 1996. For this purpose, the amount of
the Executive's annual basic salary will be treated as
155,500 (One Hundred Fifty Five Thousand Five Hundred Pounds),
and the amount of bonus payment will be that he receives for
the Plan Year ended 30 June 1997.
7.2. Private medical insurance cover.
Both benefits will be provided on terms no less favourable
than those which applied to the Executive immediately prior to
the Termination Date, PROVIDED ALWAYS that any subsequent
changes to either or both of such benefits applicable to all
Morse executives in the UK shall apply equally to the
Executive.
8. Executive Payments
The fees of Arthur Andersen for tax services to the Executive
will be paid by the Company to the extent that those fees,
together with any other payments made to the Executive under
the discretionary Executive Payments Scheme by the Company for
1996, do not exceed US $10,000 (excluding VAT).
9. Legal Costs
The Company shall pay the Executive's reasonable legal costs,
inclusive of minor disbursements and VAT, provided that:
9.1. The Executive's solicitor provides the Company with
written confirmation that such legal costs were incurred
solely in advising the Executive regarding the
termination of his employment and the preparation of
this Agreement; and
9.2. payment is made by the Company directly to the
Executive's solicitor against receipt of a copy of an
invoice from the Executive's solicitor addressed to the
Executive.
10. Settlement and Waiver
10.1. The Executive accepts the sums and benefits to be
provided to him under the above Clauses of this
Agreement in full and final settlement of all claims and
rights of action (whether under statute, common law or
otherwise) in any jurisdiction in the world (including
but not limited to a claim for breach of contract,
unfair dismissal, wrongful dismissal or any other claim
which could be brought in the English Courts or
Industrial Tribunals pursuant to common law or the
Employment Rights Act 1996, the Sex Discrimination Act
1975, the Equal Pay Act 1970, Article 119 of the Treaty
of Rome, the Race Relations Act 1976 and the Disability
Discrimination Act 1995) which the Executive has or may
have against the Company or any Associated Company, its
or their officers or employees or shareholders, arising
from or connected with the Executive's employment or
holding of any office with the Company or any Associated
Company, the termination thereof, or any other matter
concerning the Company or any Associated Company
PROVIDED ALWAYS that this Clause 10 shall not apply to
or detract from any Company pension rights or pension
benefits which have accrued to the Executive up to the
Termination Date. The Executive hereby agrees that,
except for the sums and benefits referred to in this
Agreement, no other sums or benefits are due to him from
the Company or any Associated Company.
10.2. The Company confirms that it presently knows of no
existing or potential claims which the Company or any
Associated Company, their respective officers or
employees (or any of them), may have against the
Executive arising out of or in connection with his
employment or directorship of the Company or any
Associated Company (as the case may be), the termination
of such employment or directorship, or otherwise
howsoever.
11. Office Holdings and Nominee Shareholdings
The Executive shall, contemporaneously with the signing of
this Agreement :
11.1. resign in writing from all directorships and other
offices which he holds with the Company or any
Associated Company, as listed in Schedule 1 hereto, in
the form set out in the draft letter attached in
Schedule 2 hereto, such resignations taking effect from
the Termination Date or such earlier date as the Company
may have requested;
11.2. do all things necessary to transfer to the Company or to
any person whom it shall nominate with immediate effect,
his absolute, beneficial or any other interest in any
shares of the Company or any Associated Company which he
holds as a nominee, such transfer to be effected for nil
consideration and without any fee (including but not
limited to the signing of stock transfer forms and the
delivery up of share certificates and/or indemnities
relating thereto if required by the Company).
12. Company Property
The Executive hereby confirms that he has returned to the
Company all property (including but not limited to documents
and software, credit cards, keys and passes) belonging to it
or any Associated Company which has been in the Executive's
possession or under his control. Documents and software shall
include but not be limited to correspondence, files, reports,
minutes, plans, records, surveys, diagrams, computer
print-outs, floppy disks, manuals, customer documentation or
any other medium for storing information. The Executive's
obligations under this Clause 12 shall be deemed to include
the return of all copies, drafts, reproductions, notes,
extracts or summaries (howsoever made) of the aforementioned
documents and software.
13. Post-Termination Obligations
In consideration of the payment by the Company to the
Executive of 2,000.00 (Two Thousand Pounds), to be made
within 5 working days after the date of this Agreement, less
such tax contributions as the Company is required by law to
deduct, the Executive hereby agrees and undertakes:-
13.1. not to divulge or make use of (whether directly or
indirectly and whether for his own or another's benefit
or purposes) any trade secrets or confidential
information (including but not limited to business
plans, technical data, existing and potential projects,
financial information dealings and plans, customer
information, prices, sales specifications and
information, business developments and plans, research
plans or reports, sales or marketing programmes or
policies or plans, past and proposed business dealings
or transactions) belonging to or which relate to the
affairs of the Company or any Associated Company, or any
document marked "Confidential", or any information which
the Executive has been told is "Confidential" or which
he might reasonably expect the Company would regard as
"Confidential", or information which has been given in
confidence to the Company or any Associated Company by a
third party. This obligation shall apply from the
Termination Date and without limitation in time, but
shall not apply to any information in the public domain
other than by way of unauthorised disclosure whether by
the Executive or another person;
13.2. that he will, provided his responsibilities in relation
to any other employment or appointment are not
materially prejudiced, on the request of the Company or
any Associated Company:-
13.2.1. reasonably co-operate with it or them in assisting
with and/or answering any queries related to work
matters in which he was involved for the Company or the
IMO Industries group of companies generally; and/or
13.2.2. assist it or them in any threatened or actual
litigation concerning it or them where he has in his
possession or knowledge any facts or other matters which
the Company or any Associated Company reasonably
considers is relevant to such legal proceedings
(including but not limited to giving
statements/affidavits, meeting with their legal and
other professional advisors and attending any legal
hearing),
PROVIDED ALWAYS that the Company or the relevant
Associated Company shall reimburse the Executive for
reasonable expenses properly incurred by him in giving
such assistance, as are agreed by the Company;
13.3. not to make or publish, or cause to be made or
published, any derogatory or critical comments or
statements (whether orally or in writing) about the
Company or any Associated Company or their products or
respective officers or employees;
13.4. not to disclose or publish, directly or indirectly, the
existence or contents of this Agreement to any third
party, except to his spouse, professional advisers, the
Inland Revenue or otherwise as required by law, PROVIDED
ALWAYS that disclosure to his spouse and professional
advisers shall be on terms that they agree to keep the
same confidential; and
13.5. not to make, or cause to be made, any statement or
comments (whether orally or in writing) either to
employees of the Company or any Associated Company or to
the press or other public or trade media, concerning the
termination of the Executive's employment with the
Company or his resignation from any directorships or
other offices with the Company or any Associated Company
without the prior written consent of the Company as to
the contents thereof.
14. Statements and References
14.1. The Company hereby provides reciprocal undertakings to
the Executive in respect of the obligations referred to
in Clauses 13.3, 13.4 and 13.5 above. Further, the
Company will use reasonable endeavours to ensure the
compliance of its officers and employees with the said
obligations.
14.2. The Company shall provide to any prospective employers
of the Executive on request an excellent reference
concerning the Executive's employment with the Company
and the IMO Industries group of companies. Requests for
such references should be addressed in the first
instance to the Finance Director of the Company or
alternatively to the Senior Vice-President, Human
Resources of IMO Industries Inc in Lawrenceville, New
Jersey, USA. Any reference given orally will be
consistent with the terms and spirit of any written
reference provided pursuant to this Clause 14.2.
15. Tax
The parties hereto believe that the first 30,000.00 (Thirty
Thousand Pounds) in value of the termination compensation
payment and benefits provided, or to be provided, to the
Executive pursuant to this Agreement are exempt from UK tax
and national insurance liability, and that any tax deducted by
the Company from the excess in value over 30,000 (Thirty Thousand
Pounds) may be deducted at source at the standard rate of 24% with
the Executive accounting to the Inland Revenue for the balance of
tax due based on his marginal rate.
16. Associated Companies
For the purposes of this Agreement:
16.1. An "Associated Company" includes any firm, company,
business entity or other organisation:
16.1.1. which is directly or indirectly controlled
by the Company; or
16.1.2. which directly or indirectly controls the
Company; or
16.1.3. which is directly or indirectly controlled
by a third party who also directly or indirectly
controls the Company; or
16.1.4. of which the Company or any Associated
Companies referred to in sub-clauses 16.1.1 to
16.1.3 above holds 20% or more of the issued share
capital; or
16.1.5. of which the Company or any Associated
Company is a partner.
16.2. All references in this Agreement and the Schedule
attached hereto to the Company or any Associated
Companies shall include any successor in title or assign
of the Company or any of the Associated Companies.
17. Severability
The various provisions and sub-provisions of this Agreement
are severable, and if any provision or identifiable part
thereof is held to be unenforceable by any court of competent
jurisdiction then such unenforceability shall not affect the
enforceability of the remaining provisions or identifiable
parts thereof in this Agreement.
18. Legal Advice
18.1. The Executive acknowledges that he has received
independent legal advice from a qualified lawyer as to
the terms and effect of this Agreement and in particular
its effect on his ability to pursue his rights before an
Industrial Tribunal. The qualified lawyer who has so
advised the Executive is Christopher K Walter of
Eversheds, London EC4 and he is a Solicitor of the
Supreme Court of England and Wales.
18.2. The Executive further confirms that he was advised by
the qualified lawyer referred to in Clause 18.1 above
that there is in force, and was at the time the advice
referred to above was received, a policy of professional
indemnity insurance covering the risk of claims by the
Executive in respect of loss arising in consequence of
that advice.
18.3. The qualified lawyer referred to in Clause 18.1 above
will, concurrent with the signing of this Agreement,
provide the Company with a letter in the form attached
hereto as Schedule 3.
18.4. It is agreed by the parties that the conditions
regulating Compromise Agreements contained in section
203 of the Employment Rights Act 1996, section 77(4) of
the Sex Discrimination Act 1975, section 72(4) of the
Race Relations Act 1976 and section 9 of the Disability
Discrimination Act 1995 are intended to be and have been
satisfied by this Severance Agreement.
19. Entire Agreement
The terms of this Agreement constitute the entire agreement
and understanding between the parties hereto, and supersede
and replace all prior negotiations, agreements, arrangements
or understandings (whether implied or expressed, orally or in
writing) concerning that subject-matter hereof, all of which
are hereby treated as terminated by mutual consent.
20. Governing Law
This Agreement is governed by English Law, and the parties
hereby submit to the exclusive jurisdiction of the English
Courts.
21. Headings
Headings are inserted for convenience only and shall not
affect the construction of this Agreement.
SIGNED by or on behalf of the parties on the date first above
written :
/s/ T.J. Bird
for and on behalf of
IMO INDUSTRIES (UK) LIMITED
/s/ B. Lewis
BRIAN LEWIS
DATED 13th FEBRUARY 1997
B E T W E E N:
IMO INDUSTRIES INC
- and -
BRIAN LEWIS
CONSULTANCY AGREEMENT
THIS AGREEMENT is made the 13th day of February 1997
B E T W E E N :
(1) IMO INDUSTRIES INC of 1009 Lenox Drive,
Lawrenceville, NJ 08648.0550, USA ("the
Company"); and
(2) BRIAN LEWIS of "The Hyde", Mountnessing
Road, Blackmore, Ingatestone, Essex CM4 0NX
("the Consultant")
RECITALS:
WHEREAS the Company has approved the terms of this Agreement
under which the Consultant is to provide his services as an
independent contractor to the Company and/or its Associated
Companies.
IT IS AGREED as follows:
1. Appointment
The Company confirms the appointment of the Consultant to
provide consultancy services to the Company or any Associated
Company. The Consultant accepts such appointment.
2. Term
2.1 The appointment hereunder commenced on 1 January 1997
and will continue for a period of three months
thereafter expiring on 31 March 1997, subject to earlier
termination at any time in accordance with Clause 8
below or to possible extension pursuant to Clause 2.2
below.
2.2 The parties may by mutual agreement in writing made no
later than 28 February 1997 extend the Agreement for a
further term of three months commencing 1 April 1997,
and, if applicable, may thereafter by mutual agreement
in writing made no later than the end of the second
month of each subsequent three months period extend the
Agreement for further term(s) of three months, again
subject always to earlier termination at any time in
accordance with Clause 8 below.
3. Services to be provided by the Consultant
3.1 The Consultant will provide the Company or any
Associated Company as directed with such consultancy
services in connection with the business affairs of the
Company or any Associated Company (including in
particular, but not limited to IMO Industries (UK)
Limited and Roltra-Morse SpA) as may reasonably be
requested ("the Services"). In this regard the
Consultant will receive instructions from and liaise
directly with the Chairman and CEO of the Company and/or
his authorised representative(s).
3.2 The Consultant will provide the Services on dates and at
times to be mutually agreed between the parties. The
Consultant will only be required to perform the Services
on average for one day per week. Whilst this does not
impose any corresponding obligation on the Company to
request a minimum amount of services from the
Consultant, it shall be for the Consultant to decide
whether he can devote additional time to this
consultancy having regard to his other commitments.
3.3 The Consultant shall have the use of office and
secretarial support facilities at the Basildon premises
of Morse Controls Ltd in connection with the provision
of the Services under this Agreement.
3.4 Subject to the Consultant's due compliance with the
terms of this Agreement, he shall be free to provide his
services to or accept employment with any other person,
firm, company or organisation, provided that he shall
not either directly or indirectly be or become involved
(whether as shareholder, director, employee,
sub-contractor, partner, consultant, proprietor, agent
or otherwise) in any business which is in competition
with any business carried on concurrently by the Company
or any Associated Company or which could otherwise have
a prejudicial effect on any such business. This shall
not however prevent the Consultant from being a holder
for investment purposes of not more than 5 per cent of
any class of issued shares of any company listed on a
recognised Stock Exchange.
4. Fees and Expenses
4.1 In consideration for the Services provided in accordance
with Clause 3 above, the Company shall pay the
Consultant a fee of 1,000 (One Thousand Pounds) per complete
day worked, and, pro rata per part of a day worked, subject
to the receipt of properly drawn invoices referred to in Clause
4.3 below.
4.2 The Consultant shall also be reimbursed by the Company
(against receipts or other satisfactory evidence) for
reasonable business expenses properly incurred in
providing the Services and approved in advance on behalf
of the Company.
4.3 The Consultant shall commencing February 1997 furnish
the Company on a monthly in arrears basis with invoices
for fees due in respect of the Services supplied by him
during the previous month.
4.4 The aforesaid fees shall be exclusive of any Value Added
Tax which may be payable in connection with the supply
of the Services by the Consultant. The Consultant
shall, if applicable, notify the Company of his
registration for VAT and provide VAT invoices in respect
of the Services.
4.5 The Consultant shall not be entitled to any fees or
other payments from the Company or any Associated
Company save as expressly stated in Clauses 4.1 and 4.2
above.
5. Relationship between the Parties
5.1 The relationship of the Consultant to the Company shall
be that of an independent contractor. At no time shall
the Consultant hold himself out as being an officer or
employee of the Company or any Associated Company.
5.2 Save as expressly specified in writing, the Consultant
shall not hold himself out as the agent of the Company
or any Associated Company and he shall not have any
authority to conclude contracts on behalf of the Company
or any Associated Company.
5.3 The Consultant shall be wholly responsible for all
taxes, national insurance or other contributions levied
which may be payable out of, or as a result of the
receipt of, any fees or other monies paid or payable
hereunder. The Consultant accordingly hereby
indemnifies and agrees to hold the Company and its
Associated Companies harmless against all costs, claims,
expenses or proceedings arising out of or in connection
with such payments.
5.4 The Consultant further indemnifies the Company and its
Associated Companies against any damage, injury or loss
which the Company or any Associated Company may suffer,
or any other claim that may be made against the Company
or any Associated Company, arising from any act or
omission of the Consultant while providing the Services
hereunder.
6. Confidentiality
6.1 The Consultant shall neither during his appointment
under this Agreement (except in the proper performance
of the Services) nor at any time (without limit) after
its termination, howsoever arising, directly or
indirectly:
6.1.1 use for his own purposes or those of any
other person, firm, company or other organisation
whatsoever, or
6.1.2 disclose to any person, firm, company or
other organisation whatsoever, any trade secrets or
confidential information relating or belonging to
the Company or any Associated Company, including but
not limited to any such information relating to
customers, customer lists or requirements, price lists
or pricing structures, marketing and sales information
or policies or plans, past and proposed business plans
or dealings or transactions, officers, employees or
consultants, financial information dealings and plans,
designs, formulae, product lines, research activities,
any document marked 'Confidential', or any information
which the Consultant has been told is confidential or
which he might reasonably expect the Company would
regard as confidential, including any information which
has been given to the Company or any Associated Company
in confidence by customers, suppliers or any other persons.
6.2 The Consultant shall not at any time during the
continuance of his appointment (or thereafter) make any
notes or memoranda relating to any matter within the
scope of the Company's or any Associated Company's
business, dealings or affairs otherwise than for the
exclusive benefit of the Company or any Associated
Company.
6.3 The obligations contained in Clause 6.1 above shall
cease to apply to any information or knowledge which may
subsequently come into the public domain after the
termination of the Consultant's appointment, other than
by way of unauthorised disclosure.
7. Assignment of Services
The Consultant shall personally provide the Services hereunder
and may not assign or sub-contract the Services to any other
person, firm, company or organisation without the prior
written consent of the Company.
8. Termination
8.1 Notwithstanding any other provision hereof, the Company
shall be entitled to terminate this Agreement with
immediate effect if the Consultant should:
8.1.1 commit a serious breach of any of the
provisions of this Agreement; or
8.1.2 neglect or refuse to provide the Services;
or
8.1.3 act in any way which materially prejudices
the interests of the Company or any Associated
Company; or
8.1.4 become incapable of providing the Services
by reason of ill health or other incapacity
(whether accidental or otherwise) for a period in
excess of one month.
8.2 In the event of the lawful termination of this Agreement
the Company shall only be liable to the Consultant in
respect of fees and expenses due for the Services
provided up to the effective date of termination.
8.3 On the termination of this Agreement, the Consultant
shall deliver up to the Company, as and when directed,
all documents, papers, drawings, software, reports,
equipment and property of any kind belonging to the
Company or any Associated Company which may either be in
the Consultant's possession or under his control or
responsibility.
9. Miscellaneous
9.1 In this Agreement the expression "Associated Company"
shall mean any person, firm, company or other
organisation which the Company directly or indirectly
controls, or which directly or indirectly controls the
Company, or which is directly or indirectly controlled
by a third party, person, firm, company or other
organisation which also directly or indirectly controls
the Company.
9.2 This Agreement cancels and is in substitution for all
previous letters of appointment, agreements and
arrangements (whether oral or in writing) relating to
the appointment of the Consultant to provide consultancy
services to the Company, all of which shall be deemed to
have been terminated by mutual consent. This Agreement
constitutes the entire terms and conditions of the
Consultant's appointment.
9.3 The various provisions and sub-provisions of this
Agreement are severable and if any provision or
sub-provision or identifiable part thereof is held to be
invalid or unenforceable by any court of competent
jurisdiction then such invalidity or unenforceability
shall not affect the validity or enforceability of the
remaining provisions or sub-provisions or identifiable
parts thereof.
10. Governing Law
This Agreement and its performance shall be governed by
English law, and any dispute arising shall be subject to the
exclusive jurisdiction of the English courts.
AS WITNESS the hands of a duly authorised officer of the
Company and of the Consultant the day and year first above
written.
SIGNED by /s/ T.J. Bird
For and on behalf of
IMO INDUSTRIES INC
SIGNED by the said /s/ B. Lewis
BRIAN LEWIS
FIRST AMENDMENT TO
CREDIT AGREEMENT
First Amendment (this "Amendment") dated as of
February 19, 1997 among Imo Industries Inc. (with its successors
and permitted assigns, the "Borrower") and the undersigned
Lenders (as defined below), to the Credit Agreement dated as of
April 29, 1996 (as such agreement may be amended, supplemented or
modified from time to time, the "Credit Agreement") among the
Borrower, Varo Inc., Warren Pumps Inc., the institutions from
time to time party thereto as lenders (the "Lenders"), the
institutions from time to time party thereto as issuing banks
(the "Issuing Banks"), and Citicorp USA, Inc., in its capacity as
agent and collateral agent for the Lenders and the Issuing Banks
(in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the undersigned
Lenders, (i) to defer payment of installments on the A Term Loans
and the B Term Loans due during the period from the effective
date of this Amendment through December 31, 1997, (ii) to permit
certain proposed asset sales, (iii) to amend the financial
covenants contained in Sections 10.01 through 10.06 of the Credit
Agreement and (iv) to make certain other amendments to the Credit
Agreement, in each case substantially along the lines set forth
in that certain letter dated January 29, 1997 from the Borrower
to the Agent, a copy of which is attached hereto as Exhibit A;
and
WHEREAS, the parties hereto desire to amend the Credit
Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the above premises,
the Borrower and the undersigned Lenders agree as follows:
SECTION 1. Defined Terms. Capitalized terms used
herein without definition shall have the meanings ascribed to
such terms in the Credit Agreement.
SECTION 2. Amendment of Section 1.01.
(a) Section 1.01 of the Credit Agreement is, effective
as of the Amendment Effective Date, hereby amended by inserting
the following definition after the definition of "Alternative
Currency" and before the definition of "Applicable Base Rate
Margin":
"Annualized Basis" means with respect to the
calculation of EBITDA for the fiscal period ending on the
last day of each of the first three fiscal quarters of 1997,
(i) with respect to such calculation for the first such
fiscal quarter, four (4) times EBITDA for such quarter, (ii)
with respect to such calculation for the second such fiscal
quarter, two (2) times EBITDA for the six month period
ending on the last day of such quarter and (iii) with
respect to such calculation for the third such fiscal
quarter, one and one-third (1 1/3) times EBITDA for the nine
month period ending on the last day of such quarter.
(b) The definition of "Consolidated Net Worth"
contained in Section 1.01 of the Credit Agreement is, effective
as of the Amendment Effective Date, hereby amended by deleting
the words "Discontinued Operations or" in clause (x) thereof.
(c) Section 1.01 of the Credit Agreement is, effective
as of the Amendment Effective Date, hereby amended by deleting
the definition of "Discontinued Operations" in its entirety.
(d) The definition of "EBITDA" contained in Section
1.01 of the Credit Agreement is, effective as of the Amendment
Effective Date, hereby amended by deleting the words "the
Discontinued Operations and" in clauses (i)(E) and (ii)(A)
thereof.
(e) The definition of "Excess Cash Flow" contained in
Section 1.01 of the Credit Agreement is, effective as of the
Amendment Effective Date, hereby amended by replacing the words
"Discontinued Operations" contained in the parenthetical in
clause (x) thereof with the words "Proposed Dispositions".
(f) The definition of "Fixed Charge Coverage Ratio"
contained in Section 1.01 of the Credit Agreement is, effective
as of the Amendment Effective Date, hereby amended by (i)
deleting all the parentheticals in such definition which contain
the words "Discontinued Operations" and (ii) deleting the phrase
", minus any net increase in Working Capital for such period,
plus any net decrease in Working Capital for such period" from
clause (i) thereof.
(g) The definition of "Interest Coverage Ratio"
contained in Section 1.01 of the Credit Agreement is, effective
as of the Amendment Effective Date, hereby amended by deleting
all the parentheticals in such definition which contain the words
"Discontinued Operations".
(h) Section 1.01 of the Credit Agreement is, effective
as of the Amendment Effective Date, hereby amended by inserting
the following definition after the definition of "Maximum
Subsidiary Investment Amount" and before the definition of
"Multiemployer Plan":
"Morse Receivable" means the unpaid receivable
resulting from the unpaid portion (approximately 4,500,000
Deutschmarks) of a 1992 dividend declared by the Borrower's
German Subsidiary, Teleflex GmbH (now merged with and into
Imo Industries GmbH), to the Borrower's English Subsidiary,
Morse Controls Ltd.
(i) Section 1.01 of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended by
inserting the following sentence at the end of the definition of
"Net Cash Proceeds":
For purposes of this definition, any cash proceeds received
by the Borrower or Varo in connection with Varo's claim
against the federal government under U.S. Government
Contract No. F09603-86-C-2278 (which claim, on appeal from a
decision of the Contracting Officer in respect of such
contract, is, as of the date of the First Amendment to this
Agreement, pending before the Armed Services Board of
Contract Appeals (ASBCA Nos. 47945 and 47946)) shall
constitute Net Cash Proceeds of the type described in clause
(i) of this definition.
(j) Section 1.01 of the Credit Agreement is, effective
as of the Amendment Effective Date, hereby amended by inserting
the following definition after the definition of "Property" and
before the definition of "Pro Rata Share":
"Proposed Dispositions" means the businesses and assets
of the Borrower and the Restricted Subsidiaries identified
on Schedule 1.01.14.
SECTION 3. Amendment of Section 2.01.
(a) Section 2.01(f)(i) of the Credit Agreement is,
effective as of the Amendment Effective Date (it being understood
and agreed that this amendment of Section 2.01(f)(i) shall be
effective as of the Amendment Effective Date only after the
receipt by the Agent of a copy of this Amendment, duly executed
by the Borrower and each of the Lenders), hereby amended in its
entirety as follows:
(i) A Term Loans. The A Term Loans shall be repayable
in seventeen (17) quarterly installments on the dates and in
the amounts set forth below:
Date Installment Amount
July 31, 1996 $1,250,000.00
October 31, 1996 $1,250,000.00
January 31, 1997 $1,250,000.00
April 30, 1997 $0
July 31, 1997 $0
October 31, 1997 $0
January 31, 1998 $1,517,857.14
April 30, 1998 $1,517,857.14
July 31, 1998 $1,517,857.14
October 31, 1998 $1,517,857.14
January 31, 1999 $1,517,857.14
April 30, 1999 $1,517,857.14
July 31, 1999 $1,517,857.14
October 31, 1999 $1,517,857.14
January 31, 2000 $1,517,857.14
April 30, 2000 $1,517,857.14
July 31, 2000 $1,517,857.14
October 31, 2000 $1,517,857.14
January 31, 2001 $1,517,857.14
April 30, 2001 $1,517,857.18;
provided, however, that, in any event, the seventeenth
installment shall be in the amount of the then outstanding
principal balance of the A Term Loans.
(b) Section 2.01(f)(ii) of the Credit Agreement
is, effective as of the Amendment Effective Date (it being
understood and agreed that this amendment of Section 2.01(f)(ii)
shall be effective as of the Amendment Effective Date only after
the receipt by the Agent of a copy of this Amendment, duly
executed by the Borrower and each of the Lenders), hereby amended
in its entirety as follows:
(ii) B Term Loans. The B Term Loans shall be repayable
in eleven (11) consecutive quarterly installments on the
dates and in the amounts set forth below:
Date Installment Amount
January 31, 1998 $2,585,227.27
April 30, 1998 $2,585,227.27
July 31, 1998 $2,585,227.27
October 31, 1998 $2,585,227.27
January 31, 1999 $2,585,227.27
April 30, 1999 $2,585,227.27
July 31, 1999 $2,585,227.27
October 31, 1999 $2,585,227.27
January 31, 2000 $2,585,227.27
April 30, 2000 $2,585,227.27
July 31, 2000 $2,269,369.63;
provided, however, that, in any event, the eleventh
installment shall be in the amount of the then outstanding
principal balance of the B Term Loans.
(c) Section 2.01(f)(iii) of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended in
its entirety as follows:
(iii) C Term Loans. The C Term Loans shall be repayable
in twenty-eight (28) consecutive quarterly installments on the
dates and in the amounts set forth below:
Date Installment Amount
July 31, 1996 $125,000
October 31, 1996 $125,000
January 31, 1997 $125,000
April 30, 1997 $125,000
July 31, 1997 $125,000
October 31, 1997 $125,000
January 31, 1998 $125,000
April 30, 1998 $125,000
July 31, 1998 $125,000
October 31, 1998 $125,000
January 31, 1999 $125,000
April 30, 1999 $125,000
July 31, 1999 $125,000
October 31, 1999 $125,000
January 31, 2000 $125,000
April 30, 2000 $125,000
July 31, 2000 $125,000
October 31, 2000 $125,000
January 31, 2001 $125,000
April 30, 2001 $125,000
July 31, 2001 $5,312,000
October 31, 2001 $5,312,000
January 31, 2002 $5,312,000
April 30, 2002 $5,312,000
July 31, 2002 $5,312,000
October 31, 2002 $5,312,000
January 31, 2003 $5,312,000
April 30, 2003 $5,316,000;
provided, however, that, in any event, the twenty-eighth
installment shall be in the amount of the then outstanding
principal balance of the C Term Loans.
SECTION 4. Amendment of Section 3.01.
(a) Section 3.01(b)(i) of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended by
(i) deleting the first parenthetical in such Section and (ii)
replacing the proviso in the second sentence thereof in its
entirety as follows:
provided, that after the aggregate principal amount of the
Term Loans outstanding on the Amendment Effective Date (as
defined in the First Amendment to Credit Agreement dated as
of February 19, 1997) has been reduced by at least
$50,000,000, at Borrower's option, exercised at any time by
written notice to the Agent, Net Cash Proceeds shall not be
applied to the remaining Term Loans but instead applied to
any outstanding non-contingent Revolving Credit Obligations
(without any permanent reduction in the Revolving Credit
Commitments).
(b) Section 3.01(b)(iii) of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended by
replacing the proviso in clause (B) of the first sentence thereof
in its entirety as follows:
provided, however, that the mandatory prepayment referred to
in this clause (B) shall be reduced to fifty percent (50%)
of such Excess Cash Flow after the Borrower and its
Restricted Subsidiaries have sold Roltra-Morse S.p.A. and
have received Net Cash Proceeds of at least $50,000,000 from
such sale and the sale of other Proposed Dispositions.
SECTION 5. Amendment of Section 6.01. Section 6.01(c)
of the Credit Agreement is, effective as of the Amendment
Effective Date, hereby amended by deleting the parenthetical
"(other than the Discontinued Operations)" in the penultimate
sentence of such Section.
SECTION 6. Amendment of Section 9.01. Section 9.01 of
the Credit Agreement is, effective as of the Amendment Effective
Date, hereby amended (x) by deleting the word "and" immediately
following clause (xiii) thereof, (y) replacing the period at the
end of clause (xiv) of such Section with a "; and", and (z)
inserting the following clause (xv) at the end of such section:
(xv) Indebtedness not in excess of a principal amount
of $3,000,000 of the Borrower owing to Morse Controls Ltd.
from the Morse Receivable and the assignment thereof to the
Borrower.
SECTION 7. Amendment of Section 9.02. Clause (viii)
of Section 9.02 of the Credit Agreement is, effective as of the
Amendment Effective Date, hereby amended to read in full as
follows:
(viii) the sale by the Borrower and/or its Subsidiaries,
as applicable, in a single transaction or in a series of
transactions, pursuant to documentation which shall be
delivered to the Agent promptly upon its becoming available,
of all or any part of the Proposed Dispositions; provided
that (i) if Varo's electronic systems division is so sold,
the Borrower shall have received Net Cash Proceeds of at
least $9,000,000 in respect thereof, (ii) if Roltra-Morse
S.p.A. is so sold, (x) the Borrower shall have received Net
Cash Proceeds of at least $30,000,000 in respect thereof and
(y) if such sale is consummated at any time on or prior to
September 30, 1998, the Requisite Lenders and the Borrower
shall have amended the Financial Covenants contained in
Sections 10.02, 10.03, 10.05 and 10.06 for the fiscal
periods ending on or after the date of consummation of such
sale through September 30, 1998 in accordance with the terms
of Section 14.07, solely for the purpose of taking into
account such sale, and (iii) no such sale of Proposed
Dispositions (other than Varo's electronic systems division
and Roltra-Morse S.p.A.) shall be made for less than Fair
Market Value; and
SECTION 8. Amendment of Section 9.04. Clause (viii)
of Section 9.04 of the Credit Agreement is, effective as of the
Amendment Effective Date, hereby amended to read in full as
follows:
(viii) Investments by the Borrower and/or any of the
Restricted Subsidiaries in one or more Unrestricted
Subsidiaries or Permitted Joint Ventures which are not
organized and existing under the laws of the United States
of America, any State thereof, the District of Columbia or
the United States Virgin Islands; provided that the
aggregate book value of such Investments made after the
Closing Date, determined with respect to each such
Investment at the time such Investment is made, shall not
exceed $5,000,000 (it being understood and agreed that such
amount shall not include any Investments in Roltra-Morse
S.p.A), or, after the aggregate outstanding principal amount
of the Term Loans and Revolving Loans has been reduced to an
amount equal to or less than $75,000,000, $10,000,000;
provided further, that notwithstanding the foregoing
proviso, (i) the Borrower and the Restricted Subsidiaries
are permitted to make cash Investments in Roltra-Morse
S.p.A. of up to $10,000,000 and (ii) the Borrower shall be
permitted to hold an Investment of Indebtedness or equity in
Imo Industries GmbH resulting from the assignment to the
Borrower from Morse Controls Ltd. of the Morse Receivable,
and the conversion of the Morse Receivable to equity;
SECTION 9. Amendment of Section 9.05. Section
9.05(vi) of the Credit Agreement is, effective as of the
Amendment Effective Date, hereby amended to read in full as
follows:
(vi) Extensions, renewals or replacements of Permitted
Existing Accommodation Obligations of the Borrower in
respect of the obligations of any Unrestricted Subsidiary
(provided the amount of such Accommodation Obligations is
not increased as a result of any extension, renewal or
replacement thereof) and other Accommodation Obligations of
the Borrower in respect of obligations of any Unrestricted
Subsidiary; provided that (x) the aggregate amount of such
Accommodation Obligations (other than such extensions,
renewals or replacements of Permitted Existing Accommodation
Obligations) shall not exceed $11,000,000 at any time
outstanding prior to the sale of Roltra-Morse S.p.A. (it
being understood and agreed that $5,000,000 of such amount
shall apply only in respect of obligations of Roltra-Morse
S.p.A.) and (y) the aggregate amount of such Accommodation
Obligations (including Permitted Existing Accommodation
Obligations of the Borrower in respect of the obligations of
any Unrestricted Subsidiary and any extensions, renewals or
replacements of such Permitted Existing Accommodation
Obligations) shall not exceed $10,000,000 at any time
outstanding after such sale;
SECTION 10. Amendment of Article 10.
(a) Section 10.01 of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended to
read in full as follows:
10.01. Minimum Consolidated Net Worth. The Consolidated
Net Worth of the Borrower and its Subsidiaries at all times during
any period set forth below shall not be less than the minimum amount
set forth opposite such period:
Period Minimum Amount
From December 31, 1996 to but
excluding March 31, 1997 -$68,100,000
From March 31, 1997 to but
excluding June 30, 1997 -$68,100,000
From June 30, 1997 to but
excluding September 30, 1997 -$68,100,000
From September 30, 1997 to but
excluding December 31, 1997 -$68,100,000
From December 31, 1997 to but
excluding March 31, 1998 -$68,100,000
From March 31, 1998 to but
excluding June 30, 1998 -$68,100,000
From June 30, 1998 to but
excluding September 30, 1998 -$68,100,000
From September 30, 1998 to but
excluding December 31, 1998 -$68,100,000
From December 31, 1998 to but
excluding March 31, 1999 -$63,100,000
From March 31, 1999 to but
excluding June 30, 1999 -$61,900,000
From June 30, 1999 to but
excluding September 30, 1999 -$60,600,000
From September 30, 1999 to but
excluding December 31, 1999 -$59,400,000
From December 31, 1999 to but
excluding March 31, 2000 -$58,100,000
From March 31, 2000 to but
excluding June 30, 2000 -$55,600,000
From June 30, 2000 to but
excluding September 30, 2000 -$53,100,000
From September 30, 2000 to but
excluding December 31, 2000 -$50,600,000
From December 31, 2000 to but
excluding March 31, 2001 -$48,100,000
From March 31, 2001 to but
excluding June 30, 2001 -$45,600,000
From June 30, 2001 to but
excluding September 30, 2001 -$43,100,000
From September 30, 2001 to but
excluding December 31, 2001 -$40,600,000
From December 31, 2001 to but
excluding March 31, 2002 -$38,100,000
From March 31, 2002 to but
excluding June 30, 2002 -$33,100,000
From June 30, 2002 to but
excluding September 30, 2002 -$28,100,000
From September 30, 2002 to but
excluding December 31, 2002 -$23,100,000
From December 31, 2002 to but
excluding March 31, 2003 -$18,100,000
From March 31, 2003 to but
excluding June 30, 2003 -$18,100,000
(b) Section 10.02 of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended to
read in full as follows:
10.02. Minimum Fixed Charge Coverage Ratio. The
Fixed Charge Coverage Ratio, as determined as of the last
day of each fiscal quarter of the Borrower set forth below
for the twelve month period ending on such date (or if the
period from January 1, 1997 to such date is less than
twelve months, such shorter period), shall not be less than
the minimum ratio set forth opposite such fiscal quarter:
Fiscal Quarter Minimum Ratio
Second fiscal quarter of 1997 0.25 to 1
Third fiscal quarter of 1997 0.35 to 1
Fourth fiscal quarter of 1997 0.50 to 1
First fiscal quarter of 1998 0.70 to 1
Second fiscal quarter of 1998 0.71 to 1
Third fiscal quarter of 1998 0.73 to 1
Fourth fiscal quarter of 1998 0.75 to 1
First fiscal quarter of 1999 0.78 to 1
Second fiscal quarter of 1999 0.80 to 1
Third fiscal quarter of 1999 0.83 to 1
Fourth fiscal quarter of 1999 0.85 to 1
First fiscal quarter of 2000 0.91 to 1
Second fiscal quarter of 2000 0.98 to 1
Third fiscal quarter of 2000 1.04 to 1
Fourth fiscal quarter of 2000 1.10 to 1
First fiscal quarter of 2001 1.15 to 1
Second fiscal quarter of 2001 1.20 to 1
Third fiscal quarter of 2001 1.25 to 1
Fourth fiscal quarter of 2001 1.30 to 1
First fiscal quarter of 2002 1.35 to 1
Second fiscal quarter of 2002 1.40 to 1
Third fiscal quarter of 2002 1.45 to 1
Fourth fiscal quarter of 2002 1.50 to 1
First fiscal quarter of 2003 1.50 to 1
Second fiscal quarter of 2003 1.50 to 1
(c) Section 10.03 of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended to
read in full as follows:
10.03. Minimum Interest Coverage Ratio. The Interest
Coverage Ratio as determined as of the last day of each
fiscal quarter of the Borrower set forth below for the
twelve month period ending on such date (or if the period
from January 1, 1997 to such date is less than twelve
months, such shorter period), shall not be less than the
minimum ratio set forth opposite such fiscal quarter:
Fiscal Quarter Minimum Ratio
First fiscal quarter of 1997 1.00 to 1
Second fiscal quarter of 1997 1.30 to 1
Third fiscal quarter of 1997 1.40 to 1
Fourth fiscal quarter of 1997 1.50 to 1
First fiscal quarter of 1998 1.60 to 1
Second fiscal quarter of 1998 1.60 to 1
Third fiscal quarter of 1998 1.65 to 1
Fourth fiscal quarter of 1998 1.75 to 1
First fiscal quarter of 1999 1.76 to 1
Second fiscal quarter of 1999 1.78 to 1
Third fiscal quarter of 1999 1.79 to 1
Fourth fiscal quarter of 1999 1.80 to 1
First fiscal quarter of 2000 1.85 to 1
Second fiscal quarter of 2000 1.90 to 1
Third fiscal quarter of 2000 1.95 to 1
Fourth fiscal quarter of 2000 2.00 to 1
First fiscal quarter of 2001 2.03 to 1
Second fiscal quarter of 2001 2.07 to 1
Third fiscal quarter of 2001 2.10 to 1
Fourth fiscal quarter of 2001 2.25 to 1
First fiscal quarter of 2002 2.31 to 1
Second fiscal quarter of 2002 2.38 to 1
Third fiscal quarter of 2002 2.44 to 1
Fourth fiscal quarter of 2002 2.50 to 1
First fiscal quarter of 2003 2.50 to 1
Second fiscal quarter of 2003 2.50 to 1
(d) Section 10.04 of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended to
read in full as follows:
10.04. Maximum Capital Expenditures. Capital Expenditures
made or incurred by the Borrower and the Borrower's Subsidiaries on a
consolidated basis during each Fiscal Year set forth below shall not
exceed in the aggregate the amount set forth opposite such Fiscal Year:
Fiscal Year Maximum Amount
Fiscal Year 1997 $27,000,000
Fiscal Year 1998 $27,000,000
Fiscal Year 1999 $27,000,000
Fiscal Year 2000 $27,000,000
Fiscal Year 2001 $27,000,000
Fiscal Year 2002 $27,000,000
Fiscal Year 2003 $27,000,000
(e) Section 10.05 of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended to
read in full as follows:
10.05. Maximum Permitted Senior Debt Ratio. The ratio of
(i) Permitted Senior Debt of the Borrower and its Subsidiaries on a
consolidated basis on the last day of such period to (ii) EBITDA of
the Borrower and its Subsidiaries on a consolidated basis for such
period (or if the period from January 1, 1997 to such date is less
than twelve months, such amount shall be calculated on an Annualized
Basis), as determined as of the last day of each fiscal quarter of the
Borrower set forth below for the twelve month period ending on
such date, shall not be greater than the maximum ratio set forth
opposite such fiscal quarter:
Fiscal Quarter Maximum Ratio
First fiscal quarter of 1997 5.00 to 1
Second fiscal quarter of 1997 3.60 to 1
Third fiscal quarter of 1997 3.60 to 1
Fourth fiscal quarter of 1997 2.90 to 1
First fiscal quarter of 1998 2.80 to 1
Second fiscal quarter of 1998 2.70 to 1
Third fiscal quarter of 1998 2.60 to 1
Fourth fiscal quarter of 1998 2.00 to 1
First fiscal quarter of 1999 1.94 to 1
Second fiscal quarter of 1999 1.88 to 1
Third fiscal quarter of 1999 1.81 to 1
Fourth fiscal quarter of 1999 1.75 to 1
First fiscal quarter of 2000 1.69 to 1
Second fiscal quarter of 2000 1.63 to 1
Third fiscal quarter of 2000 1.56 to 1
Fourth fiscal quarter of 2000 1.50 to 1
First fiscal quarter of 2001 1.50 to 1
Second fiscal quarter of 2001 1.50 to 1
Third fiscal quarter of 2001 1.50 to 1
Fourth fiscal quarter of 2001 1.50 to 1
First fiscal quarter of 2002 1.50 to 1
Second fiscal quarter of 2002 1.50 to 1
Third fiscal quarter of 2002 1.50 to 1
Fourth fiscal quarter of 2002 1.50 to 1
First fiscal quarter of 2003 1.50 to 1
Second fiscal quarter of 2003 1.50 to 1
(f) Section 10.06 of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended to
read in full as follows:
10.06. Maximum Permitted Total Debt Ratio. The ratio of
(i) Permitted Total Debt of the Borrower and its Subsidiaries on a
consolidated basis for such period to (ii) EBITDA of the Borrower and
its Subsidiaries on a consolidated basis for such period (or if the
period from January 1, 1997 to such date is less than twelve months,
such amount shall be calculated on an Annualized Basis), as determined
as of the last day of each fiscal quarter of the Borrower set forth
below for the twelve month period ending on such date, shall not
be greater than the maximum ratio set forth opposite such fiscal
quarter:
Fiscal Quarter Maximum Ratio
First fiscal quarter of 1997 9.00 to 1
Second fiscal quarter of 1997 7.20 to 1
Third fiscal quarter of 1997 7.10 to 1
Fourth fiscal quarter of 1997 6.20 to 1
First fiscal quarter of 1998 5.70 to 1
Second fiscal quarter of 1998 5.50 to 1
Third fiscal quarter of 1998 5.50 to 1
Fourth fiscal quarter of 1998 5.00 to 1
First fiscal quarter of 1999 5.00 to 1
Second fiscal quarter of 1999 5.00 to 1
Third fiscal quarter of 1999 5.00 to 1
Fourth fiscal quarter of 1999 5.00 to 1
First fiscal quarter of 2000 4.88 to 1
Second fiscal quarter of 2000 4.75 to 1
Third fiscal quarter of 2000 4.63 to 1
Fourth fiscal quarter of 2000 4.50 to 1
First fiscal quarter of 2001 4.38 to 1
Second fiscal quarter of 2001 4.25 to 1
Third fiscal quarter of 2001 4.13 to 1
Fourth fiscal quarter of 2001 4.00 to 1
First fiscal quarter of 2002 3.88 to 1
Second fiscal quarter of 2002 3.75 to 1
Third fiscal quarter of 2002 3.63 to 1
Fourth fiscal quarter of 2002 3.50 to 1
First fiscal quarter of 2003 3.50 to 1
Second fiscal quarter of 2003 3.50 to 1
SECTION 11. Waiver. To the extent that any Event of
Default may have arisen solely from the Borrower's failure to
comply with the covenants contained in Sections 10.01 through
10.06 of the Credit Agreement for the period beginning as of
September 30, 1996 through the Amendment Effective Date, such
Event of Default is, effective as of the Amendment Effective
Date, hereby waived by the undersigned Lenders.
SECTION 12. Conditions Precedent to the Effectiveness
of this Amendment. This Amendment shall become effective as of
the date hereof on the date (the "Amendment Effective Date") when
the following conditions precedent have been satisfied (unless
waived by the undersigned Lenders):
12.01 The Agent shall have received on or before the
Amendment Effective Date (i) a copy of this Amendment duly
executed by the Borrower and each of the Requisite Lenders except
as provided in Section 3 hereof, (ii) a favorable opinion of
Weil, Gotshal & Manges LLP, counsel to the Borrower and the
Guarantors, dated the Amendment Effective Date and addressed to
the Agent, the Lenders and the Issuing Banks, with respect to
such matters relating to this Amendment as the Agent may
reasonably request, and (iii) a favorable opinion of Thomas J.
Bird, general counsel of the Borrower and the Guarantors, dated
the Amendment Effective Date and addressed to the Agent, the
Lenders and the Issuing Banks, with respect to such matters
relating to this Amendment as the Agent may reasonably request;
without limiting the foregoing, the Borrower and the Guarantors
hereby direct their counsel, Weil, Gotshal & Manges LLP, and
their general counsel to deliver to the Agent, the Lenders, the
Issuing Banks and Sidley & Austin, such opinions.
12.02 Each of the representations and warranties of
the Borrower and the Guarantors contained in the Credit Agreement
and in the other Loan Documents (after giving effect to this
Amendment) shall be true and correct on and as of the Amendment
Effective Date, except to the extent that any such representation
or warranty expressly relates to a prior date, in which case,
such representation and warranty shall be true and correct as of
such earlier date.
12.03 All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with
the transactions contemplated by this Amendment, shall be
satisfactory in all respects in form and substance to the Agent.
12.04 No Default or Event of Default (other than any
Default or Event of Default relating to any matter waived
pursuant to Section 11 of this Amendment) shall have occurred and
be continuing on the Amendment Effective Date.
Notwithstanding the foregoing, (i) if all the Lenders have not
executed this Amendment by February 28, 1997 (or such later date
as shall be agreed to by the Agent and the Borrower) (the
"Amendment Cut-off Date"), the amendments contained in Section 3
of this Amendment shall be deleted in their entirety and be of no
further force and effect and (ii) if the Amendment Effective Date
has not occurred by the Amendment Cut-off Date or the Borrower
has not paid to the Lenders and the Agent the fees payable to the
Lenders pursuant to Section 15.02 hereof or any other fees
payable to the Agent in connection with this Amendment when such
fees become due and payable, then this Amendment shall cease to
be of any further force and effect.
SECTION 13. Representations and Warranties. The
Borrower hereby represents and warrants to the Lenders, the
Issuing Banks and the Agent that (a) as of the date hereof (and
except as waived pursuant to Section 11 of this Amendment) no
Default or Event of Default under the Credit Agreement shall have
occurred and be continuing, (b) all of the representations and
warranties of the Borrower and the Guarantors contained in the
Credit Agreement (other than any representations and warranties
relating to the matters referred to in Section 11 hereof) and in
any other Loan Document continue to be true and correct as of the
date hereof, as though made on and as of such date, except to the
extent that such representations or warranties expressly relate
to prior dates, in which case, such representations and
warranties shall be true and correct as of such earlier dates.
SECTION 14. Reference to and Effect on the Loan
Documents.
14.01 Upon the effectiveness of this Amendment, on and
after the date hereof, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof" or words of like import,
and each reference in the other Loan Documents to the Credit
Agreement, shall mean and be a reference to the Credit Agreement
as amended hereby.
14.02 Except as specifically amended above, all of the
terms of the Credit Agreement and all other Loan Documents shall
remain unchanged and in full force and effect
14.03 The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of any Lender,
any Issuing Bank or the Agent, nor constitute a waiver of any
provision of the Credit Agreement or any of the Loan Documents.
14.04 Notwithstanding anything to the contrary in this
Section 14, upon the effectiveness of this Amendment, the
provision in the Consent and Waiver of the Requisite Lenders
dated December 18, 1996 permitting the Borrower and the
Restricted Subsidiaries to make the Additional Roltra Investment
(as defined in such Consent and Waiver) shall have no further
force or effect, it being understood and agreed that such
Investment shall constitute a portion of the $10,000,000 of
Investments permitted to be made in Roltra-Morse S.p.A. pursuant
to Section 9.04(viii) of the Credit Agreement.
SECTION 15. Fees, Costs and Expenses.
15.01 The Borrower agrees to pay on demand in
accordance with the terms of Section 14.02 of the Credit
Agreement all costs and expenses in connection with the
preparation, reproduction, execution and delivery of this
Amendment, including the reasonable fees and out-of-pocket
expenses of Sidley & Austin, counsel for the Agent.
15.02 The Borrower shall pay to the Agent for the
account of each Lender, in accordance with such Lender's Pro Rata
Share, an amendment fee in an amount equal to 0.25% of the sum of
such Lender's Revolving Credit Commitment, if any, and
outstanding Term Loans, which fee shall be payable on the earlier
to occur of (i) the Amendment Effective Date (if all the Lenders
have executed this Amendment on such date) and (ii) the Amendment
Cut-off Date; provided, however, in the event Section 3 of this
Amendment has not become effective by the Amendment Cut-off Date,
the Borrower shall be required to pay to the Agent solely for the
account of each Lender that has executed this Amendment an
amendment fee in an amount equal to 0.125% of the sum of such
Lender's Revolving Credit Commitment, if any, and outstanding
Term Loans.
SECTION 16. Execution in Counterparts. This Amendment
may be executed and delivered in any number of counterparts and
by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original
and all of which taken together shall constitute one and the same
original agreement.
SECTION 17. Governing Law. THIS AMENDMENT SHALL BE
INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO
DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF
NEW YORK.
IN WITNESS WHEREOF, this Amendment has been duly executed on the
date set forth above.
IMO INDUSTRIES INC.
By: /s/R.A. Derr II
Name:R.A. Derr II
Title:Vice President & Treasurer
CITICORP USA, INC., as Agent and Lender
By: /s/Timothy L. Freeman
Name:Timothy L. Freeman
Title:Attorney-in-Fact
SANWA BUSINESS CREDIT CORPORATION
By: /s/Peter L. Skavla
Name:Peter L. Skavla
Title:Vice President
BHF-BANK AKTIENGESELLSCHAFT
By:
Name:
Title:
By:
Name:
Title:
LEHMAN COMMERCIAL PAPER INC.
By:
Name:
Title:
THE NIPPON CREDIT BANK LTD.,
NEW YORK BRANCH
By: /s/Clifford Abramsky
Name:Clifford Abramsky
Title:Senior Manager
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By: /s/Sean Mounier
Name:Sean Monier
Title:First Vice President
By: /s/Marcus Edward
Name:Marcus Edward
Title:Vice President
FIRST SOURCE FINANCIAL LLP
By: FIRST SOURCE FINANCIAL,
INC. as its Agent/Manager
By: /s/Gary L. Francis
Name:Gary L. Francis
Title:Senior Vice President
By:
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:
Name:
Title:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/Perry Vavoules
Name:Perry Vavoules
Title:Senior Vice President
MERRILL LYNCH SENIOR FLOATING RATE
FUND
By: /s/Anthony R. Clemente
Name:Anthony R. Clemente
Title:Authorized Signatory
THE CHASE MANHATTAN BANK, N.A.
By: /s/Peter M. Fitzimmons
Name:Peter M. Fitzimmons
Title:Vice President
ING CAPITAL ADVISORS, INC., as
Agent for Bank Syndication
Account
By: /s/Kathleen A. Lenarcic
Name:Kathleen A. Lenarcic
Title:Vice President & Portfolio Mgr.
PPM AMERICA, INC.
By: PPM AMERICA, INC.,
as attorney-in-fact, on behalf of
Jackson National Life
Insurance Company
By: /s/Michael DiRe
Name:Michael DiRe
Title:Vice President/Head
High Yield Bank Loans
SENIOR DEBT PORTFOLIO
By: BOSTON MANAGEMENT AND
RESEARCH, AS INVESTMENT
ADVISOR
By: /s/Payson F. Swaffield
Name: Payson F. Swaffield
Title:Vice President
MEDICAL LIABILITY MUTUAL INSURANCE CO.
By: Chancellor LGT Senior Secured
Management, Inc. as Investment
Manager
By: /s/Stephen M. Alfieri
Name:Stephen M. Alfieri
Title:Managing Director
KEYPORT LIFE INSURANCE CAPITAL COMPANY
By: Chancellor LGT Senior Secured
Management, Inc. as Investment
Manager
By: /s/Stephen M. Alfieri
Name:Stephen M. Alfieri
Title:Managing Directo
SOUTHERN PACIFIC THRIFT & LOAN
ASSOCIATION
By:
Name:
Title:
ML CBO IV (CAYMAN) LTD.
By: PROTECTIVE ASSET
MANAGEMENT, L.L.C, as
Collateral Manager
By: /s/ James Dondero
Name:James Dondero CPA,CFA
Title:President
Acknowledged and agreed
to:
VARO INC.
By: /s/R.A. Derr II
Name:R.A. Derr II
Title:Vice President & Treasurer
WARREN PUMPS INC.
By: /s/R.A.Derr II
Name:R.A. Derr II
Title:Vice President, Treasurer
& Chief Financial Officer
ASSET PURCHASE AGREEMENT
by and between
VARO INC.
and
VARO ACQUISITION CORP.
Dated as of September 13, 1996
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
1.1 Certain Definitions 1
ARTICLE II ASSETS TO BE ACQUIRED
2.1 Acquisition and Transfer of Assets 8
2.2 Excluded Assets 10
2.3 Assumed Liabilities 11
2.4 Excluded Liabilities 12
2.5 Cancellation of Permits, Bonds and Guarantees 12
ARTICLE III PURCHASE PRICE
3.1 Purchase Price and Payment 13
3.2 Purchase Price Adjustment 13
3.3 Interim Period Cash Adjustment. 14
3.4 Allocation of Purchase Price 14
ARTICLE IV THE CLOSING
4.1 Closing Date 14
4.2 Proceedings at the Closing 15
4.3 Deliveries by the Seller to the Purchaser 15
4.4 Deliveries by the Purchaser to the Seller 16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SELLER
5.1 Organization and Good Standing 17
5.2 Corporate Authority; No Violation 17
5.3 Title to Assets Other than Leased Real Property and
Intellectual Property 18
5.4 Title to Leased Real Property 18
5.5 Consents 18
5.6 Permits 18
5.7 Financial Statements 18
5.8 Absence of Certain Developments 19
5.9 Material Contracts 19
5.10 Intellectual Property 19
5.11 Taxes 19
5.12 Employee Benefits 20
5.13 Litigation; Compliance With Law 20
5.14 Receivables 21
5.15 Inventory 21
5.16 Assets Necessary to Conduct the Business 21
5.17 Work in Process 21
5.18 Environmental Matters 21
5.19 Brokers 22
5.20 Insurance Coverage 22
5.21 Labor Matters 23
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
6.1 Organization and Good Standing 23
6.2 Authority; No Violation 23
6.3 Consents 24
6.4 Availability of Funds 24
6.5 Litigation 24
6.6 Brokers 24
ARTICLE VII COVENANTS OF THE SELLER
7.1 Cooperation 25
7.2 Access to Documents; Opportunity to Ask Questions 25
7.3 Conduct of Business 25
7.4 Consents and Conditions 26
7.5 Confidentiality 27
7.6 Non-Solicitation 27
ARTICLE VIII COVENANTS OF THE PURCHASER
8.1 Cooperation 27
8.2 Confidentiality 28
8.3 Consents and Conditions 28
8.4 Permits, Bonds and Guarantees 28
8.5 Financing 28
ARTICLE IX ADDITIONAL COVENANTS
9.1 Offer of Employment 28
9.2 Employment and Other Agreements 29
9.3 Employee Benefit Plans and Benefit Arrangements 29
9.4 Welfare Plans 29
9.5 Credited Service 30
9.6 Liabilities Excluded 30
9.7 Assignment of Contract Payments 30
9.8 Grant of Security Interest 31
ARTICLE X TAX MATTERS
ARTICLE XI CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
11.1 Representations, Warranties and Covenants 32
11.2 No Prohibition 33
11.3 Opinion of Seller's Counsel 33
11.4 Delivery of Documents 33
11.5 Consents 33
11.6 Financing 33
ARTICLE XII CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS
12.1 Representations, Warranties and Covenants 33
12.2 Subcontract 34
12.3 No Prohibition 34
12.4 Opinion of the Purchaser's Counsel 34
12.5 Delivery of Documents 34
12.6 Consents 34
ARTICLE XIII ADDITIONAL POST-CLOSING COVENANTS
13.1 Further Assurances 34
13.2 Assignments; Novations 35
13.3 Provisions Relating to Certain Assets 37
13.4 Use of Transferred Employees 38
13.5 AIM-9 Warranty. 39
13.6 Provisions Relating to Certain Excluded Assets 39
13.7 Public Announcements 39
13.8 Joint Post-Closing Covenant of the Seller and the
Purchaser 39
13.9 Books and Records; Personnel 40
ARTICLE XIV INDEMNIFICATION AND RELATED MATTERS
14.1 Indemnification by the Seller 41
14.2 Indemnification by the Purchaser 41
14.3 Determination of Damages and Related Matters 42
14.4 Limitation on Indemnification Liabilities 42
14.5 Survival of Representations, Warranties and Covenants43
14.6 Notice of Indemnification 43
14.7 Indemnification Procedure for Third Party Claims 43
14.8 Consequential Damages 44
14.9 Exclusive Remedy 44
ARTICLE XV TERMINATION
15.1 Termination 44
15.2 Liabilities After Termination 44
ARTICLE XVI MISCELLANEOUS
16.1 Prorations 44
16.2 Waiver of Compliance with Bulk Transfer Laws 45
16.3 Entire Agreement 45
16.4 Governing Law 45
16.5 Expenses 45
16.6 Table of Contents and Headings; Certain Construction
Rules 45
16.7 Notices 46
16.8 Severability 47
16.9 Binding Effect; No Assignment 47
16.10 Amendments 47
16.11 Counterparts 47
SCHEDULES AND EXHIBITS
Schedule 2.1(d) Real Property
Schedule 2.1(h) Permits
Schedule 2.2(f) Excluded Intellectual Property
Schedule 2.2(h) Excluded Contracts
Schedule 2.2(p) Other Excluded Assets
Schedule 2.4(d) Excluded Liabilities
Schedule 5.1 States Where Seller is Qualified
Schedule 5.2 Corporate Authority; No Violation
Schedule 5.3(a)(iii) Third Party Assets
Schedule 5.3(a)(iv) Encumbrances to be Extinguished at Closing
Schedule 5.3(b) Seller Maintenance Assets
Schedule 5.5 Required Consents
Schedule 5.6 Permits
Schedule 5.7 Financial Statements
Schedule 5.8 Certain Business Developments
Schedule 5.9 Material Contracts
Schedule 5.10 Certain Intellectual Property
Schedule 5.11(c) Tax Disputes
Schedule 5.11(d) Agreements Regarding Tax Liability
Schedule 5.12(a) Employee Benefit Plans
Schedule 5.12(b) Employment and Severance Contracts
Schedule 5.12(c) Identities, Positions of Employees
Schedule 5.13 Litigation
Schedule 5.16 Assets Necessary to Conduct Business
Schedule 5.18 Environmental Matters
Schedule 5.20 Insurance Policies
Schedule 12.2 Subcontracted Contracts
Exhibit A Initial Balance Sheet
Exhibit B Form of Bill of Sale and Assignment
Exhibit C Form of Undertaking and Assumption
Exhibit D Form of Opinion of Seller's Counsel
Exhibit E Form of Opinion of Purchaser's Counsel
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated
as of September 13, 1996, is by and between Varo Inc., a Texas
corporation (the "Seller"), and Varo Acquisition Corp., a
Delaware corporation (the "Purchaser").
RECITALS
WHEREAS, the Seller, principally through its Electronic
Systems Division, is engaged in the business of manufacturing and
selling guided missile launcher systems and electric power
conversion systems for military and commercial applications (the
"Business"); and
WHEREAS, the Purchaser desires to purchase, and the
Seller desires to sell, substantially all of the assets and
properties of the Seller employed exclusively in the Business
and, as part of such purchase and sale, the Seller desires to
assign, and the Purchaser desires to assume, all of the
obligations and liabilities of the Business subject, in each
case, to the exceptions, terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and
the mutual representations, warranties, covenants and agreements
hereinafter set forth, and upon the terms and subject to the
conditions hereinafter set forth, the Seller and the Purchaser
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement,
the following terms shall have the respective meanings set forth
below (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Accounts Receivable" shall have the meaning set forth
in Section 2.1(c) hereof.
"Affiliate" shall mean, with respect to any specified
Person, any Person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under
common control with, the Person specified.
"Agreement" shall have the meaning set forth in the
preamble hereto.
"AIM-9 Claim" shall mean the constructive change and
partial termination for convenience claim filed by the Seller
pursuant to the AIM-9 Contract and currently pending against the
United States Department of the Air Force before the Armed
Services Board of Contract Appeals under the appeals docketed
under numbers 47945 and 47946 and any claim for compensation for
warranty work performed prior to the Closing Date.
"AIM-9 Contract" shall mean the AIM-9 launcher contract
number F09603-86-C-2278.
"AIM-9 Warranty Costs" shall mean all allocable costs
(except for general and administrative expenses) incurred by the
Purchaser in performing all warranty work as required by the
United States government under the AIM-9 Contract which is not
compensable under the AIM-9
Contract.
"Arbitrator" shall have the meaning set forth in
Section 3.2(c) hereof.
"Assumed Liabilities" shall have the meaning set forth
in Section 2.3 hereof.
"Benefit Arrangement" shall have the meaning set forth
in Section 5.11(b) hereof.
"Business" shall have the meaning set forth in the
recitals hereof.
"Bylaws" shall mean, with respect to any corporation,
the bylaws of such corporation, as in effect on the date hereof.
"Cash Transactions" shall mean receipts or
disbursements of cash or cash equivalents in the ordinary course
of business.
"Charter" shall mean, with respect to any corporation,
the certificate or articles of incorporation (or similar
governing document) of such corporation, as in effect on the date
hereof.
"Citicorp" shall have the meaning set forth in Section
9.7(a) hereof.
"Closing" shall mean the consummation of the
transactions contemplated hereby.
"Closing Balance Sheet" shall have the meaning set
forth in Section 3.2(a) hereof.
"Closing Date" shall mean the date on which the Closing
occurs.
"Closing Net Book Value" shall have the meaning set
forth in Section 3.2(b) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Confidentiality Agreement" shall have the meaning set
forth in Section 7.2 hereof.
"Contract" shall mean any contract (including, without
limitation, any Government Contract), agreement, indenture, note,
bond, loan, instrument, lease, sublease, conditional sale
contract, mortgage, license, sublicense, franchise, insurance
policy, commitment or other binding arrangement or agreement,
whether written or oral.
"CS First Boston" shall mean CS First Boston
Corporation.
"Damages" shall mean all claims, losses, damages,
costs, expenses and liabilities (including reasonable attorneys'
fees incident to any of the foregoing).
"Employee Benefit Plan" shall have the meaning set
forth in Section 5.12(a) hereof.
"Employees" shall mean all Persons employed in the
Business on the day immediately prior to the Closing Date,
excluding any Persons on permanent leave of absence from the
Business.
"Environmental Claim" shall mean any investigation,
notice of violation, action, suit, injunction, judgment, order,
decree, fine, lien, proceeding, or claim (whether administrative,
judicial or private in nature) arising: (A) in connection with,
an actual or alleged violation of any Environmental Law; (B) in
connection with any Hazardous Material; (C) from any abatement,
removal, remedial, corrective, or other response action in
connection with any Hazardous Material, Environmental Law, or
other order or directive of any federal, state or local
Governmental Authority; or (D) from any actual or alleged damage,
injury, threat, or harm to health, safety, natural resources, or
the environment.
"Environmental Law" shall mean any federal, state,
local or foreign statute, rule or regulation governing,
regulating or relating to emissions into the air, water or land
of hazardous or solid wastes or Hazardous Material, including,
without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
9601 et seq.; the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976, as amended by the
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. 6901 et
seq.; the Federal Water Pollution Control Act of 1972, as amended
by the Clean Water Act of 1977, as amended, 33 U.S.C. 1251 et
seq.; the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. 11001 et seq.; the Clean Air Act of 1966, as
amended by the Clean Air Act Amendments of 1990, 42 U.S.C. 7401
et seq.; and common law.
"Environmental Liability" shall mean any Liability
attributable to the Seller or any Affiliate relating to the
Business or the Purchased Assets or the Leased Real Property that
arises under or is based upon any Environmental Law.
"Equipment" shall have the meaning set forth in
Section 2.1(a) hereof.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"Excluded Assets" shall have the meaning set forth in
Section 2.2 hereof.
"Export Control Laws" shall mean all Laws, now or
hereafter in effect, and in each case as amended or supplemented
from time to time, and any judicial or administrative
interpretations thereof, relating to the export or reexport of
commodities and technologies. Export Control Laws include,
without limitation, the Export Administration Act of 1979 (24
U.S.C. Sections 2401-2420); the International Emergency Economic
Powers Act (50 U.S.C. Sections 1701-1706); the Trading with the
Enemy Act (50 U.S.C. Sections 1 et seq.); the Arms Export Control
Act (22 U.S.C. Sections 2278, 2279); and the International
Boycott Provisions of Section 999 of the Code.
"Facility" shall have the meaning set forth in
Section 9.1(c) hereof.
"Final Purchase Price Adjustment" shall have the
meaning set forth in Section 3.2(c) hereof.
"Financial Statements" shall have the meaning set forth
in Section 5.7 hereof.
"Governmental Approval" shall mean any permit, license,
variance, certificate, consent, letter, clearance, closure,
exemption, authorization, decision or action or approval of any
federal, state or local Governmental Authority with jurisdiction
over any Environmental Law.
"Governmental Authority" shall mean any government, any
arbitration panel, any court or any governmental department,
commission, board, bureau, agency or instrumentality of the
United States or any foreign or domestic state, province,
commonwealth, nation, territory, possession, country, parish,
town, township, village or municipality.
"Government Contract" shall mean any Contract with
respect to the Business between the Seller and (i) any United
States Governmental Authority, (ii) any prime contractor of any
United States Governmental Authority, or (iii) any subcontractor
with respect to any Contract described in clause (i) or (ii).
"Hazardous Material" shall mean any substance,
chemical, compound, product, solid, gas, liquid, waste, by-
product, pollutant, contaminant, or material which is hazardous
or toxic, and includes without limitation, asbestos or any
substance containing asbestos, polychlorinated biphenyls,
petroleum (including crude oil or any fraction thereof), and any
hazardous or toxic waste, material, or substance regulated as
such under any Environmental Law.
"Imo" shall mean Imo Industries Inc., a Delaware
corporation and the owner of all of the outstanding shares of
capital stock of the Seller.
"Indemnitee" shall have the meaning set forth in
Section 14.6 hereof.
"Indemnitor" shall have the meaning set forth in
Section 14.6 hereof.
"Initial Balance Sheet" shall mean the balance sheet of
the Business at March 31, 1996, attached as part of Exhibit A
hereto.
"Intellectual Property" shall mean all United States
and foreign (i) patents and patent applications (including
reissues, divisions, continuations-in-part and extensions
thereof), invention disclosures, inventions and improvements
thereto, (ii) trademarks, trade names, service marks, trade dress
and logos and registrations and applications for registration
thereof, (iii) copyrights and registrations thereof, (iv)
research, developments, processes, trade secrets, know-how,
formulae, compositions, designs, parts routings and
manufacturing, engineering and other technical information, (v)
computer software, data and documentation (in whatever form or
medium including electronic media), (vi) mask work and other
semiconductor chip rights and registrations thereof and (vii)
licenses of any of the foregoing and all rights to sue for, and
remedies against, past, present and future infringements thereof,
and rights of priority and protection of interests therein under
the Laws of any jurisdiction.
"Interest" shall have the meaning set forth in
Section 7.4 hereof.
"Interim Period" shall have the meaning set forth in
Section 3.3 hereof.
"Law" shall mean any federal, state, local or foreign
law (including common law), treaty, statute, code, ordinance,
rule, regulation or other requirement or guideline issued by a
Governmental Authority; provided, however, that Law shall not
include any Environmental Law.
"Leased Real Property" shall mean the real property
which is leased by the Seller and located at (i) 2800 W. Kingsley
Road, Garland, Texas 75046 and (ii) 2050 Forest Lane, Suite 220-
270, Garland, Texas 75042.
"Legal Proceeding" shall mean any judicial,
administrative or arbitral action, suit, proceeding (public or
private), claim or governmental proceeding.
"Liabilities" shall have the meaning set forth in
Section 2.3 hereof.
"Lien" shall mean any lien, pledge, mortgage, deed of
trust, security interest, claim, lease, charge, option, right of
first refusal, easement, or other real estate declaration,
covenant, condition, restriction or servitude, transfer
restriction under any shareholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Material Adverse Effect" shall mean any material
adverse effect on, or any effect that results in a material
adverse change in, the Purchased Assets as a whole or the
business, financial condition, results of operations or
liabilities of the Business as a whole.
"Material Contracts" shall have the meaning set forth
in Section 5.9 hereof.
"Negative Adjustment" shall have the meaning set forth
in Section 3.2(b) hereof.
"Novation Agreements" shall have the meaning set forth
in Section 13.2(b) hereof.
"Order" shall mean any order, injunction, judgment,
decree, ruling, writ, assessment or arbitration award.
"Pension Plan" shall mean the existing defined benefit
pension plan covering the Employees.
"Permit" shall mean any written approval,
authorization, consent, exemption, franchise, license, permit,
waiver, security clearance, certificate of occupancy or use,
exception or variance granted by or any registration with any
Person.
"Permitted Encumbrances" shall mean (i) as reflected on
the Financial Statements, with such changes in the amount thereof
as may have occurred in the normal and ordinary course of
business on or prior to the Closing Date; (ii) Liens for current
Taxes not yet due and delinquent, being contested in good faith
by appropriate proceedings or as to which adequate reserves have
been established by a Seller; (iii) statutory Liens of landlords
and Liens of carriers, warehousemen, mechanics, materialmen and
other similar Persons and other Liens incurred in the ordinary
course of business for sums not yet delinquent or being contested
in good faith, (iv) Liens relating to deposits made in the
ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social
security, (v) title to or any other interest in work-in-process
or other tangible personal property used or held for use in the
Business by any United States Governmental Authority under FAR
Sections 52.232-16, 52.245-2(c), 52.245-5(c), 52.245.17,
52.245.18 or any clause of similar import, (vi) the interest of
any United States Governmental Authority in technical data,
computer software, and patents under the clauses pertaining
thereto in any Government Contract relating to the Business,
(vii) the rights of the landlord in respect of the Leased Real
Property, (viii) Liens or other rights of Governmental
Authorities or other Persons in respect of property or assets
delivered to the Seller for repair, maintenance or other
improvements as described in Section 2.1(l) or (m), and (ix) such
other imperfections in title, charges, easements, restrictions,
and encumbrances that do not, individually or in the aggregate,
have a Material Adverse Effect.
"Person" shall mean any individual, corporation,
partnership, firm, joint venture, association, joint-stock
company, trust, unincorporated organization or Governmental
Authority.
"Positive Adjustment" shall have the meaning set forth
in Section 3.2(b) hereof.
"Preliminary Net Book Value" shall have the meaning set
forth in Section 3.2(b) hereof.
"Preliminary Purchase Price Adjustment" shall have the
meaning set forth in Section 3.2(b) hereof.
"Purchase Price" shall have the meaning set forth in
Section 3.1 hereof.
"Purchased Assets" shall have the meaning set forth in
Section 2.1 hereof.
"Purchaser" shall have the meaning set forth in the
preamble hereto.
"Purchaser Documents" shall have the meaning set forth
in Section 6.2 hereof.
"Purchaser Representatives" shall have the meaning set
forth in Section 7.2 hereof.
"Secured Receivables" shall have the meaning set forth
in Section 9.8(a) hereof.
"Security Agreement" shall have the meaning set forth
in Section 9.8(a) hereof.
"Seller" shall have the meaning set forth in the
preamble hereto.
"Seller Documents" shall have the meaning set forth in
Section 5.2 hereof.
"Seller Maintenance Assets" shall have the meaning set
forth in Section 2.1(m) hereof.
"Straddle Period" shall mean any taxable period
beginning prior to and ending after the Closing Date.
"Subcontract" shall have the meaning set forth in
Section 12.2 hereof.
"Subcontracted Contracts" shall have the meaning set
forth in Section 12.2 hereof.
"Subsidiary" shall mean, with respect to any Person, a
corporation, partnership or other entity in which such Person, a
Subsidiary of such Person or such Person and one or more
Subsidiaries of such Person, directly or indirectly, has or have
(i) a majority ownership in the equity thereof, (ii) the power,
under ordinary circumstances, to elect, or to direct the election
of, a majority of the board of directors or other governing body
of such entity, (iii) the title or function of general partner or
the right to designate the Person having such title or function
or (iv) control thereof.
"Taxes" shall mean all taxes, charges, fees, levies or
other similar assessments or liabilities (including, without
limitation, income, receipts, ad valorem, value added, excise,
property (whether real property or personal property), sales,
transfer, occupation, service, stamp, use, licensing,
withholding, employment or unemployment, payroll, share, capital,
surplus, profits, franchise, occupational, net worth or other
taxes) imposed by any tax authority, whether computed on a
separate, consolidated, unitary or combined basis or in any other
manner, and includes any interest, fines, penalties, assessments,
deficiencies or additions to tax.
"Third Party Assets" shall have the meaning set forth
in Section 2.1(l) hereof.
"Threshold Amount" shall have the meaning set forth in
Section 14.4 hereof.
"Transferred Employees" shall mean all Employees who
accept offers of employment from the Purchaser on or after the
Closing Date.
"United States Governmental Authority" shall mean any
government, any arbitration or mediation panel, any court or any
governmental department, commission, board, bureau, agency or
instrumentality of the United States or any domestic state,
territory, possession, county, parish, town, township, village or
municipality.
"Varo Trademark Rights" shall mean (a) the name "Varo"
and (b) the Varo logo.
"WARN Act" shall have the meaning set forth in
Section 9.1(c) hereof.
"Welfare Plan" shall have the meaning set forth in
Section 9.4 hereof.
"Working Capital" shall have the meaning set forth in
Section 7.3 hereof.
ARTICLE II
ASSETS TO BE ACQUIRED
2.1 Acquisition and Transfer of Assets. At the
Closing, upon the terms and subject to the conditions hereinafter
set forth, the Seller shall sell, assign, transfer, convey and
deliver to the Purchaser, and the Purchaser shall purchase,
acquire and accept from the Seller, all right, title and interest
of the Seller in and to the Business, including, without
limitation, in and to all of the assets, properties, rights,
Contracts and claims employed exclusively in the Business (except
as otherwise set forth in Section 2.2 hereof), wherever located,
whether tangible or intangible, and all goodwill appertaining
thereto, as the same shall exist as of the Closing. The assets,
properties, rights, Contracts and claims to be purchased pursuant
to this Agreement are hereinafter collectively referred to as the
"Purchased Assets." The Purchased Assets shall include, without
limitation, all right, title and interest of the Seller in and to
the assets, properties, rights, Contracts and claims described in
the following paragraphs (a) through (m) but in each case only to
the extent exclusively used in, held for exclusive use in, or
exclusively related to, the Business:
(a) all furnishings, furniture, office supplies,
vehicles, spare parts, tools, dies, machinery and equipment and
other tangible personal property (collectively, the "Equipment");
(b) all items of inventory, including, without
limitation, raw materials, work-in-progress, finished goods,
goods in transit, supplies, spare parts and samples;
(c) all accounts receivable and all notes receivable
(whether short-term or long-term) from third parties and all
deposits with third parties, together with any unpaid interest
accrued thereon from the respective obligors and any security or
collateral therefor, including recoverable deposits
(collectively, the "Accounts Receivable");
(d) all right, title and interest of the Seller in the
Leased Real Property, including all buildings located thereon,
any of the fixtures attached thereto and any Permits relating
thereto;
(e) except as set forth in Section 2.2(f) hereof, all
Intellectual Property, including the Varo Trademark Rights;
(f) all marketing brochures and materials and other
non-proprietary printed and written materials relating to the
Seller's ownership of or operation of the Business that the
Seller is not required by law to retain (of which the Seller may
retain duplicates), and duplicates of any such materials that the
Seller is required by law to retain;
(g) all rights under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers
and contractors in connection with the operation of the Business
or affecting the Equipment;
(h) all Permits listed on Schedule 2.1(h) hereto held
by the Seller and its Subsidiaries (to the extent permitted by
applicable law to be transferred);
(i) except as set forth in Section 2.2(k) and (h)
hereof, all Contracts relating to the Business including, without
limitation, those listed on Schedule 5.9 hereto;
(j) all deferred and prepaid charges, sums and fees,
other than in respect of Taxes and insurance premiums;
(k) except as set forth in Section 2.2(j) hereof, all
books, records, or other data relating to the Purchased Assets,
the Business, or the Leased Real Property;
(l) all Equipment, machinery, merchandise, parts,
components, raw materials and supplies delivered to the Seller by
any Person and which is in Seller's custody and control, for the
purposes of repair, service, maintenance, upgrade, retooling or
other improvement by Seller, and any deposits, Contracts,
documents, specifications, Intellectual Property or other rights
of Seller in connection therewith, all of the foregoing being
referred to collectively, hereafter, as the "Third Party Assets";
and
(m) any assets, inventory, Equipment, machinery,
components or other properties of the Seller that are related to
the Business and that have been delivered or transferred to any
other Person for the purposes of repair, maintenance, upgrade,
retooling or other improvement and any Contracts, documents,
specifications, Intellectual Property or other rights of Seller
in connection therewith, all of the foregoing being referred to
collectively, hereafter, as the "Seller Maintenance Assets."
The aforementioned Purchased Assets shall be sold,
assigned, transferred, conveyed and delivered to the Purchaser,
free and clear of all liabilities, indebtedness or Liens, of any
kind, character or description whatsoever, other than Permitted
Encumbrances, and such sale, assignment, transfer, conveyance and
delivery shall be royalty-free, irrevocable and for the exclusive
use of the Purchaser (except, in the case of Intellectual
Property, as set forth in Schedule 5.10 hereto).
2.2 Excluded Assets. Notwithstanding anything to the
contrary contained in Section 2.1 hereof, the Seller and the
Purchaser expressly understand and agree that the Seller is not
hereunder selling, assigning, transferring, conveying or
delivering to the Purchaser the following assets, properties,
rights, Contracts and claims (collectively, the "Excluded
Assets"):
(a) any issued and outstanding shares of capital stock
of the Seller or its Subsidiaries;
(b) the Charter, Bylaws, the corporate seal, minute
books, stock books or other similar records relating to the
corporate organization of the Seller;
(c) cash, bank accounts, certificates of deposit,
treasury bills, treasury notes and marketable securities;
(d) except as otherwise specifically provided herein,
pension or other funded employee benefit plan assets;
(e) any policy of insurance;
(f) any of the Seller's right, title or interest in or
to any item of Intellectual Property listed on Schedule 2.2(f)
hereto;
(g) all Accounts Receivable due and owing to the
Seller from Imo or any of its Affiliates;
(h) any Contracts set forth on Schedule 2.2(h) hereto
and all Contracts that relate solely to the Excluded Assets or
the Excluded Liabilities;
(i) all prepaid insurance premiums and prepaid Taxes
pertaining to the Business and all prepaid charges, sums and fees
pertaining to any of the Excluded Assets or the Excluded
Liabilities;
(j) any books, records or other data relating to the
Seller's ownership or operation of the Business (i) not located
on the premises of the Business, (ii) proprietary to Imo or the
Seller or (iii) required by applicable law to be retained by the
Seller;
(k) any of Seller's right, title and interest under
any Contracts or Permits that are not transferable without
consent (unless such consent has been obtained);
(l) any claims for refunds or rebates of any
previously paid taxes, levies or duties, including, without
limitation, customs duties;
(m) any rights and claims of the Seller (whether
contingent or absolute, matured or unmatured and whether in tort,
contract or otherwise) against any Person relating to the
Business but not relating to any of the Purchased Assets
(including, without limitation, any Liens, judgments, causes of
action and rights of recovery);
(n) the AIM-9 Claim;
(o) any assets employed exclusively in the Business
that are disposed of by the Seller in the usual and ordinary
course of Business prior to the Closing; and
(p) the other assets listed on Schedule 2.2(p) hereto.
2.3 Assumed Liabilities. At Closing, the Purchaser
shall assume and agree to pay, perform and discharge all debts,
claims, liabilities, obligations, damages and expenses
(collectively, the "Liabilities") of the Seller of every kind and
nature, whether known, unknown, contingent, absolute, determined,
undetermined or indeterminable on the Closing Date and whether
incurred or accruing prior to, on or after the Closing Date, to
the extent relating to or arising from the operation of the
Business including, without limitation, all Liabilities of the
Seller with respect to the Contracts being transferred to the
Purchaser hereunder and the Subcontracted Contracts (to the
extent that such Liabilities remain unsatisfied or are required
to be performed on or after the Closing Date), all Environmental
Liabilities resulting from the ownership, operation or use of the
Business or the Purchased Assets on or after the Closing Date,
and, to the extent set forth in Article IX hereof, all
Liabilities with respect to Transferred Employees and other
Employees to whom rights are granted pursuant to Section 9.1(a)
hereof (collectively, the "Assumed Liabilities"); provided,
however, that such Assumed Liabilities shall not include any
Liabilities to the extent that the same are covered by insurance
with respect to the Business, the Leased Real Property, the
Purchased Assets or the Excluded Assets under policies maintained
for the benefit of the Seller prior to the Closing Date pursuant
to which insurance proceeds are or have been paid on behalf of
the Seller; and provided, further, that the Seller hereby
covenants and agrees that it will not take any action or fail to
take any action from and after the date hereof up to and
including the Closing Date that would result in any cancellation
of, give rise to any default under or result in any breach of the
terms of any such insurance policies or otherwise cause any of
such policies not to remain in full force and effect through the
Closing Date.
2.4 Excluded Liabilities. Notwithstanding anything to
the contrary contained in Section 2.3 hereof, the Seller and the
Purchaser expressly understand and agree that the Purchaser shall
not assume or become liable for any of the following Liabilities
of the Seller (collectively, the "Excluded Liabilities"):
(a) Liabilities for Taxes to be borne by the Seller
pursuant to Article X;
(b) Liabilities arising out of any action or omission
by the Seller prior to the Closing Date in connection with the
performance of any Contract relating to the Business;
(c) (i) Environmental Liabilities resulting from the
ownership, operation or use of the Business, the Leased Real
Property, or the Purchased Assets or in connection with any
activity relating to any Hazardous Material prior to the Closing
Date under Environmental Laws in effect as of the Closing Date
and (ii) Environmental Liabilities resulting from the ownership,
operation or use of the Excluded Assets; and
(d) any other Liability of the Seller described in
Schedule 2.4(d) hereto.
2.5 Cancellation of Permits, Bonds and Guarantees.
(a) Following the Closing, to the extent permitted by
law, the Seller shall have the right to cancel any Permit or any
bond, guarantee or undertaking by the Seller applicable to the
Business or the Purchased Assets to the extent such is not
assigned or transferred to the Purchaser pursuant to Section 2.1
hereof. The failure of the Seller to cancel any Permit, bond,
guarantee or undertaking shall not affect the respective rights,
obligations, liabilities and indemnification of the Seller and
the Purchaser under this Agreement.
(b) The Purchaser shall assume, or promptly reimburse
the Seller for, all costs associated with the assignment or
transfer of all Permits related to the Business and the costs of
all bonds related to the Business which, in either case, cannot
be canceled for as long as they remain outstanding.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price and Payment. The aggregate
purchase price to be paid by the Purchaser to the Seller for the
Purchased Assets and the Assumed Liabilities shall be $11,000,000
(the "Purchase Price"), subject to adjustment as provided in
Section 3.2 hereof. Payment of the Purchase Price shall be in
United States dollars and shall be made no later than 11:30 a.m.
(New York City time) on the Closing Date by wire transfer of
immediately available funds to the account or accounts designated
by the Seller.
3.2 Purchase Price Adjustment.
(a) On the Closing Date, the Seller shall deliver to
the Purchaser a balance sheet for the Business as of the last day
of the month immediately preceding the Closing Date (the "Closing
Balance Sheet"), which shall include a computation of the
Preliminary Purchase Price Adjustment (as hereinafter defined)
for the Business as of the last day of the month immediately
preceding the Closing Date. The Closing Balance Sheet shall be
prepared by the Seller on a basis consistent with the Initial
Balance Sheet.
(b) The "Preliminary Purchase Price Adjustment" for
the Business shall be the amount (if any) by which the Closing
Net Book Value is greater than $13,000,000 ("Positive
Adjustment") or less than $12,000,000 ("Negative Adjustment").
As used herein, "Closing Net Book Value" shall mean the total net
book value of the Purchased Assets less the total of the Assumed
Liabilities, as reflected on the Closing Balance Sheet.
(c) The Purchaser shall have a period of 30 days to
review the Closing Balance Sheet and the calculation of the
Preliminary Purchase Price Adjustment following the Closing.
During such period, the Seller shall afford the Purchaser and its
accountants access to any of its books, records and work papers
necessary to enable the Purchaser and its accountants to review
the Closing Balance Sheet and the calculation of the Preliminary
Purchase Price Adjustment. The Purchaser may dispute any amounts
reflected in the Preliminary Purchase Price Adjustment by giving
notice in writing to the Seller specifying each of the disputed
items and setting forth in reasonable detail the basis for such
dispute; provided, however, that the Purchaser may only dispute
the calculation of the Preliminary Purchase Price Adjustment to
the extent that the aggregate of all items in dispute would
increase any Positive Adjustment or Negative Adjustment by more
than $50,000. Failure by the Purchaser to dispute the amounts
reflected in the Preliminary Purchase Price Adjustment within 30
days of delivery of the Closing Balance Sheet by the Seller shall
be deemed an acquiescence therein by the Purchaser. If within 30
days after delivery by the Purchaser to the Seller of any notice
of dispute, the Purchaser and the Seller are unable to resolve
all of such disputed items, then any remaining items in dispute
shall be submitted to Ernst & Young LLP (the "Arbitrator"). The
Arbitrator shall determine the remaining disputed items and
report to the Seller and the Purchaser upon such items. The
Arbitrator's decision shall be final, conclusive and binding on
all parties. The fees and disbursements of the Arbitrator shall
be borne equally by the Purchaser and the Seller. The
Preliminary Purchase Price Adjustment, if undisputed or deemed
undisputed or as revised in accordance with the procedure
outlined above, shall be the "Final Purchase Price Adjustment."
(d) If the Final Purchase Price Adjustment is a
Positive Adjustment then the Purchase Price shall be increased by
the amount of the Final Purchase Price Adjustment and the
Purchaser shall promptly pay to the Seller an amount in cash
equal to such Final Purchase Price Adjustment, with interest from
the Closing Date computed at the prime rate announced from time
to time by Citibank N.A., as in effect from time to time.
(e) If the Final Purchase Price Adjustment is a
Negative Adjustment then the Purchase Price shall be decreased by
the amount of the Final Purchase Price Adjustment and the Seller
shall promptly pay to the Buyer an amount in cash equal to such
Final Purchase Price Adjustment, with interest from the Closing
Date computed at the prime rate announced from time to time by
Citibank N.A., as in effect from time to time.
3.3 Interim Period Cash Adjustment. For the period
from the date of the Closing Balance Sheet until the Closing Date
(the "Interim Period"), the Seller shall maintain a current
register of all Cash Transactions of the Business, as adjusted
for Excluded Assets and Excluded Liabilities in accordance with
Sections 2.2 and 2.4 hereof. At the Closing, Seller shall
provide a copy of the register of Cash Transactions, together
with a report summarizing all cash activity of the Business for
the Interim Period, as adjusted for Excluded Assets and Excluded
Liabilities in accordance with Sections 2.2 and 2.4 hereof.
Based upon the report, (i) if the cash receipts exceed cash
expenditures during the Interim Period, the Seller shall pay the
Purchaser the difference at the Closing; and (ii) if the cash
expenditures exceed the cash receipts during the Interim Period,
the Purchaser shall pay the Seller the difference at the Closing.
3.4 Allocation of Purchase Price. The Purchaser and
the Seller shall negotiate in good faith to reach an agreement,
as soon as practicable following the Closing Date, as to the
proper allocation of the Purchase Price among the Purchased
Assets. The parties further agree to file all tax returns and
reports (including IRS Form 8594) in a manner consistent with
such agreed allocation.
ARTICLE IV
THE CLOSING
4.1 Closing Date. The Closing shall take place at the
offices of Baker & Botts, L.L.P., 2001 Ross Avenue, Dallas, Texas
at 9:00 a.m., on the fifth business day after the conditions set
forth in Articles XI and XII hereof have been satisfied, or at
such other place and at such other time and date as may be
mutually agreed upon by the Purchaser and the Seller.
4.2 Proceedings at the Closing. All proceedings to be
taken and all documents to be executed and delivered by the
Seller in connection with the consummation of the transactions
contemplated hereby shall be reasonably satisfactory in form and
substance to the Purchaser and its counsel. All proceedings to
be taken and all documents to be executed and delivered by the
Purchaser in connection with the consummation of the transactions
contemplated hereby shall be reasonably satisfactory in form and
substance to the Seller and its counsel. All proceedings to be
taken and all documents to be executed and delivered by all
parties at the Closing shall be deemed to have been taken,
executed and delivered simultaneously, and no proceedings shall
be deemed to have been taken nor any documents executed or
delivered until all have been taken, executed and delivered.
4.3 Deliveries by the Seller to the Purchaser. At the
Closing, the Seller shall deliver, or shall cause to be
delivered, to the Purchaser the following:
(a) a duly executed bill of sale and assignment,
substantially in the form of Exhibit B;
(b) duly executed instruments of assignment of the
Intellectual Property included in the Purchased Assets;
(c) such other (i) duly executed bills of sale,
general conveyances, endorsements, assignments and other good and
sufficient documents and instruments of sale, assignment,
transfer and conveyance and (ii) releases, termination statements
and other documents and instruments as are sufficient to
eliminate and extinguish all Liens (other than Permitted
Encumbrances) on any of the Purchased Assets, in each case as the
Purchaser may reasonably request in order more effectively to
vest in the Purchaser all right, title and interest in and to the
Purchased Assets free and clear of all Liens (other than
Permitted Encumbrances);
(d) the certificate referred to in Section 11.1(c)
hereof signed by a duly authorized officer of the Seller;
(e) the opinion of counsel for the Seller referred to
in Section 11.3 hereof;
(f) the Closing Balance Sheet;
(g) the register of Cash Transactions and report
referred to in Section 3.3 hereof;
(h) a receipt for the Purchase Price;
(i) the duly executed Subcontract referred to in
Sections 12.2 and 13.2(c) hereof;
(j) the duly executed Security Agreement referred to
in Section 9.8(a) hereof;
(k) duly executed UCC-1 financing statements with
respect to the Secured Receivables;
(l) termination statements on Form UCC-3 (or any other
required form) with respect to any security interest of Citicorp
in any of the Purchased Assets; and
(m) revised Schedules to this Agreement to provide
information current as of the Closing Date (or the latest
practicable date prior thereto) with respect to the matters set
forth therein.
4.4 Deliveries by the Purchaser to the Seller. At the
Closing, the Purchaser shall deliver, or shall cause to be
delivered, to the Seller the following:
(a) a duly executed Undertaking and Assumption,
substantially in the form of Exhibit C.
(b) immediately available funds in the amount of the
Purchase Price, by wire transfer as provided in Section 3.1
hereof;
(c) the certificate referred to in Section 12.1(c)
hereof signed by a duly authorized officer of the Purchaser;
(d) the duly executed Subcontract referred to in
Sections 12.2 and 13.2(c) hereof;
(e) the duly executed Security Agreement referred to
in Section 9.8(a) hereof;
(f) the opinion of counsel for the Purchaser referred
to in Section 12.4 hereof; and
(g) a written release executed by the Purchaser
whereby the Purchaser discharges and releases Imo from all
current or future liability, claim or other obligation arising
under this Agreement or the transactions contemplated hereby or
out of the operation of the Business by the Purchaser or
otherwise.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the
Purchaser as follows:
5.1 Organization and Good Standing. The Seller is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Texas and has all requisite
corporate power and authority to carry on its business as
presently conducted by it. The Seller is duly licensed,
qualified and authorized to do business and is in good standing
in the states set forth on Schedule 5.1 hereto, which are the
only jurisdictions where the Seller is required to be so
qualified or licensed. Copies of the Seller's Charter and By-
laws, as amended to the date of this Agreement, have been
delivered to the Purchaser and are correct and complete as of
such date.
5.2 Corporate Authority; No Violation. The Seller has
the corporate power and authority to execute and deliver this
Agreement and each other agreement, document, instrument or
certificate to be executed by the Seller in connection with the
consummation of the transactions contemplated by this Agreement
(all such other agreements, documents, instruments and
certificates required to be executed by the Seller being
hereinafter referred to collectively as the "Seller Documents"),
and to perform fully its obligations hereunder and thereunder.
The execution, delivery and performance by the Seller of this
Agreement and each of the Seller Documents have been duly
authorized by all requisite corporate action on the part of the
Seller. This Agreement has been, and each of the Seller
Documents will be at or prior to the Closing, duly executed and
delivered by the Seller, and (assuming the due authorization,
execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and each of the Seller Documents when
so executed and delivered will constitute, a legal, valid and
binding obligation of the Seller, enforceable against the Seller
in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in
equity). Except as set forth on Schedule 5.2 hereto, none of the
execution and delivery by the Seller of this Agreement or the
Seller Documents, the consummation of the transactions
contemplated hereby or thereby, or compliance by the Seller with
any of the provisions hereof or thereof will (i) conflict with,
or result in the breach of, any provision of the Charter or
Bylaws of the Seller, (ii) conflict with, violate, result in the
breach or termination of, or constitute a default under, any
Material Contract or Order relating to the Business to which the
Seller is a party or by which it or any of the Purchased Assets
is bound or subject, (iii) constitute a violation of any Law
applicable to the Seller or (iv) result in the creation of any
Lien (other than any Lien in favor of the Purchaser) upon any of
the Purchased Assets, except, in each case, for conflicts,
breaches, violations, terminations, defaults or Liens that,
individually or in the aggregate, would not materially hinder or
impair the transactions contemplated hereby or have a Material
Adverse Effect.
5.3 Title to Assets Other than Leased Real Property
and Intellectual Property.
(a) The Seller (i) owns and has good and valid title
to or, (ii) in the case of leased properties, has a valid
leasehold interest in, or (iii) in the case of the Third Party
Assets set forth on Schedule 5.3(a)(iii) has custody and control
over (for the purpose of performing repairs, service,
maintenance, upgrading, retooling or other improvements thereto):
all of the Purchased Assets (other than the Leased Real Property
and the Intellectual Property), including all of such Purchased
Assets reflected on the Financial Statements, except Purchased
Assets disposed of in the ordinary course of business after June
30, 1996. The Seller holds title to all of the Purchased Assets
(other than the Third Party Assets, the Leased Real Property and
the Intellectual Property listed on Schedule 2.2(f)) free and
clear of all Liens other than Liens set forth on Schedule
5.3(a)(iv) hereto (which will be extinguished as of the Closing)
and Permitted Encumbrances.
(b) Notwithstanding the fact that on the Closing Date
the Seller may not have physical possession and control of the
Seller Maintenance Assets, the Seller owns and has good and valid
title to all of the Seller Maintenance Assets set forth on
Schedule 5.3(b) (except for Seller Maintenance Assets disposed of
in the ordinary course of business since August 31, 1996), free
and clear of all Liens other than Permitted Encumbrances.
5.4 Title to Leased Real Property. The Seller has a
valid leasehold interest in the Leased Real Property free and
clear of all Liens other than Permitted Encumbrances. A complete
and correct copy of each lease currently in effect with respect
to the Leased Real Property has been furnished to the Purchaser.
5.5 Consents. No consent, waiver, approval, or
authorization of, declaration or filing with, or notification to,
any Person is required on the part of the Seller in connection
with the execution and delivery by the Seller of this Agreement
or the Seller Documents, or the compliance by the Seller with any
of the provisions hereof or thereof, except (i) as set forth on
Schedule 5.5 hereto, (ii) the novation of the Government
Contracts pursuant to Sections 13.2 and 13.3 hereof, and (iii
consents, waivers, approvals or authorizations with respect to
any Contract involving the payment to or from the Seller or one
of its Subsidiaries of amounts not in excess of $250,000 per year
or a term not in excess of one year.
5.6 Permits. The Seller has, and on the Closing Date
will have, all environmental, land use and any other Permits or
governmental authorizations necessary for the conduct of the
Business, the ownership of the Purchased Assets or the use of the
Leased Real Property and any operations or activities currently
conducted thereon. A list of all such Permits is set forth on
Schedule 5.6 hereto.
5.7 Financial Statements. The balance sheet and the
statement of income of the Business as of, and for the six months
ended, June 30, 1996, are attached hereto as Schedule 5.7
(collectively, the "Financial Statements"). The Financial
Statements have been prepared in a manner consistent with past
practices and present fairly the financial position and results
of operations of the Business at the date and for the period
indicated (except as set forth in Schedule 5.7).
5.8 Absence of Certain Developments. Except as set
forth on Schedule 5.8 hereto or as disclosed in another Schedule
to this Agreement or in a document referred to in any such
Schedule, since June 30, 1996, the Seller has operated the
Business in the ordinary course consistent with past practice and
there has been no Material Adverse Effect.
5.9 Material Contracts. Schedule 5.9 hereto contains
a true and complete list (as of August 31, 1996) of each written
Contract (other than purchase orders in the ordinary course of
business) included in the Purchased Assets or related to the
Business to which the Seller or one of its Subsidiaries is a
party, involving the payment to or from the Seller or one of its
Subsidiaries of amounts in excess of $250,000 per year and a term
in excess of one year (collectively, the "Material Contracts").
Except as disclosed in Schedule 5.9 hereto, to the best of the
Seller's knowledge, it is not in default under any of the
Material Contracts.
5.10 Intellectual Property. Schedule 5.10 hereto sets
forth a list of the registered patents and trademarks
constituting Intellectual Property that are included in the
Purchased Assets. Except as set forth on Schedule 5.10 hereto,
each item of Intellectual Property listed on such Schedule as
being owned by the Seller or its Subsidiaries or otherwise
included in the Purchased Assets is, to the best of the Seller's
knowledge, owned by the Seller or such Subsidiaries free and
clear of any and all Liens (other than Permitted Encumbrances)
and, to the best of the Seller's knowledge, no other Person has
any claim of ownership with respect thereto. Except as set forth
on Schedule 5.10 hereto, the Seller has, to the best of the
Seller's knowledge, adequate licenses or other valid rights to
use each item of Intellectual Property included in the Purchased
Assets which it does not own and which is material to the conduct
of the Business as presently conducted. To the best of the
Seller's knowledge, the Seller's use of the foregoing
Intellectual Property does not conflict with, infringe upon,
violate or interfere with any Intellectual Property or rights
therein of any other Person.
5.11 Taxes.
(a) To the best of the Seller's knowledge, the Seller
has (i) timely filed all material returns and reports relating to
Taxes that are required to be filed on or before the Closing Date
by the Seller and (ii) paid all Taxes that are shown to be due
and payable on such returns.
(b) There are no Liens for Taxes upon the Purchased
Assets or the Business (except for Taxes not yet due and
payable).
(c) Except as set forth on Schedule 5.11(c) hereof, to
the best of the Seller's knowledge, there are no pending or
threatened disputes with any tax authority concerning Taxes of
the Seller relating to the Business or the Purchased Assets.
(d) The Seller is not a party to any written consent
with any tax authority to extend the period for assessment or
collection of any Taxes, or, except as set forth on Schedule
5.11(d) hereof, to any written agreement with any tax authority
concerning liability for Taxes, which relate to the Purchased
Assets or the Business.
(e) The Seller is not a party to any written tax
sharing or tax benefit agreement which relates to Taxes with
respect to the Purchased Assets or the Business.
(f) The Seller is not a foreign Person within the
meaning of Section 1445(b)(2) of the Code.
(g) The Seller has properly withheld from the
salaries, wages and other compensation paid to its officers and
employees, and has paid to the appropriate federal, state or
local taxing authorities all amounts required to be withheld
therefrom, under applicable laws, rules or regulations.
5.12 Employee Benefits.
(a) Schedule 5.12(a) hereto lists each "employee
benefit plan," as defined in Section 3(3) of ERISA, of the Seller
that is currently in effect covering any Employee or former
Employee of the Business (an "Employee Benefit Plan").
(b) Schedule 5.12(b) hereto lists each employment or
severance Contract, each plan or arrangement providing for
insurance coverage, severance, termination or similar coverage
and all written compensation policies and practices maintained by
the Seller covering any Employee or former Employee of the
Business and that is not an Employee Benefit Plan (a "Benefit
Arrangement"). A copy of each Benefit Arrangement has been
provided by the Seller to the Purchaser.
(c) Schedule 5.12(c) hereto lists (as of August 31,
1996) the name and title of each of the Employees.
(d) Neither the Seller nor any entity required to be
aggregated therewith pursuant to section 414(b) or (c) of the
Code has incurred or could reasonably be expected to incur any
material liability under (i) Title IV of ERISA (other than for
retirement benefits or Pension Benefit Guaranty Corporation
insurance premiums, in either or both cases payable in the
ordinary course) or (ii) section 401(a)(29), 412(f) or 412(n) of
the Code.
5.13 Litigation; Compliance With Law. Except as set
forth on Schedule 5.13 hereto, there is no Legal Proceeding or
Environmental Claim pending or, to the best of the Seller's
knowledge, threatened (i) against the Seller in connection with
the operation of the Business or the use of the Leased Real
Property that is not covered by insurance and if determined
adversely would have a Material Adverse Effect or result in
Damages in excess of $50,000, with respect to any such Legal
Proceeding or Environmental Claim, or $500,000, with respect to
all such Legal Proceedings and Environmental Claims in the
aggregate; (ii) that seeks to enjoin, or obtain Damages in
respect of, the consummation of the transactions contemplated
hereby; (iii) that questions the validity of this Agreement, any
of the Seller Documents or any action taken or to be taken by the
Seller in connection with the consummation of the transactions
contemplated hereby or thereby or (iv) that alleges any
noncompliance by the Seller with any Law of the United States or
Order of a United States Governmental Authority other than Legal
Proceedings or Environmental Claims that are immaterial in nature
or that would not, in the aggregate, have a Material Adverse
Effect. There are no material Orders, penalties or fines issued
by any Governmental Authority against any of the Purchased Assets
or the Business or the Leased Real Property.
5.14 Receivables. All of the Accounts Receivable
reflected on the Initial Balance Sheet are valid claims and arose
from bona fide transactions in the ordinary course of business
consistent with past practice.
5.15 Inventory. All finished goods contained in the
inventory of the Business reflected on the Initial Balance Sheet
are of a quality saleable in the ordinary course of Business at
prevailing market conditions, subject to applicable reserves
recorded in the Initial Balance Sheet.
5.16 Assets Necessary to Conduct the Business. Except
as set forth on Schedule 5.16 hereto, the Purchased Assets
comprise all of the assets necessary to operate the Business as
presently operated in all material respects.
5.17 Work in Process. All work in process and
materials comprising part of the Purchased Assets are, in all
material respects, of a quality consistent with the production of
the intended final end product.
5.18 Environmental Matters. Except as otherwise
disclosed on Schedule 5.18:
(a) The Business, the Leased Real Property and the
Purchased Assets currently are in compliance in all material
respects with all applicable Environmental Laws;
(b) The Business has obtained all material Permits of
any Governmental Authority that currently are required under any
applicable Environmental Law;
(c) The Seller has not received written notice from
any Person of any unresolved violation or pending or threatened
Legal Proceeding or any Environmental Claim relating to the
Business, the Leased Real Property or the Purchased Assets under
any applicable Environmental Law;
(d) The Seller has not received written notice from
any Person of any removal, remediation or cleanup obligation
under any applicable Environmental Law with respect to any of the
Purchased Assets, the Business or the Leased Real Property;
(e) None of the operations of the Business is
conducted on property that is located on the National Priorities
List of the United States Environmental Protection Agency, the
Comprehensive Environmental Response Compensation and Liability
and Information System, the Resource Conservation and Recovery
Information System or any similar list maintained by any state
environmental agency;
(f) The Seller has not filed or otherwise provided any
notice under any federal, state or local law indicating past or
present treatment, storage or disposal of Hazardous Materials
that would require a treatment, storage or disposal permit under
RCRA or a similar state Environmental Law;
(g) The Business does not own or operate any
underground storage tanks and there are no such tanks present at
the Leased Real Property; and
(h) The Seller has not generated, stored, transported,
treated, disposed of or arranged for the disposal of any
Hazardous Material in violation of any Environmental Law.
Other than the representations set forth in this
Section 5.18, the Seller does not make any representation or
warranty about the Seller's compliance with or obligations or
liabilities under any Environmental Law.
5.19 Brokers. Other than CS First Boston, no Person
has acted, directly or indirectly, as a broker, finder or
financial advisor for the Seller in connection with the
negotiations relating to or the transactions contemplated by this
Agreement and no Person other than CS First Boston is entitled to
any fee, commission or like payment in respect thereof based in
any way on any Contract made by or on behalf of the Seller. The
Seller acknowledges that it is responsible for the payment of the
fees of CS First Boston in connection with the transactions
contemplated by this Agreement.
5.20 Insurance Coverage. All of the insurance covering
the Business, the Purchased Assets, the Excluded Assets and the
Leased Real Property has been obtained by Imo and there are no
insurance policies relating exclusively to the Business. All
insurance policies maintained by Imo which include coverage for
the Purchased Assets, the Business, the Excluded Assets and the
Leased Real Property cover such damage, loss, liabilities, claims
and risks, and are in such amounts, as is customary in the
industry in which the Business operates and such amounts for
property damage are (subject to the deductibles contained in such
policies) at least equal to the fair market value of the insured
property. A list of all such policies is set forth in Schedule
5.20. All of such insurance policies are and will be in full
force and effect in accordance with their terms at all times up
to and including the Closing Date, no notice of cancellation has
been received, and there is no existing default or event which,
with the giving of notice or lapse of time or both, would
constitute a default thereunder.
5.21 Labor Matters.
(a) There are no collective bargaining agreements in
effect for any of Seller's employees;
(b) There are no pending or, to the Seller's
knowledge, threatened actions or proceedings to obtain
recognition of any collective bargaining unit on behalf of
Seller's employees; and
(c) There are no pending or, to the Seller's
knowledge, no threatened enforcement actions against the Seller
before the National Labor Relations Board or any state labor
enforcement agency.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the
Seller that:
6.1 Organization and Good Standing. The Purchaser is
a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all
requisite power and authority to carry on its business as
presently conducted by it.
6.2 Authority; No Violation. The Purchaser has full
power and authority to execute and deliver this Agreement and
each other agreement, document, instrument or certificate to be
executed by the Purchaser in connection with the consummation of
the transactions contemplated by this Agreement (all such other
agreements, documents, instruments and certificates required to
be executed by the Purchaser being hereinafter referred to
collectively as the "Purchaser Documents") and to perform fully
its obligations hereunder and thereunder. The execution,
delivery and performance by the Purchaser of this Agreement and
each Purchaser Document has been duly authorized by all requisite
action on the part of the Purchaser. This Agreement has been,
and each of the Purchaser Documents will be at or prior to the
Closing, duly executed and delivered by the Purchaser and
(assuming the due authorization, execution and delivery by the
other parties hereto and thereto) this Agreement constitutes, and
each of the Purchaser Documents when so executed and delivered
will constitute, a legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with
its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability,
to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). None
of the execution and delivery by the Purchaser of this Agreement
or the Purchaser Documents, the consummation of the transactions
contemplated hereby or thereby, or compliance by the Purchaser
with any of the provisions hereof or thereof, will (i) conflict
with, or result in the breach of, any provision of the Charter or
Bylaws of the Purchaser, (ii) conflict with, violate, result in
the breach or termination of, or constitute a default under any
Contract or Order to which the Purchaser is a party or by which
it or any of its properties or assets is bound or subject, or
(iii) constitute a violation of any law applicable to the
Purchaser, except, in each case, for such conflicts, breaches,
violations, terminations or defaults that, individually or in the
aggregate, would not materially hinder or impair the transactions
contemplated hereby.
6.3 Consents. No consent, waiver, approval, Order,
Permit or authorization of, declaration or filing with, or
notification to, any Person or Governmental Authority is required
on the part of the Purchaser in connection with the execution and
delivery of this Agreement or the Purchaser Documents or the
compliance by the Purchaser with any of the provisions hereof or
thereof.
6.4 Availability of Funds. The Purchaser has
available, or will obtain prior to the Closing Date, sufficient
funds to enable it to consummate the transactions contemplated by
this Agreement. On the date hereof, the Purchaser has furnished
to the Seller true and correct copies of the balance sheets and
income statements of the Purchaser and its Affiliates as of, and
for the year ended December 31, 1995. As soon as possible after
the date hereof, and in any event no later than September 30,
1996, the Purchaser shall deliver to the Seller true and correct
copies of the balance sheets and income statements for the
Purchaser and its Affiliates as of, and for the six months ended,
June 30, 1996.
6.5 Litigation. There is no Legal Proceeding pending
or, to the best of the Purchaser's knowledge, threatened, that
seeks to enjoin, or obtain damages in respect of, the
consummation of the transactions contemplated by this Agreement
or that questions the validity of this Agreement, the Purchaser
Documents or any action taken or to be taken by the Purchaser in
connection with the consummation of the transactions contemplated
hereby or thereby.
6.6 Brokers. No Person has acted, directly or
indirectly, as a broker, finder or financial advisor for the
Purchaser in connection with the negotiations relating to or the
transactions contemplated by this Agreement and no Person is
entitled to any fee or commission or like payment in respect
thereof based in any way on any Contract made by or on behalf of
the Purchaser.
ARTICLE VII
COVENANTS OF THE SELLER
From and after the date hereof and until the Closing,
the Seller hereby covenants and agrees with the Purchaser that:
7.1 Cooperation. The Seller shall use its best
efforts to take, or cause to be taken, all actions necessary or
advisable in order for it to fulfill its obligations hereunder
and to cause the consummation of the transactions contemplated
hereby in accordance with the terms and conditions hereof.
7.2 Access to Documents; Opportunity to Ask Questions.
The Seller shall provide the Purchaser with such information as
the Purchaser from time to time may reasonably request with
respect to the Business, and shall permit the Purchaser and any
of its directors, officers, employees, counsel, representatives,
accountants and auditors (collectively, the "Purchaser
Representatives") reasonable access, during normal business hours
and upon reasonable prior notice, to the properties, corporate
records and books of accounts of the Business, as the Purchaser
from time to time may reasonably request; provided, however, that
the Seller shall not be obligated to provide the Purchaser with
any information the provision of which may be prohibited by law
or contractual obligation. Without limiting the foregoing, the
Purchaser shall have the right to conduct, at its own expense, a
Phase I environmental assessment (provided, however, that,
without the prior written approval of the Seller, the assessment
shall not involve the collection or analysis of any samples) and
the Seller shall provide the Purchaser reasonable access to the
Seller's insurance manager or broker for the purposes of
reviewing the Seller's current insurance policies relating to the
Business and determining the insurance needs of the Business from
and after the Closing. No disclosure by the Seller whatsoever
during any investigation by the Purchaser shall constitute an
enlargement of or additional warranty or representation of the
Seller beyond those expressly set forth in this Agreement. All
information and access obtained by the Purchaser in connection
with the transactions contemplated by this Agreement shall be
subject to the terms and conditions of the letter agreement
relating to confidentiality, dated as of November 10, 1995,
between Imo and Technical Systems Incorporated (the
"Confidentiality Agreement").
7.3 Conduct of Business.
(a) Except as otherwise may be contemplated by this
Agreement, required by any of the documents listed in the
Schedules hereto or as the Purchaser otherwise may consent to in
writing (which consent shall not be unreasonably withheld), the
Seller shall cause the Business to be operated in the ordinary
course consistent with past practice and shall use its best
efforts consistent with past practice to (i) preserve the present
business operations, organization and goodwill of the Business,
(ii) keep available the services of the present employees of the
Business, (iii) preserve the present relationships with Persons
having business dealing(s) with the Business, (iv) maintain all
of the assets and properties of the Business in their current
condition, normal wear and tear excepted, (v) maintain insurance
in such amounts and of such kinds as is comparable to that in
effect on the date hereof (with insurers of substantially the
same or better financial condition) and (vi) without the prior
written consent of the Purchaser, shall not allow the value of
the net inventory to exceed $12,000,000 or allow the Working
Capital of the Business to be less than $5,500,000. For purposes
of this section Working Capital shall mean the current assets of
the Business less current liabilities of the Business, as
adjusted for excluded assets and liabilities in accordance with
Sections 2.2 and 2.4 hereof.
(b) Except as otherwise may be contemplated by this
Agreement, required by any of the documents listed in the
Schedules hereto or as the Purchaser otherwise may consent to in
writing (which consent shall not be unreasonably withheld), the
Seller shall not do any of the following:
(i) (A) increase the rate of compensation payable
or to become payable to any of the employees or agents
of the Business other than in the ordinary course of
business, (B) amend in any material respect any bonus,
stock option, stock purchase, profit-sharing, deferred
compensation, pension, retirement or other similar plan
or arrangement to or in respect of any such employee or
agent, other than in the ordinary course of business
and as may be required to maintain compliance with
ERISA and/or the Code or (C) enter into any new, or
amend in any material respect any existing, employment,
severance or consulting agreement, sales agency or
other Contract with respect to the performance of
personal services for the Business, other than in the
ordinary course of business and as may be required to
maintain compliance with ERISA and/or the Code;
(ii) (A) incur or become subject to, or agree
to incur or become subject to, any material obligation
or liability (contingent or otherwise) relating to the
Business, except (x) normal trade or business
obligations (including Contracts) incurred in the
ordinary course of business and consistent with past
practice and (y) obligations under Contracts listed on
any Schedule to this Agreement, (B) sell, assign,
transfer, convey, lease or otherwise dispose of any of
the Purchased Assets, other than (x) sales of inventory
of the Business in the ordinary course of business and
(y) transactions not exceeding $100,000 in the
aggregate, (C) cancel or compromise any material debt
or claim or waive or release any material right
relating to the Business or the Purchased Assets,
except for adjustments or settlements made in the
ordinary course of business consistent with past
practice or (D) acquire any material assets relating to
the Business other than in the ordinary course of
business consistent with past practice.
7.4 Consents and Conditions. As soon as practicable
following the satisfaction or waiver of the condition set forth
in Section 11.6 hereof, the Seller shall use its best efforts to
obtain all approvals, consents or waivers from all Persons
necessary to assign to the Purchaser all of the Seller's interest
in the Purchased Assets or any claim, right or benefit arising
thereunder or resulting therefrom (each, an "Interest");
provided, however, that in no event shall the Seller be obligated
to pay any consideration therefor to the third party from whom
such approval, consent or waiver is requested or release any
right, benefit or claim in order to obtain such approval, consent
or waiver.
7.5 Confidentiality. The Seller and its Affiliates
will hold and keep strictly confidential (and will not disclose
to any Person or use):
(a) any information, documents or materials provided
to the Seller or any of its Affiliates or any of their
representatives by or on behalf of the Purchaser or any of its
Affiliates in connection with the transactions contemplated
hereby; and
(b) after the Closing, any information regarding the
Purchased Assets, the Assumed Liabilities or the Business;
provided that this Section 7.5 shall not apply to the following:
(i) information which is publicly available at the time of
disclosure (through no act of the Seller or any of its
Affiliates), (ii) information which is disclosed to the Seller or
an Affiliate of the Seller by a third party which did not
disclose it in violation of a duty of confidentiality, (iii) use
of information to perform the Seller's obligations hereunder,
(iv) use of information in pursuit of the AIM-9 Claim or (v)
disclosures which are required to be made by the Seller or any of
its Affiliates under legal process by subpoena or other court
order or other applicable laws or regulations, or which are
requested by the Purchaser or any of its Affiliates. As used in
this Section 3.4, "Affiliates" includes Affiliates as of the date
hereof and future Affiliates.
7.6 Non-Solicitation. From the Closing Date and for a
period of two years thereafter, the Seller agrees that neither
the Seller nor any of its current or future Affiliates will (for
their own account or for the account of any other Person) solicit
any then current employees of the Business or any then current
employees of the Purchaser or of its then Affiliates or otherwise
induce (or attempt to cause) any such employee to leave such
employment. Without limiting the rights of the Purchaser to
pursue any remedies, the parties agree that damages are not an
adequate remedy for a breach of this Section 7.6 and that the
obligations of the Seller may be specifically enforced.
ARTICLE VIII
COVENANTS OF THE PURCHASER
From and after the date hereof, and until the Closing
Date, the Purchaser hereby covenants and agrees with the Seller
that:
8.1 Cooperation. The Purchaser shall use its best
efforts to take, or cause to be taken, all actions necessary or
advisable in order for it to fulfill its obligations hereunder
and to cause the consummation of the transactions contemplated
hereby in accordance with the terms and conditions hereof.
8.2 Confidentiality. The Purchaser shall comply with
the terms of the Confidentiality Agreement.
8.3 Consents and Conditions. The Purchaser shall use
its best efforts to obtain all approvals, consents or waivers
from all Persons necessary to assign to the Purchaser all of the
Seller's interest in the Purchased Assets or any claim, right or
benefit arising thereunder or resulting therefrom as soon as
practicable; provided, however, that in no event shall the
Purchaser be obligated to pay any consideration therefor to the
third party from whom such approval, consent or waiver is
requested or release any right, benefit or claim in order to
obtain such approval, consent or waiver.
8.4 Permits, Bonds and Guarantees. As of the Closing,
the Purchaser shall obtain all Permits required by any
Governmental Authority with respect to the operation of the
Business or the ownership or operation of the Purchased Assets
without any guaranty or liability of Imo or the Seller with
respect thereto; provided, however, that, as provided in
Section 2.1 hereof, the Seller shall assign, transfer or convey
to the Purchaser at the Closing those Permits described in
Schedule 5.6 hereto that are held by the Seller exclusively in
connection with the Business, the Leased Property or the
Purchased Assets and that can be assigned without having to
obtain the consent of any Governmental Authority with respect
thereto.
8.5 Financing. The Purchaser shall use its best
efforts to obtain all financing necessary to deliver the Purchase
Price in accordance with Section 3.1 hereof. The Purchaser shall
provide to the Seller, on a timely basis, (i) copies of all
offering documents distributed or made available to investors,
potential investors or financial institutions in connection with
the solicitation of such financing and (ii) bi-weekly status
reports describing the Purchaser's efforts to obtain such
financing.
ARTICLE IX
ADDITIONAL COVENANTS
9.1 Offer of Employment.
(a) The Purchaser shall offer employment as of the
Closing Date to each Employee in the same position and location
and, in each case, at a rate of pay at least equal to such
Employee's rate of pay in effect, and with such benefits as shall
be substantially similar to those maintained by the Purchaser for
its similarly situated employees at its manufacturing facilities
located in Decatur, Alabama, except for severance policies, which
will be maintained in accordance with Seller's existing severance
policies; provided, however, that in the event an Employee
rejects the Purchaser's offer of employment and therefore does
not become a Transferred Employee, the Purchaser hereby agrees to
pay to each such Employee the severance benefit, if any, to which
such Employee becomes entitled under the Seller's severance plan
with respect to the termination of employment of such Employee by
the Seller, in effect, on the business day immediately preceding
the Closing Date. The Purchaser shall deliver to the Seller a
true and complete list of all Transferred Employees as of the
Closing Date. The Purchaser shall be solely responsible for all
compensation accruing or to be paid on or after the Closing Date
with respect to the Transferred Employees, for any compensation
with respect to which there are accruals on the Closing Balance
Sheet and for all employment and withholding tax obligations with
respect to such compensation.
(b) The Seller shall provide to the Purchaser a
statement of all accrued entitlements for Employees, including,
without limitation, vacation days, wages and other compensation
consistent with the Benefit Arrangements.
(c) During the sixty day period from and after the
Closing Date, the Purchaser shall not: (i) permanently or
temporarily shut down a Facility if the shutdown results in an
employment loss during any thirty day period at the Facility for
fifty or more employees, excluding any part-time employees; and
(ii) lay off more than thirty-three percent of the active
employees, and no more than forty-nine employees, excluding
part-time employees, at any Facility. For purposes of this
Subsection 9.1(c), the term "Facility" shall mean a "single site
of employment" and/or an "operating unit" as those terms are
defined in the Worker Adjustment and Retraining Notification Act
(the "WARN Act"). The term "employment loss" shall have the
meaning ascribed to it in the WARN Act. It is intended by this
Subsection 9.1(c) that the Purchaser assume any and all
Liabilities under the WARN Act arising out of this transaction.
9.2 Employment and Other Agreements. The Purchaser
agrees to assume all of the rights and obligations of the Seller
under all employment agreements or consulting agreements
applicable to the Transferred Employees and which are in effect
on the business day immediately preceding the Closing Date and
which were disclosed (and copies of which were provided to the
Purchaser pursuant to Section 5.12(b)), except for any consulting
employment agreement between the Seller and Ed Jackson.
9.3 Employee Benefit Plans and Benefit Arrangements.
Effective on the Closing Date, the Seller shall amend the
Employee Benefit Plans and Benefit Arrangements so that no
Employees are thereafter eligible to participate therein, except
as otherwise required by law. In addition, effective as of the
Closing Date, each Pension Plan or 401(k) plan of Imo or Seller
that covers any of the Transferred Employees shall be amended by
Imo and/or the Seller, as the case may be, to provide that the
benefits accrued thereunder as of the Closing Date by the
Transferred Employees shall be fully vested without regard to
their years of service.
9.4 Welfare Plans. The Purchaser shall be liable for
all claims made (regardless of when incurred) on or after the
Closing Date by any Transferred Employee under any Employee
Benefit Plan that is an "employee welfare benefit plan" within
the meaning of Section 3(1) of ERISA (a "Welfare Plan").
9.5 Credited Service. From and after the Closing, the
Purchaser shall credit to the Transferred Employees for all
purposes under all benefit plans, benefit arrangements and
compensation policies and practices of the Purchaser, all
previous service recognized by the Seller for such Transferred
Employees and disclosed to the Purchaser under the Employee
Benefit Plans and Benefit Arrangements on the business day
immediately preceding the Closing Date.
9.6 Liabilities Excluded. Except as otherwise
provided in this Article IX, it is expressly agreed that the
Purchaser shall not be responsible for, and the Assumed
Liabilities shall not include, any obligation, duty or liability
with respect to any Benefit Arrangements or Employee Benefit
Plans, practices, policies or arrangements of the Seller under
which benefits (including, without limitation, any pension
benefits) were provided to Employees during the period prior to
the Closing.
9.7 Assignment of Contract Payments.
(a) Prior to the Closing, the Seller shall assign to
Citicorp USA, Inc. ("Citicorp"), as agent for the Seller's
secured creditors, all moneys due or to become due under the AIM-
9 Contract. The Purchaser and the Seller shall take all steps
necessary to continue (i) the assignment to Citicorp until the
payment in full of all amounts to be paid by the contracting
parties under the AIM-9 Contract and (ii) the remaining
assignment until consummation of the novation agreements for the
Subcontracted Contracts.
(b) The Seller will send written instructions, in form
and substance satisfactory to the Purchaser, to all account
debtors party to the Subcontracted Contracts (other than the AIM-
9 Contract), including, without limitation, the United States
Government, directing each of them to make payment on all
receivables due in respect of such Subcontracted Contracts
directly to the financial institution designated by the
Purchaser.
(c) The Seller hereby covenants and agrees that from
and after the Closing, when and if it receives any payments
relating to the Subcontracted Contracts (other than the AIM-9
Contract), it shall hold the same in trust for the Purchaser,
shall segregate such amounts from all other assets or funds and
shall, as soon as practicable, transfer such amounts directly to
the Purchaser.
(d) The Purchaser hereby covenants and agrees that
from and after the Closing, when and if it receives any payments
relating to the AIM-9 Contract (including, without limitation,
any payments relating to the AIM-9 Claim but excluding any
payments received by the Purchaser from Varo pursuant to Section
13.5 hereof), it shall hold the same in trust for Citicorp, shall
segregate such amounts from all other assets or funds and shall,
as soon as practicable, transfer such amounts directly to
Citicorp.
(e) On or prior to the Closing Date, the Seller shall
grant to the Purchaser a limited power of attorney to make such
changes and amendments in the terms of the Subcontracted
Contracts, in the name of Varo, Inc., as may be necessary or
desirable in order to assure that the Purchaser receives all
economic benefits of the Subcontracted Contracts as described
herein.
9.8 Grant of Security Interest.
(a) As security for the obligations of the Seller
under this Agreement and the Subcontract and until the earlier of
(i) the date when full and complete assignments of all of the
Subcontracted Contracts have been made to the Purchaser, or
novations have been made in respect of the Government Contracts,
and (ii) the date on which all obligations to be performed under
the Subcontracted Contracts on the part of the Seller or the
Purchaser pursuant to the Subcontract shall have been performed,
satisfied and discharged in full, the Seller shall, on or prior
to the Closing Date, grant to the Purchaser or a financial
institution designated by it a security interest in all of its
right, title and interest in and to all of the accounts
receivable and all other amounts payable to the Seller by the
contract obligors in respect of each of the Subcontracted
Contracts (other than the AIM-9 Contract) and all proceeds
thereof and income therefrom (collectively, the "Secured
Receivables") pursuant to a security agreement in a form
reasonably satisfactory to the parties hereto (the "Security
Agreement").
(b) On the Closing Date, the Seller shall execute and
deliver to the Purchaser, and hereby authorizes the Purchaser at
or after the Closing to file in all appropriate locations and
jurisdictions, UCC financing statements and any other related
documents or instruments and to give any notices necessary or
desirable to perfect the Lien of the Purchaser in the Secured
Receivables. The Seller hereby confirms that it is the intention
of this Agreement that the Purchaser or a financial institution
designated by it have a first priority perfected security
interest in the Secured Receivables and all rights and benefits
appertaining thereto or intended to be conferred thereunder on
the Closing Date.
ARTICLE X
TAX MATTERS
Except for Taxes included in the Assumed Liabilities,
the Seller shall be liable for (a) all Taxes that are imposed on
or connected with the Purchased Assets or the Business for any
taxable period ending on or before the Closing Date, including,
without limitation, any sales and use taxes relating to the
period from January 1989 to and including the Closing Date that
may be imposed by the State of Texas, (b) 50% of all transfer
Taxes, sales and use Taxes, and similar Taxes relating to the
transfer of the Purchased Assets and the Business, (c) the
portion, determined as described below, of any Taxes that are
imposed on or connected with the Purchased Assets or the Business
for any Straddle Period which is allocable to the period ending
on or before the Closing Date, and (d) all income Taxes
(including franchise Taxes and excise Taxes which are measured by
reference to net income) directly imposed on the Seller on
account of the transfer of the Purchased Assets or the Business.
The Purchaser shall be liable for (a) all Taxes that are imposed
on or connected with the Purchased Assets or the Business for any
taxable period beginning on or after the Closing Date, (b) the
portion of any Taxes that are imposed on or connected with the
Purchased Assets or the Business for any Straddle Period other
than the portion for which the Seller is liable under clause (c)
of the preceding sentence, (c) 50% of all transfer Taxes, sales
and use Taxes and similar Taxes relating to the transfer of the
Purchased Assets and the Business (but not including any of the
Taxes described in clause (d) of the preceding sentence), and (d)
all Taxes that are included in the Assumed Liabilities. The
determination of the portion of any Taxes imposed on or connected
with the Purchased Assets or the Business for the Straddle Period
which is allocable to the period ending on or before the Closing
Date shall be made, in the case of ad valorem, property or
similar Taxes, by allocating such Taxes on a per diem basis and,
in the case of all other Taxes, by assuming that the period
ending on or before the Closing Date constitutes a separate
taxable period and by taking into account the actual taxable
events occurring during such period.
ARTICLE XI
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to consummate the
transactions contemplated by this Agreement on the Closing Date
is subject to the satisfaction (or waiver by the Purchaser) of
the following conditions:
11.1 Representations, Warranties and Covenants.
(a) Each of the representations and warranties of the
Seller contained herein shall be true and correct in all material
respects on and as of the Closing Date with the same force and
effect as though the same had been made on and as of the Closing
Date, it being understood that to the extent that such
representations and warranties were made as of a specified date
the same shall continue on the Closing Date to be true and
correct in all material respects as of such specified date.
(b) The Seller shall have performed and complied, in
all material respects, with the covenants and provisions of this
Agreement required to be performed or complied with by it at or
prior to the Closing Date.
(c) The Purchaser shall have received a certificate of
the Seller, dated as of the Closing Date and signed by an officer
of the Seller, certifying as to the fulfillment of the conditions
set forth in subparagraphs (a) and (b) of this Section 11.1.
11.2 No Prohibition. No Law or Order of any
Governmental Authority shall be in effect that prohibits the
Purchaser from consummating the transactions contemplated hereby.
11.3 Opinion of Seller's Counsel. The Purchaser shall
have received an opinion of counsel for the Seller, dated the
Closing Date, substantially in the form attached hereto as
Exhibit D.
11.4 Delivery of Documents. The Seller shall have, or
shall cause to be, executed and delivered to the Purchaser at the
Closing each of the items set forth in Section 4.3.
11.5 Consents. The Seller shall have obtained all of
the consents, waivers, approvals and authorizations listed on
Schedule 5.5 hereto.
11.6 Financing. The Purchaser shall have obtained all
financing necessary in order to consummate the transactions
contemplated hereby.
ARTICLE XII
CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS
The obligation of the Seller to consummate the
transactions contemplated by this Agreement on the Closing Date
is subject to the satisfaction (or waiver by the Seller) of the
following conditions:
12.1 Representations, Warranties and Covenants.
(a) Each of the representations and warranties of the
Purchaser contained herein shall be true and correct in all
material respects on and as of the Closing Date with the same
force and effect as though the same had been made on and as of
the Closing Date, it being understood that to the extent that
such representations and warranties were made as of a specified
date the same shall continue on the Closing Date to be true and
correct in all material respects as of such specified date.
(b) The Purchaser shall have performed and complied in
all material respects with the covenants and provisions in this
Agreement required to be performed or complied with by it at or
prior to the Closing Date.
(c) The Seller shall have received a certificate of
the Purchaser, dated as of the Closing Date and signed by an
officer of the Purchaser, certifying as to the fulfillment of the
conditions set forth in subparagraphs (a) and (b) of this Section
12.1.
12.2 Subcontract. The Seller and the Purchaser shall
have entered into a subcontract (the "Subcontract") in accordance
with Section 13.2(c) with respect to the performance of all
Government Contracts that relate to the Business and are included
among the Purchased Assets and all other Contracts for the
delivery of goods or services by the Seller that relate to the
Business and are included among the Purchased Assets
(collectively, such Government Contracts and other Contracts are
referred to herein as the "Subcontracted Contracts"). Without
limiting the generality of the foregoing, Schedule 12.2 contains
a list of those Government Contracts and other Contracts that, as
of August 27, 1996, would have constituted the Subcontracted
Contracts. The Subcontract shall confer on the Purchaser (i) the
responsibility for the performance of the corresponding prime
Government Contracts and the other Subcontracted Contracts and
(ii) all of the economic benefits, except for the AIM-9 Contract,
of the corresponding prime Government Contracts and the other
Subcontracted Contracts until the earlier to occur of (a)
novation or complete assignment of or (b) the satisfaction of all
obligations under and the payment in full of all amounts payable
under, such corresponding prime Government Contracts and the
other Subcontracted Contracts, as the case may be. All consents,
if any, of the United States government or a department or agency
thereof to the entering into of such Subcontract as may be
required shall have been obtained.
12.3 No Prohibition. No Law or Order of any
Governmental Authority shall be in effect that prohibits the
Seller from consummating the transactions contemplated hereby.
12.4 Opinion of the Purchaser's Counsel. The Seller
shall have received an opinion of counsel for the Purchaser,
dated the Closing Date, substantially in the form attached hereto
as Exhibit E.
12.5 Delivery of Documents. The Purchaser shall have
executed and delivered to the Seller at the Closing each of the
items set forth in Section 4.4.
12.6 Consents. The Seller shall have obtained all of
the consents, waivers, approvals and authorizations listed on
Schedule 5.5 hereto.
ARTICLE XIII
ADDITIONAL POST-CLOSING COVENANTS
13.1 Further Assurances.
(a) From time to time following the Closing Date, each
of the Seller and the Purchaser shall, at its sole cost and
expense, at the reasonable request of the other party, execute
and deliver such other and further instruments of sale,
assignment, assumption, transfer and conveyance and take such
other and further action as such other party may reasonably
request in order to vest in the Purchaser, and put the Purchaser
in possession of, the Purchased Assets and to transfer to the
Purchaser all Contracts and rights of the Seller relating to the
Purchased Assets and assure to the Purchaser the benefits
thereof, and to give effect to the Purchaser's assumption of the
Assumed Liabilities.
(b) To the extent any of the approvals, consents or
waivers referred to in Section 7.4 hereof have not been obtained
by the Seller as of the Closing Date, the Seller's only
obligation with respect thereto shall be to use its reasonable
efforts to do the following:
(i) cooperate with the Purchaser in any
reasonable and lawful arrangements designed to provide
the benefits of such Interest to the Purchaser as long
as the Purchaser fully cooperates with the Seller in
such arrangements and promptly reimburses the Seller,
upon written demand by the Seller, for all payments,
charges or other liabilities made or suffered by the
Seller in connection therewith; and
(ii) enforce, at the request of the Purchaser and
at the expense and for the account of the Purchaser,
any and all rights of the Seller arising from such
Interest against such issuer or grantor thereof or the
other party or parties thereto (including the right to
elect to terminate such Interest in accordance with the
terms thereof upon the written advice of the
Purchaser).
To the extent that the Seller enters into lawful arrangements
designed to provide the benefits of any Interest as set forth in
clause (b)(i) above, such Interest shall be deemed to have been
assigned to the Purchaser for purposes of Section 2.1 hereof.
(c) Following the Closing Date, the Purchaser shall
use the Equipment and other Purchased Assets to perform, on
behalf of the Seller, each Contract with a Governmental Authority
that relates to the Business and each Subcontracted Contract and
shall, except as otherwise provided herein, be entitled to
receive any and all sums payable to the Seller thereunder.
(d) As soon as practicable following the Closing Date,
the Purchaser shall take or cause to be taken, any and all
actions necessary to cause to be issued any and all letters of
credit necessary to the operation of the Business.
13.2 Assignments; Novations.
(a) The Seller shall use commercially reasonable
efforts to effect, if necessary, the transfer or assignment of
all licenses, registrations, permits or other documents
pertaining to the Business that were issued by a Governmental
Authority under the authority of the Export Control Laws.
(b) The Seller and the Purchaser shall cooperate fully
with each other and shall use all reasonable efforts to obtain
the novation of all Government Contracts that relate to the
Business, including obtaining a novation agreement or agreements
with the United States Government in accordance with FAR Section
42.1204 ("Novation Agreements"), and the Purchaser hereby agrees
expeditiously to take all reasonable steps to obtain approval of
all required Novation Agreements. Nothing in this Agreement,
however, shall require the Seller or the Purchaser to offer or
pay any consideration or concession for any such Novation
Agreement not contained in the model form set forth in FAR
Section 42.1204(e).
(c) With respect to each Subcontracted Contract that
relates to the Business, the performance obligations of the
Seller thereunder shall be subcontracted to the Purchaser until
such Subcontracted Contract has been novated, assigned in full to
the Purchaser or the obligations and duties thereunder shall have
been satisfied and discharged in full. The Purchaser, as a
subcontractor or delegate, shall perform such Subcontracted
Contract and the Seller shall cooperate to cause the other party
or parties to the Subcontracted Contract to promptly pay to the
Purchaser or its designee all amounts received by the Seller as a
result of performance by the Purchaser of such Subcontracted
Contract (except the AIM-9 Contract). Prior to the complete
assignment or novation of each such Subcontracted Contract to the
Purchaser, the Seller, as the contracting party, shall take such
timely action as is reasonably necessary to allow the Purchaser
to perform such Subcontracted Contract and to protect any rights
that may exist or accrue under such Subcontracted Contract until
it is fully assigned or novated. In connection therewith, the
Purchaser is authorized to act as agent on behalf of the Seller
for purposes of performing and administering each such
Subcontracted Contract during the period after the Closing until
such Subcontracted Contract is fully assigned or novated to the
Purchaser; provided, however, that such authority to act as agent
shall not authorize the Purchaser to settle or compromise claims
under such Subcontracted Contract where such claims are not
Purchased Assets or Assumed Liabilities. Prior to the date the
Subcontract becomes effective, the Seller shall deliver to the
Purchaser a full, complete and correct copy of the Seller's
contract file for each Subcontracted Contract. The Purchaser
shall indemnify and hold the Seller and its directors, officers,
employees, affiliates, agents and assigns harmless from any loss
that directly results from any action or omission of the
Purchaser in connection with the performance or administration by
the Purchaser, as contemplated by this Section 13.2, of any
Subcontracted Contract during the period after the Closing until
all obligations under such Subcontracted Contract have been fully
performed or satisfied in full.
(d) Effective upon the complete assignment or novation
of a Subcontracted Contract to the Purchaser, the Subcontracted
Contract shall be assumed by the Purchaser; provided, that the
Seller shall reimburse the Purchaser for any monetary benefit
received by the Seller (net of any actual out-of-pocket costs of
the Seller in connection with such Subcontracted Contract and any
payments made by the Seller under Section 13.2(c)) that would
have accrued to the Purchaser had the Subcontracted Contract been
fully assigned or novated as of the Closing Date. Any
subcontract or other delegation except the assignments of money
due or to become due under the Subcontracted Contracts which the
Seller and the Purchaser have theretofore entered into or agreed
upon in respect of such Subcontracted Contract shall be
terminated as of the effective date of such complete assignment
and assumption or novation agreement.
(e) The Seller and the Purchaser shall cooperate with
each other to preserve all bids, quotations and proposals made in
the ordinary course of the Business by the Seller and to
facilitate the award of the Contract related thereto consistent
with applicable legal requirements. With respect to any
contracts awarded to the Seller pursuant to such bids, quotations
and proposals (i) the right to all payments thereunder shall be
deemed to be assigned by the Seller to the Purchaser, the
schedule to the Subcontract shall be amended to identify such
Contract as a contract covered thereby, and the Seller shall
assign to the financial institution designated by the Purchaser
all moneys due or to become due thereunder and (ii) the
performance obligations related thereto shall be deemed to be
assumed by the Purchaser and, in the case of Contracts with the
United States government, shall be governed by this Section 13.2.
13.3 Provisions Relating to Certain Assets.
(a) To the extent that a Contract (including, without
limitation, a Government Contract) or other asset that is
included within the definition of "Purchased Assets", or any
Interest, is not capable of being sold, assigned, transferred,
subcontracted or conveyed without the approval, consent or waiver
of the issuer thereof or the other party thereto, or any third
Person (including a Governmental Authority), and such approval,
consent or waiver has not been obtained prior to the Closing, or
if such sale, assignment, transfer or conveyance or attempted
sale, assignment, transfer or conveyance would constitute a
breach thereof or a violation of any Law, this Agreement shall
not constitute a sale, assignment, transfer or conveyance
thereof, or an attempted sale, assignment, transfer or conveyance
thereof.
(b) Anything in this Agreement to the contrary
notwithstanding, subject to Section 8.4, the Seller is not
obligated to sell, assign, transfer or convey to the Purchaser
any of its rights or obligations in or to any of the Interests
without first obtaining all necessary approvals, consents or
waivers. The Seller shall cooperate with the Purchaser to obtain
all approvals, consents or waivers necessary to convey to the
Purchaser each such Interest other than Government Contracts
requiring novation, which are governed by Section 13.2, as soon
as practicable; provided, however, that neither the Seller nor
the Purchaser shall be obligated to offer or pay any
consideration or concession therefor to the third party from whom
such approval, consent or waiver is requested. The failure by
the Seller to obtain any such approval, consent or waiver
necessary to convey any Interest to the Purchaser shall not
affect the obligations of the parties to close hereunder;
provided that the Seller agrees to use reasonable efforts to
cause the economic benefit of such Interest to be furnished to
the Purchaser.
(c) To the extent any of the approvals, consents or
waivers necessary to convey any Interest other than Government
Contracts requiring novation, which are governed by Section 13.2,
to the Purchaser have not been obtained by the Seller as of the
Closing or to the extent any Interest cannot be transferred to
the Purchaser by the Closing, the Seller shall, during the
remaining term of such Interest, use commercially reasonable
efforts, to (1) at the request of the Purchaser, cooperate with
the Purchaser to obtain the consent of any such third party;
provided, however, that neither the Seller nor the Purchaser
shall be obligated to offer or pay any consideration to any
Person, (2) at the request of the Purchaser, cooperate with the
Purchaser in any reasonable and lawful arrangements designed to
provide the benefits of such Interest to the Purchaser, (3)
enforce, at the request of the Purchaser and at the expense and
for the account of the Purchaser, any rights of the Seller
arising from such Interest against the issuer thereof or the
other party or parties thereto (including the rights to elect to
terminate any such Interest in accordance with the terms thereof
upon the request of the Purchaser). To the extent that the
Seller enters into lawful arrangements reasonably satisfactory to
the Purchaser designed to provide the benefits of any such
Interest to the Purchaser as set forth in clauses (1) and (2)
above, such Interest shall be deemed to have been conveyed to the
Purchaser for the purposes of this Agreement.
13.4 Use of Transferred Employees. The Purchaser
understands and acknowledges that, after the Closing Date, Imo or
the Seller may require the assistance or participation of its
former employees who are employed by the Purchaser after Closing
in locating and obtaining records and files maintained by the
Purchaser and in the anticipation of, or preparation for, ongoing
investigations and actions, including, without limitation, the
AIM-9 Claim, or existing or future litigation, arbitration,
administration or tax-related matters. To the extent that such
former employees of Imo or the Seller are employed by the
Purchaser, Imo or the Seller may, at the Seller's expense, have
reasonable access to such employees upon the following terms and
conditions:
(a) The Seller shall give the Purchaser notice of the
necessity to utilize specified employees prior to the date on
which Imo or the Seller is requesting the assistance or
participation of such employees; provided, however, it is
understood and agreed that, under certain special circumstances,
it may be impractical for Imo or the Seller to comply with the
requirement for prior notice contained in this Section 13.4(a),
in which event the Purchaser will not unreasonably withhold from
the Seller access to such employees in such circumstances;
(b) The Seller shall reimburse the Purchaser for all
out-of-pocket expenses incurred by each such employee and shall
reimburse the Purchaser for all wages paid by the Purchaser to
each such employee relating to the time period during which Imo
or the Seller has retained the assistance of such employee as
provided herein; and
(c) To the extent any such employee is utilized by Imo
or the Seller for more than twenty business days during any
calendar year, the Seller shall, in addition to the reimbursement
called for by Section 13.4(b) above, pay to the Purchaser all
other costs to the Purchaser of having such employee away from
his occupation with the Purchaser, as shall reasonably be agreed
to by the Seller and the Purchaser.
13.5 AIM-9 Warranty. Subject to the terms and
conditions specified in this Section 13.5, the Purchaser
covenants and agrees to perform all warranty work as required by
the government under the AIM-9 Contract. The Seller agrees to
(i) reimburse the Purchaser for all AIM-9 Warranty Costs and (ii)
to pay to the Purchaser an additional 15% of such AIM-9 Warranty
Costs so reimbursed. The Purchaser shall provide the Seller a
detailed invoice for all AIM-9 Warranty Costs. The Seller shall
have a period of 30 days following receipt of such invoice to
review the Purchaser's records and files relating to such AIM-9
Warranty Costs, and the Purchaser shall make such records and
files available to the Seller and its representatives upon the
request of the Seller. The Seller may dispute any amounts
reflected in such invoice by giving notice in writing to the
Purchaser specifying each of the disputed items and setting forth
in reasonable detail the basis for such dispute. Failure by the
Seller to dispute the amounts reflected in any such invoice
within 30 days of delivery of such invoice shall be deemed an
acquiescence therein by the Seller. If within 40 days after
delivery by the Purchaser to the Seller of any notice of dispute,
the Purchaser and the Seller are unable to resolve all of such
disputed items, then any remaining items in dispute shall be
submitted to the Arbitrator. The Arbitrator shall determine the
remaining disputed items and report to the Seller and the
Purchaser upon such items. The Arbitrator's decision shall be
final, conclusive and binding on all parties. The fees and
disbursements of the Arbitrator shall be borne equally by the
Purchaser and the Seller.
13.6 Provisions Relating to Certain Excluded Assets.
The Purchaser shall promptly pay over to the Seller in full any
amounts received by the Purchaser that relate to the Excluded
Assets, including, without limitation, any amounts received in
connection with the AIM-9 Claim. Furthermore, the Purchaser
hereby consents to the Seller's and Imo's pursuit of the AIM-9
Claim in the name of Varo Inc., but for Imo's benefit and at
Imo's expense. Notwithstanding any other provision of this
Agreement, the Purchaser hereby authorizes Imo and the Seller to
take all action in the name of Varo Inc. reasonably necessary or
appropriate for these purposes, including, without limitation,
the submission and certification of documents, appeals or
pleadings in connection with the AIM-9 Claim.
13.7 Public Announcements. Neither the Seller (nor any
of its Affiliates) nor the Purchaser (nor any of its Affiliates)
shall make any public statement, including, without limitation,
any press release, with respect to this Agreement or the
transactions contemplated hereby, without the prior written
consent of the other party (which consent shall not be
unreasonably withheld), except as may be required by law.
13.8 Joint Post-Closing Covenant of the Seller and the
Purchaser. The Seller and the Purchaser jointly covenant and
agree that, from and after the Closing Date, the Seller and the
Purchaser will cooperate with each other in defending or
prosecuting any action, suit, proceeding, investigation or audit
of the other relating to (a) the preparation and audit of the
Seller's and the Purchaser's tax returns for all periods up to
and including the Closing Date, (b) any audit of the Purchaser
and/or the Seller with respect to the sales, transfer and similar
Taxes imposed by the laws of any state relating to the
transactions contemplated by this Agreement and (c) the
performance of any Contract including without limitation any
Government Contract or other Subcontracted Contract. In
furtherance hereof, the Purchaser and the Seller further covenant
and agree to respond to all reasonable inquiries related to such
matters and to provide, to the extent possible, substantiation of
transactions and to make available and furnish appropriate
documents and personnel in connection therewith.
13.9 Books and Records; Personnel. For a period of
seven years following the Closing Date (or such longer period as
may be required by any Governmental Authority or ongoing Legal
Proceeding):
(a) The Purchaser shall not dispose of or destroy any
of the business records and files of the Business. If the
Purchaser wishes to dispose of or destroy such records and files
after that time, it shall first give 30 days' prior written
notice to the Seller and the Seller shall have the right, at its
option and expense, upon prior written notice to the Purchaser
within such 30 day period, to take possession of the records and
files within 60 days after the date of the Seller's notice to the
Purchaser.
(b) The Purchaser shall allow the Seller and its
representatives reasonable access to all business records and
files of the Business which are transferred to the Purchaser in
connection herewith, during regular business hours and upon
reasonable notice at the Purchaser's principal place of business
or at any location where such records are stored, and the Seller
shall have the right, at its own expense, to make copies of any
such records and files; provided, however, that any such access
or copying shall be had or done in such a manner so as not to
interfere with the normal conduct of the Purchaser's business or
operations.
(c) The Purchaser shall make available to the Seller
and its representatives, upon written request and at the Seller's
expense (i) the Purchaser's personnel to assist the Seller in
locating and obtaining records and files maintained by the
Purchaser and (ii) any of the Purchaser's personnel previously in
the Seller's employ whose assistance or participation is
reasonably required by the Seller in anticipation of, or
preparation for, existing or future litigation, arbitration,
administrative proceeding, tax return preparation or other
matters in which the Seller or any of its Affiliates is involved
and which is related to the Business.
13.10 Actions Regarding Subcontracted Contracts.
The Seller hereby agrees that so long as any of the Subcontracted
Contracts remains in effect and not in default, it shall not take
any action or fail to take any action in connection with the
Subcontracted Contracts that would impair or diminish, in any
way, its rights thereunder or the rights of the Purchaser
hereunder or under the subcontract in respect of the
Subcontracted Contracts. For purposes of this Section 13.10, a
Subcontracted Contract shall be deemed to be "in default" if the
Purchaser has received a written notice from the applicable
contracting officer that it is in default in respect of one or
more of its obligations under such Subcontracted Contract, that
the Purchaser has failed to cure the default(s) alleged in said
notice, and that the time for the Purchaser to cure the default
or challenge the default notice has lapsed. In no event shall
the existence of a default under any individual Subcontracted
Contract permit the Seller to exercise rights in or to payments
under other Subcontracted Contracts which are not in default.
ARTICLE XIV
INDEMNIFICATION AND RELATED MATTERS
14.1 Indemnification by the Seller. Subject to the
provisions of this Article XIV, the Seller agrees to indemnify
and hold the Purchaser harmless from and against all Damages
resulting from or arising out of:
(a) the failure of any of the representations and
warranties contained in Article V of this Agreement to have been
true in all material respects when made and as of the Closing
Date, it being understood that to the extent that any of such
representations and warranties were made as of a specified date
the same shall apply only to the failure of such representations
and warranties to be true in all material respects as of such
specified date;
(b) the failure of the Seller to comply in all
material respects with any of the covenants contained in this
Agreement that are required to be performed by the Seller;
(c) the Excluded Liabilities and the Excluded Assets;
(d) any claims of Transferred Employees in connection
with the Pension Plan arising prior to the Closing Date; and
(e) any claims made prior to the Closing Date under a
Welfare Plan.
14.2 Indemnification by the Purchaser. Subject to the
provisions of this Article XIV and in addition to the
indemnification obligations of the Purchaser set forth in Section
13.2, the Purchaser agrees to indemnify and hold the Seller
harmless from and against all Damages resulting from or arising
out of:
(a) the failure of any of the representations and
warranties contained in Article VI of this Agreement to have been
true in all material respects when made and as of the Closing
Date, it being understood that to the extent that any of such
representations and warranties were made as of a specified date
the same shall apply only to the failure of such representations
and warranties to be true in all material respects as of such
specified date;
(b) the failure of the Purchaser to comply in all
material respects with any of the covenants contained in this
Agreement that are required to be performed by the Purchaser;
(c) the Assumed Liabilities;
(d) the operation of the Business or ownership of the
Purchased Assets on or after the Closing Date including, without
limitation, the failure of the Purchaser to perform its
obligations under any Contract relating to the Business;
(e) subject to Section 9.1(a), any claims of
Transferred Employees arising out of their employment with the
Purchaser or under any Law relating to the termination of such
Transferred Employee's employment by the Purchaser arising on or
after the Closing Date; and
(f) any obligation under any lease relating to the
Leased Real Property arising on or after the Closing Date.
14.3 Determination of Damages and Related Matters. In
calculating any amount payable to the Purchaser pursuant to
Section 14.1 or payable to the Seller pursuant to Section 14.2,
the Seller or the Purchaser, as the case may be, shall receive a
credit for (i) any tax benefit allowable as a result of the facts
giving rise to the claim for indemnification and (ii) any
insurance recoveries, and no amount shall be included for the
Purchaser's or Imo's and the Seller's, as the case may be,
special, consequential or punitive damages. The Seller and the
Purchaser agree that, except as specifically set forth in this
Agreement, no party (including its representatives) has made or
shall have liability for any representation or warranty, express
or implied, in connection with the transactions contemplated by
this Agreement, including, in the case of the Seller and its
representatives, any representation or warranty, express or
implied, as to the accuracy or completeness of any information
regarding the Business. The Purchaser acknowledges and agrees
that the Purchaser and the Purchaser Representatives have the
experience and knowledge to evaluate the business, financial
condition, assets and liabilities of the Business, that the
Purchaser and the Purchaser Representatives have had access to
such of the information and documents referred to in Article V
and to such of the real property, fixtures and tangible personal
property of the Business as the Purchaser and the Purchaser
Representatives shall have requested to see and/or review, that
the Purchaser and the Purchaser Representatives have had a full
opportunity to meet with appropriate management and employees of
the Seller and its Subsidiaries to discuss the Business and the
Purchased Assets; and that, in determining to acquire the
Purchased Assets, the Purchaser has made its own investigation
into, and based thereon the Purchaser has formed an independent
judgment concerning, the Purchased Assets and the Business. It
is therefore expressly understood and agreed that, except as
otherwise expressly provided herein, the Purchaser accepts the
condition of the Purchased Assets "AS IS, WHERE IS" and without
any representation, warranty or guarantee, express or implied, as
to merchantability, fitness for a particular purpose or otherwise
as to the condition, size, extent, quantity, type or value of the
Purchased Assets or the Business.
14.4 Limitation on Indemnification Liabilities. The
indemnification in favor of (i) the Purchaser contained in
Section 14.1 hereof and (ii) the Seller contained in Section 14.2
hereof (a) shall not be effective until the aggregate dollar
amount of all Damages indemnified against under such Section 14.1
or 14.2 exceeds $100,000 (the "Threshold Amount"), and then only
to the extent such aggregate amount exceeds the Threshold Amount
and (b) shall terminate once the dollar amount of all Damages
indemnified against under such Section 14.1 or 14.2 aggregates an
amount equal to 25% of the Purchase Price.
14.5 Survival of Representations, Warranties and
Covenants. The parties hereto agree that the representations and
warranties made in this Agreement and any indemnification with
respect thereto shall survive for one year after the Closing
Date. Claims for indemnification under Sections 14.1(b), (c),
(d) and (e), and under Sections 14.2(b), (c), (d) and (e), shall
survive for three years after the Closing Date. Claims for
indemnification under Section 14.2(f) shall survive for a period
of three years after the expiration of any such lease relating to
the Leased Real Property.
14.6 Notice of Indemnification. In the event any Legal
Proceeding or Environmental Claim shall be threatened or
instituted or any claim or demand shall be asserted by any Person
in respect of which payment may be sought by one party hereto
from the other party hereto under the provisions of this Article
XIV or for breach of any of the representations and warranties
set forth herein, the party seeking indemnification (the
"Indemnitee") shall promptly cause written notice of the
assertion of any such claim of which it has knowledge which it
reasonably believes to be covered by this indemnity to be
forwarded to the other party (the "Indemnitor"), which notice
must be received by the Indemnitor prior to the expiration of (i)
one year after the Closing Date, in the case of any claim for
indemnification referred to in the first sentence of Section
14.5, or (ii) three years after the Closing Date, in the case of
any claim for indemnification referred to in the second sentence
of Section 14.5. Any notice of a claim by reason of any of the
representations, warranties or covenants contained in this
Agreement shall state specifically the representation, warranty
or covenant with respect to which the claim is made, the facts
giving rise to an alleged basis for the claim, and the amount of
the liability asserted against the Indemnitor by reason of the
claim.
14.7 Indemnification Procedure for Third Party Claims.
Except as otherwise provided herein, in the event of the
initiation of any Legal Proceeding against an Indemnitee by a
third party, the Indemnitor shall have the absolute right after
the receipt of the notice provided for in Section 14.6, at its
option and at its own expense, to be represented by counsel of
its choice, and to defend against, negotiate, settle or otherwise
deal with any proceeding, claim, or demand which relates to any
Damages indemnified against hereunder. The parties hereto agree
to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such Legal Proceeding,
claim or demand, including by providing any pertinent records,
materials or information within their control as may be
reasonably required. To the extent the Indemnitor elects not to
defend such Legal Proceeding, claim or demand, and the Indemnitee
defends against or otherwise deals with any such Legal
Proceeding, claim or demand, the Indemnitee may retain counsel,
at the expense of the Indemnitor, and control the defense of such
proceeding. If the Indemnitee shall settle any such proceeding
without the consent of the Indemnitor, the Indemnitee shall
thereafter have no claim against the Indemnitor under this
Article XIV with respect to any Damages occasioned by such
settlement.
14.8 Consequential Damages. No party hereto shall have
any liability for any punitive, exemplary, indirect or
consequential damages, including without limitation lost profits
or lost savings.
14.9 Exclusive Remedy. The exclusive remedy available
to a party hereto in respect of the matters arising in connection
with the transactions contemplated by this Agreement, including
without limitation the matters covered by Section 14.1 or Section
14.2 hereof, shall be to proceed in the manner and subject to the
limitations contained in this Article XIV.
ARTICLE XV
TERMINATION
15.1 Termination. This Agreement may be terminated:
(a) by the written agreement of the Purchaser and the
Seller;
(b) by either the Purchaser or the Seller if there
shall be in effect a non-appealable Order of a court of competent
jurisdiction permanently prohibiting the consummation of the
transactions contemplated hereby;
(c) by the Seller if the condition set forth in
Section 11.6 is not satisfied on or before the date that is 60
days after the date of this Agreement; or
(d) by either the Purchaser or the Seller if the
Closing shall not have occurred on or before the date that is 90
days after the date of this Agreement.
15.2 Liabilities After Termination. Upon any
termination of this Agreement pursuant to Section 15.1 above, no
party hereto shall thereafter have any further liability or
obligation hereunder other than the Purchaser's obligations
pursuant to Section 8.2 hereof, but no such termination shall
relieve either party hereto of any liability to the other party
hereto for any breach of this Agreement prior to the date of such
termination.
ARTICLE XVI
MISCELLANEOUS
16.1 Prorations. The Purchaser and the Seller hereby
agree as follows with regard to prorations applicable to the
consummation of the transactions contemplated hereby:
(a) All operational expenses incurred directly in the
operation of the Business, including, without limitation, utility
bills, the expense of supplies, the expense of fuel, and the
like, shall be prorated between the parties as of the Closing
Date, and as of such date shall become the obligation and
responsibility of the Purchaser;
(b) Prorations which are to be effected on the Closing
Date shall be made on the Closing Date or, if such prorations
cannot reasonably be made as of the Closing Date, as soon
thereafter as possible and "as of" the Closing Date;
(c) All prepaid expenses shall be prorated between the
parties as of the Closing Date; and
(d) The Purchaser, as of the Closing Date, shall pay
such amounts as may be required to replace all deposits held with
the suppliers of utilities to the Business, and to assist the
Seller as may be reasonably required in obtaining a return of
such deposits put in place by the Seller as of the Closing Date.
16.2 Waiver of Compliance with Bulk Transfer Laws. The
Purchaser hereby waives compliance by the Seller with the
provisions of the bulk transfer laws of any jurisdiction in
connection with the transactions contemplated hereby.
16.3 Entire Agreement. This Agreement (together with
the Schedules and Exhibits attached hereto) contains, and is
intended as, a complete statement of all of the terms and the
arrangements between the parties hereto with respect to the
matters provided for herein, and supersedes any and all previous
agreements and understandings between the parties hereto with
respect to such matters.
16.4 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Texas, without giving effect to the conflicts of law principles
thereof, and controlling United States federal law.
16.5 Expenses. Each of the parties hereto shall bear
its own expenses (including, without limitation, fees and
disbursements of its counsel, accountants and other experts)
incurred by it in connection with the preparation, negotiation,
execution, delivery and performance of this Agreement, each of
the other documents and instruments executed in connection with
or contemplated by this Agreement and the consummation of the
transactions contemplated hereby and thereby.
16.6 Table of Contents and Headings; Certain
Construction Rules. The table of contents and section headings
of this Agreement are for reference purposes only and are to be
given no effect in the construction or interpretation of this
Agreement. The words "hereof," "herein" and "hereunder" and
words of similar import referring to this Agreement refer to this
Agreement as a whole and not to any particular provision of this
Agreement.
16.7 Notices. All notices and other communications
under this Agreement shall be in writing and shall be deemed
given when delivered personally or four days after being mailed
by registered mail, return receipt requested, to a party at the
following address (or to such other address as such party may
have specified by notice given to the other party pursuant to
this provision):
If to the Seller, to:
IMO Industries Inc.
1009 Lenox Drive, Bldg. 4 West
P.O. Box 6550
Lawrenceville, New Jersey 08648
Telephone: (609) 896-7600
Facsimile: (609) 896-7688
Attention: Thomas J. Bird, Esq.; Executive Vice President
and General Counsel
with a copy to:
Baker & Botts, L.L.P.
The Warner
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2400
Telephone: (202) 639-7700
Facsimile: (202) 639-7890
Attention: Daniel J. Riley, Esq.
If to the Purchaser, to:
Varo Acquisition Corp.
307 East Shore Road
Great Neck, New York 11020
Telephone: (506) 466-5210
Facsimile: (506) 773-4474
Attention: Richard Eisenberg, Esq.
with a copy to:
LeBoeuf, Lamb, Green & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019-5389
Telephone: (212) 424-8000
Facsimile: (212) 424-8500
Attention: Peter A. Ivanick, Esq.
16.8 Severability. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity
or enforceability of any other provision of this Agreement, each
of which shall remain in full force and effect.
16.9 Binding Effect; No Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns. Nothing in this
Agreement shall create or be deemed to create any third party
beneficiary rights in any Person or entity not party to this
Agreement. No assignment of this Agreement or of any rights or
obligations hereunder may be made by any party (by operation of
law or otherwise) without the prior written consent of the other
party hereto and any attempted assignment without such required
consent shall be void.
16.10 Amendments. This Agreement may be amended,
supplemented or modified, and any provision hereof may be waived,
only pursuant to a written instrument making specific reference
to this Agreement signed by each of the parties hereto.
16.11 Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date and year first above written.
VARO INC.
By: /s/T. J. Bird
Name:T. J. Bird
Title:Executive VP, General Counsel &
Secretary
VARO ACQUISITION CORP.
By: /s/Jacob Armon
Name:Jacob Armon
Title:President
REINSTATEMENT AGREEMENT
THIS REINSTATEMENT AGREEMENT (this "Agreement"),
dated January 28, 1997, is by and between Varo Inc., a
Texas corporation (the "Seller") and Varo Acquisition Corp.,
a Delaware corporation (the "Purchaser").
RECITALS
WHEREAS, the Seller, principally through its
Electronic Systems Division, is engaged in the business of
manufacturing and selling guided missile launcher systems
and electric power conversion systems for military and
commercial applications (the "Business"); and
WHEREAS, on September 13, 1996, the Seller and the
Purchaser entered into that certain Asset Purchase Agreement
(the "Purchase Agreement"), a copy of which is attached
hereto as Exhibit A, whereby the Seller agreed to sell and
the Purchaser agreed to purchase substantially all the
assets of the Business, subject to certain conditions; and
WHEREAS, Section 15.1(c) of the Purchase Agreement
provided to the Seller the right to terminate the Purchase
Agreement if the Purchaser had not obtained all financing
necessary in order to consummate the transactions
contemplated by the Purchase Agreement on or before the date
that was 60 days after the date of the Purchase Agreement;
and
WHEREAS, on the date that was 60 days after the
date of the Purchase Agreement, the Purchaser had not
obtained all financing necessary in order to consummate the
transactions contemplated by the Purchase Agreement; and
WHEREAS, on November 19, 1996, the Seller sent the
Purchaser written notice (the "Termination Notice") of the
termination of the Purchase Agreement pursuant to Section
15.1(c) of the Purchase Agreement; and
WHEREAS, the parties desire to reinstate the terms
of the Purchase Agreement, subject to certain amendments
described herein, as if the Termination Notice had not been
sent by the Sellerr and the Purchase Agreement had not been
terminated;
NOW, THEREFORE, in consideration of the premises
and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Seller and
the Purchaser hereby agree as follows:
1. Reinstatement. The Seller and the Purchaser
agree to reinstate the Purchase Agreement and to be bound by
its terms, subject to amendments described herein, as if the
Termination Notice had not been sent by the Seller and the
Purchase Agreement had not been terminated.
2. Amendments. The Purchase Agreement, as
reinstated pursuant to Section 1 of this Agreement, shall be
amended as follows:
(a) The first paragraph or preamble of the
Purchase Agreement shall be deleted in its entirety and
replaced with the following:
"THIS ASSET PURCHASE AGREEMENT (as it
may be amended from time to time hereafter)
together with all such amendments, this
`Agreement') dated as of September 13, 1996, is by
and between Varo Inc., a Texas Corporation (the
"Seller"), and Varo Acquisition Corp., a Delaware
corporation (the "Purchaser")."
(b) The following definitions contained in
Section 1.1 of the Purchase Agreement shall be deleted
in their entirety: (i) "Closing Balance Sheet," (ii)
"Closing Net Book Value," (iii) "Final Purchase Price
Adjustment," (iv) "Interim Period," (v) "Negative
Adjustment," (vi) "Positive Adjustment," (vii)
"Preliminary Net Book Value," and (viii) "Preliminary
Purchase Price Adjustment."
(c) The definition of "Arbitrator" in
Section 1.1 of the Purchase Agreement shall be deleted
in its entirety and replaced with the following:
"`Arbitrator' shall mean Ernst & Young
LLP or such other arbitrator as may be mutually
agreed upon by the Seller and the Purchaser."
(d) The following new definition shall be
added to Section 1.1 of the Purchase Agreement
immediately after the definition of "Facility":
"`Final Balance Sheet' shall mean the
balance sheet for the Business as of the last day
of the month immediately preceding the Closing
Date, adjusted as appropriate in order to reflect
any Cash Transactions relating to the Business
after the date of such balance sheet. The Final
Balance Sheet shall be prepared by the Seller on a
basis consistent with the Initial Balance Sheet."
(e) Section 3.1 of the Purchase Agreement
shall be deleted in its entirety and replaced with the
following:
"3.1 Purchase Price and Payment. The
aggregate purchase price to be paid by the
Purchaser to the Seller for the Purchased Assets
and the Assumed Liabilities shall be $12,000,000
(the "Purchase Price"). Payment of the Purchase
Price shall be in United States dollars and shall
be made no later than 11:30 a.m. (New York City
time) on the Closing Date by wire transfer of
immediately available funds to the account or
accounts designated by the Seller."
(f) Section 3.2 of the Purchase Agreement
shall be deleted in its entirety.
(g) Section 3.3 of the Purchase Agreement
shall be deleted in its entirety.
(h) Section 3.4 of the Purchase Agreement
shall be renumbered Section 3.2 and all references in
the Purchase Agreement to Section 3.4 shall be deemed
to refer to such section as renumbered.
(i) Section 4.3(f) and 4.3(g) of the
Purchase Agreement shall each be deleted in their
entirety and all subsequent clauses of Section 4.3
shall be renumbered as appropriate. All references in
the Purchase Agreement to such clauses of Section 4.3
shall be deemed to refer to such clauses as renumbered.
(j) Section 4.3 (m) of the Purchase
Agreement shall be amended to insert the words "and
updated representations to conform thereto" after the
word "Agreement" and before the words "to provide".
(k) The following new clause shall be added
at the end of Section 4.3 of the Purchase Agreement:
"(l) The Final Balance Sheet."
(l) The final section of Section 9.1(a) of
the Purchase Agreement shall be deleted in its entirety
and replaced with the following:
"The Purchaser shall be solely
responsible for all compensation accruing, or as
accrued on the Final Balance Sheet, or to be paid
on or after the Closing Date with respect to the
Transferred Employees and for all employment and
withholding tax obligations with respect to such
compensation."
(m) Section 9.2 of the Purchase Agreement
shall be amended to insert the word "or" after the
parenthetical phrase between the words "consulting" and
"employment".
(n) Section 15.1(c) of the Purchase
Agreement shall be deleted in its entirety and replaced
with the following:
"(c) by the Seller if the
conditions set forth in Section 11.6 is not
satisfied on or before February 28, 1997; or"
(o) Section 15.1(d) of the Purchase
Agreement shall be deleted in its entirety and replaced
with the following:
"(d) by either the Purchaser or the
Seller if the Closing shall not have occurred on
or before April 30, 1997."
3. Entire Agreement. This Agreement and the
Purchase Agreement, as amended (together with the Schedules
and Exhibits attached thereto, as they may be amended from
and after the date hereof,) contain, and are intended as, a
complete statement of all of the terms and the arrangements
between the parties hereto with respect to the matters
provided for herein, and supersede any and all previous
agreements and understandings between the parties hereto
with respect to such matters.
4. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Texas, without giving effect to the conflicts of
law principles thereof, and controlling United States
federal law.
5. Notices. All notices and other communications
under this Agreement shall be made in accordance with the
notice provisions of the Purchase Agreement.
6. Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the date and year first above
written.
VARO INC.
By: /s/ T. J. Bird
Name:T. J. Bird
Title:Executive VP, General Counsel &
Secretary
VARO ACQUISITION CORP.
By: /s/Harry Armon
Name:Harry Armon
Title:President
SUBSIDIARIES AND AFFILIATES OF IMO INDUSTRIES INC.
Date: 3/25/97
STATE OR
COUNTRY OF
INCORPORATION
NAME OR ORGANIZATION
______________________________________________________________________________
IMO INDUSTRIES (UK) LIMITED . . . . . . . . . . . . . . . ENGLAND
IMO INDUSTRIES LIMITED . . . . . . . . . . . . . . . ENGLAND
IMO INDUSTRIES PENSION TRUSTEE LIMITED . . . . . . ENGLAND
BAIRD ATOMIC LTD . . . . . . . . . . . . . . . . . . . ENGLAND
MORSE CONTROLS LIMITED . . . . . . . . . . . . . . . . ENGLAND
MORSE CONTROLS AB . . . . . . . . . . . . . . . . . SWEDEN
RMH CONTROLS LIMITED . . . . . . . . . . . . . . . . ENGLAND
MORSE CONTROLS PTY. LTD. . . . . . . . . . . . . . . NEW SOUTH WALES
MORSE CONTROLS (NZ) LIMITED . . . . . . . . . . . NEW ZEALAND
TELEFLEX-MORSE (N.Z.) LTD. . . . . . . . . . . . NEW ZEALAND
BOSTON GEAR COMPANY LIMITED . . . . . . . . . . . . ENGLAND
TELEFLEX LIMITED . . . . . . . . . . . . . . . . . . ENGLAND
TELEFLEX MORSE LTD. . . . . . . . . . . . . . . . . ENGLAND
GEMS SENSORS LIMITED . . . . . . . . . . . . . . . . ENGLAND
IMO INDUSTRIES SRL . . . . . . . . . . . . . . . . . . . . ITALY
IMO INDUSTRIES SARL . . . . . . . . . . . . . . . . . . . FRANCE
IMO INDUSTRIES GmbH . . . . . . . . . . . . . . . . . . . GERMANY
MORSE CONTROLS SARL . . . . . . . . . . . . . . . . . . . FRANCE
MORSE CONTROLS S.L. . . . . . . . . . . . . . . . . . . . SPAIN
IMO INDUSTRIES PTE LTD. . . . . . . . . . . . . . . . . . SINGAPORE
NHK MORSE CO., LTD. . . . . . . . . . . . . . . . . . . . JAPAN (1)
NHK JABSCO CO., LTD. . . . . . . . . . . . . . . . . JAPAN (2)
WEKA AG . . . . . . . . . . . . . . . . . . . . . . . . . SWITZERLAND
IMO AB . . . . . . . . . . . . . . . . . . . . . . . . . SWEDEN
IMO-PUMPEN AG . . . . . . . . . . . . . . . . . . . SWITZERLAND
IMO GRESHAM PUMPS (INDIA) LTD. . . . . . . . . . . . INDIA (3)
IMO POMPES S.A. . . . . . . . . . . . . . . . . . . FRANCE
IMO-PUMPEN GmbH . . . . . . . . . . . . . . . . . . . . . GERMANY
ROLTRA-MORSE S.p.A. . . . . . . . . . . . . . . . . . . . ITALY (4)
ROLTRA MORSE HOLLAND BV . . . . . . . . . . . . . . . . NETHERLANDS
ROLTRA MORSE POLAND Sp.z.o.o. . . . . . . . . . . . POLAND
TECNOMOUNTING ELECTRONIC SYSTEMS S.r.l . . . . . . . . ITALY (5)
ROLSAG S.p.A. . . . . . . . . . . . . . . . . . . . . ITALY (6)
MOTROL DO BRASIL LTDA. . . . . . . . . . . . . . . . . BRAZIL (7)
SIRSA S.p.A. . . . . . . . . . . . . . . . . . . . . . ITALY (6)
ROLEM OTOMOTIV YAN SANAYI URUNLERI TICARET A.S. . . . TURKEY (7)
IMO INDUSTRIES (CANADA) INC . . . . . . . . . . . . . . . CANADA
DELSALESCO, INC. . . . . . . . . . . . . . . . . . . . . U.S. VIRGIN ISLANDS
IMOVEST INC. . . . . . . . . . . . . . . . . . . . . . . DELAWARE
BAIRD CORPORATION . . . . . . . . . . . . . . . . . . . . MASSACHUSETTS
LABTEST EQUIPMENT COMPANY . . . . . . . . . . . . . . . CALIFORNIA
INCOM TRANSPORTATION, INC. . . . . . . . . . . . . . . . DELAWARE
BOSTON GEAR INDUSTRIES OF CANADA INC. . . . . . . . . . . CANADA
VARO INC. . . . . . . . . . . . . . . . . . . . . . . . . TEXAS
VARO TECHNOLOGY CENTER, INC. . . . . . . . . . . . . . TEXAS
VARO TECHNOLOGY CENTER JOINT VENTURE. . . . . . . . . TEXAS(8)
TURBODEL INC. . . . . . . . . . . . . . . . . . . . . TEXAS
TRIPOWER VENTURE . . . . . . . . . . . . . . . . . . TEXAS(9)
APPLIED OPTICS CENTER CORPORATION . . . . . . . . . . . MASSACHUSETTS
ITT AND VARO, A JOINT VENTURE . . . . . . . . . . . . TEXAS(10)
KEI LASER, INC. . . . . . . . . . . . . . . . . . . . MARYLAND
OPTIC-ELECTRONIC INTERNATIONAL, INC. . . . . . . . . . TEXAS
WARREN PUMPS INC. . . . . . . . . . . . . . . . . . . . . DELAWARE
DELTEX SERVICE INC. . . . . . . . . . . . . . . . . . . . TEXAS
SHANGHAI DONG FENG MORSE CONTROL CABLE CO., LTD. . . . . CHINA (1)
_______________________________
(1) 50% owned by Imo Industries Inc.
(2) 50% owned by NHK Morse Co., Ltd.
(3) 40% owned by IMO AB
(4) 99% owned by Imo Industries Inc.
(5) 99% owned by Roltra-Morse S.p.A.
(6) 51% owned by Roltra-Morse S.p.A.
(7) 50% owned by Roltra-Morse S.p.A.
(8) 50% owned by Varo Technology Center, Inc. and 50%
owned by Varo Inc.
(9) 50% owned by Turbodel Inc.
(10) 50% owned by Varo Inc.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statements ( Form S-8 No. 33-13362, No. 33-
41260, No. 33-60533 and No. 333-12519) pertaining to the Imo
Industries Inc. Employees' Stock Savings Plan, Registration
Statement (Form S-8 No. 33-26118) pertaining to Imo
Industries Inc. Equity Incentive Plan for Key Employees and
Equity Incentive Plan for Outside Directors, as amended on
June 23, 1995, Registration Statement (Form S-8 No. 33-
60535) pertaining to Imo Industries Inc. 1995 Equity
Incentive Plan for Outside Directors of Imo Industries Inc.
of our report dated February 19, 1997, with respect to the
consolidated financial statements and schedule of Imo
Industries Inc. included in this Annual Report on Form 10-K
for the year ended December 31, 1996.
ERNST & YOUNG LLP
Princeton, New Jersey
March 25, 1997
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