SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
IMO INDUSTRIES INC.
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(Name of Registrant as Specified In Its Charter)
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IMO INDUSTRIES INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
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<PAGE>
IMO INDUSTRIES INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1997
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To the Stockholders of Imo Industries Inc.:
The Annual Meeting of Stockholders of Imo Industries Inc. (the "Company")
will be held at 10 a.m., local time, on Tuesday, May 20, 1997 at the Hyatt
Regency Princeton, 102 Carnegie Center, Princeton, New Jersey 08540, for the
following purposes:
1. To elect two Class II directors, to serve until the expiration of
their three-year terms and until their successors are elected;
2. To consider and vote upon the election of Ernst & Young LLP as
auditors for the Company for its 1997 fiscal year; and
3. To consider such other matters as may properly come before the
Annual Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on March 25, 1997 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting.
A copy of the Company's Annual Report for its fiscal year ended December
31, 1996 is being mailed to stockholders together with this Notice.
Whether or not you expect to attend the Annual Meeting in person, please
fill in, sign and return the enclosed form of proxy in the envelope provided.
By Order of the Board of Directors,
/s/ Thomas J. Bird
------------------------------------
THOMAS J. BIRD
Executive Vice President,
General Counsel and Secretary
April 4, 1997
Lawrenceville, New Jersey
<PAGE>
IMO INDUSTRIES INC.
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This Proxy Statement and the accompanying form of proxy, which are first
being mailed to stockholders on or about April 4, 1997, are furnished in
connection with the solicitation by the Board of Directors of Imo Industries
Inc. (the "Company") of proxies to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 10 a.m., local time, on
Tuesday, May 20, 1997 and at any adjournment thereof, at the Hyatt Regency
Princeton, 102 Carnegie Center, Princeton, New Jersey 08540. The Company's
principal executive offices are located at 1009 Lenox Drive, Lawrenceville, New
Jersey 08648.
Shares represented by proxies in the accompanying form, if properly signed
and returned, will be voted in accordance with the specifications made thereon
by the stockholders. Any proxy not specifying to the contrary will be voted for
the election of the nominees for directors named below and in favor of the
adoption of proposal 2 referred to in the Notice of Annual Meeting. A
stockholder who signs and returns a proxy in the accompanying form may revoke it
at any time before it is voted by giving written notice thereof to the Secretary
of the Company.
As of the close of business on March 25, 1997, the Company had outstanding
17,125,359 shares of Common Stock, $1.00 par value. A majority of the
outstanding shares of Common Stock will constitute a quorum at the Annual
Meeting.
Only holders of Common Stock of record at the close of business on March
25, 1997 will be entitled to notice of and to vote at the Annual Meeting. Each
holder of shares of Common Stock will have the right to one vote for each share
standing in such holder's name on the books of the Company as of the close of
business on the record date.
If a stockholder is a participant in the Company's Employees Stock Savings
Plan, the proxy card will also serve as voting instructions to the trustees of
the plan as to the voting of shares held in the plan. With respect to shares
held in the plan for which proxy cards are not returned, those shares will be
voted by the trustee in the same proportion as shares for which voting
instructions have been received.
The cost of solicitation of proxies in the accompanying form will be borne
by the Company, including expenses in connection with preparing and mailing this
Proxy Statement. Such solicitation will be made by mail and may also be made on
behalf of the Company by the Company's regular officers and employees in person
or by telephone or other means of communication. Georgeson & Company Inc. has
been retained by the Company to assist in the solicitation of proxies at a fee
of approximately $7,500 plus reasonable expenses incurred in connection with its
services. The Company, upon request therefor, will reimburse brokers or persons
holding shares in their names or in the names of nominees for their reasonable
expenses in sending proxies and proxy material to beneficial owners.
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<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of February 28, 1997, the amount and
percentage of the Company's Common Stock beneficially owned by each person who
is known to the Company to be the beneficial owner of more than 5% of the
Company's outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OWNED COMMON STOCK
---------------- ------------ ------------
<S> <C> <C>
State of Wisconsin Investment Board............................................. 1,657,000(1) 9.7%
P.O. Box 7842
Madison, WI 53707
The Prudential Insurance Company of America..................................... 1,632,720(2) 9.4%
Prudential Plaza
Newark, NJ 07102-3777
C.S. McKee & Co................................................................. 1,344,150(3) 7.8%
1 Gateway Center
Pittsburgh, PA 15222
The TCW Group, Inc.
865 South Figueroa Street
Los Angeles, CA 90017
............................................... 1,102,300(4) 6.4%
Robert Day
200 Park Avenue, Suite 2200
New York, NY 10166
</TABLE>
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(1) As reported by State of Wisconsin Investment Board as of December 31, 1996
in a filing made with the Securities and Exchange Commission.
(2) As reported to the Company by The Prudential Insurance Company of America
("Prudential") as of February 28, 1997. Of these shares, 200,000 shares are
purchasable upon exercise of a currently exercisable warrant and 1,432,720
shares are shares over which Prudential may have direct or indirect voting
and/or investment discretion held for the benefit of its clients by its
separate accounts, externally managed accounts, registered investment
companies, subsidiaries and/or other affiliates.
(3) As reported to the Company by C.S. McKee as of February 28, 1997.
(4) As reported to the Company by The TCW Group, Inc. and Robert Day as of
February 28, 1997. According to such information, Mr. Day may be deemed a
controlling person of The TCW Group, Inc.
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OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the amount and percentage of the Company's
outstanding Common Stock beneficially owned on February 28, 1997 by each
director, nominee for director and executive officer named in the Summary
Compensation Table set forth below under "Executive Compensation" and by all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
NAME OF INDIVIDUAL BENEFICIALLY OUTSTANDING
OR IDENTITY OF GROUP OWNED (1) COMMON STOCK (2)
-------------------- --------- ----------------
<S> <C> <C>
Donald K. Farrar......................................................... 594,998(3) 3.4%
James B. Edwards......................................................... 83,750(4) --
Richard J. Grosh......................................................... 83,606(5) --
Carter P. Thacher........................................................ 117,750(4) --
Donald C. Trauscht....................................................... 3,250(6) --
Arthur E. Van Leuven..................................................... 58,750(7) --
William M. Brown......................................................... 70,595(8) --
John J. Carr............................................................. 56,788(9) --
Brian Lewis.............................................................. 83,005(10) --
Thomas J. Bird........................................................... 42,886(11) --
All directors and executive officers as a group (13 persons)............. 1,227,027(12) 6.9%
</TABLE>
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(1) Information furnished by the directors and executive officers. Unless
otherwise indicated, such persons have sole voting and sole investment
power with respect to these shares. The number of shares reported as owned
through the Company's Employees Stock Savings Plan has been calculated
based upon such person's percentage interest in the total number of units
outstanding in the Company's Common Stock fund under such plan.
(2) Less than 1% unless otherwise indicated.
(3) This total includes 93,000 shares owned by Mr. Farrar pursuant to
restricted stock awards under the Company's Equity Incentive Plan for Key
Employees (the "Equity Incentive Plan"), 132,500 shares as to which Mr.
Farrar holds currently exercisable options to acquire under the Equity
Incentive Plan and 192,498 shares owned by Mr. Farrar through the Company's
Employees Stock Savings Plan.
(4) This total includes 81,000 shares as to which the named individual holds
currently exercisable options to acquire under the Company's Equity
Incentive Plan for Outside Directors (the "1988 Director Plan") and the
Company's 1995 Equity Incentive Plan for Outside Directors (the "1995
Director Plan") and 1,750 shares owned by such person pursuant to
restricted stock awards under the 1995 Director Plan.
(5) This total includes 81,000 shares as to which Dr. Grosh holds currently
exercisable options to acquire under the 1988 Director Plan and the 1995
Director Plan and 1,750 shares owned by Dr. Grosh pursuant to restricted
stock awards under the 1995 Director Plan. This total also includes 400
shares that are held by Dr. Grosh's wife, and Dr. Grosh disclaims
beneficial ownership of these shares.
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<PAGE>
(6) This total includes 1,000 shares as to which Mr. Trauscht holds currently
exercisable options to acquire under the 1995 Director Plan and 1,750
shares owned by Mr. Trauscht pursuant to restricted stock awards under the
1995 Director Plan.
(7) This total includes 41,000 shares as to which Mr. Van Leuven holds
currently exercisable options to acquire under the 1988 Director Plan and
the 1995 Director Plan, 16,000 shares held by a trust of which Mr. Van
Leuven is trustee and settlor and 1,750 shares owned by Mr. Van Leuven
pursuant to restricted stock awards under the 1995 Director Plan.
(8) This total includes 52,570 shares as to which Mr. Brown holds currently
exercisable options to acquire under the Equity Incentive Plan and 5,525
shares owned by Mr. Brown through the Company's Employees Stock Savings
Plan.
(9) This total includes 37,500 shares as to which Mr. Carr holds currently
exercisable options to acquire under the Equity Incentive Plan and 7,188
shares owned by Mr. Carr through the Company's Employees Stock Savings
Plan.
(10) This total includes 82,005 shares as to which Mr. Lewis holds currently
exercisable options to acquire under the Equity Incentive Plan.
(11) This total includes 36,301 shares as to which Mr. Bird holds currently
exercisable options to acquire under the Equity Incentive Plan and 6,585
shares owned by Mr. Bird through the Company's Employees Stock Savings
Plan.
(12) This total includes the shares purchasable upon the exercise of the options
referred to in footnotes (3) through (11) above and an additional 22,736
shares purchasable upon the exercise of options by other executive officers
included in this group. This total also includes 2,000 shares that one of
the other executive officers included in this group holds jointly with his
wife.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Based solely on its review of the copies of such forms received by it, and
written representations from certain reporting persons that no year-end reports
on Form 5 under Section 16(a) of the Exchange Act were required for those
persons, the Company believes that, during the period January 1, 1996 through
December 31, 1996, all Section 16(a) filing requirements applicable to its
officers and directors were complied with.
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<PAGE>
ELECTION OF DIRECTORS
The Company's By-Laws provide that the directors of the Company shall be
divided into three classes, designated as Class I, Class II and Class III, and
that at each annual meeting of stockholders of the Company successors to the
class of directors whose term expires at that annual meeting will be elected for
a three-year term. The classes are staggered so that the term of one class
expires each year. The terms of the Class I directors expire in 1999, and each
third year thereafter; the terms of the Class II directors expire in 1997 and
each third year thereafter; and the terms of the Class III directors expire in
1998 and each third year thereafter. Accordingly, the Class II directors are to
be elected at the Annual Meeting.
The number of directors constituting the entire Board of Directors is
determined by the vote of a majority of the members of the Board of Directors
and is currently fixed at six members. Two Class II directors are to be elected
at the Annual Meeting. The Class II directors will serve for a term of three
years and until their successors have been duly elected.
The Board of Directors has nominated James B. Edwards and Carter P. Thacher
for election as Class II directors, both of whom are incumbent directors. All
proxies will be voted for the election of these nominees unless authority to
vote for the election of a nominee is withheld. If any nominee becomes
unavailable for any reason, it is intended that the proxies will be voted for a
substitute nominee designated by the Board of Directors. The Board of Directors
has no reason to believe that either nominee will be unable or unwilling to
serve as a director if elected and does not intend to nominate any person in
addition to or in lieu of these nominees.
The two candidates for Class II directors receiving the highest number of
votes cast at the Annual Meeting will be elected. Stockholders are not entitled
to cumulate votes in the election of directors. Shares held by brokers or
nominees as to which instructions have not been received from the beneficial
owners or persons entitled to vote and as to which the broker or nominee does
not have discretionary voting power, i.e., broker non-votes, and abstentions
will not have any effect on the election of directors inasmuch as they will not
represent votes cast at the Annual Meeting for the purpose of electing
directors.
Under the Company's By-Laws, no stockholder may nominate a candidate for
election as a director unless information concerning such candidate equivalent
to the information contained herein about the Board of Directors' nominees has
been submitted to the Board of Directors at least 45 days before the date of the
meeting of stockholders for the election of directors at which such nomination
is proposed to be made. Any vacancy occurring on the Board of Directors for any
reason may be filled by a majority of the directors then in office until the
expiration of the term of the class of directors in which the vacancy exists.
5
<PAGE>
The names of the nominees for Class II directors and the Class I and Class
III directors who will continue in office after the Annual Meeting until the
expiration of their respective terms, together with certain information
regarding them, are as follows:
<TABLE>
<CAPTION>
DIRECTOR YEAR TERM
NAME AGE PRINCIPAL OCCUPATION SINCE WILL EXPIRE
- ---- --- -------------------- ----- -----------
<S> <C> <C> <C> <C>
NOMINEES FOR CLASS II DIRECTORS
James B. Edwards.................. 69 President of the Medical University 1986 2000*
of South Carolina
Carter P. Thacher................. 70 Chairman of Wilbur-Ellis Company 1986 2000*
</TABLE>
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* If elected at the Annual Meeting.
DIRECTORS CONTINUING IN OFFICE
CLASS I DIRECTORS
<TABLE>
<S> <C> <C> <C> <C>
Richard J. Grosh.................. 69 Independent Consultant; formerly Chairman and 1987 1999
Chief Executive Officer of Ranco, Inc.
Arthur E. Van Leuven.............. 71 Retired; formerly Chairman and Chief 1990 1999
Executive Officer of Transamerica Finance
Group, Inc. and Executive Vice President of
Transamerica Corporation
CLASS III DIRECTORS
Donald K. Farrar.................. 58 Chairman of the Board of Directors, President 1993 1998
and Chief Executive Officer of the Company
Donald C. Trauscht................ 63 Chairman of BW Capital Corporation; formerly 1996 1998
Chairman and Chief Executive Officer of
Borg-Warner Security Corporation
</TABLE>
Donald K. Farrar has served as the Chief Executive Officer and President of
the Company since September 1993 and as the Company's Chairman of the Board
since June 1994. From 1985 until December 1989, Mr. Farrar served as Senior
Executive Vice President, Operations and a director of Textron, Inc. Prior
thereto, he served in various positions, including President, Chief Operating
Officer and a director of the Avco Corporation group of companies until its 1985
acquisition by Textron. From January 1990 until joining the Company, Mr. Farrar
was a private investor.
James B. Edwards is the President of the Medical University of South
Carolina located in Charleston, South Carolina. Prior to assuming this position
in November 1982, Dr. Edwards served as Governor of the State of South Carolina
from January 1975 through January 1979. From February
6
<PAGE>
1979 through December 1981, Dr. Edwards was in private practice as a maxiofacial
surgeon. In January 1981, Dr. Edwards was named United States Secretary of
Energy and held that position until November 1982. Dr. Edwards serves as a
director of Phillips Petroleum Company, WMX Technologies, Inc., National Data
Corporation and G.S. Industries, Inc.
Richard J. Grosh is an independent consultant. From 1976 to 1987 he served
as Chairman and Chief Executive Officer of Ranco, Inc., a manufacturer of
automated controls located in Columbus, Ohio.
Carter P. Thacher is the Chairman of Wilbur-Ellis Company, an export/import
company based in San Francisco, California, the principal business of which is
the domestic sale and distribution of agricultural chemical products. Mr.
Thacher has served in this position since January 1967, and from January 1967 to
December 1988 he also served as Chief Executive Officer.
Donald C. Trauscht is currently the Chairman of BW Capital Corporation, an
investment company. From 1967 to 1996, Mr. Trauscht held various positions with
Borg-Warner Corporation, including Chairman and Chief Executive Officer, and
various positions with Borg-Warner Security Corporation, including Chairman and
Chief Executive Officer and other executive positions in finance and strategy.
Prior to joining Borg-Warner Corporation, he served as President of Langevin
Company, a California electronics manufacturer. Mr. Trauscht is also a director
of Borg-Warner Security Corp., Baker Hughes Incorporated, Esco Electronics
Corporation, Borg-Warner Automotive, Inc., Thiokol Corporation and Blue Bird
Corporation.
Arthur E. Van Leuven is retired. From 1977 to 1990, Mr. Van Leuven served
as Chairman and Chief Executive Officer of Transamerica Finance Group, Inc., and
from 1984 to 1990 he was additionally an Executive Vice President and a director
of Transamerica Corporation, an insurance and financial services company based
in San Francisco, California. From 1992 to 1993, Mr. Van Leuven served as the
Chairman and President of IGYS Systems, Inc., located in Los Alamitos,
California.
During 1996, the Board of Directors held 11 meetings. None of the directors
attended fewer than 75% of the aggregate of the total number of meetings of the
Board of Directors plus the total number of meetings of all committees of the
Board of Directors on which he served that were held during 1996.
DIRECTOR COMPENSATION
In addition to expenses of attendance, which are paid to all directors,
directors of the Company who are not also employees of the Company are currently
paid an annual retainer of $12,000 for their services, a fee of $1,000 for each
Board of Directors meeting attended, and a fee of $850 for each committee
meeting attended, except that directors who attend more than one committee
meeting in any one day are paid the fee for a single committee meeting, and
directors who attend Board or committee meetings by telephone conference are
entitled to receive one-half of the respective fee per meeting attended.
Chairmen of committees are paid an additional annual fee of $2,000. Under the
1995 Director Plan, each outside director also receives, on an annual basis,
restricted stock awards of 1,000 shares of the Company's Common Stock and
non-qualified stock options exercisable for the purchase of 4,000 shares of the
Company's Common Stock. Directors who are also employees of the Company are not
separately compensated for services rendered as directors. In 1996, Messrs.
Edwards, Grosh, Thacher, Trauscht and Van Leuven were each granted options to
purchase 4,000 shares of the Company's
7
<PAGE>
Common Stock at an exercise price of $7.875 per share and restricted stock
awards of 1,000 shares of the Company's Common Stock under the 1995 Director
Plan.
Under the 1988 Director Plan, each person who was an outside director prior
to July 1, 1990 was granted an option to purchase 80,000 shares of the Company's
Common Stock, and each person who became an outside director after that date and
prior to March 23, 1996 was granted an option to purchase 40,000 shares. The
exercise price of each option granted under the 1988 Director Plan was equal to
100% of the fair market value of a share of the Company's Common Stock on a date
five business days after the option was granted. Options for the purchase of
80,000 shares of the Company's Common Stock have been granted to four of the
Company's outside directors at an exercise price of $16.1875 per share, and
options for the purchase of 40,000 shares of the Company's Common Stock have
been granted to another outside director at an exercise price of $10.375 per
share. Outside directors who join the Board after March 22, 1995 are not
entitled to receive stock options under the 1988 Director Plan.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has the following committees:
Audit Committee. The Audit Committee is comprised of not fewer than three
members of the Board of Directors, all of whom must be outside directors. Its
primary functions are to: (i) recommend the appointment of independent auditors
and review the fees charged by them; (ii) consult with independent auditors with
regard to the scope and timing of the annual audit; (iii) review the audited
financial statements, audit report and management letter; (iv) consult with
independent auditors and internal audit management with regard to the adequacy
of internal controls; (v) consult with Company management regarding the
performance and adequacy of the internal auditing staff; and (vi) perform such
collateral advisory and consulting services as the Board of Directors may
request or the Audit Committee deems appropriate for the purpose of maintaining
sound and adequate financial reporting and auditing practices. The members of
the Audit Committee are Mr. Thacher, Chairman, Dr. Grosh and Mr. Trauscht.
During 1996, the Audit Committee held four meetings.
Compensation Committee. The Compensation Committee is comprised of not
fewer than three members of the Board of Directors, all of whom must be outside
directors. Its primary functions are to: (i) recommend and approve compensation
philosophy and guidelines for the Company's executive and managerial group,
including the Company's chief executive officer; (ii) approve an appropriate
compensation level for the chief executive officer based on personal performance
and responsibilities as well as compensation practices for like executives in
competitive industries and other industries, subject to final approval of the
Board of Directors; (iii) review and approve the chief executive's
recommendations for the compensation of individuals in the management group,
subject to final approval of the Board of Directors; (iv) perform all of the
foregoing with respect to the adoption and implementation of any bonus system or
a stock option plan applicable to the executive and managerial group; (v) review
and advise the Board of Directors on management succession planning; (vi)
undertake studies with Company employees or outside consultants to determine the
competitiveness of Company benefit plans as to content and cost; (vii) make
recommendations to the Board of Directors and management, as appropriate, as to
amendments, discontinuations and initiations of benefit plans; (viii)
independently, or with the cooperation of the Audit Committee, maintain an
active level of knowledge as to the funding status of the various pension plans
of the Company as well as the performance of the investment mediums for those
plans; and (ix) perform such collateral
8
<PAGE>
advisory and consulting services as the Board of Directors may request or the
Compensation Committee deems appropriate to its stated purposes. The members of
the Compensation Committee are Dr. Grosh, Chairman, Dr. Edwards and Mr. Van
Leuven. During 1996, the Compensation Committee held three meetings.
Executive Committee. The Executive Committee is comprised of not fewer than
three members of the Board of Directors, one of whom must be the Chairman of the
Board and the majority of whom must be outside directors. Its function is to act
on behalf of the full Board of Directors between Board meetings, and it has
commensurate authority to so act by majority vote. The Executive Committee does
not have the power to amend the Certificate of Incorporation, amend the By-Laws,
declare dividends, issue stock, or authorize or recommend to the stockholders
the merger or dissolution of the Company. Likewise, the Executive Committee does
not have the power to sell, lease or exchange all or substantially all of the
property and assets of the Company or to recommend such action to the
stockholders. The members of the Executive Committee are Mr. Van Leuven,
Chairman, Mr. Farrar and Mr. Trauscht. During 1996, the Executive Committee held
one meeting.
Nominating Committee. The Nominating Committee is comprised of not fewer
than three members. Its primary functions are to: (i) recommend to the Board of
Directors individuals to fill Board vacancies; (ii) develop specifications and
criteria for Board membership; (iii) consider and advise the Board of Directors
on matters relating to the composition and organization of the Board of
Directors, including the formation, composition and function of committees of
the Board; and (iv) perform such collateral advisory and consulting services as
the Board of Directors may request or the Nominating Committee deems appropriate
to its stated purposes. The members of the Nominating Committee are Dr. Edwards,
Chairman, Mr. Thacher and Mr. Trauscht. During 1996, the Nominating Committee
held two meetings.
The Board of Directors may from time to time by resolution create such
other committees for such purposes and with such powers and duties as the Board
of Directors prescribes by resolution.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors (the
"Committee") has furnished the following report on compensation with respect to
the executive officers of the Company, as defined under the rules of the
Securities and Exchange Commission.
The Committee is comprised of the non-employee directors of the Company
listed at the end of this Executive Compensation report. No member of the
Committee has any insider or interlocking relationship with the Company, as
these terms are defined under rules of the Securities and Exchange Commission.
The Committee is responsible for developing and recommending the Company's
executive compensation principles, policies and programs to the Board of
Directors. In addition, the Committee recommends to the Board of Directors, on
an annual basis, the compensation to be paid to the Chief Executive Officer (the
"CEO") and, with advice from the CEO, to each of the other executive officers of
the Company, including the executive officers named below in the Summary
Compensation Table.
9
<PAGE>
The Committee works with an outside compensation consultant that provides
the Committee with analyses of published annual compensation surveys and
periodically conducts special peer group surveys.
COMPENSATION PHILOSOPHY
This Executive Compensation report reflects the Company's compensation
philosophy as adopted by the Committee and endorsed by the Board of Directors.
The Company's compensation programs have been designed to support and reinforce
its long-term business strategy and link compensation to stockholder value. The
programs provide executive officers and other key employees with the opportunity
to earn market competitive salaries and market competitive incentive
compensation opportunities. The objectives of the Company's executive
compensation program, as developed by the Committee and subject to periodic
review, are to:
o Attract and retain high-quality executives with experience in the
Company's markets.
o Align compensation with the goals and expectations of the Company and
each business unit.
o Vary individual compensation based on performance as measured by
corporate and business unit financial results, strategic achievements and
individual contributions.
o Align executives' interests with the long-term interests of stockholders
by enabling significant Company stock ownership.
The Company achieves these goals through a compensation strategy that
provides for competitive: salary ranges, annual incentive targets, and stock
option grant guidelines.
Section 162(m) of the Internal Revenue Code (the "Code") precludes tax
deductions for compensation paid in excess of $1 million to certain executive
officers unless specified conditions are met. Based on current pay levels and
the design of existing compensation plans, the Committee believes that any tax
deductions that may be lost by reason of Section 162(m) for such compensation
would not be material for the foreseeable future. No tax deductions were lost in
1996 due to Section 162(m). The Equity Incentive Plan conforms to Section 162(m)
conditions that permit tax deductions.
PAY POSITIONING
The Committee's executive compensation program is designed to provide a
median competitive compensation opportunity (adjusted for the Company's size)
for comparable executive position responsibilities, relative to a peer group,
through base salary, annual incentive awards and long-term stock-based
incentives. Each of these three compensation components is described below. The
mix between fixed and performance-based compensation is substantially the same
as in the peer group. Total cash compensation is sufficiently variable so that
performance that is above targeted performance, as approved annually by the
Board, will result in pay that is above median competitive levels of total cash
compensation, and performance that is below targeted levels will result in pay
that is below median competitive levels of total cash compensation.
The peer group, which is comprised of 34 companies, serves as the
comparison group for determining median competitive pay levels. Selection of a
company for the peer group is based upon the following five criteria: (i) the
company's stock is publicly traded, (ii) the company operates with multiple
lines of business, (iii) the company manufactures engineered industrial
products, (iv) the
10
<PAGE>
company operates globally, with a mix of domestic and international businesses,
and (v) the company has overall revenues within a range of $170 million to $10
billion. The pay levels determined from these 34 companies are adjusted to
reflect the Company's revenue size. The Committee's compensation consultants
have determined that a special survey of the Company's peer group is required
only periodically, and that published surveys are statistically sufficient for
determining pay levels within the Company's peer group during interim years. The
last special peer group survey was conducted in 1994, and the Committee expects
to conduct another special survey in 1997.
Of the 34 companies in the peer group, three are included in the S&P
SmallCap 600(Registered) Index and six are included in the S&P Manufacturing
(Diversified Industrials) Index, which are the Company's comparison groups for
total return on investment performance (change in year-end stock price plus
reinvested dividends) for purposes of the performance comparisons that appear in
the performance graph below. The Committee believes that comparison to these pay
and performance groups is appropriate.
PAY MIX AND MEASUREMENT FOR EXECUTIVE OFFICERS
The three components of compensation for executive officers of the Company
are: (i) base salary, (ii) annual incentive cash bonuses ("Executive Incentive
Compensation"), and (iii) long-term incentive compensation in the form of stock
equity awards under the Company's Equity Incentive Plan. In general, the
proportion of an executive's compensation that is in the form of incentives
increases with the level of responsibility of the officer.
Base Salaries
The Committee seeks to set base salaries for the Company's executive
officers at levels that are competitive with median levels for executives with
comparable roles and responsibilities, within the peer group. The Company
maintains an executive salary administration program which uses external and
internal comparisons to set salary grades and ranges based on these median
competitive levels. Individual executive officer salaries are reviewed annually
by the Committee, which may approve increases from time to time based on an
assessment of individual contribution to the Company and the positioning of the
individual's salary within the approved range.
Base salary increases were granted in 1996 to all executive officers
serving in January of that year, excluding the CEO. The average increase was
6.1%, which reflects that two such executive officers received no salary
increase in 1994 and 1995, and two other such executive officers received salary
increases in only one of those years. Overall, base salaries of executive
officers are somewhat above median competitive levels due to the reduction in
the size of the Company during 1994, 1995, and 1996. Because the Company
divested certain businesses, the median competitive levels of pay declined, but
to retain its key executives, the Committee has determined not to reduce
executive salaries to match the size-adjusted median competitive levels.
Executive Incentive Compensation
The Committee administers an annual cash incentive program for executive
officers, as well as other management employees. Each year the Committee
recommends to the Company's Board of Directors an individual and aggregate
target cash bonus amount for executive officers that reflects the approximate
median competitive levels of the peer group companies. The aggregate target
amount is designed to be paid if the Company achieves its net income goal for
the year. The goal is established
11
<PAGE>
by the Committee and approved by the Board of Directors. For net income
performance above and below threshold, the Committee determines the size of the
aggregate payment. For net income performance below threshold, the Committee
normally recommends no incentive payments for the year. For 1996, the Committee
determined that net income fell short of the threshold. However, due to the
following exceptional circumstances, the Committee recommended, and the Board
approved, annual incentive payments to all executives: (i) the Company completed
a successful financial restructuring, (ii) certain other key strategic
objectives were achieved, and (iii) the potential loss of executive officers if
an annual incentive bonus was not awarded would jeopardize the future prospects
of the Company.
Once the aggregate pool is established by the Committee and approved by the
Board of Directors, actual awards vary for executive officers based on their
individual contribution to the Company's net income performance and achievement
of individual non-financial strategic objectives. These assessments are made
subjectively by the Committee without assigning particular weight to any factor.
Overall, the 1996 incentive compensation awards were substantially less
than target, and less than those awarded with respect to 1995. Actual awards
approved for executive officers, excluding the CEO, expressed as a percentage of
target award, ranged from 33% to 58%, with an average of approximately 45% of
target award.
Equity Incentive Plan
The Company's Equity Incentive Plan authorizes the Committee to award stock
options (both non-qualified and incentive options), stock appreciation rights
and restricted stock or restricted stock unit awards to key executives.
Awards under the Company's Equity Incentive Plan are designed to strengthen
the alignment of the long-term interests of the Company's executives with those
of its stockholders by directly linking executive compensation to stockholder
return. Since the adoption of the Company's Equity Incentive Plan, non-qualified
options have been granted from time to time, including during 1996, at an
exercise price per share that was not less than fair market value of the
Company's Common Stock on the date of grant. Both the size of such grants and
the proportion relative to the total number of option shares granted are a
function of the recipient's level of responsibility within the Company, stock
option (and/or long-term incentive) grants provided to comparable executives
within the peer group companies and the judgment of the Committee.
The value of stock option grants in 1996 was below median competitive grant
levels. The Committee believes the number of shares of the Company's Common
Stock required to provide fully competitive stock option grants would result in
unwarranted levels of share utilization. The total number of option shares
granted to all employees in 1996 was approximately 1.5% of the total number of
shares outstanding, which results in a median competitive level of share
utilization. The average number of option shares granted to executive officers,
excluding the CEO, in 1996 was 16,142 shares.
CHIEF EXECUTIVE OFFICER COMPENSATION
The principles guiding compensation for the CEO are substantially the same
as those set forth for other executive officers.
No change was made to Mr. Farrar's base salary in 1996. Mr. Farrar has not
received a salary increase since he was hired in 1993. Mr. Farrar's salary was
decreased in 1995 in order to shift his total
12
<PAGE>
compensation package towards equity-based incentives. In lieu of a salary
increase in 1996, Mr. Farrar received a combination stock option award to
purchase 45,000 shares of the Company's Common Stock (in addition to his normal
stock option grant) and a restricted stock award of 35,000 shares of the
Company's Common Stock. The combined value of the stock option and restricted
stock shares is approximately equivalent to the present value of a 10% salary
increase (assuming Mr. Farrar remains employed until retirement at age 65) and
the value of the economic loss from other forms of compensation tied to his
salary level (i.e., annual incentive, the Company's supplemental executive
retirement plan, and life insurance). The Committee believes this stock-based
award instead of a salary increase further aligns the CEO with the interests of
the Company's stockholders.
Based solely on the Company's financial performance, Mr. Farrar would not
have received an annual incentive bonus in 1996. However, the Committee and the
Board awarded Mr. Farrar a cash incentive of $80,000 (which is 36% of his median
competitive target award) to acknowledge Mr. Farrar's leadership and individual
performance relative to the Company's restructuring and other strategic
corporate objectives. As with other executive officers, no specific relative
importance was assigned to any one factor in making this decision. Mr. Farrar
also received a normal grant of 70,000 option shares under the Equity Incentive
Plan. The value of this normal stock option grant is less than a median
competitive grant.
Submitted by the Compensation
Committee
of the Company's Board of Directors:
Richard J. Grosh, Chairman
James B. Edwards
Arthur E. Van Leuven
13
<PAGE>
PERFORMANCE GRAPH
The following graph sets forth a comparison of five-year cumulative total
return among the Company, the S&P 500(Registered) Index, the S&P Manufacturing
(Diversified Industrials) Index and the S&P SmallCap 600(Registered) Index. The
comparison of total return on investment (change in year-end stock price plus
reinvested dividends) for each of the periods assumes that $100 was invested on
December 31, 1991 in each of the Company, the S&P 500(Registered) Index, the S&P
Manufacturing (Diversified Industrials) Index and the S&P SmallCap
600(Registered) Index.
[GRAPHIC]
In the printed version of this document, a line graph appears which
depicts the following plot points:
<TABLE>
<CAPTION>
Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Imo Industries Inc. $100 $ 62 $ 89 $118 $ 66 $ 30
S&P 500(Register Mark) $100 $108 $118 $120 $165 $203
S&P 500(Register Mark)
Manufacturing (Diversified) Index $100 $108 $132 $136 $192 $264
S&P 600 SmallCap(Register Mark) Index $100 $121 $144 $137 $178 $216
</TABLE>
14
<PAGE>
The following table sets forth certain information with respect to
compensation paid or accrued by the Company during each of the three fiscal
years ended December 31, 1996, December 31, 1995 and December 31, 1994 to the
chief executive officer of the Company and the other four most highly
compensated executive officers of the Company who served in 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
AWARDS
------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
-------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($) OPTIONS(#) COMPENSATION($)(1)
- ----------------------------------- --------- --------- --------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Donald K. Farrar................... 1996 $450,000 $ 80,000 $196,875(2)(3) 115,000(3) $10,350
Chairman, President and 1995 450,000 90,000 -- 70,000 8,359
Chief Executive Officer 1994 450,000 210,000 390,000(2) 150,000 9,000
John J. Carr....................... 1996 260,000 60,000 -- 25,000 9,270
Executive Vice President 1995 240,000 65,000 -- 25,000 245
1994 240,000 85,000 -- 25,000 6,480
William M. Brown................... 1996 255,000 50,000 -- 20,000 9,135
Executive Vice President, 1995 230,000 55,000 -- 20,000 7,105
Chief Financial Officer and 1994 230,000 85,000 -- 25,000 6,210
Corporate Controller
Brian Lewis(4)..................... 1996 243,820 30,000 -- -- 262,254(5)
Executive Vice President 1995 216,000 35,000 -- 20,000 3,800
1994 198,900 70,000 -- 25,000 3,167
Thomas J. Bird..................... 1996 208,000 40,000 -- 20,000 7,866
Executive Vice President, 1995 200,000 40,000 -- 20,000 5,796
General Counsel and Secretary 1994 179,167 70,000 -- 22,000 4,876
</TABLE>
- ----------
(1) For 1996, the amounts set forth in this column consist of a $2,250
contribution by the Company to the Employees Stock Savings Plan account of
each named individual, except Mr. Lewis who was not a participant, plus the
following amounts of life insurance premiums paid by the Company on behalf
of such persons: Mr. Farrar, $8,100; Mr. Carr, $7,020; Mr. Brown, $6,885;
Mr. Lewis, $4,573; and Mr. Bird, $5,616.
(2) Mr. Farrar's 1994 restricted stock award for 40,000 shares vested as to 20%
of the shares, or 8,000 shares, on December 31, 1995 and 10% of the shares,
or 4,000 shares, on December 31, 1996, and will vest in increments of 10% of
the shares, or 4,000 shares, each December 31 thereafter commencing December
31, 1997 and ending December 31, 2003, except that all shares covered by
such award will vest in any event on the first day of the month preceding
Mr. Farrar's 65th birthday (i.e., on May 1, 2003) if he remains an employee
of the Company or one of its affiliates until that date. Mr. Farrar's 1996
restricted stock award for 35,000 shares vests in five annual increments of
7,000 shares, commencing August 2, 1997. Any dividends paid on the shares of
restricted stock during the respective restriction periods will be paid to
Mr. Farrar. As of December 31, 1996, the 93,000 shares of restricted stock
held by Mr. Farrar had a value of $290,625 based upon the $3.125 closing
price of the Company's Common Stock on the New York Stock Exchange on
December 31, 1996.
15
<PAGE>
(3) In lieu of a salary increase in 1996, Mr. Farrar was granted options to
purchase 45,000 shares of the Company's Common Stock and was granted a
restricted stock award of 35,000 shares of the Company's Common Stock.
(4) Mr. Lewis was employed and paid by Imo Industries (UK) Limited, a United
Kingdom subsidiary of the Company, locally in pounds sterling, translated to
U.S. dollars in this table at an exchange rate of 1.67 for 1996, 1.54 for
1995 and 1.53 for 1994.
(5) Mr. Lewis' employment with Imo Industries (UK) Limited terminated on
December 31, 1996, pursuant to a Severance Agreement. Severance payments of
$257,681 were accrued to Mr. Lewis in 1996 in accordance with the Severance
Agreement. See the description of Mr. Lewis' Severance Agreement and also
the Consulting Agreement subsequently entered into between Mr. Lewis and the
Company under "Employment-Related and Other Agreements" below.
The following table sets forth information with respect to options granted
to the persons named in the Summary Compensation Table during the fiscal year
ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE OR GRANT DATE
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME (#)(1) FISCAL YEAR ($/SH) DATE VALUE($)(2)
---- ------ ----------- ------ ---- -----------
<S> <C> <C> <C> <C> <C>
Donald K. Farrar...................... 45,000 18% $5.625 8/02/06 $154,406
70,000 28% 3.375 11/27/06 144,123
John J. Carr.......................... 25,000 10% 3.375 11/27/06 51,469
William M. Brown...................... 20,000 8% 3.375 11/27/06 41,175
Brian Lewis........................... -- -- -- -- --
Thomas J. Bird........................ 20,000 8% 3.375 11/27/06 41,175
</TABLE>
- ----------
(1) Each option becomes exercisable in increments of 25% of the shares
underlying such options commencing on the first, second, third and fourth
anniversaries of the date of the option grant. All unvested options will
vest in full upon the determination by the committee administering the
Equity Incentive Plan that a change in control of the Company has occurred
or upon the liquidation or dissolution of the Company.
(2) The Black-Scholes model, a widely used and accepted formula for valuing
traded stock options, was used to determine the grant date present value of
the executive stock options. The Black-Scholes value used in this table is
the same value used to report the expense associated with stock options in
the Company's audited financial statements in accordance with FAS 123. The
following assumptions were used to calculate the Black-Scholes value: a
seven-year option term, 52.8% stock price volatility, 6.16% risk-free rate
of return, annual dividend yield of 0% and an exercise price equal to stock
price on the date of grant. The Company has used the historical annual
dividend yield and stock price volatility rate as assumptions for the
Black-Scholes model. These are not projections, and therefore there is no
guarantee that these assumptions will be the actual annual dividend yield or
stock price volatility rate over the next seven years. There is no gain to
16
<PAGE>
executives, however, if the per share market price of the Company's Common
Stock does not increase or declines.
The following table sets forth information with respect to options held at
December 31, 1996 by the persons named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END ($)(2)
------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald K. Farrar........................................... 132,500 327,500 $0 $0
John J. Carr............................................... 77,500 62,500 0 0
William M. Brown........................................... 52,570 52,000 0 0
Brian Lewis................................................ 82,005 0 0 0
Thomas J. Bird............................................. 36,301 51,000 0 0
</TABLE>
- ----------
(1) No options were exercised by the named executive officers during the year
ended December 31, 1996.
(2) No value indicated inasmuch as the exercise prices of all such options were
above the market value of the Company's Common Stock as of December 31,
1996.
EMPLOYMENT-RELATED AND OTHER AGREEMENTS
The Company has termination agreements with various executive officers of
the Company, including Messrs. Farrar, Carr, Brown, and Bird, in order to
reinforce and encourage the continued dedication and attention of such persons
to their assigned duties without distractions arising from a potential change in
control. The termination agreements are operative upon the occurrence of a
"change in control" of the Company, which would be deemed to occur if (i) any
person is or becomes the beneficial owner, directly or indirectly, of securities
of the Company representing 35% or more of the combined voting power of the
Company's then outstanding securities, (ii) individuals who constituted the
Board of Directors of the Company at the beginning of the term of such
agreement, including any new director whose election or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds of
the directors still in office who were directors at the beginning of the term of
such agreement or their successors cease, for any reason, to constitute a
majority thereof or (iii) more than 50% of the assets of the Company, including
the business for which such executive's services are principally performed, are
disposed of by the Company pursuant to a partial or complete liquidation of the
Company, a sale of assets or otherwise. As part of the termination agreements,
each executive has agreed that, subject to the terms of his termination
agreement, in the event of a "potential change in control" of the Company the
executive will remain in the employ of the Company or its subsidiaries during
the pendency of any such "potential change in control" and for a period of one
year after the occurrence of an actual "change in control." A "potential change
in control" would be deemed to occur if (i) the Company enters into an
agreement, the consummation of which would result in a "change in control" of
the Company, (ii) any person, including the Company, publicly announces an
intention to take or to consider taking actions which if consummated would
17
<PAGE>
constitute a "change in control" or (iii) the Board of Directors adopts a
resolution to the effect that a "potential change in control" has occurred. If
an executive's employment is terminated within three years of a change in
control (i) by the Company other than for cause, retirement or disability or
(ii) by the executive for "good reason," the executive will be entitled to a
lump sum payment equal to 2.99 times his average taxable compensation from the
Company during the five fiscal years of the Company immediately preceding the
change in control, as well as bonuses declared but not yet paid, amounts in
settlement of outstanding stock options, a lump sum payment of certain
retirement benefits and continuing life, disability, accident and health
insurance coverage for a three-year period after such termination. "Good reason"
is broadly defined in the agreements to include any change in duties or
responsibilities, reduction in compensation or benefits or relocation. The
agreements, however, provide that no amount is to be paid to any person which
would result in such a payment being subject to an excise tax under the Code and
being nondeductible by the Company for federal income tax purposes. If the
employment of all of the above-named executive officers were to be terminated
under circumstances requiring payments under such agreements, such officers
would currently be entitled to receive approximately $5,084,898.
Brian Lewis resigned from his position as Executive Vice President of the
Company, and his employment by Imo Industries (UK) Limited terminated, effective
December 31, 1996. In connection with the termination of employment, Mr. Lewis
entered into a Severance Agreement with Imo Industries (UK) Limited pursuant to
which Mr. Lewis was paid $10,521 as a statutory termination payment required to
be paid under United Kingdom law, $243,820 as a termination compensation payment
and $3,340 for a confidentiality and cooperation agreement. Additionally, under
the Severance Agreement, all of his options to purchase shares of the Company's
Common Stock vested immediately, his life assurance and medical insurance will
be continued to January 1999, and Imo Industries (UK) Limited agreed to pay
reasonable legal and tax service fees in connection with the termination of his
employment. Mr. Lewis was also provided a pension plan enhancement described
below under "Pension Plans." Mr. Lewis agreed to release any claims against Imo
Industries (UK) Limited, the Company and its affiliates regarding his
termination. Subsequently, Mr. Lewis entered into a Consultancy Agreement with
the Company, which provides that the Company will pay Mr. Lewis a fee of $1,670
per day for consulting work performed on behalf of the Company, which is
expected to be performed an average of one day per week during the first three
months of 1997. Payments to Mr. Lewis under the Severance Agreement and the
Consultancy Agreement are denominated in pounds sterling, and are translated
above into U.S. dollars at a 1.67 exchange rate.
PENSION PLANS
The following table shows the estimated maximum annual retirement benefits
payable to a covered participant under the Imo Industries Inc. U.S. Salaried
Plan (the "Salaried Plan") and under a non-qualified supplemental executive
retirement plan (the "Supplemental Plan"), which provides benefits that would
otherwise be denied to participants by reason of certain Code limitations on
qualified plan benefits, upon normal retirement at December 31, 1996 after
selected periods of service (collectively referred to hereinafter as the
"Salaried Pension Plans"). Benefits were calculated assuming participants and
their spouses elect a straight-life annuity rather than a joint and survivor or
other form of annuity, in which case benefits would generally be lower than
shown in the table. Benefits are not subject to any deduction for Social
Security or other offset amounts.
18
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL YEARS OF SERVICE
AVERAGE ----------------------------------------------------------------------------
EARNINGS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 16,208 $ 24,311 $ 32,415 $ 40,519 $ 43,967 $ 47,416
150,000 25,208 37,811 50,415 63,019 68,467 73,916
200,000 34,208 51,311 68,415 85,519 92,967 100,416
250,000 43,208 64,811 86,415 108,019 117,467 126,916
300,000 52,208 78,311 104,415 130,519 141,967 153,416
350,000 61,208 91,811 122,415 153,019 166,467 179,916
400,000 70,208 105,311 140,415 175,519 190,967 206,416
450,000 79,208 118,811 158,415 198,019 215,467 232,916
500,000 88,208 132,311 176,415 220,519 239,967 259,416
550,000 97,208 145,811 194,415 243,019 264,467 285,916
600,000 106,208 159,311 212,415 265,519 288,967 312,416
700,000 124,208 186,311 248,415 310,519 337,967 365,416
800,000 142,208 213,311 284,415 355,519 386,967 418,416
900,000 160,208 240,311 320,415 400,519 435,967 471,416
1,000,000 178,208 267,311 356,415 445,519 484,967 524,416
1,100,000 196,208 294,311 392,415 490,519 533,967 577,416
</TABLE>
Final average earnings are based upon the highest five consecutive years of
compensation during the participant's last ten years of service. The annual
compensation taken into account under the Salaried Pension Plans is the monthly
salary in effect on January 1 of each year multiplied by 12 (or, if fewer, the
number of months of employment in that year), plus the amount of any bonus
earned during the previous year. This compensation differs from the annual
compensation set forth in the Summary Compensation Table, which includes bonuses
earned in the same salary year. With respect to the year ended December 31,
1996, covered compensation under the Salaried Pension Plans for the persons
named in the Summary Compensation Table did not differ by more than 10% from
their respective annual compensation shown in such table.
As of December 31, 1996, the persons named in the Summary Compensation
Table had the following years of benefit service as defined under the Salaried
Pension Plans: Mr. Farrar, 3.3 years; Mr. Brown, 4.6 years; Mr. Carr, 30.3
years; and Mr. Bird, 6.5 years. Effective January 1, 1992, Mr. Lewis was
transferred to the Morse Controls Limited Pension and Life Assurance Plan (the
"Morse Controls Plan"), a United Kingdom pension plan. The Morse Controls Plan,
to which both Imo Industries (UK) Limited and Mr. Lewis contributed, provides a
normal retirement pension of 1/45th of the final average salary, which includes
his executive incentive bonus minus a portion of United Kingdom social security
benefits, for each year of pensionable service. Mr. Lewis' employment with Imo
Industries (UK) Limited terminated as of December 31, 1996. As described under
"Employment-Related and Other Agreements" above, Mr. Lewis has entered into a
Severance Agreement with Imo Industries (UK) Limited, which includes a provision
for a pension plan enhancement based upon an increase to Mr. Lewis' number of
years of pensionable service plus an adjustment. Therefore, Mr. Lewis' annual
pension benefit, which comprises his benefit under the Morse Controls Plan and
the Salaried Plan plus the enhancement under the Severance Agreement, will be
pounds 108,000 in the aggregate, or $180,360 assuming an exchange rate to U.S.
dollars of 1.67.
19
<PAGE>
While the Company was a wholly owned subsidiary of Transamerica
Corporation, the Company's employees participated in the Pension Plan for
Salaried U.S. Employees of Transamerica Corporation and Affiliates (the
"Transamerica Pension Plan"). The Transamerica Pension Plan provides that
employees of the Company will continue to vest in their benefits accrued prior
to December 31, 1986, as calculated under the Transamerica Pension Plan, taking
into account only benefit service credited and compensation earned prior to
December 31, 1986, and will continue to receive credit toward the service
requirement for subsidized early retirement benefits and pre-retirement death
benefits, based upon their service with the Company after December 31, 1986.
Accrued benefits under the Salaried Plan will be offset by any vested benefits
under the Transamerica Pension Plan.
The benefits shown in the Pension Plan Table do not reflect the applicable
limitations imposed by Sections 415 and 401(a)(17) of the Code. Benefits payable
pursuant to the Salaried Pension Plans are restricted in accordance with the
limitations of Sections 415 and 401(a)(17) of the Code; however, the Company
maintains the Supplemental Plan under which the Company makes supplemental
pension payments to employees whose benefits under the Salaried Plan are reduced
by the limitations imposed under Section 415 and 401(a)(17) of the Code. The
Company is responsible for all liabilities with respect to supplemental benefit
payments accrued by employees of the Company. In July 1991, the Company's Board
of Directors approved the establishment of a grantor trust (the "Trust") under
Section 671 of the Code. The purpose of the Trust is to satisfy the Company's
obligations to pay benefits to those entitled thereto under the Supplemental
Plan. Pursuant to the terms of the Trust, the Company will from time to time
irrevocably transfer to the Trust assets that will be held in the Trust, subject
to the claims of the Company's creditors, until paid to participants and
beneficiaries of the Supplemental Plan in accordance with the terms of the
Supplemental Plan. During fiscal 1996, the Company did not transfer any amount
to the Trust.
ELECTION OF INDEPENDENT AUDITORS
Unless instructed to the contrary, it is intended that votes will be cast
pursuant to the proxies for the election of Ernst & Young LLP as the Company's
independent auditors for its 1997 fiscal year. Election of Ernst & Young LLP
will require the affirmative vote of the holders of a majority of the shares of
Common Stock represented in person or by proxy at the Annual Meeting. The Board
of Directors recommends a vote FOR the approval of the election of Ernst & Young
LLP as the Company's auditors for its 1997 fiscal year.
Representatives of Ernst & Young LLP will attend the Annual Meeting and
will have the opportunity to make a statement, if they desire to do so, and will
be available to respond to any appropriate questions presented by stockholders
at the Annual Meeting.
20
<PAGE>
ANNUAL REPORT
A copy of the Company's Annual Report for its fiscal year ended December
31, 1996 is being mailed to the Company's stockholders with this Proxy
Statement.
STOCKHOLDER PROPOSALS
FOR 1998 ANNUAL MEETING
Any stockholder who, in accordance with and subject to the provisions of
the proxy rules of the Securities and Exchange Commission, wishes to submit a
proposal for inclusion in the Company's proxy statement for its 1998 Annual
Meeting of Stockholders must deliver such proposal in writing to the Secretary
of the Company at the Company's principal executive offices at 1009 Lenox Drive,
Lawrenceville, New Jersey 08648, not later than December 5, 1997.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the Notice of Annual Meeting,
but if any matters are properly presented, it is the intention of the persons
named in the accompanying proxy to vote on such matters in accordance with their
judgment.
By Order of the Board of Directors,
/s/ Thomas J. Bird
-------------------------------------
THOMAS J. BIRD
Executive Vice President,
General Counsel and Secretary
Date: April 4, 1997
21
<PAGE>
IMO INDUSTRIES INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 20, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Thomas J. Bird and George
Szwabiuk, and each or either of them, proxies of the undersigned, with full
power of substitution, to vote all of the shares of Imo Industries Inc.
(the "Company") which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the Hyatt Regency
Princeton, 102 Carnegie Center, Princeton, New Jersey 08540, on Tuesday,
May 20, 1997 at 10 a.m. and at any adjournment thereof, as shown on the
voting side of this card.
SEE REVERSE
SIDE
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Please mark your 2327
/ X / votes as in this
example.
This proxy will be voted as specified. If a choice is not specified,
this proxy will be voted FOR the nominees for Class II Directors and
FOR Proposal 2.
1. Election of All FOR / / withheld / / Nominees:
Nominees for James B. Edwards
Class II Directors Carter P. Thacher
Listed Hereon.
For all nominees listed hereon, except vote withheld from the following
nominee(s):
- -------------------------------------------------------------------------------
2. ELECTION OF ERNST & YOUNG LLP as the independent auditors for the Company's
1997 fiscal year. The Board of Directors recommends a vote FOR this proposal.
FOR / / AGAINST / / ABSTAIN / /
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment thereof.
This proxy should be dated, signed by the stockholder exactly as the
stockholder's name appears hereon and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate.
Please sign exactly as name(s) appear hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such
________________________________
________________________________
SIGNATURE(S) DATE
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