SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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: 0-17873
Giddings & Lewis, Inc.
(Exact name of registrant
as specified in its charter)
Wisconsin 39-1643189
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
142 Doty Street
Fond du Lac, Wisconsin 54935
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, including area code: (414) 921-9400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $.10 par value
Preferred Share Purchase Rights
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 nonaffiliates of the
registrant at March 10 1997: $459,187,577.
Number of shares of the registrant's common stock outstanding at March 10,
1997: 33,186,898 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Shareholders for the year ended December 31, 1996
(incorporated by reference into Parts I, II and IV)
(2) Proxy Statement for 1997 Annual Meeting of Shareholders (incorporated
by reference into Part III)
<PAGE>
PART I
Item 1. Business
General
Giddings & Lewis, Inc. (the "Company") is a leading global
designer and producer of highly-engineered, high-precision, industrial
automation systems, including automated machine tools, smart manufacturing
systems, flexible transfer lines, assembly automation systems, measuring
systems, industrial controls, and related products and services. The
Company's products are supplied primarily to the automotive, construction,
aerospace, defense, appliance, energy and electronics industries and are
manufactured at the Company's thirteen facilities located in the United
States, Canada, England and Germany.
The Giddings & Lewis name has been continuously present in the
Company's domestic markets for over 100 years. On October 31, 1991, the
Company acquired Cross & Trecker Corporation ("Cross & Trecker"), a
manufacturer of machine tools and related factory equipment. The
acquisition was accounted for as a purchase and the operations of Cross &
Trecker have been included in the Company's financial statements since the
date of acquisition. On April 24, 1995, the Company acquired Fadal
Engineering Company, Inc. ("Fadal"). The acquisition was accounted for as
a purchase and the operations of Fadal have been included in the Company's
financial statements since the date of acquisition. The operations of
Fadal are included in the Company's Automation Technology Group.
The Company's overall business strategy is to continue to
strengthen its position within the global industrial automation
marketplace by providing customers with a creative, single source for a
broad range of manufacturing products and services. The key ongoing
elements of the Company's business strategy are to (i) continue to
implement a focused customer-oriented marketing approach, (ii) expand and
extend the Company's product lines, and (iii) aggressively expand its
international franchise.
The Company operates in a single business segment, industrial
automation products, and is organized into four major operating groups:
Automation Technology, Integrated Automation, Automation Measurement and
Control, and European Operations. Net sales attributed to each of the
Company's operating groups for each of the last three years are shown in
the following table:
<TABLE>
<CAPTION>
Revenue by Operating Group
(in thousands)
Year Ended December 31,
1996 1995 1994
% of % of % of
Operating Group Amount Total Amount Total Amount Total
<S> <C> <C> <C> <C> <C> <C>
Automation Technology $332,441 43.6% $293,872 40.2% $162,895 26.3%
Integrated Automation 238,470 31.2 277,637 38.0 267,778 43.2
Automation Measurement
and Control 62,997 8.3 71,171 9.8 62,213 10.0
European Operations 129,085 16.9 87,872 12.0 126,585 20.5
------- ------- ------- ----- ------- -----
Total $762,993 100.0% $730,552 100.0% $619,471 100.0%
======= ======= ======= ===== ======= =====
</TABLE>
Products
The Automation Technology Group, the Integrated Automation Group and
the Automation Measurement and Control Group sell products from the
automation technology, integrated automation and automation measurement
and control product lines, respectively. The European Operations Group
sells products from all three product lines. Each of the Company's
product lines is described below.
Automation Technology. The Company's automation technology product line
consists of highly-engineered, high-precision, computer numerically
controlled machine tools and associated products and services. Revenues
from this product line were 45.9%, 41.2% and 32.0% of total revenues for
1996, 1995 and 1994, respectively. The following are the most significant
products in this product line:
Horizontal and Vertical Machining Centers, which, through the
use of automatic tool changers, can mill, drill, bore, tap and
ream primarily metal parts of various shapes and sizes, in
programmable sequences;
Horizontal and Vertical Lathes, which cut round parts from metal
and other materials;
Horizontal Boring, Drilling, and Milling Machines, which perform
the same functions as horizontal machining centers, but do not
have automatic tool changers;
Cellular and Flexible Manufacturing Systems, which utilize
material handling systems and Company-produced computer
numerical controls and software, and prefixtured pallets to
integrate several machine tools to form a cellular system or to
integrate many machine tools to form a flexible manufacturing
system;
Fixtures and Cutting Tools, which are used to hold and to cut,
drill, or bore metal and other parts; and
Drill Point Grinders, which grind specialized drill points
including a helical point which has superior drilling
capabilities.
With the exception of the Fadal product line, substantially all
of the Company's major machine tools and fixtures are custom engineered to
meet specific customer requirements and, accordingly, have a high
engineering component in their selling prices. Although these products
are produced in a variety of sizes, the historic focus and strength of
this product line has been large, highly-engineered, high-precision
metal-cutting machine tools such as those used to manufacture major parts
for jet engines and construction equipment. Trading on the Company's name
and reputation, these products occupy the premium-priced segment of the
market. Fadal's product line includes eleven models of small computer
numerically controlled vertical machining centers for use in industrial
machine shops. The Company produces the majority of the computer
numerical controls and related software incorporated into its products.
The Company's cutting tools and drill point grinders are primarily sold to
standard specifications.
Virtually all of the Company's automated machine tools are
computer numerically controlled. They are designed to operate largely
unattended and are programmable to perform machining functions on a wide
variety of metal parts and other materials. Such standalone machines may
be combined with several pallets (on which parts in process are positioned
for machining) and pallet changers to increase production flow. The next
step in automation is to permit a part to be processed by one machine and
automatically transferred to another machine for further work. The
Company provides this capability through cellular and flexible
manufacturing systems that integrate the functions of several standalone
machines with the use of automated transport systems and Company-produced
cell managers and software. Since 1982, the Company has designed its
machine tools and their pallets to be compatible with each other so that
its established customer base can integrate new machines with existing
machines.
Standalone machines have historically dominated the Company's
machine tool sales, accounting for approximately 74.2%, 65% and 37% of
automation technology product line revenues in 1996, 1995 and 1994,
respectively. Cellular and flexible manufacturing systems accounted for
approximately 1%, 5% and 21% of automation technology product line
revenues in the same respective years. Included in such cellular and
flexible manufacturing percentages is a certain volume of standalone sales
to customers which create or enlarge machining cells by integrating the
new machines with existing machines.
The Company's revenues from post-sale services and parts are
primarily associated with its automation technology product line.
Services include training, maintenance, repair, remanufacturing and
retrofitting, and accounted for approximately 19%, 23% and 33% of
automation technology product line sales in 1996, 1995 and 1994,
respectively. Sales of such services and parts are at higher gross
margins than the machine tools themselves and have historically been less
sensitive to industry cyclicality than the sale of new equipment.
The other products in the automation technology product line
primarily consist of gray iron and ductile castings which are produced for
the Company's requirements as well as for sales to outside customers.
Through its foundry in Menominee, Michigan, the Company produces gray iron
and ductile castings of up to 35 tons, typically cast from unique patterns
supplied by the Company and its customers and maintained at the foundry.
Integrated Automation. The Company engineers, manufactures and sells
flexible transfer lines, flexible machining systems and special machining
systems. The Company is also a leading domestic designer and manufacturer
of custom automated assembly systems, including dials, synchronous and
non-synchronous transport systems and special handling, testing and
measuring systems and complete multi-unit automatic production systems.
These products are for use in the automotive industry, as well as the
major appliance and other high volume industries. Integrated automation
product line revenues for 1996, 1995 and 1994 accounted for 45.7%, 49.9%
and 57.9%, respectively, of total revenues for the Company.
The Company's flexible transfer lines are a combination of
individual work stations arranged in the required sequence, connected by
work transfer devices and integrated with interlocked controls. All types
of machining operations, such as drilling, tapping, reaming, boring and
milling are efficiently and economically combined on transfer machines.
Dial, rotary, in-line and pallet-type are among the different types of
flexible transfer line equipment supplied by the Company. Flexible
transfer lines have traditionally been used in the automotive industry for
producing identical components at high production rates with minimal
manual part handling and are applicable to other industries with high
volume requirements. Flexible transfer lines accounted for approximately
67.3%, 63.9% and 65.9% of integrated automation product line revenues in
1996, 1995 and 1994, respectively.
The Company's automated assembly systems are used to assemble a
variety of products, including automotive airbags, household appliances,
wing spars for commercial airlines, and automotive engines and
transmissions. The nonsynchronous assembly systems are used to integrate
independent self-powered assembly stations with a continuous conveyor line
and consist of three principal types of stations: manual stations, which
only require that a part be placed on a pallet; dedicated stations, which
perform multiple actions on a family of parts; and robotic stations, which
can be programmed to perform many functions on a number of parts.
Robotics incorporated in the Company's automated assembly systems are not
produced by the Company. Each automated assembly system is custom
engineered by the Company to meet a customer's specific requirements, with
standardized components normally accounting for only 10% to 15% of any
system. Automated assembly systems accounted for approximately 30.8%,
22.4% and 27.2% of integrated automation product line revenues in 1996,
1995 and 1994, respectively.
The integrated automation product line also includes broach and
piston turning machines. Both are metalcutting machines. Broach machines
are used to push or pull a multi-tooth cutting tool or the workpiece in
relation to each other to remove material. Broach machines have the
ability to rough and finish in one pass thereby increasing productivity.
As the name implies, piston turning machines are used to manufacture
pistons. The machine is unique in that it is capable of producing the
complex shapes required in piston manufacturing.
Automation Measurement and Control. The Company designs and manufactures
a comprehensive line of dimensional measurement products. These include
coordinate measurement machines, gaging products and metrological
instruments. The Company is a leader in the implementation of flexible
measurement systems, which can be supplied either on a standalone basis or
as an integral part of manufacturing systems. The Company also provides a
wide range of services, including gage certification services. In
addition, the Company supplies a broad range of industrial control
products, including programmable industrial computers, computer numerical
controls, servo drive systems, operator interface systems and specialized
software solutions. These products are designed for use both with the
Company's products and the products of other manufacturers. Automation
measurement and control product line revenues were 8.4%, 8.9% and 10.1% of
total revenues for the Company in 1996, 1995 and 1994, respectively.
Customers, Sales, and Distribution
The Company's products and manufacturing systems are sold
primarily to the automotive, construction, aerospace, defense, appliance,
energy and electronics industries. Typically, the ten largest customers
are large multi-national companies that account for approximately 40% to
60% of the Company's total sales, although the composition of these
customers varies from year to year. One customer, Ford Motor Company,
accounted for approximately 10.3%, 6.3% and 15.9% of the Company's sales
in 1996, 1995 and 1994, respectively. For the same periods, Chrysler
Corporation accounted for approximately 18.7%, 23.2% and 14.2% of sales,
respectively.
A network of sales representatives/distributors is used to sell
the Company's products on a worldwide basis. The sales
representative/distributor network is assisted and supervised by Company
sales managers located in key market areas. The Company's direct sales
force is paid a salary plus commission and its distributors are paid on a
commission-only basis.
Sales Arrangements
The Company sells substantially all of its products under fixed
price contracts. These contracts are priced after the Company analyzes,
among other things, material, labor, overhead and custom engineering costs
involved in the contract.
Fixed price contracts entail the risk of cost overruns. The
risk of such overruns typically increases in proportion to the complexity
and uniqueness of the engineering and manufacturing tasks involved under
any particular contract. There can be no assurance that the Company will
not be adversely affected by significant cost overruns on its fixed price
contracts.
Approximately one-half of the products manufactured by the
Company involve long lead times from receipt of a customer order to the
shipment of a completed machine. Under the terms of its sales contracts,
and consistent with industry practice, the Company receives most of its
sales price upon shipment of the product.
Manufacturing Capacity
The Company manufactures its products at thirteen facilities
with its primary facilities located in Fond du Lac and Janesville,
Wisconsin; Fraser and Port Huron, Michigan; Dayton, Ohio; Chatsworth,
California; Knowsley, England; and Wendlingen, Germany. The Fond du Lac
facility currently operates two shifts a day, five days a week. The
Janesville facility is currently operating three shifts, six days a week.
The Fraser and Port Huron facilities are currently operating two shifts a
day, five days a week. The Dayton facility is currently operating two
shifts, six days a week. The Chatsworth facility is currently operating
two shifts, five days a week. The Knowsley and Wendlingen facilities are
currently operating two shifts a day, five days a week. Overtime charges
at the Company's facilities are not material.
Product Line Competition
Automation Technology. The market for machine tools is highly
competitive, with substantial competition from both U.S. and foreign
manufacturers. Competition is mainly from manufacturers of the same types
of machines produced by the Company. However, manufacturers of different
machine types, certain customers, and third party integrators are also
competitors. Principal competitive factors for machine tools include
product performance, delivery, price and service. The Company's
Menominee, Michigan foundry competes with a number of foundries in its
respective market area.
Integrated Automation. The traditional customer base for domestic
flexible transfer line sales has been the major automobile manufacturers.
This limited customer base and the large scope of the projects involved
have made this a very competitive market. The size of the projects has
resulted in a competitive environment where the major competitors are
large and often have established relationships with their customers.
Foreign competitors have obtained limited business in this market which
had been traditionally dominated by domestic suppliers. The international
customer base for flexible transfer lines includes all major European,
Asian and U.S. transplant automobile manufacturers. This market exhibits
the same competitive characteristics as the U.S. market. However, the
Company believes that its established presence in the European flexible
transfer line market and its manufacturing capabilities in Germany and
England leave the Company favorably positioned to compete effectively in
this market.
The domestic market for automated assembly systems is also
competitive. Competitive factors for automated assembly systems include
engineering concepts, pricing, product performance and delivery.
Approximately 70 North American companies have been identified as
competitors for the type of automated assembly systems supplied by the
Company. Many of these competitors specialize in a specific type of
assembly system and compete mainly on a regional basis. The automated
assembly systems manufactured by the Company are substantially custom
engineered products and are purchased largely by both major corporations
and small independent companies based in the U.S. Due to the nature of
its products and its customer base, the Company believes that to date it
has not faced significant foreign competition in automated assembly
systems. In the international market, the Company believes that the
relationships already established in the European automotive market will
provide new opportunities for sales of automated assembly systems.
Automation Measurement and Control. The markets for the automation
measurement and control product line is highly competitive. Currently,
the Company believes that it is among the top five coordinate measurement
producers in the world. This market has become increasingly global in
nature with significant competition coming from foreign producers.
Principal competitive factors for coordinate measurement systems include
quality, delivery time, service and price.
Established customer relationships and customer preference for a
standardized control produced by one manufacturer has hindered the
Company's ability to penetrate some of the larger segments in the market
for industrial control products. The Company believes that it has
successfully pursued niche and non-traditional markets in the broad motion
control marketplace as exemplified by sales to robotics, photographic
equipment and packaging equipment manufacturers.
Raw Materials
Because the Company manufactures many of the parts used in its
products, the basic raw materials used in the Company's production are
iron and steel. The Company's foundry produces gray iron and ductile
castings which are major parts in its machine tools. Certain components
are purchased, such as sheet metal, robotics, electric motors, bearings,
steel castings and electronic and electrical components. All such
materials and components used are available from a number of sources. The
Company is not dependent on any supplier that cannot be readily replaced
and has not experienced difficulty in obtaining necessary purchased
materials.
Patents and Trademarks
The Company possesses rights under a number of domestic and
foreign patents and trademarks relating to its products and business.
While the Company considers that patents and trademarks are important in
the operation of its business, its business is not dependent on any single
patent or trademark or group of patents or trademarks.
Research, Development and Custom Engineering
As of December 31, 1996, the Company had 54 employees in its
engineering departments engaged, wholly or partly, in activities relating
to Company-sponsored research, 42 of whom have college engineering
degrees. Another 449 employees were actively involved in product
development, custom engineering and software development. Of these, 268
have college degrees in engineering. A summary of research and product
development expenditures for the last three years is shown in the
following table:
Research, Development and Custom Engineering Expenditures
(in thousands)
1996 1995 1994
Research and development expense
pertaining to new products or
significant improvements to existing
products . . . . . . . . . . . . . . $9,367 $ 3,183 $ 3,857
All other product development and
engineering expenditures related to
ongoing refinements, improvements of
existing products, and custom
engineering . . . . . . . . . . . . . 51,895 57,212 63,541
------- ------- -------
Total expenditures for research,
product development, and engineering $61,262 $60,395 $67,398
======= ======= =======
Employees
As of December 31, 1996, the Company had 3,315 employees, of
whom 1,592 were hourly employees and 1,723 were salaried employees. At
the Company's Menominee, Michigan facility, 108 employees are covered by a
collective bargaining agreement expiring in September 1997. The Company's
remaining collective bargaining agreements expire at various times from
1998 through 1999. The Company considers its employee relations to be
good.
Executive Officers
The following table sets forth certain information, as of March
1, 1997, regarding the executive officers of the Company. All executive
officers serve at the pleasure of the Board of Directors.
Name Age Position
Joseph R. Coppola 66 Chairman, Chief Executive Officer and
Director
Marvin L. Isles 51 President, Chief Operating Officer
and Director
Heinz G. Anders 63 Group Vice President and General
Manager-European Operations
Douglas E. Barnett 37 Vice President and Corporate
Controller
Carmine F. Bosco 50 Group Vice President and General
Manager - Automation Measurement and
Control Group
Philip N. Ciarlo 45 Group Vice President and General
Manager - Integrated Automation Group
Todd A. Dillmann 41 Corporate Counsel and Secretary
Robert N. Kelley 46 Vice President - Administration
Michael R. Melzer 51 Treasurer
Stephen M. Peterson 47 Group Vice President and General
Manager - Fadal Engineering
James B. Simon 55 Group Vice President and General
Manager - Automation Technology Group
Joseph R. Coppola was appointed Chairman of the Board and Chief Executive
Officer of the Company in July 1993. From 1983 to 1993, Mr. Coppola was
Senior Vice President of Manufacturing Services for Cooper Industries,
Inc. On March 17, 1997, Mr. Coppola retired as Chief Executive Officer of
the Company.
Marvin L. Isles was appointed President and Chief Operating Officer of the
Company in June 1996. From 1994 until joining the Company, Mr. Isles was
Executive Vice President of GenCorp Inc. (a manufacturer of automotive,
polymer and aerospace and defense products). From 1988 to 1994, Mr. Isles
was Vice President of GenCorp Inc. and President of its automotive
business. On March 17, 1997, Mr. Isles was appointed President and Chief
Executive Officer of the Company.
Heinz G. Anders has served as Group Vice President and General Manager of
the Company's European Operations since February 1994. From 1981 until
assuming his current position, Mr. Anders was Managing Director for
Deutsche Gardner-Denver GmbH & Co. in Westhausen, Germany.
Douglas E. Barnett has served as Vice President and Corporate Controller
since January 1996. Prior thereto, Mr. Barnett had been Treasurer of the
Company since February 1991.
Carmine F. Bosco has served as Group Vice President and General Manager -
Automation Measurement and Control since joining the Company in June 1995.
Prior thereto he spent twenty years working for Ingersoll-Rand Company
where he served as Vice President and General Manager of the Aro Fluid
Products division from 1990 until joining the Company.
Philip N. Ciarlo has served as Group Vice President and General Manager -
Integrated Automation since December 1995. Prior thereto he served as
Vice President and General Manager of the Company's Assembly Automation
Operations from June 1994 to December 1995. Prior to joining the Company
in June 1994, Mr. Ciarlo was Manager Plant Operations for Martin Marietta
from April 1993 to June 1994. He served in various management positions
with General Electric Corporation for twenty years prior to that.
Todd A. Dillmann has served as Corporate Counsel to the Company since
November 1991, Assistant Secretary from January 1995 to June 1996 and as
Secretary since June 1996.
Robert N. Kelley has served as Vice President - Administration of the
Company since July 1991.
Michael R. Melzer has served as Treasurer of the Company since January
1996. Prior thereto he served as Vice President of Financial Services of
the Company from September 1993 to January 1996. From February 1993 until
August 1993, Mr. Melzer served as Vice President of Technical Services -
Automation Technology. From November 1991 until January 1993, Mr. Melzer
served as Vice President - West Allis Operations for the Automation
Technology Group.
Stephen M. Peterson has served as Group Vice President and General Manager
- Fadal Engineering Company, Inc. since May 1995. Prior thereto he served
as Vice President - Worldwide Sales of the Company since December 1990.
James B. Simon has served as Group Vice President - Automation Technology
since December 1994 and prior thereto Mr. Simon had been Vice President -
Engineering/Total Quality of the Company since 1989.
Backlog
Information about backlog is contained under "Management's
Discussion and Analysis" on pages 15 to 19 of the Company's 1996 Annual
Report to Shareholders and such information is hereby incorporated herein
by reference. In some instances involving automotive customers, bookings
are awarded and included in the backlog with the formal purchase orders
obtained at a later time. Such practice is standard in the industry and
the Company has historically experienced no significant cancellation of
such bookings. At December 31, 1996, all orders from automotive customers
included in the backlog were supported by formal purchase orders.
Foreign Operations and Export Sales
Information about the Company's foreign operations and export
sales is contained in Note 11 of Notes to Consolidated Financial
Statements on page 34 of the Company's 1996 Annual Report to Shareholders
and such information is hereby incorporated herein by reference.
Environmental Matters
The Company and the industry in which it competes are subject to
environmental laws and regulations concerning emissions to the air,
discharges to waterways and the generation, handling, storage,
transportation, treatment and disposal of waste materials. It is the
Company's policy to comply with all applicable environmental, health and
safety laws and regulations. These laws and regulations are constantly
evolving and it is difficult to predict accurately the effect they will
have on the Company in the future. The Company does not presently
anticipate that compliance with currently applicable environmental
regulations and controls will significantly affect its competitive
position, capital spending or earnings during 1997. For further
information on environmental matters, see Item 3 of this Annual Report on
Form 10-K.
Item 2. Properties
The following table sets forth certain information, as of
December 31, 1996, relating to the Company's principal facilities. See
"Manufacturing Capacity." All of the real property listed is owned by the
Company.
Properties
Approximate
Approximate Floor Area
Land Area in Square
Location in Acres Feet Principal Uses
Chatsworth, CA 6.8 206,000 Design and manufacture
of automated machine
tools
Fond du Lac, WI 24.3 457,000 General offices and
design and manufacture
of automated machine
tools, tools and
accessories
Fond du Lac, WI 15.4 102,000 Design and manufacture
of computer-based
electronic control units
and production of
related software
Janesville, WI 12.3 227,000 Design and manufacture
of automated assembly
systems
Janesville, WI 5.5 82,000 Design and manufacture
of automated assembly
systems
Dayton, OH 19.8 294,000 Design and manufacture
of measurement systems
Fraser, MI 31.1 244,000 Design and manufacture
of machining systems
Warren, MI 1.9 24,000 Manufacture of machine
components
Port Huron, MI 12.5 143,000 Design and manufacture
of special machine tools
Menominee, MI 7.0 142,000 Manufacture of castings
Tecumseh, Canada 9.0 70,000 Manufacture of machining
systems
Wendlingen, Germany 11.5 257,000 Design and manufacture
of machining systems
Knowsley, England 5.7 125,000 Design and manufacture
of machining systems
Item 3. Litigation
The Company is involved in various environmental matters,
including matters in which the Company and certain of its subsidiaries
have been named as potentially responsible parties under the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"). One
such matter is the Company's implementation of a Wisconsin Department of
Natural Resources ("WDNR") approved clean-up plan on a nine acre parcel of
land adjacent to its former West Allis, Wisconsin manufacturing facility.
The Company has completed the soil removal portion of the plan and is
currently engaged in limited groundwater monitoring to support its
application to the WDNR for site closure.
The Company has established accruals ($9.1 million and $10.0
million at December 31, 1996 and 1995, respectively) for all environmental
contingencies of which management is currently aware in accordance with
generally accepted accounting principles. In establishing these accruals,
management considered (a) reports of environmental consultants retained by
the Company, (b) the costs incurred to date by the Company at sites where
clean-up is presently ongoing and the estimated costs to complete the
necessary remediation work remaining at such sites, (c) the financial
solvency, where appropriate, of other parties that have been responsible
for effecting remediation at specified sites, and (d) the experience of
other parties who have been involved in the remediation of comparable
sites. The accruals recorded by the Company with respect to environmental
matters have not been reduced by potential insurance or other recoveries
and are not discounted. Although the Company has and will continue to
pursue such claims against insurance carriers and other responsible
parties, future potential recoveries remain uncertain and, therefore, were
not recorded as a reduction to the estimated gross environmental
liabilities. Based on the foregoing and given current information,
management believes that future costs in excess of the amounts accrued on
all presently known and quantifiable environmental contingencies will not
be material to the Company's financial position or results of operations.
In another matter, a Michigan Department of Environmental
Quality ("State") investigation into alleged environmental violations at
the Company's Menominee, Michigan facility resulted in the issuance of
criminal complaints against the Company and two of its employees in
November 1994. The complaints, filed in Menominee County, Michigan
district and circuit courts, generally focus on alleged releases of
hazardous substances and the alleged illegal treatment and disposal of
hazardous waste. In December 1996, the seven charges then pending against
the Company in circuit court were dismissed on the grounds, among other
things, that the criminal provision under which the Company was charged is
unconstitutional. In February 1997, the Company and the State reached a
tentative agreement, subject to the negotiation of a final written
settlement and plea agreement and its entry by the court. The general
parameters of the tentative agreement are as follows: (i) the State will
dismiss with prejudice and release the Company from all charges and
covenant not to sue on any matters, administrative, civil or criminal,
raised in the criminal complaint or investigation; (ii) the Company will
reimburse the State's investigation costs in an amount to be determined,
not to exceed $492,000; (iii) the Company will plead no contest (not
admitting liability) to one misdemeanor charge and (iv) the circuit court
decision holding the statute unconstitutional will be vacated. Pending
this final resolution, cross appeals have been filed. The three
misdemeanor counts against the two employees of the Company remain pending
in district court.
Also two civil lawsuits are pending against the Company in
Menominee County, Michigan district court which seek unspecified damages
based on allegations of improper disposal and emissions at this facility.
The Company remains committed to vigorously defending itself against all
suits, charges and allegations to the extent they are not resolved on
terms satisfactory to the Company. Except to the extent described above,
information presently available to the Company does not enable it to
reasonably quantify potential civil or criminal penalties, or remediation
costs, if any, related to any of the Menominee, Michigan matters.
The Company is also involved in other litigation and
proceedings, including product liability claims. In the case of product
liability, the Company is partially self-insured and has accrued for all
claim exposure for which a loss is probable and reasonably estimable.
Based on current information, management believes that future costs in
excess of the amounts accrued for all such existing litigation will not be
material to the Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders during the
quarter ended December 31, 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The portion of page 19 under the caption "Market Prices and
Dividends" which describes the market for the Company's Common Stock, $.10
par value, and Note 5 of Notes to Consolidated Financial Statements on
pages 27 and 28 which describes restrictions on dividends and which are
contained in the Company's 1996 Annual Report to Shareholders are hereby
incorporated herein by reference in response to this Item.
Item 6. Selected Financial Data
The information set forth in the table on page 14 of the
Company's 1996 Annual Report to Shareholders under the caption "Five-Year
Summary" is hereby incorporated herein by reference in response to this
Item.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information set forth on pages 15 through 19 in the
Company's 1996 Annual Report to Shareholders under the caption
"Management's Discussion and Analysis" is hereby incorporated herein by
reference in response to this Item.
Item 8. Financial Statements and Supplementary Data
The consolidated statements of operations, cash flows and
changes in shareholders' equity for each of the years in the three-year
period ended December 31, 1996, and the related consolidated balance
sheets of the Company as of December 31, 1996 and 1995, together with the
related notes thereto and the report of independent auditors, all set
forth on pages 20 through 35 of the Company's 1996 Annual Report to
Shareholders, are hereby incorporated herein by reference in response to
this Item.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with the
Company's independent auditors regarding accounting and financial
disclosure required to be reported pursuant to this Item.
PART III
Item 10. Directors and Executive Officers of the Registrant
Pursuant to Instruction G, the information required by this Item
with respect to directors and Section 16 compliance is hereby incorporated
herein by reference from the information under the captions entitled
"Election of Directors" and "Miscellaneous-Section 16(a) Beneficial
Ownership Reporting Compliance" set forth in the Company's definitive
Proxy Statement for its 1997 Annual Meeting of Shareholders ("Proxy
Statement"). Information with respect to the executive officers of the
Company appears in Part I, pages 9 through 11, of this Annual Report on
Form 10-K.
Item 11. Executive Compensation
Pursuant to Instruction G, the information required by this Item
is hereby incorporated herein by reference from the information under the
captions entitled "Board of Directors-Director Compensation" and
"Executive Compensation" set forth in the Proxy Statement; provided,
however, that the subsection entitled "Executive Compensation - Report on
Executive Compensation" shall not be deemed to be incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Pursuant to Instruction G, the information required by this Item
is hereby incorporated herein by reference from the information under the
caption entitled "Principal Shareholders" set forth in the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
Pursuant to Instruction G, the information required by this Item
is hereby incorporated by reference herein from the information under the
captions entitled "Election of Directors" and "Executive Compensation" set
forth in the Proxy Statement; provided, however, that the subsection
entitled "Executive Compensation -- Report on Executive Compensation"
shall not be deemed to be incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial statements - The financial statements listed
in the accompanying index to financial statements and
financial statement schedules are incorporated by
reference in this Annual Report on Form 10-K.
2. Financial statement schedules - The financial
statement schedule listed in the accompanying index to
financial statements and financial statement schedules
is filed as part of this Annual Report on Form 10-K.
3. Exhibits - The exhibits listed in the accompanying
index to exhibits are filed as part of this Annual
Report on Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on March 26, 1997.
GIDDINGS & LEWIS, INC.
By /s/ Joseph R. Coppola
Joseph R. Coppola
Chairman
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on March 26, 1997.
Name Title
/s/ Joseph R. Coppola Chairman and Director
Joseph R. Coppola
/s Marvin L. Isles President, Chief Executive
Marvin L. Isles Officer and Director
/s/ Douglas E. Barnett Vice President and Controller
Douglas E. Barnett (Principal Financial and
Accounting Officer)
/s/ John A. Becker Director
John A. Becker
/s/ Ruth M. Davis Director
Ruth M. Davis
/s/ Clyde H. Folley Director
Clyde H. Folley
/s/ Benjamin F. Garmer, III Director
Benjamin F. Garmer, III
/s/ John W. Guffey, Jr. Director
John W. Guffey, Jr.
/s/ Ben R. Stuart Director
Ben R. Stuart
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
Page
--------------------------
Annual Report
Form 10-K to Shareholders
Consolidated statements of operations
for each of the three years in the
period ended December 31, 1996 - 20
Consolidated statements of cash flows
for each of the three years in the
period ended December 31, 1996 - 21
Consolidated balance sheets at
December 31, 1996 and 1995 - 22
Consolidated statements of changes in
shareholders' equity for each of the
three years in the period ended
December 31, 1996 - 23
Notes to consolidated financial
statements - 24-34
Report of Independent Auditors - 35
Consolidated financial statement
schedule:
II - Valuation and
qualifying accounts 20 -
All other financial statement schedules are omitted because the required
information is not present or is not present in amounts sufficient to
require submission of the schedules, or because the information required
is included in the consolidated financial statements and notes thereto.
<PAGE>
Schedule II
GIDDINGS & LEWIS, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995 and 1994
(in thousands)
Balance
at Additions Balance at
beginning charged to end of
Classification of year expense Deductions year
Receivables - Allowance
for doubtful
accounts:
1996 $1,836 $17,718 $(17,358) $2,196
1995 922 999 (85) 1,836
1994 973 172 (223) 922
Inventories - Allowance
for obsolescence and
loss:
1996 $7,476 $12,205 $(4,307) $15,374
1995 7,378 2,913 (2,815) 7,476
1994 5,900 2,553 (1,075) 7,378
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit Description
(3.1) Restated Articles of Incorporation of Giddings &
Lewis, Inc., as amended to date [Incorporated by
reference to Exhibit 3.2 to Giddings & Lewis, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
October 1, 1995]
(3.2) Amendments to the By-Laws of Giddings & Lewis, Inc.
(3.3) By-Laws of Giddings & Lewis, Inc., as amended
(4.1) Article IV of the Restated Articles of Incorporation
of Giddings & Lewis, Inc., as amended to date
[Incorporated by reference to Exhibit 3.2 to
Giddings & Lewis, Inc.'s Quarterly Report on Form
10-Q for the quarter ended October 1, 1995]
(4.2) Credit Agreement among Giddings & Lewis, Inc.,
Giddings & Lewis GmbH, Giddings & Lewis AG, the
Institutions from time to time party thereto as
Lenders, the Institutions from time to time party
thereto as Issuing Banks, Citicorp North America,
Inc., as Agent, and Citicorp Investment Bank Limited,
as London Agent, dated as of December 21, 1992.
[Incorporated by reference to Exhibit 4.2 to Giddings
& Lewis, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1992]
(4.3) Amendment to Credit Agreement among Giddings & Lewis,
Inc., Giddings & Lewis GmbH, Giddings & Lewis Ltd.,
the Institutions from time to time party thereto as
Lenders, the Institutions from time to time party
thereto as Issuing Banks, Citicorp North America,
Inc., as Retiring Agent, Citibank N.A., as Agent,
Citicorp Investment Bank Limited, as Retiring London
Agent, and Citibank International plc, as an Agent,
dated as of December 21, 1994 [Incorporated by
reference to Exhibit 4.3 to Giddings & Lewis, Inc.'s
Annual Report on Form 10-K for the year ended
December 31, 1994]
(4.4) Amendment No. 2 and Consent to Credit Agreement among
Giddings & Lewis, Inc., Giddings & Lewis GmbH,
Giddings & Lewis Ltd. and the Institutions from time
to time party thereto as Agent and Lenders, dated as
of April 24, 1995 [Incorporated by reference to
Exhibit 4.3 to Giddings & Lewis, Inc.'s Current
Report on Form 8-K, dated April 24, 1995]
(4.5) Amendment No. 3 and Waiver to Credit Agreement among
Giddings & Lewis, Inc., Giddings & Lewis GmbH,
Giddings & Lewis Ltd. and the Institutions from time
to time party thereto as Agent and Lenders, dated as
of February 10, 1997
(4.6) Amendment No. 4 to Credit Agreement among Giddings &
Lewis, Inc., Giddings & Lewis, Ltd., Giddings & Lewis
GmbH and the Institutions from time to time party
thereto as Agent and Lenders, dated as of March 21,
1997
(4.7) Indenture between Giddings & Lewis, Inc. and Firstar
Trust Company, as Trustee, dated as of August 7, 1995
[Incorporated by reference to Exhibit 4.1 to
Amendment No. 1 to Giddings & Lewis, Inc.'s
Registration Statement on Form S-3 (Registration No.
33-61237)]
(4.8) Officer's Certificate, dated as of September 26,
1995, relating to Giddings & Lewis, Inc.'s 7-1/2% Notes
due 2005 [Incorporated by reference to Exhibit 4 to
Giddings & Lewis, Inc.'s Current Report on Form 8-K,
dated September 26, 1995]
(4.9) Rights Agreement, dated as of August 23, 1995,
between Giddings & Lewis, Inc. and Firstar Trust
Company [Incorporated by reference to Exhibit 4.1 to
Giddings & Lewis, Inc.'s Current Report on Form 8-K,
dated August 23, 1995]
(10.1)* Giddings & Lewis, Inc. 1989 Stock Option Plan
[Incorporated by reference to Exhibit 4.1 to
Giddings & Lewis, Inc.'s Form S-8 Registration
Statement (Registration No. 33-31951)]
(10.2)* Giddings & Lewis, Inc. 1989 Restricted Stock Plan
[Incorporated by reference to Exhibit 4.1 to
Giddings & Lewis, Inc.'s Form S-8 Registration
Statement (Registration No. 33-31950)]
(10.3)* Giddings & Lewis, Inc. Independent Director Stock
Based Incentive Plan [Incorporated by reference to
Exhibit 10.4 to Giddings & Lewis, Inc.'s Form S-4
Registration Statement (Registration No. 33-43061)]
(10.4)* Giddings & Lewis, Inc. 1993 Stock and Incentive Plan
[Incorporated by reference to Exhibit 4.1 to
Giddings & Lewis, Inc.'s Form S-8 Registration
Statement (Registration No. 33-64936)]
(10.5)* Form of Key Executive Employment and Severance
Agreement (covering officers other than Joseph R.
Coppola) [Incorporated by reference to Exhibit 10.5
to Giddings & Lewis, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1993]
(10.6)* Key Executive Employment and Severance Agreement,
dated as of October 27, 1993, by and between Giddings
& Lewis, Inc. and Joseph R. Coppola [Incorporated by
reference to Exhibit 10.6 to Giddings & Lewis, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
October 3, 1993]
(10.7)* Employment Agreement by and between Heinz Anders and
Giddings & Lewis GmbH, dated as of January 12, 1994
[Incorporated by reference to Exhibit 10.8 to
Giddings & Lewis, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1994]
(10.8)* Management Incentive Compensation Program
[Incorporated by reference to Exhibit 10.9 to
Giddings & Lewis, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1993]
(10.9)* Supplemental Executive Retirement Plan (covering
officers of the Company other than Joseph R. Coppola)
[Incorporated by reference to Exhibit 10.10 to
Giddings & Lewis, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1993]
(10.10)* Supplemental Retirement Program for Joseph R. Coppola
[Incorporated by reference to Exhibit 10.12 to
Giddings & Lewis, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1993]
(10.11)* Giddings & Lewis, Inc. Deferred Compensation Plan for
Non-Employee Directors [Incorporated by reference to
Exhibit 10.13 to Giddings & Lewis, Inc.'s Annual
Report on Form 10-K for the year ended December 31,
1993]
(10.12)* Giddings & Lewis, Inc. Deferred Compensation Plan and
Trust Agreement [Incorporated by reference to Exhibit
10.14 to Giddings & Lewis, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1993]
(10.13)* Employment Agreement, dated June 30, 1993, by and
between Giddings & Lewis, Inc. and Joseph R. Coppola
[Incorporated by reference to Exhibit 10.1 to Giddings
& Lewis, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended October 3, 1993]
(10.14)* Executive Consulting Agreement by and between
Giddings & Lewis, Inc. and Joseph R. Coppola
(10.15)* Letter Agreement, dated December 3, 1996, by and
between Giddings & Lewis, Inc. and Richard C.
Kleinfeldt
(10.16)* Giddings & Lewis, Inc. Management Stock Purchase
Program
(13) Portions of the 1996 Annual Report to Shareholders
that are incorporated by reference herein
(21) List of Subsidiaries of Giddings & Lewis, Inc.
(23) Consent of Ernst & Young LLP
(27) Financial Data Schedule
____________
* A management contract or compensatory plan or arrangement.
Giddings & Lewis, Inc.
Amendments to By-Laws
1. Effective December 4, 1996, the first sentence of Section 3.01(b) of
the by-laws was amended in its entirety to provide as follows:
The number of directors of the corporation shall be
eight (8), divided into three (3) classes of three (3),
three (3) and two (2) directors, respectively.
2. Effective February 7, 1997, a new subparagraph (c) was added to
Section 3.01 to provide as follows:
(c) Notwithstanding the provisions of Section
3.01(b), the term of a director who is an officer of
the Company shall immediately cease at any time that
such director is no longer an officer of the Company.
This Section 3.01(c) shall be effective for directors
standing for election or reelection to the Board of
Directors, as the case may be, after February 7, 1997.
2/07/97
BY-LAWS
OF
GIDDINGS & LEWIS, INC.
(a Wisconsin corporation)
ARTICLE I. OFFICES
1.01. Principal and Business Offices. The corporation may
have such principal and other business offices, either within or without
the State of Wisconsin, as the Board of Directors may designate or as the
business of the corporation may require from time to time.
1.02. Registered Office. The registered office of the
corporation required by the Wisconsin Business Corporation Law to be
maintained in the State of Wisconsin may be, but need not be, identical
with the principal office in the State of Wisconsin, and the address of
the registered office may be changed from time to time by the Board of
Directors or by the registered agent. The business office of the
registered agent of the corporation shall be identical to such registered
office.
ARTICLE II. SHAREHOLDERS
2.01. Annual Meeting. The annual meeting of the
shareholders (the "Annual Meeting") shall be held at 11:00 A.M. (local
time) on the last Wednesday in the month of April of each year, or at such
other time and date as may be fixed by resolution of the Board of
Directors. In fixing a meeting date for any Annual Meeting, the Board of
Directors may consider such factors as it deems relevant within the good
faith exercise of its business judgment.
2.02. Purposes of Annual Meeting. At each Annual Meeting,
the shareholders shall elect that number of directors equal to the number
of directors in the class whose term expires at the time of such meeting.
At any such Annual Meeting, only other business properly brought before
the meeting in accordance with Section 2.15 of these by-laws may be
transacted. If the election of directors shall not be held on the date
designated herein, or fixed as herein provided, for any Annual Meeting, or
any adjournment thereof, the Board of Directors shall cause the election
to be held at a special meeting of shareholders (a "Special Meeting") as
soon thereafter as is practicable.
2.03. Special Meetings.
(a) A Special Meeting may be called only by (i) the Chairman of
the Board, (ii) the President, (iii) the Secretary or (iv) the Board of
Directors and shall be called by the Chairman of the Board or the
President upon the demand, in accordance with this Section 2.03, of the
holders of record of shares representing at least 10% of all the votes
entitled to be cast on any issue proposed to be considered at the Special
Meeting.
(b) In order that the corporation may determine the
shareholders entitled to demand a Special Meeting, the Board of Directors
may fix a record date to determine the shareholders entitled to make such
a demand (the "Demand Record Date"). The Demand Record Date shall not
precede the date upon which the resolution fixing the Demand Record Date
is adopted by the Board of Directors and shall not be more than 10 days
after the date upon which the resolution fixing the Demand Record Date is
adopted by the Board of Directors. Any shareholder of record seeking to
have shareholders demand a Special Meeting shall, by sending written
notice to the Secretary of the corporation by hand or by certified or
registered mail, return receipt requested, request the Board of Directors
to fix a Demand Record Date. The Board of Directors shall promptly, but in
all events within 10 days after the date on which a valid request to fix a
Demand Record Date is received, adopt a resolution fixing the Demand
Record Date and shall make a public announcement of such Demand Record
Date. If no Demand Record Date has been fixed by the Board of Directors
within 10 days after the date on which such request is received by the
Secretary, the Demand Record Date shall be the 10th day after the first
date on which a valid written request to set a Demand Record Date is
received by the Secretary. To be valid, such written request shall set
forth the purpose or purposes for which the Special Meeting is to be held,
shall be signed by one or more shareholders of record (or their duly
authorized proxies or other representatives), shall bear the date of
signature of each such shareholder (or proxy or other representative) and
shall set forth all information about each such shareholder and about the
beneficial owner or owners, if any, on whose behalf the request is made
that would be required to be set forth in a shareholder's notice described
in paragraph (a) (ii) of Section 2.15 of these by-laws.
(c) In order for a shareholder or shareholders to demand a
Special Meeting, a written demand or demands for a Special Meeting by the
holders of record as of the Demand Record Date of shares representing at
least 10% of all the votes entitled to be cast on any issue proposed to be
considered at the Special Meeting must be delivered to the corporation.
To be valid, each written demand by a shareholder for a Special Meeting
shall set forth the specific purpose or purposes for which the Special
Meeting is to be held (which purpose or purposes shall be limited to the
purpose or purposes set forth in the written request to set a Demand
Record Date received by the corporation pursuant to paragraph (b) of this
Section 2.03), shall be signed by one or more persons who as of the Demand
Record Date are shareholders of record (or their duly authorized proxies
or other representatives), shall bear the date of signature of each such
shareholder (or proxy or other representative), and shall set forth the
name and address, as they appear in the corporation's books, of each
shareholder signing such demand and the class and number of shares of the
corporation which are owned of record and beneficially by each such
shareholder, shall be sent to the Secretary by hand or by certified or
registered mail, return receipt requested, and shall be received by the
Secretary within 70 days after the Demand Record Date.
(d) The corporation shall not be required to call a Special
Meeting upon shareholder demand unless, in addition to the documents
required by paragraph (c) of this Section 2.03, the Secretary receives a
written agreement signed by each Soliciting Shareholder (as defined
below), pursuant to which each Soliciting Shareholder, jointly and
severally, agrees to pay the corporation's costs of holding the Special
Meeting, including the costs of preparing and mailing proxy materials for
the corporation's own solicitation, provided that if each of the
resolutions introduced by any Soliciting Shareholder at such meeting is
adopted, and each of the individuals nominated by or on behalf of any
Soliciting Shareholder for election as a director at such meeting is
elected, then the Soliciting Shareholders shall not be required to pay
such costs. For purposes of this paragraph (d), the following terms shall
have the meanings set forth below:
(i) "Affiliate" of any Person (as defined herein) shall
mean any Person controlling, controlled by or under common control
with such first Person.
(ii) "Participant" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(iii) "Person" shall mean any individual, firm,
corporation, partnership, joint venture, association, trust,
unincorporated organization or other entity.
(iv) "Proxy" shall have the meaning assigned to such term
in Rule 14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning assigned to such
term in Rule 14a-11 promulgated under the Exchange Act.
(vi) "Soliciting Shareholder" shall mean, with respect to
any Special Meeting demanded by a shareholder or shareholders, any of
the following Persons:
(A) if the number of shareholders signing the
demand or demands of meeting delivered to the corporation
pursuant to paragraph (c) of this Section 2.03 is 10 or
fewer, each shareholder signing any such demand;
(B) if the number of shareholders signing the
demand or demands of meeting delivered to the corporation
pursuant to paragraph (c) of this Section 2.03 is more than
10, each Person who either (I) was a Participant in any
Solicitation of such demand or demands or (II) at the time
of the delivery to the corporation of the documents
described in paragraph (c) of this Section 2.03 had engaged
or intended to engage in any Solicitation of Proxies for
use at such Special Meeting (other than a Solicitation of
Proxies on behalf of the corporation); or
(C) any Affiliate of a Soliciting Shareholder,
if a majority of the directors then in office determine,
reasonably and in good faith, that such Affiliate should be
required to sign the written notice described in paragraph
(c) of this Section 2.03 and/or the written agreement
described in this paragraph (d) in order to prevent the
purposes of this Section 2.03 from being evaded.
(e) Except as provided in the following sentence, any Special
Meeting shall be held at such hour and day as may be designated by
whichever of the Chairman of the Board, the President, the Secretary or
the Board of Directors shall have called such meeting. In the case of any
Special Meeting called by the Chairman of the Board or the President upon
the demand of shareholders (a "Demand Special Meeting"), such meeting
shall be held at such hour and day as may be designated by the Board of
Directors; provided, however, that the date of any Demand Special Meeting
shall be not more than 70 days after the Meeting Record Date (as defined
in Section 2.06 hereof); and provided further that in the event that the
directors then in office fail to designate an hour and date for a Demand
Special Meeting within 10 days after the date that valid written demands
for such meeting by the holders of record as of the Demand Record Date of
shares representing at least 10% of all the votes entitled to be cast on
each issue proposed to be considered at the Special Meeting are delivered
to the corporation (the "Delivery Date"), then such meeting shall be held
at 2:00 P.M. local time on the 100th day after the Delivery Date or, if
such 100th day is not a Business Day (as defined below), on the first
preceding Business Day. In fixing a meeting date for any Special Meeting,
the Chairman of the Board, the President, the Secretary or the Board of
Directors may consider such factors as he or it deems relevant within the
good faith exercise of his or its business judgment, including, without
limitation, the nature of the action proposed to be taken, the facts and
circumstances surrounding any demand for such meeting, and any plan of the
Board of Directors to call an Annual Meeting or a Special Meeting for the
conduct of related business.
(f) The corporation may engage regionally or nationally
recognized independent inspectors of elections to act as an agent of the
corporation for the purpose of promptly performing a ministerial review of
the validity of any purported written demand or demands for a Special
Meeting received by the Secretary. For the purpose of permitting the
inspectors to perform such review, no purported demand shall be deemed to
have been delivered to the corporation until the earlier of (i) 5 Business
Days following receipt by the Secretary of such purported demand and (ii)
such date as the independent inspectors certify to the corporation that
the valid demands received by the Secretary represent at least 10% of all
the votes entitled to be cast on each issue proposed to be considered at
the Special Meeting. Nothing contained in this paragraph (f) shall in any
way be construed to suggest or imply that the Board of Directors or any
shareholder shall not be entitled to contest the validity of any demand,
whether during or after such 5 Business Day period, or to take any other
action (including, without limitation, the commencement, prosecution or
defense of any litigation with respect thereto).
(g) For purposes of these by-laws, "Business Day" shall mean
any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of Wisconsin are authorized or obligated by law
or executive order to close.
2.04. Place of Meeting. The Board of Directors, the
Chairman of the Board, the President or the Secretary may designate any
place, either within or without the State of Wisconsin, as the place of
meeting for any Annual Meeting or for any Special Meeting, or for any
postponement thereof. If no designation is made, the place of meeting
shall be the principal office of the corporation in the State of
Wisconsin. Any meeting may be adjourned to reconvene at any place
designated by vote of the Board of Directors or by the Chairman of the
Board, the President or the Secretary.
2.05. Notice of Meeting. Written or printed notice stating
the place, day and hour of any Annual Meeting or Special Meeting shall be
delivered not less than 10 days (unless a longer period is required by the
Wisconsin Business Corporation Law) nor more than 70 days before the date
of such meeting, either personally or by mail, by or at the direction of
the Secretary to each shareholder of record entitled to vote at such
meeting and to other shareholders as may be required by the Wisconsin
Business Corporation Law. In the event of any Demand Special Meeting,
such notice of meeting shall be sent not more than 30 days after the
Delivery Date. If mailed, notice pursuant to this Section 2.05 shall be
deemed to be effective when deposited in the United States mail, addressed
to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid. Unless otherwise
required by the Wisconsin Business Corporation Law or the articles of
incorporation of the corporation, a notice of an Annual Meeting need not
include a description of the purpose for which the meeting is called. In
the case of any Special Meeting, (a) the notice of meeting shall describe
any business that the Board of Directors shall have theretofore determined
to bring before the meeting and (b) in the case of a Demand Special
Meeting, the notice of meeting (i) shall describe any business set forth
in the statement of purpose of the demands received by the corporation in
accordance with Section 2.03 of these by-laws and (ii) shall contain all
of the information required in the notice received by the corporation in
accordance with Section 2.15(b) of these by-laws. If an Annual Meeting or
Special Meeting is adjourned to a different date, time or place, the
corporation shall not be required to give notice of the new date, time or
place if the new date, time or place is announced at the meeting before
adjournment; provided, however, that if a new Meeting Record Date for an
adjourned meeting is or must be fixed, the corporation shall give notice
of the adjourned meeting to persons who are shareholders as of the new
Meeting Record Date.
2.06. Fixing of Record Date. The Board of Directors may fix
in advance a date not less than 10 days and not more than 70 days prior to
the date of any Annual Meeting or Special Meeting as the record date for
the determination of shareholders entitled to notice of, or to vote at,
such meeting (the "Meeting Record Date"). In the case of any Demand
Special Meeting, (i) the Meeting Record Date shall be not later than the
30th day after the Delivery Date and (ii) if the Board of Directors fails
to fix the Meeting Record Date within 30 days after the Delivery Date,
then the close of business on such 30th day shall be the Meeting Record
Date. The shareholders of record on the Meeting Record Date shall be the
shareholders entitled to notice of and to vote at the meeting. Except as
provided by the Wisconsin Business Corporation Law for a court-ordered
adjournment, a determination of shareholders entitled to notice of and to
vote at any Annual Meeting or Special Meeting is effective for any
adjournment of such meeting unless the Board of Directors fixes a new
Meeting Record Date, which it shall do if the meeting is adjourned to a
date more than 120 days after the date fixed for the original meeting.
The Board of Directors may also fix in advance a date as the record date
for the purpose of determining shareholders entitled to take any other
action or determining shareholders for any other purpose. Such record
date shall be not more than 70 days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken. The record date for determining shareholders entitled to a
distribution (other than a distribution involving a purchase, redemption
or other acquisition of the corporation's shares) or a share dividend is
the date on which the Board of Directors authorizes the distribution or
share dividend, as the case may be, unless the Board of Directors fixes a
different record date.
2.07. Voting Records. After a Meeting Record Date has been
fixed, the corporation shall prepare a list of the names of all of the
shareholders entitled to notice of the meeting. The list shall be
arranged by class or series of shares, if any, and show the address of and
number of shares held by each shareholder. Such list shall be available
for inspection by any shareholder, beginning two business days after
notice of the meeting is given for which the list was prepared and
continuing to the date of the meeting, at the corporation's principal
office or at a place identified in the meeting notice in the city where
the meeting will be held. A shareholder or his agent may, on written
demand, inspect and, subject to the limitations imposed by the Wisconsin
Business Corporation Law, copy the list, during regular business hours and
at his expense, during the period that it is available for inspection
pursuant to this Section 2.07. The corporation shall make the
shareholders' list available at the meeting and any shareholder or his
agent or attorney may inspect the list at any time during the meeting or
any adjournment thereof. Refusal or failure to prepare or make available
the shareholders' list shall not affect the validity of any action taken
at a meeting of shareholders.
2.08. Quorum and Voting Requirements; Postponements;
Adjournments.
(a) Shares entitled to vote as a separate voting group may take
action on a matter at any Annual Meeting or Special Meeting only if a
quorum of those shares exists with respect to that matter. If the
corporation has only one class of stock outstanding, such class shall
constitute a separate voting group for purposes of this Section 2.08.
Except as otherwise provided in the articles of incorporation of the
corporation or the Wisconsin Business Corporation Law, a majority of the
votes entitled to be cast on the matter shall constitute a quorum of the
voting group for action on that matter. Once a share is represented for
any purpose at any Annual Meeting or Special Meeting, other than for the
purpose of objecting to holding the meeting or transacting business at the
meeting, it is considered present for purposes of determining whether a
quorum exists for the remainder of the meeting and for any adjournment of
that meeting unless a new Meeting Record Date is or must be set for the
adjourned meeting. If a quorum exists, except in the case of the election
of directors, action on a matter shall be approved if the votes cast
within the voting group favoring the action exceed the votes cast opposing
the action, unless the articles of incorporation of the corporation or the
Wisconsin Business Corporation Law requires a greater number of
affirmative votes. Unless otherwise provided in the articles of
incorporation of the corporation, each director to be elected shall be
elected by a plurality of the votes cast by the shares entitled to vote in
the election of directors at any Annual Meeting or Special Meeting at
which a quorum is present.
(b) The Board of Directors acting by resolution may postpone
and reschedule any previously scheduled Annual Meeting or Special Meeting;
provided, however, that a Demand Special Meeting shall not be postponed
beyond the 100th day following the Delivery Date. Any Annual Meeting or
Special Meeting may be adjourned from time to time, whether or not there
is a quorum, (i) at any time, upon a resolution of shareholders if the
votes cast in favor of such resolution by the holders of shares of each
voting group entitled to vote on any matter theretofore properly brought
before the meeting exceed the number of votes cast against such resolution
by the holders of shares of each such voting group or (ii) at any time
prior to the transaction of any business at such meeting, by the Chairman
of the Board or the President or pursuant to a resolution of the Board of
Directors. No notice of the time and place of adjourned meetings need be
given except as required by the Wisconsin Business Corporation Law. At
any adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the
meeting as originally notified.
2.09. Conduct of Meeting. The Chairman of the Board, and in
his absence, the President, and in his absence, a Vice President in the
order provided under Section 4.07, and in their absence, any person chosen
by the shareholders present shall call any Annual Meeting or Special
Meeting to order and shall act as chairman of such meeting, and the
Secretary of the corporation shall act as secretary of all Annual Meetings
and Special Meetings, but, in the absence of the Secretary, the presiding
officer may appoint any other person to act as secretary of the meeting.
2.10. Proxies. At any Annual Meeting or Special Meeting, a
shareholder entitled to vote may vote in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for the
shareholder by signing an appointment form, either personally or by his
attorney-in-fact. An appointment of proxy is effective when received by
the Secretary or other officer or agent of the corporation authorized to
tabulate votes. An appointment is valid for 11 months from the date of
its signing unless a different period is expressly provided in the
appointment form. Unless otherwise provided, a proxy may be revoked at
any time before it is voted, either by written notice filed with the
Secretary or the acting secretary of the meeting or by oral notice given
by the shareholder to the presiding officer during the meeting. The
presence of a shareholder who has filed his appointment of proxy shall not
of itself constitute a revocation. The Board of Directors shall have the
power and authority to make rules establishing presumptions as to the
validity and sufficiency of proxies.
2.11. Voting of Shares. (a) Each outstanding share shall be
entitled to one vote upon each matter submitted to a vote at an Annual
Meeting or Special Meeting, except to the extent that the voting rights of
the shares of any class or classes are enlarged, limited or denied by the
Wisconsin Business Corporation Law or the articles of incorporation of the
corporation.
(b) Shares held by another corporation, if a sufficient number
of shares entitled to elect a majority of the directors of such other
corporation is held directly or indirectly by this corporation, shall not
be entitled to vote at any Annual Meeting or Special Meeting, but shares
held in a fiduciary capacity may be voted.
2.12. Acceptance of Instruments Showing Shareholder Action.
If the name signed on a vote, consent, waiver or proxy appointment
corresponds to the name of a shareholder, the corporation, if acting in
good faith, may accept the vote, consent, waiver or proxy appointment and
give it effect as the act of a shareholder. If the name signed on a vote,
consent, waiver or proxy appointment does not correspond to the name of a
shareholder, the corporation may accept the vote, consent, waiver or proxy
appointment and give it effect as the act of the shareholder if any of the
following apply:
(a) The shareholder is an entity and the name signed purports
to be that of an officer or agent of the entity.
(b) The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the
shareholder and, if the corporation requests, evidence of fiduciary status
acceptable to the corporation is presented with respect to the vote,
consent, waiver or proxy appointment.
(c) The name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the corporation requests,
evidence of this status acceptable to the corporation is presented with
respect to the vote, consent, waiver or proxy appointment.
(d) The name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the
corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder is presented with
respect to the vote, consent, waiver or proxy appointment.
(e) Two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of
the co-owners and the person signing appears to be acting on behalf of all
co-owners.
The corporation may reject a vote, consent, waiver or proxy
appointment if the Secretary or other officer or agent of the corporation
who is authorized to tabulate votes, acting in good faith, has reasonable
basis for doubt about the validity of the signature on it or about the
signatory' s authority to sign for the shareholder.
2.13. Waiver of Notice by Shareholders. A shareholder may
waive any notice required by the Wisconsin Business Corporation Law, the
articles of incorporation of the corporation or these by-laws before or
after the date and time stated in the notice. The waiver shall be in
writing and signed by the shareholder entitled to the notice, contain the
same information that would have been required in the notice under
applicable provisions of the Wisconsin Business Corporation Law (except
that the time and place of meeting need not be stated) and be delivered to
the corporation for inclusion in the corporate records. A shareholder's
attendance at any Annual Meeting or Special Meeting, in person or by
proxy, waives objection to all of the following: (a) lack of notice or
defective notice of the meeting, unless the shareholder at the beginning
of the meeting or promptly upon arrival objects to holding the meeting or
transacting business at the meeting; and (b) consideration of a particular
matter at the meeting that is not within the purpose described in the
meeting notice, unless the shareholder objects to considering the matter
when it is presented.
2.14. Unanimous Consent without Meeting. Any action
required or permitted by the articles of incorporation of the corporation
or these by-laws or any provision of the Wisconsin Business Corporation
Law to be taken at an Annual Meeting or Special Meeting may be taken
without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the shareholders entitled to vote with
respect to the subject matter thereof.
2.15. Notice of Shareholder Business and Nomination of
Directors.
(a) Annual Meetings.
(i) Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be
considered by the shareholders may be made at an Annual Meeting (A)
pursuant to the corporation's notice of meeting, (B) by or at the
direction of the Board of Directors or (C) by any shareholder of the
corporation who is a shareholder of record at the time of giving of
notice provided for in this by-law and who is entitled to vote at the
meeting and complies with the notice procedures set forth in this
Section 2.15.
(ii) For nominations or other business to be properly
brought before an Annual Meeting by a shareholder pursuant to clause
(C) of paragraph (a)(i) of this Section 2.15, the shareholder must
have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, a shareholder's notice shall be received
by the Secretary of the corporation at the principal offices of the
corporation not less than 60 days nor more than 90 days prior to the
last Wednesday in the month of April; provided, however, that in the
event that the date of the Annual Meeting is advanced by more than 30
days or delayed by more than 60 days from the last Wednesday in the
month of April, notice by the shareholder to be timely must be so
received not earlier than the 90th day prior to the date of such
Annual Meeting and not later than the close of business on the later
of (x) the 60th day prior to such Annual Meeting and (y) the 10th day
following the day on which public announcement of the date of such
meeting is first made. Such shareholder's notice shall be signed by
the shareholder of record who intends to make the nomination or
introduce the other business (or his duly authorized proxy or other
representative), shall bear the date of signature of such shareholder
(or proxy or other representative) and shall set forth: (A) the name
and address, as they appear on this corporation's books, of such
shareholder and the beneficial owner or owners, if any, on whose
behalf the nomination or proposal is made; (B) the class and number
of shares of the corporation which are beneficially owned by such
shareholder or beneficial owner or owners; (C) a representation that
such shareholder is a holder of record of shares of the corporation
entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to make the nomination or introduce the other
business specified in the notice; (D) in the case of any proposed
nomination for election or re-election as a director, (I) the name
and residence address of the person or persons to be nominated, (II)
a description of all arrangements or understandings between such
shareholder or beneficial owner or owners and each nominee and any
other person or persons (naming such person or persons) pursuant to
which the nomination is to be made by such shareholder, (III) such
other information regarding each nominee proposed by such shareholder
as would be required to be disclosed in solicitations of proxies for
elections of directors, or would be otherwise required to be
disclosed, in each case pursuant to Regulation 14A under the Exchange
Act, including any information that would be required to be included
in a proxy statement filed pursuant to Regulation 14A had the nominee
been nominated by the Board of Directors and (IV) the written consent
of each nominee to be named in a proxy statement and to serve as a
director of the corporation if so elected; and (E) in the case of any
other business that such shareholder proposes to bring before the
meeting, (I) a brief description of the business desired to be
brought before the meeting and, if such business includes a proposal
to amend these by-laws, the language of the proposed amendment, (II)
such shareholder's and beneficial owner's or owners' reasons for
conducting such business at the meeting and (III) any material
interest in such business of such shareholder and beneficial owner or
owners.
(iii) Notwithstanding anything in the second sentence
of paragraph (a)(ii) of this Section 2.15 to the contrary, in the
event that the number of directors to be elected to the Board of
Directors of the corporation is increased and there is no public
announcement naming all of the nominees for director or specifying
the size of the increased Board of Directors made by the corporation
at least 70 days prior to the last Wednesday in the month of April, a
shareholder's notice required by this Section 2.15 shall also be
considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be received by the
Secretary at the principal offices of the corporation not later than
the close of business on the 10th day following the day on which such
public announcement is first made by the corporation.
(b) Special Meetings. Only such business shall be conducted at
a Special Meeting as shall have been described in the notice of meeting
sent to shareholders pursuant to Section 2.05 of these by-laws.
Nominations of persons for election to the Board of Directors may be made
at a Special Meeting at which directors are to be elected pursuant to such
notice of meeting (i) by or at the direction of the Board of Directors or
(ii) by any shareholder of the corporation who (A) is a shareholder of
record at the time of giving of such notice of meeting, (B) is entitled to
vote at the meeting and (C) complies with the notice procedures set forth
in this Section 2.15. Any shareholder desiring to nominate persons for
election to the Board of Directors at such a Special Meeting shall cause a
written notice to be received by the Secretary of the corporation at the
principal offices of the corporation not earlier than 90 days prior to
such Special Meeting and not later than the close of business on the later
of (x) the 60th day prior to such Special Meeting and (y) the 10th day
following the day on which public announcement is first made of the date
of such Special Meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. Such written notice shall be
signed by the shareholder of record who intends to make the nomination (or
his duly authorized proxy or other representative), shall bear the date of
signature of such shareholder (or proxy or other representative) and shall
set forth: (A) the name and address, as they appear on the corporation's
books, of such shareholder and the beneficial owner or owners, if any, on
whose behalf the nomination is made; (B) the class and number of shares of
the corporation which are beneficially owned by such shareholder or
beneficial owner or owners; (C) a representation that such shareholder is
a holder of record of shares of the corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to make
the nomination specified in the notice; (D) the name and residence address
of the person or persons to be nominated; (E) a description of all
arrangements or understandings between such shareholder or beneficial
owner or owners and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination is to be made by
such shareholder; (F) such other information regarding each nominee
proposed by such shareholder as would be required to be disclosed in
solicitations of proxies for elections of directors, or would be otherwise
required to be disclosed, in each case pursuant to Regulation 14A under
the Exchange Act, including any information that would be required to be
included in a proxy statement filed pursuant to Regulation 14A had the
nominee been nominated by the Board of Directors; and (G) the written
consent of each nominee to be named in a proxy statement and to serve as a
director of the corporation if so elected.
(c) General.
(i) Only persons who are nominated in accordance with the
procedures set forth in this Section 2.15 shall be eligible to serve
as directors. Only such business shall be conducted at an Annual
Meeting or Special Meeting as shall have been brought before such
meeting in accordance with the procedures set forth in this Section
2.15. The chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set
forth in this Section 2.15 and, if any proposed nomination or
business is not in compliance with this Section 2.15, to declare that
such defective proposal shall be disregarded.
(ii) For purposes of this Section 2.15, "public
announcement" shall mean disclosure in a press release reported by
the Dow Jones News Service, Associated Press or comparable national
news service or in a document publicly filed by the corporation with
the Securities and Exchange Commission pursuant to Section 13, 14 or
15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this
Section 2.15, a shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section
2.15. Nothing in this Section 2.15 shall be deemed to limit the
corporation's obligation to include shareholder proposals in its
proxy statement if such inclusion is required by Rule 14a-8 under the
Exchange Act.
ARTICLE III. BOARD OF DIRECTORS
3.01. General Powers; Number and Tenure. (a) All corporate
powers shall be exercised by or under the authority of, and the business
and affairs of the corporation shall be managed under the direction of,
its Board of Directors.
(b) The number of directors of the Corporation shall be eight
(8), divided into three (3) classes of three (3), three (3) and two (2)
directors, respectively. At each Annual Meeting the successors to the
class of directors whose term shall expire at the time of such Annual
Meeting shall be elected to hold office until the third succeeding Annual
Meeting, and until such directors' successors are duly elected and, if
necessary, qualified or until there is a decrease in the number of
directors that takes effect after the expiration of such directors' term.
(c) Notwithstanding the provisions of Section 3.01(b), the term
of a director who is an officer of the Company shall immediately cease at
any time that such director is no longer an officer of the Company. This
Section 3.01(c) shall be effective for directors standing for election or
reelection to the Board of Directors, as the case may be, after February
7, 1997.
3.02. Resignations and Qualifications. A director may
resign at any time by delivering written notice which complies with the
Wisconsin Business Corporation Law to the Chairman of the Board or to the
corporation. A director's resignation is effective when the notice is
delivered unless the notice specifies a later effective date. Directors
need not be residents of the State of Wisconsin or shareholders of the
corporation.
3.03. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this by-law immediately
after the Annual Meeting, and each adjourned session thereof. The place
of such regular meeting shall be the same as the place of the Annual
Meeting which precedes it, or such other suitable place as may be
announced at such Annual Meeting. The Board of Directors may provide, by
resolution, the time and place, either within or without the State of
Wisconsin, for the holding of additional regular meetings without other
notice than such resolution.
3.04. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board,
the President, the Secretary or any two directors. The Chairman of the
Board, the President or the Secretary may fix any place, either within or
without the State of Wisconsin, as the place for holding any special
meeting of the Board of Directors, and, if no other place is fixed, the
place of the meeting shall be the principal office of the corporation in
the State of Wisconsin.
3.05. Notice; Waiver. Notice of each meeting of the Board
of Directors (unless otherwise provided in or pursuant to Section 3.03)
shall be given by written notice delivered or communicated in person, by
telegram, facsimile or other form of wire or wireless communication, or by
mail or private carrier to each director at his business address or such
other address as a director shall have designated in writing and filed
with the Secretary, in each case not less than 48 hours prior to the time
of the meeting. If mailed, such notice shall be deemed to be effective
when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be
deemed to be effective when the telegram is delivered to the telegraph
company. If notice is given by private carrier, such notice shall be
deemed to be effective when the notice is delivered to the private
carrier. Whenever any notice whatever is required to be given to any
director of the corporation under the articles of incorporation of the
corporation or these by-laws or any provision of the Wisconsin Business
Corporation Law, a waiver thereof in writing, signed at any time, whether
before or after the time of meeting, by the director entitled to such
notice, shall be deemed equivalent to the giving of such notice. The
corporation shall retain any such waiver as part of the permanent
corporate records. A director's attendance at or participation in a
meeting waives any required notice to him of the meeting unless the
director at the beginning of the meeting or promptly upon his arrival
objects to holding the meeting or transacting business at the meeting and
does not thereafter vote for or assent to action taken at the meeting.
Neither the business to be transacted at, nor the purpose of, any regular
or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
3.06. Quorum. Except as otherwise provided by the Wisconsin
Business Corporation Law or by the articles of incorporation of the
corporation or these by-laws, a majority of the directors set forth in
Section 3.01 shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, but a majority of the directors
present (though less than such quorum) may adjourn the meeting from time
to time without further notice.
3.07. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors, unless the act of a greater number is
required by the Wisconsin Business Corporation Law or by the articles of
incorporation of the corporation or these by-laws.
3.08. Conduct of Meetings. The Chairman of the Board, and
in his absence, the President, and in his absence, a Vice President in the
order provided under Section 4.07, and in their absence, any director
chosen by the directors present, shall call meetings of the Board of
Directors to order and shall act as chairman of the meeting. The
Secretary of the corporation shall act as secretary of all meetings of the
Board of Directors but in the absence of the Secretary, the presiding
officer may appoint any Assistant Secretary or any director or other
person present to act as secretary of the meeting. Minutes of any regular
or special meetings of the Board of Directors shall be prepared and
distributed to each director.
3.09. Compensation. The Board of Directors, irrespective of
any personal interest of any of its members, may establish reasonable
compensation of all directors for services to the corporation as
directors, officers or otherwise, or may delegate such authority to an
appropriate committee. The Board of Directors also shall have authority
to provide for or delegate authority to an appropriate committee to
provide for reasonable pensions, disability or death benefits, and other
benefits or payments, to directors, officers and employees and to their
estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the
corporation.
3.10. Presumption of Assent. A director of the corporation
who is present at a meeting of the Board of Directors or a committee
thereof of which he is a member at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless any of
the following occurs: (a) the director objects at the beginning of the
meeting or promptly upon his arrival to holding the meeting or transacting
business at the meeting; (b) the director's dissent or abstention from the
action taken is entered in the minutes of the meeting; or (c) the director
delivers written notice that complies with the Wisconsin Business
Corporation Law of his dissent or abstention to the presiding officer of
the meeting before its adjournment or to the corporation immediately after
adjournment of the meeting. Such right to dissent or abstain shall not
apply to a director who voted in favor of such action.
3.11. Committees. The Board of Directors by resolution
adopted by the affirmative vote of a majority of the number of directors
set forth in Section 3.01 may create one or more committees, appoint
members of the Board of Directors to serve on the committees and designate
other members of the Board of Directors to serve as alternates. Alternate
members of a committee shall take the place of any absent member or
members at any meeting of such committee upon request of the Chairman of
the Board or the President or upon request of the chairman of such
meeting. Each committee shall have two or more members who shall, unless
otherwise provided by the Board of Directors, serve at the pleasure of the
Board of Directors. A committee may be authorized to exercise the
authority of the Board of Directors, except that a committee may not do
any of the following: (a) authorize distributions; (b) approve or propose
to shareholders action that the Wisconsin Business Corporation Law
requires to be approved by shareholders; (c) fill vacancies on the Board
of Directors or, unless the Board of Directors provides by resolution that
vacancies on a committee shall be filled by the affirmative vote of the
remaining committee members, on any Board committee; (d) amend the
articles of incorporation of the corporation; (e) adopt, amend or repeal
by-laws; (f) approve a plan of merger not requiring shareholder approval;
(g) authorize or approve reacquisition of shares, except according to a
formula or method prescribed by the Board of Directors; and (h) authorize
or approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences and limitations
of a class or series of shares, except that the Board of Directors may
authorize a committee to do so within limits prescribed by the Board of
Directors. Unless otherwise provided by the Board of Directors in
creating the committee, a committee may employ counsel, accountants and
other consultants to assist it in the exercise of its authority.
3.12. Telephonic Meetings. Except as herein provided and
notwithstanding any place set forth in the notice of the meeting or these
by-laws, members of the Board of Directors (and any committee thereof) may
participate in regular or special meetings by, or through the use of, any
means of communication by which all participants may simultaneously hear
each other, such as by conference telephone. If a meeting is conducted by
such means, then at the commencement of such meeting the presiding officer
shall inform the participating directors that a meeting is taking place at
which official business may be transacted. Any participant in a meeting by
such means shall be deemed present in person at such meeting. If action
is to be taken at any meeting held by such means on any of the following:
(a) a plan of merger or share exchange; (b) a sale, lease, exchange or
other disposition of substantial property or assets' of the corporation;
(c) a voluntary dissolution or the revocation of voluntary dissolution
proceedings; or (d) a filing for bankruptcy, then the identity of each
director participating in such meeting must be verified by the disclosure
at such meeting by each such director of each such director's social
security number to the secretary of the meeting before a vote may be taken
on any of the foregoing matters. For purposes of the preceding clause
(b), the phrase "sale, lease, exchange or other disposition of substantial
property or assets" shall mean any sale, lease, exchange or other
disposition of property or assets of the corporation having a net book
value equal to 10% or more of the net book value of the total assets of
the corporation on and as of the close of the fiscal year last ended prior
to the date of such meeting and as to which financial statements of the
corporation have been prepared. Notwithstanding the foregoing, no action
may be taken at any meeting held by such means on any particular matter
which the presiding officer determines, in his sole discretion, to be
inappropriate under the circumstances for action at a meeting held by such
means. Such determination shall be made and announced in advance of such
meeting.
3.13. Unanimous Consent without Meeting. Any action
required or permitted by the articles of incorporation of the corporation
or these by-laws or any provision of the Wisconsin Business Corporation
Law to be taken by the Board of Directors (or any committee thereof) at a
meeting may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all members of the Board of
Directors or of the committee, as the case may be, then in office. Such
action shall be effective when the last director or committee member signs
the consent, unless the consent specifies a different effective date.
ARTICLE IV. OFFICERS
4.01. Number. The principal officers of the corporation
shall be a Chairman of the Board, a President, any number of Vice
Presidents, a Secretary, and a Treasurer, each of whom shall be elected by
the Board of Directors. Such other officers and assistant officers as may
be deemed necessary may be elected or appointed by the Board of Directors.
The Board of Directors may also authorize any duly appointed officer to
appoint one or more officers or assistant officers. Any two or more
offices may be held by the same person.
4.02. Election and Term of Office. The officers of the
corporation to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each Annual Meeting. If the election of officers
shall not be held at such meeting, such election shall be held as soon
thereafter as conveniently may be. Each officer shall hold office until
his successor shall have been duly elected or until his prior death,
resignation or removal.
4.03. Removal. The Board of Directors may remove any
officer and, unless restricted by the Board of Directors or these by-laws,
an officer may remove any officer or assistant officer appointed by that
officer, at any time, with or without cause and notwithstanding the
contract rights, if any, of the officer removed. Election or appointment
shall not of itself create contract rights.
4.04. Resignations and Vacancies. An officer may resign at
any time by delivering notice to the corporation that complies with the
Wisconsin Business Corporation Law. The resignation shall be effective
when the notice is delivered, unless the notice specifies a later
effective date and the corporation accepts the later effective date. A
vacancy in any principal office because of death, resignation, removal,
disqualification or otherwise, shall be filled by the Board of Directors
for the unexpired portion of the term. If a resignation of an officer is
effective at a later date as contemplated by this Section 4.04, the Board
of Directors may fill the pending vacancy before the effective date if the
Board provides that the successor may not take office until the effective
date.
4.05. Chairman of the Board. The Chairman of the Board
shall be elected from the membership of the Board of Directors. The
Chairman of the Board shall preside at all Annual Meetings and Special
Meetings and at all meetings of the Board of Directors. The Chairman of
the Board shall be the principal executive officer of the corporation and,
subject to the control of the Board of Directors, shall in general
supervise and control all of the business and affairs of the corporation.
He shall have authority, subject to such rules as may be prescribed by the
Board of Directors, to appoint such agents and employees of the
corporation as he shall deem necessary, to prescribe their powers, duties
and compensation, and to delegate authority to them. Such agents and
employees shall hold office at the discretion of the Chairman of the
Board. He shall have authority to sign, execute and acknowledge, on
behalf of the corporation, all deeds, mortgages, bonds, stock
certificates, contracts, leases, reports and all other documents or
instruments necessary or proper to be executed in the course of the
corporation's regular business, or which shall be authorized by resolution
of the Board of Directors; and, except as otherwise provided by law or the
Board of Directors, he may authorize any officer or agent of the
corporation to sign, execute and acknowledge such documents or instruments
in his place and stead.
4.06. President. The President shall be the chief operating
officer of the Company. In general he shall perform all duties incident
to the office of chief operating officer and such other duties as may be
prescribed by the Board of Directors from time to time. Except where by
law the signature of the Chairman of the Board of the corporation is
required, the President shall possess the same power and authority as the
Chairman of the Board to sign, execute and acknowledge, on behalf of the
corporation, all deeds, mortgages, bonds, stock certificates, contracts,
leases, reports and all other documents or instruments and shall have such
additional power to sign, execute and acknowledge, on behalf of the
corporation, as may be authorized by resolution of the Board of Directors.
During the absence or disability of the Chairman of the Board, or while
that office is vacant, the President shall exercise the powers and
discharge the duties of the Chairman of the Board as the principal
executive officer of the Company.
4.07. The Vice Presidents. In the absence of the President
or in the event of his death, inability or refusal to act, or in the event
for any reason it shall be impracticable for the President to act
personally, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated by the Board
of Directors, or in the absence of any designation, then in the order of
their election) shall perform the duties of the President, and, when so
acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may sign, with the
Secretary or Assistant Secretary, certificates for shares of the
corporation and shall perform such other duties and have such authority as
from time to time may be delegated or assigned to him by the Chairman of
the Board, the President or the Board of Directors. The execution of any
instrument of the corporation by any Vice President shall be conclusive
evidence, as to third parties, of his authority to act in the stead of the
President.
4.08. The Secretary. The Secretary shall: (a) keep the
minutes of Annual Meetings and Special Meetings and of meetings of the
Board of Directors in one or more books provided for that purpose
(including records of actions taken without a meeting); (b) see that all
notices are duly given in accordance with the provisions of these by-laws
or as required by the Wisconsin Business Corporation Law; (c) be custodian
of the corporate records and of the seal of the corporation and see that
the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d)
maintain a record of the shareholders of the corporation, in the form that
permits preparation of a list of the names and addresses of all
shareholders, by class or series of shares and showing the number and
class or series of shares held by each shareholder; (e) sign with the
Chairman of the Board, the President, or a Vice President, certificates
for shares of the corporation, the issuance of which shall have been
authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the corporation; and (g) in general
perform all duties incident to the office of Secretary and have such other
duties and exercise such authority as from time to time may be delegated
or assigned to him by the President or by the Board of Directors.
4.09. The Treasurer. The Treasurer shall: (a) have charge
and custody of and be responsible for all funds and securities of the
corporation; (b) maintain appropriate accounting records; (c) receive and
give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the
corporation in such banks, trust companies or other depositaries as shall
be selected in accordance with the provisions of Section 5.04; and (d) in
general perform all of the duties incident to the office of Treasurer and
have such other duties and exercise such other authority as from time to
time may be delegated or assigned to him by the President or by the Board
of Directors. If required by the Board of Directors, the Treasurer shall
give a bond for the faithful discharge of his duties in such sum and with
such surety or sureties as the Board of Directors shall determine.
4.10. Assistant Secretaries and Assistant Treasurers. There
shall be such number of Assistant Secretaries and Assistant Treasurers as
the Board of Directors may from time to time authorize. The Assistant
Secretaries may sign with the Chairman of the Board, the President or a
Vice President certificates for shares of the corporation the issuance of
which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall respectively, if required by
the Board of Directors, give bonds for the faithful discharge of their
duties in such sums and with such sureties as the Board of Directors shall
determine. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties and have such authority as shall from
time to time be delegated or assigned to them by the Secretary or the
Treasurer, respectively, or by the President or the Board of Directors.
4.11. Other Assistants and Acting Officers. The Board of
Directors shall have the power to appoint, or to authorize any duly
appointed officer of the corporation to appoint, any person to act as
assistant to any officer, or as agent for the corporation in his stead, or
to perform the duties of such officer whenever for any reason it is
impracticable for such officer to act personally, and such assistant or
acting officer or other agent so appointed by the Board of Directors or
the appointing officer shall have the power to perform all the duties of
the office to which he is so appointed to be an assistant, or as to which
he is so appointed to act, except as such power may be otherwise defined
or restricted by the Board of Directors or the appointing officer.
4.12. Salaries. The salaries of the principal officers
shall be fixed from time to time by the Board of Directors or by a duly
authorized committee thereof, and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of
the corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS
AND DEPOSITS; SPECIAL CORPORATE ACTS
5.01. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or
execute or deliver any instrument in the name of and on behalf of the
corporation, and such authorization may be general or confined to specific
instances. In the absence of other designation, all deeds, mortgages and
instruments of assignment or pledge made by the corporation shall be
executed in the name of the corporation by the Chairman of the Board, the
President or one of the Vice Presidents and by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer; the Secretary or an
Assistant Secretary, when necessary or required, shall affix the corporate
seal thereto; and when so executed no other party to such instrument or
any third party shall be required to make any inquiry into the authority
of the signing officer or officers.
5.02. Loans. No indebtedness for borrowed money shall be
contracted on behalf of the corporation and no evidences of such
indebtedness shall be issued in its name unless authorized by or under the
authority of a resolution of the Board of Directors. Such authorization
may be general or confined to specific instances.
5.03. Checks, Drafts, etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the corporation, shall be signed by such officer or
officers, agent or agents of the corporation and in such manner as shall
from time to time be determined by or under the authority of a resolution
of the Board of Directors.
5.04. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositaries as may be
selected by or under the authority of a resolution of the Board of
Directors.
5.05. Voting of Securities Owned by this Corporation.
Subject always to the specific directions of the Board of Directors, (a)
any shares or other securities issued by any other corporation and owned
or controlled by this corporation may be voted at any meeting of security
holders of such other corporation by the Chairman of the Board of this
corporation if he be present, or in his absence by the President of this
corporation if he be present, or in his absence by any Vice President of
this corporation who may be present, and (b) whenever, in the judgment of
the Chairman of the Board, or in his absence, of the President, or in his
absence, of any Vice President, it is desirable for this corporation to
execute a proxy or written consent in respect to any shares or other
securities issued by any other corporation and owned by this corporation,
such proxy or consent shall be executed in the name of this corporation by
the Chairman of the Board, the President or one of the Vice Presidents of
this corporation, without necessity of any authorization by the Board of
Directors, affixation of corporate seal or countersignature or attestation
by another officer. Any person or persons designated in the manner above
stated as the proxy or proxies of this corporation shall have full right,
power and authority to vote the shares or other securities issued by such
other corporation and owned by this corporation the same as such shares or
other securities might be voted by this corporation.
5.06. No Nominee Procedures. The corporation has not
established, and nothing in these by-laws shall be deemed to establish,
any procedure by which a beneficial owner of the corporation's shares that
are registered in the name of a nominee is recognized by the corporation
as the shareholder under Section 180.0723 of the Wisconsin Business
Corporation Law.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.01. Certificates for Shares. Certificates representing
shares of the corporation shall be in such form, consistent with the
Wisconsin Business Corporation Law, as shall be determined by the Board of
Directors. Such certificates shall be signed by the Chairman of the
Board, the President or a Vice President and by the Secretary or an
Assistant Secretary. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the person to
whom the shares represented thereby are issued, with the number of shares
and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except as provided in Section 6.06.
6.02. Facsimile Signatures and Seal. The seal of the
corporation on any certificates for shares may be a facsimile. The
signature of the Chairman of the Board, President or Vice President and
the Secretary or Assistant Secretary upon a certificate may be facsimiles
if the certificate is manually signed on behalf of a transfer agent, or a
registrar, other than the corporation itself or an employee of the
corporation.
6.03. Signature by Former Officers. In case any officer,
who has signed or whose facsimile signature has been placed upon any
certificate for shares, shall have ceased to be such officer before such
certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer at the date of its issue.
6.04. Transfer of Shares. Prior to due presentment of a
certificate for shares for registration of transfer the corporation may
treat the registered owner of such shares as the person exclusively
entitled to vote, to receive notifications and otherwise to have and
exercise all the rights and power of an owner. Where a certificate for
shares is presented to the corporation with a request to register for
transfer, the corporation shall not be liable to the owner or any other
person suffering loss as a result of such registration of transfer if (a)
there were on or with the certificate the necessary endorsements, and (b)
the corporation had no duty to inquire into adverse claims or has
discharged any such duty. The corporation may require reasonable
assurance that said endorsements are genuine and effective and compliance
with such other regulations as may be prescribed by or under the authority
of the Board of Directors.
6.05. Restrictions on Transfer. The face or reverse side of
each certificate representing shares shall bear a conspicuous notation of
any restriction imposed by the corporation upon the transfer of such
shares.
6.06. Lost, Destroyed or Stolen Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require
the person requesting such new certificate or certificates, or his or her
legal representative, to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost,
stolen or destroyed.
6.07. Consideration for Shares. The Board of Directors may
authorize shares to be issued for consideration consisting of any tangible
or intangible property or benefit to the corporation, including cash,
promissory notes, services performed, contracts for services to be
performed or other securities of the corporation. Before the corporation
issues shares, the Board of Directors shall determine that the
consideration received or to be received for the shares to be issued is
adequate. In the absence of a resolution adopted by the Board of
Directors expressly determining that the consideration received or to be
received is adequate, Board approval of the issuance of the shares shall
be deemed to constitute such a determination. The determination of the
Board of Directors is conclusive insofar as the adequacy of consideration
for the issuance of shares relates to whether the shares are validly
issued, fully paid and nonassessable. The corporation may place in escrow
shares issued in whole or in part for a contract for future services or
benefits, a promissory note, or other property to be issued in the future,
or make other arrangements to restrict the transfer of the shares, and may
credit distributions in respect of the shares against their purchase
price, until the services are performed, the benefits or property are
received or the promissory note is paid. If the services are not
performed, the benefits or property are not received or the promissory
note is not paid, the corporation may cancel, in whole or in part, the
shares escrowed or restricted and the distributions credited.
6.08. Stock Regulations. The Board of Directors shall have
the power and authority to make all such further rules and regulations not
inconsistent with the statutes of the State of Wisconsin as it may deem
expedient concerning the issue, transfer and registration of certificates
representing shares of the corporation.
ARTICLE VII. SEAL
7.01. The Board of Directors may provide a corporate seal in
an appropriate form.
ARTICLE VIII. FISCAL YEAR
8.01. The fiscal year of the corporation shall be as fixed
by resolution of the Board of Directors.
ARTICLE IX. INDEMNIFICATION
9.01. Certain Definitions. All capitalized terms used in
this Article IX and not otherwise hereinafter defined in this Section 9.01
shall have the meaning set forth in Section 180.0850 of the Statute. The
following terms (including any plural forms thereof) used in this Article
IX shall be defined as follows:
(a) "Affiliate" shall include, without limitation, any
corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control
with, the Corporation.
(b) "Authority" shall mean the entity selected by the Director
or Officer to determine his or her right to indemnification pursuant to
Section 9.04.
(c) "Board" shall mean the entire then elected and serving
Board of Directors of the Corporation, including all members thereof who
are Parties to the subject Proceeding or any related Proceeding.
(d) "Breach of Duty" shall mean the Director or Officer
breached or failed to perform his or her duties to the Corporation and his
or her breach of or failure to perform those duties is determined, in
accordance with Section 9.04, to constitute misconduct under Section
180.0851(2)(a) 1, 2, 3 or 4 of the Statute.
(e) "Corporation," as used herein and as defined in the Statute
and incorporated by reference into the definitions of certain other
capitalized terms used herein, shall mean this Corporation, including,
without limitation, any successor corporation or entity to this
Corporation by way of merger, consolidation or acquisition of all or
substantially all of the capital stock or assets of this Corporation.
(f) "Director or Officer" shall have the meaning set forth in
the Statute; provided, that, for purposes of this Article IX, it shall be
conclusively presumed that any Director or Officer serving as a director,
officer, partner, trustee, member of any governing or decision-making
committee, employee or agent of an Affiliate shall be so serving at the
request of the Corporation.
(g) "Disinterested Quorum" shall mean a quorum of the Board who
are not Parties to the subject Proceeding or any related Proceeding.
(h) "Party" shall have the meaning set forth in the Statute;
provided, that, for purposes of this Article IX, the term "Party" shall
also include any Director or Officer or employee who is or was a witness
in a Proceeding at a time when he or she has not otherwise been formally
named a Party thereto.
(i) "Proceeding" shall have the meaning set forth in the
Statute; provided, that, in accordance with Section 180.0859 of the
Statute and for purposes of this Article IX, the term "Proceeding" shall
also include all Proceedings (i) brought under (in whole or in part) the
Securities Act of 1933, as amended, the Exchange Act, their respective
state counterparts, and/or any rule or regulation promulgated under any of
the foregoing; (ii) brought before an Authority or otherwise to enforce
rights hereunder; (iii) any appeal from a Proceeding; and (iv) any
Proceeding in which the Director or Officer is a plaintiff or petitioner
because he or she is a Director or Officer; provided, however, that any
such Proceeding under this subsection (iv) must be authorized by a
majority vote of a Disinterested Quorum.
(j) "Statute" shall mean Sections 180.0850 through 180.0859,
inclusive, of the Wisconsin Business Corporation Law, Chapter 180 of the
Wisconsin Statutes, as the same shall then be in effect, including any
amendments thereto, but, in the case of any such amendment, only to the
extent such amendment permits or requires the Corporation to provide
broader indemnification rights than the Statute permitted or required the
Corporation to provide prior to such amendment.
9.02. Mandatory Indemnification. To the fullest extent
permitted or required by the Statute, the Corporation shall indemnify a
Director or Officer against all Liabilities incurred by or on behalf of
such Director or Officer in connection with a Proceeding in which the
Director or Officer is a Party because he or she is a Director or Officer.
9.03. Procedural Requirements.
(a) A Director or Officer who seeks indemnification under
Section 9.02 shall make a written request therefor to the Corporation.
Subject to Section 9.03(b), within 60 days of the Corporation's receipt of
such request, the Corporation shall pay or reimburse the Director or
Officer for the entire amount of Liabilities incurred by the Director or
Officer in connection with the subject Proceeding (net of any Expenses
previously advanced pursuant to Section 9.05).
(b) No indemnification shall be required to be paid by the
Corporation pursuant to Section 9.02 if, within such 60-day period, (i) a
Disinterested Quorum, by a majority vote thereof, determines that the
Director or Officer requesting indemnification engaged in misconduct
constituting a Breach of Duty or (ii) a Disinterested Quorum cannot be
obtained.
(c) In either case of nonpayment pursuant to Section 9.03(b),
the Board shall immediately authorize by resolution that an Authority, as
provided in Section 9.04, determine whether the Director's or Officer's
conduct constituted a Breach of Duty and, therefore, whether
indemnification should be denied hereunder.
(d) (i) If the Board does not authorize an Authority to
determine the Director's or Officer's right to indemnification hereunder
within such 60-day period and/or (ii) if indemnification of the requested
amount of Liabilities is paid by the Corporation, then it shall be
conclusively presumed for all purposes that a Disinterested Quorum has
affirmatively determined that the Director or Officer did not engage in
misconduct constituting a Breach of Duty and, in the case of subsection
(i) above (but not subsection (ii)), indemnification by the Corporation of
the requested amount of Liabilities shall be paid to the Director or
Officer immediately.
9.04. Determination of Indemnification.
(a) If the Board authorizes an Authority to determine a
Director's or Officer's right to indemnification pursuant to Section 9.03,
then the Director or Officer requesting indemnification shall have the
absolute discretionary authority to select one of the following as such
Authority:
(i) An independent legal counsel; provided, that such
counsel shall be mutually selected by such Director or Officer and by
a majority vote of a Disinterested Quorum or, if a Disinterested
Quorum cannot be obtained, then by a majority vote of the Board;
(ii) A panel of three arbitrators selected from the panels
of arbitrators of the American Arbitration Association in Wisconsin;
provided, that (A) one arbitrator shall be selected by such Director
or Officer, the second arbitrator shall be selected by a majority
vote of a Disinterested Quorum or, if a Disinterested Quorum cannot
be obtained, then by a majority vote of the Board, and the third
arbitrator shall be selected by the two previously selected
arbitrators, and (B) in all other respects, such panel shall be
governed by the American Arbitration Association's then existing
Commercial Arbitration Rules; or
(iii) A court pursuant to and in accordance with
Section 180.0854 of the Statute.
(b) In any such determination by the selected Authority there
shall exist a rebuttable presumption that the Director's or Officer's
conduct did not constitute a Breach of Duty and that indemnification
against the requested amount of Liabilities is required. The burden of
rebutting such a presumption by clear and convincing evidence shall be on
the Corporation or such other party asserting that such indemnification
should not be allowed.
(c) The Authority shall make its determination within 60 days
of being selected and shall submit a written opinion of its conclusion
simultaneously to both the Corporation and the Director or Officer.
(d) If the Authority determines that indemnification is
required hereunder, the Corporation shall pay the entire requested amount
of Liabilities (net of any Expenses previously advanced pursuant to
Section 9.05), including interest thereon at a reasonable rate, as
determined by the Authority, within 10 days of receipt of the Authority's
opinion; provided, that, if it is determined by the Authority that a
Director or Officer is entitled to indemnification against Liabilities'
incurred in connection with some claims, issues or matters, but not as to
other claims, issues or matters, involved in the subject Proceeding, the
Corporation shall be required to pay (as set forth above) only the amount
of such requested Liabilities as the Authority shall deem appropriate in
light of all of the circumstances of such Proceeding.
(e) The determination by the Authority that indemnification is
required hereunder shall be binding upon the Corporation regardless of any
prior determination that the Director or Officer engaged in a Breach of
Duty.
(f) All Expenses incurred in the determination process under
this Section 9.04 by either the Corporation or the Director or Officer,
including, without limitation, all Expenses of the selected Authority,
shall be paid by the Corporation.
9.05. Mandatory Allowance of Expenses.
(a) The Corporation shall pay or reimburse from time to time or
at any time, within 10 days after the receipt of the Director's or
Officer's written request therefor, the reasonable Expenses of the
Director or Officer as such Expenses are incurred; provided, the following
conditions are satisfied:
(i) The Director or Officer furnishes to the Corporation
an executed written certificate affirming his or her good faith
belief that he or she has not engaged in misconduct which constitutes
a Breach of Duty; and
(ii) The Director or Officer furnishes to the Corporation
an unsecured executed written agreement to repay any advances made
under this Section 9.05 if it is ultimately determined by an
Authority that he or she is not entitled to be indemnified by the
Corporation for such Expenses pursuant to Section 9.04.
(b) If the Director or Officer must repay any previously
advanced Expenses pursuant to this Section 9.05, such Director or Officer
shall not be required to pay interest on such amounts.
9.06. Indemnification and Allowance of Expenses of Certain
Others.
(a) The Board may, in its sole and absolute discretion as it
deems appropriate, pursuant to a majority vote thereof, indemnify a
director or officer of an Affiliate (who is not otherwise serving as a
Director or Officer) against all Liabilities, and shall advance the
reasonable Expenses, incurred by such director or officer in a Proceeding
to the same extent hereunder as if such director or officer incurred such
Liabilities because he or she was a Director or Officer, if such director
or officer is a Party thereto because he or she is or was a director or
officer of the Affiliate.
(b) The Corporation shall indemnify an employee who is not a
Director or Officer, to the extent he or she has been successful on the
merits or otherwise in defense of a Proceeding, for all Expenses incurred
in the Proceeding if the employee was a Party because he or she was an
employee of the Corporation.
(c) The Board may, in its sole and absolute discretion as it
deems appropriate, pursuant to a majority vote thereof, indemnify (to the
extent not otherwise provided in Section 9.06(b) hereof) against
Liabilities incurred by, and/or provide for the allowance of reasonable
Expenses of, an employee or authorized agent of the Corporation acting
within the scope of his or her duties as such and who is not otherwise a
Director or Officer.
9.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of a Director or Officer or any individual who is or
was an employee or authorized agent of the Corporation against any
Liability asserted against or incurred by such individual in his or her
capacity as such or arising from his or her status as such, regardless of
whether the Corporation is required or permitted to indemnify against any
such Liability under this Article IX.
9.08. Notice to the Corporation. A Director, Officer or
employee shall promptly notify the Corporation in writing when he or she
has actual knowledge of a Proceeding which may result in a claim of
indemnification against Liabilities or allowance of Expenses hereunder,
but the failure to do so shall not relieve the Corporation of any
liability to the Director, Officer or employee hereunder unless the
Corporation shall have been irreparably prejudiced by such failure (as
determined, in the case of Directors or Officers, by an Authority selected
pursuant to Section 9.04(a)).
9.09. Severability. If any provision of this Article IX
shall be deemed invalid or inoperative, or if a court of competent
jurisdiction determines that any of the provisions of this Article IX
contravene public policy, this Article IX shall be construed so that the
remaining provisions shall not be affected, but shall remain in full force
and effect, and any such provisions which are invalid or inoperative or
which contravene public policy shall be deemed, without further action or
deed by or on behalf of the Corporation, to be modified, amended and/or
limited, but only to the extent necessary to render the same valid and
enforceable; it being understood that it is the Corporation's intention to
provide the Directors and Officers with the broadest possible protection
against personal liability allowable under the Statute.
9.10. Nonexclusivity of Article IX. The rights of a
Director, Officer or employee (or any other person) granted under this
Article IX shall not be deemed exclusive of any other rights to
indemnification against Liabilities or allowance of Expenses which the
Director, Officer or employee (or such other person) may be entitled to
under any written agreement, Board resolution, vote of shareholders of the
Corporation or otherwise, including, without limitation, under the
Statute. Nothing contained in this Article IX shall be deemed to limit
the Corporation's obligations to indemnify against Liabilities or allow
Expenses to a Director, Officer or employee under the Statute.
9.11. Contractual Nature of Article IX; Repeal or Limitation
of Rights. This Article IX shall be deemed to be a contract between the
Corporation and each Director, Officer and employee of the Corporation and
any repeal or other limitation of this Article IX or any repeal or
limitation of the Statute or any other applicable law shall not limit any
rights of indemnification against Liabilities or allowance of Expenses
then existing or arising out of events, acts or omissions occurring prior
to such repeal or limitation, including, without limitation, the right to
indemnification against Liabilities or allowance of Expenses for
Proceedings commenced after such repeal or limitation to enforce this
Article IX with regard to acts, omissions or events arising prior to such
repeal or limitation.
ARTICLE X. AMENDMENTS
10.01. By Shareholders. Except as otherwise provided by the
articles of incorporation of the corporation and these by-laws, the by-
laws of the corporation may be altered, amended or repealed and new by-
laws may be adopted by the shareholders at any Annual Meeting or Special
Meeting at which a quorum is in attendance.
10.02. By Directors. Except as otherwise provided in the
articles of incorporation of the corporation and these by-laws, the by-
laws of the corporation may also be altered, amended or repealed and new
by-laws may be adopted by the Board of Directors by affirmative vote of a
majority of the number of directors present at any meeting at which a
quorum is in attendance; provided, however, that the shareholders in
altering, adopting, amending or repealing a particular by-law may provide
therein that the Board of Directors may not amend, repeal or readopt that
by-law.
10.03. Implied Amendments. Any action taken or authorized by
the shareholders or by the Board of Directors, which would be inconsistent
with the by-laws then in effect but is taken or authorized by affirmative
vote of not less than the number of shares or the number of directors
required to amend the by-laws so that the by-laws would be consistent with
such action, shall be given the same effect as though the by-laws had been
temporarily amended or suspended so far, but only so far, as is necessary
to permit the specific action so taken or authorized.
AMENDMENT NO. 3
AND WAIVER
to
CREDIT AGREEMENT
Dated as of December 21, 1992
THIS AMENDMENT NO. 3 AND WAIVER ("Amendment") is entered into as
of February 10, 1997 by and among Giddings & Lewis, Inc., a Wisconsin
corporation, Giddings & Lewis, Ltd., a corporation formed under the laws
of the United Kingdom, Giddings & Lewis GmbH, a corporation formed under
the laws of the Republic of Germany, and the institutions identified on
the signature pages hereof as Agent and Lenders which are signatories
hereto. Capitalized terms used herein but not defined herein shall have
the meanings provided in the Credit Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, the U.S. Borrower, the Multicurrency Borrowers, and the
Lenders are parties to that certain Credit Agreement dated as of December
21, 1992, as heretofore amended (together with the Exhibits and Schedules
thereto, the "Credit Agreement"), pursuant to which the Lenders have
agreed to provide certain financial accommodations to the U.S. Borrower
and Multicurrency Borrowers;
WHEREAS, the U.S. Borrower has requested certain amendments to
financial covenants set forth in Section 5.01 of the Credit Agreement for
fiscal quarters ending in 1997 and the waiver of Lenders' rights and
remedies arising due to its failure to comply with certain financial
covenants set forth in Section 5.01 for the fiscal quarter ending December
31, 1996;
NOW, THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Amendment to Credit Agreement; Waiver. Effective as of
February 10, 1997, upon satisfaction of the conditions precedent set forth
in Section 2 below, (a) the Credit Agreement is hereby amended to (i) add
the following provision at the end of (A) Section 5.01(b):
For purposes of calculating the Interest Coverage Ratio for fiscal
quarters ending in 1997, the calculation shall be made without regard
to the charges for Fraser contracts/restructuring; RAM
warranty/returns; and balance sheet valuation adjustments in an
aggregate amount not to exceed $80,100,000, on a pre-tax basis,
occurring in the fiscal quarter ending December 31, 1996.
and (B) Section 5.01(c):
For purposes of calculating the Fixed Charge Coverage Ratio for
fiscal quarters ending in 1997, the calculation shall be made without
regard to the charges for Fraser contracts/restructuring; RAM
warranty/returns; and balance sheet valuation adjustments in an
aggregate amount not to exceed $80,100,000, on a pre-tax basis,
occurring in the fiscal quarter ending December 31, 1996.
and (ii) delete the provisions of Section 8.02(iii) thereof in their
entirety and substitute the following therefor:
(iii) if the Agent, c/o Citicorp Securities, Inc., 200 South Wacker
Drive, 31st Floor, Chicago, Illinois 60606, Attention: Richard
Levin, Telecopier No. (312) 993-6840, Telephone No. (312) 993-3014;
(b) the rights and remedies of the Lenders arising due to the U.S.
Borrower's failure to comply with the requirements of Section 5.01(b) and
Section 5.01(c) as of the end of its fiscal quarter ending December 31,
1996 are hereby waived, including, without limitation, Lenders' right
under Section 3.02 to not make Advances or Multicurrency Advances and the
Issuing Bank's right under Section 3.02 to not issue Letters of Credit, in
each instance, due to the breach of the provisions of Section 5.01(b) and
Section 5.02(c) as aforesaid, and
(c) pre-default interest payable under the Agreement which is calculated
based on an Applicable Eurocurrency Rate Margin shall be calculated from
and after January 1, 1997 based solely on Performance Level IV and the
amount of the Facility Fee payable for the period commencing on January 1,
1997 and ending on the Termination Date shall be calculated based solely
on Performance Level IV.
2. Conditions to Effectiveness. This Amendment shall become
effective as of February 10, 1997 upon receipt by the Agent, by no later
than February 5, 1997, of executed counterparts of this Amendment signed
on behalf of the U.S. Borrower, the Multicurrency Borrowers, and Lenders
constituting at least the Majority Lenders.
3. Representations, Warranties and Covenants.
3.1 The U.S. Borrower hereby represents and warrants that this
Amendment and the Credit Agreement, as amended hereby, constitute the
legal, valid and binding obligations of the U.S. Borrower and the
Multicurrency Borrowers and are enforceable against the U.S. Borrower and
Multicurrency Borrowers in accordance with their terms.
3.2 The U.S. Borrower hereby represents and warrants that,
before and after giving effect to this Amendment, no Event of Default or
Potential Event of Default has occurred and is continuing except under
Section 5.01 with respect to the non-compliance described in Section 1(b)
hereinabove.
3.3 The U.S. Borrower and each Multicurrency Borrower hereby
reaffirms all agreements, covenants, representations and warranties made
in the Credit Agreement, to the extent the same are not amended hereby,
and made in the other Loan Documents to which it is a party; and agrees
that all such agreements, covenants, representations and warranties shall
be deemed to have been remade as of the effective date of this Amendment.
To the extent the Credit Agreement is amended hereby to modify or add
agreements, covenants and/or representations and warranties, such
agreements, covenants and/or representations and warranties are made as of
the date on which this Amendment becomes effective with respect thereto.
4. Reference to and Effect on the Credit Agreement.
4.1 Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of like import shall mean and be a reference to the Credit
Agreement as amended hereby.
4.2 Except as specifically amended above, the Credit Agreement
shall remain in full force and effect, and is hereby ratified and
confirmed.
4.3 The parties to this Amendment hereby acknowledge that the
Event of Default arising due to the U.S. Borrower's failure to comply with
the requirements of Section 5.01(b) and Section 5.01(c) for the fiscal
quarter ending December 31, 1996 as aforesaid has not resulted, and is not
reasonably likely to result, in a Material Adverse Effect. 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 the Agent or Lenders, or constitute a waiver of any provision of
any of the Loan Documents.
5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
6. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part
of this Amendment for any other purpose.
7. Counterparts. This Amendment may be executed by one or
more of the parties hereto on any number of separate counterparts, each of
which shall be deemed an original and all of which, taken together, shall
be deemed to constitute one and the same instrument. Delivery of an
executed counterpart of this Amendment by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.
IN WITNESS WHEREOF, this Amendment has been duly executed as of
the day and year first above written.
GIDDINGS & LEWIS, INC.
By /s/ Michael R. Melzer
Michael R. Melzer
Treasurer
GIDDINGS & LEWIS GmbH
By /s/ Michael R. Melzer
Michael R. Melzer
Treasurer
GIDDINGS & LEWIS, LTD.
By /s/ Michael R. Melzer
Michael R. Melzer
Treasurer
CITIBANK, N.A., as Agent and
Lender
By /s/ Carolyn A. Kee
Name: Carolyn A. Kee
Title: Attorney-in-Fact
FIRSTAR BANK MILWAUKEE, N.A.
By /s/ James Spredemann
Name: James Spredemann
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ A. S. Norsworthy
Name: A. S. Norsworthy
Title: Sr. Team Leader-Loan
Operations
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By /s/ Philip G. Neary
Name: Philip G. Neary
Title: Senior Vice President
COMMERZBANK AKTIENGESELLSCHAFT GRAND CAYMAN
BRANCH
By /s/ Paul Karlin
Name: Paul Karlin
Title: Assistant Treasurer
By /s/ Dr. Helmut R. Tollner
Name: Dr. Helmut R. Tollner
Title: Executive Vice President
FIRST BANK NATIONAL ASSOCIATION
By /s/ Mark R. Olmon
Name: Mark R. Olmon
Title: Vice President
THE NORTHERN TRUST COMPANY
By /s/ James F. T. Manhart
Name: James F. T. Manhart
Title: Vice President
AMENDMENT NO. 4
to
CREDIT AGREEMENT
Dated as of December 21, 1992
THIS AMENDMENT NO. 4 ("Amendment") is entered into as of March
21, 1997 by and among Giddings & Lewis, Inc., a Wisconsin corporation,
Giddings & Lewis, Ltd., a corporation formed under the laws of the United
Kingdom, Giddings & Lewis GmbH, a corporation formed under the laws of the
Republic of Germany, and the institutions identified on the signature
pages hereof as Agent and Lenders which are signatories hereto.
Capitalized terms used herein but not defined herein shall have the
meanings provided in the Credit Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, the U.S. Borrower, the Multicurrency Borrowers, and the
Lenders are parties to that certain Credit Agreement dated as of December
21, 1992, as heretofore amended (together with the Exhibits and Schedules
thereto, the "Credit Agreement"), pursuant to which the Lenders have
agreed to provide certain financial accommodations to the U.S. Borrower
and Multicurrency Borrowers;
WHEREAS, the U.S. Borrower has requested an amendment to Section
5.02(c)(iii) of the Credit Agreement for the remainder of the term of the
Credit Agreement with respect to its ability to purchase or redeem Capital
Stock of the U.S. Borrower;
NOW, THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Amendment to Credit Agreement. Effective as of March 21,
1997, upon satisfaction of the conditions precedent set forth in Section 2
below, the Credit Agreement is hereby amended to delete the provisions of
Section 5.02(c)(iii) thereof in their entirety and substitute the
following therefor:
(iii) declare dividends payable to holders of Capital Stock of the
U.S. Borrower or purchase or redeem Capital Stock of the U.S.
Borrower; provided that the aggregate amount of such dividends,
purchases and redemptions from and after March 21, 1997 shall not
exceed $65,000,000;
2. Conditions to Effectiveness. This Amendment shall become
effective as of March 21, 1997 upon receipt by the Agent, by no later than
March 21, 1997, of executed counterparts of this Amendment signed on
behalf of the U.S. Borrower, the Multicurrency Borrowers, and Lenders
constituting at least the Majority Lenders.
3. Representations, Warranties and Covenants.
3.1 The U.S. Borrower hereby represents and warrants that this
Amendment and the Credit Agreement, as amended hereby, constitute the
legal, valid and binding obligations of the U.S. Borrower and the
Multicurrency Borrowers and are enforceable against the U.S. Borrower and
Multicurrency Borrowers in accordance with their terms.
3.2 The U.S. Borrower hereby represents and warrants that,
before and after giving effect to this Amendment, no Event of Default or
Potential Event of Default has occurred and is continuing unwaived.
3.3 The U.S. Borrower and each Multicurrency Borrower hereby
reaffirms all agreements, covenants, representations and warranties made
in the Credit Agreement, to the extent the same are not amended hereby,
and made in the other Loan Documents to which it is a party; and agrees
that all such agreements, covenants, representations and warranties shall
be deemed to have been remade as of the effective date of this Amendment.
To the extent the Credit Agreement is amended hereby to modify or add
agreements, covenants and/or representations and warranties, such
agreements, covenants and/or representations and warranties are made as of
the date on which this Amendment becomes effective with respect thereto.
4. Reference to and Effect on the Credit Agreement.
4.1 Upon the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein"
or words of like import shall mean and be a reference to the Credit
Agreement as amended hereby.
4.2 Except as specifically amended above, the Credit Agreement
shall remain in full force and effect, and is hereby ratified and
confirmed.
4.3 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 the Agent or Lenders, or
constitute a waiver of any provision of any of the Loan Documents.
5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
6. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part
of this Amendment for any other purpose.
7. Counterparts. This Amendment may be executed by one or more
of the parties hereto on any number of separate counterparts, each of
which shall be deemed an original and all of which, taken together, shall
be deemed to constitute one and the same instrument. Delivery of an
executed counterpart of this Amendment by facsimile transmission shall be
effective as delivery of a manually executed counterpart hereof.
IN WITNESS WHEREOF, this Amendment has been duly executed as of
the day and year first above written.
GIDDINGS & LEWIS, INC.
By /s/ Michael R. Melzer
Michael R. Melzer
Treasurer
GIDDINGS & LEWIS GmbH
By /s/ Michael R. Melzer
Michael R. Melzer
Treasurer
GIDDINGS & LEWIS, LTD.
By /s/ Michael R. Melzer
Michael R. Melzer
Treasurer
CITIBANK, N.A., as Agent and
Lender
By /s/ Carolyn A. Kee
Name: Carolyn A. Kee
Title: Attorney-in-Fact
FIRSTAR BANK MILWUAKEE, N.A.
By /s/ James Spredemann
Name: James Spredemann
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ A. S. Norsworthy
Name: A. S. Norsworthy
Title: Sr. Team Leader-Loan
Operations
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By /s/ Philip G. Neary
Name: Philip G. Neary
Title: Senior Vice President
COMMERZBANK AKTIENGESELLSCHAFT GRAND CAYMAN
BRANCH
By /s Paul Karlin
Name: Paul Karlin
Title: Assistant Treasurer
By /s/ Dr. Helmut R. Tollner
Name: Dr. Helmut R. Tollner
Title: Executive Vice President
FIRST BANK NATIONAL ASSOCIATION
By /s/ Mark R. Olman
Name: Mark R. Olman
Title: Vice President
THE NORTHERN TRUST COMPANY
By /s/ Lisa M. Taylor
Name: Lisa M. Taylor
Title: Officer
EXECUTIVE CONSULTING AGREEMENT
THIS AGREEMENT dated as of the 1st day of December, 1996, by and
between Giddings & Lewis, Inc., a Wisconsin corporation ("Company"), and
Joseph R. Coppola (the "Executive").
WITNESSETH:
WHEREAS, the Executive has announced his pending retirement as
Chief Executive Officer and Chairman of the Board of Directors of the
Company.
WHEREAS, the Company desires to assure itself of the
availability of the Executive to consult with the Company for a reasonable
period following his retirement.
WHEREAS, because the Executive may continue to acquire intimate
knowledge of the business of the Company and develop or maintain
relationships with customers, suppliers, distributors, vendors and others
in connection with the business of the Company during his consultancy
hereunder, the Company recognizes the need to continue in force the
Executive covenants currently governing the Company's employment
relationship with the Executive.
WHEREAS, the Executive is desirous of committing himself to
serve the Company as a consulting employee on the terms herein provided.
NOW, THEREFORE, in consideration of the covenants and agreements
of the parties herein contained and the mutual benefits to be derived from
this Agreement, the parties hereto agree as follows:
1. Retirement Dates. The Executive shall retire as chief
executive officer of the Company on March 17, 1997. He shall remain as
chairman of the Board of Directors of the Company ("Board") thereafter
until his retirement in 1997.
2. Consulting Duties. The Company agrees to employ the
Executive, and the Executive hereby agrees to serve the Company, as a
senior consultant. The Executive shall provide such advice and counsel to
the Company as is reasonably requested by its senior management or Board.
The Executive is not required to maintain a residence or office in Fond du
Lac, Wisconsin, while providing such consulting duties.
3. Consulting Term. The term ("Term") of the Executive's
consultancy hereunder shall commence on his retirement date as chairman of
the Board, and shall continue uninterrupted thereafter for a 3-year
period, except to the extent that the Term shall be earlier terminated for
Cause, as defined in Section 6. The provisions of Sections 5 and 9 shall
survive the expiration of the Term.
4. Compensation. The Executive shall be entitled to the
following additional compensation in connection with his service as a
consultant to the Company:
a. The Executive shall receive annual compensation,
payable in equal semi-monthly installments or as otherwise agreed by the
Company and the Executive, during the 3-year Term of the consulting
period, unless the Term shall have earlier terminated. The annual
compensation for the initial 12-month period is $200,000; for the second
12-month period, $150,000; and for the third 12-month period, $100,000.
b. The Executive is granted the option, exercisable
during the months of December 1996 and January and February 1997, to
require the Company to purchase his home, located at 864 Country Club
Lane, Fond du Lac, Wisconsin, for a gross purchase amount of $715,000.
This option shall be exercised by providing written notice to the Company
of the Executive's intent to exercise the option no later than the close
of business on January 31, 1997.
c. The Executive shall be reimbursed the reasonable out-
of-pocket expenses incurred by Executive in the course of providing
consulting services hereunder in accordance with the established
procedures for Company expense reimbursement.
5. Executive Covenants. The Executive shall be considered an
employee of the Company during the Term. The Executive's covenants
concerning confidential matters, inventive ideas and patents, and
competition with the Company set forth in Section 4 of the Employment
Agreement made as of June 30, 1993, between the Executive and the Company
are incorporated herein by this reference and continued in effect
hereunder.
6. Termination for Cause. The Company may terminate this
Agreement for Cause at any time upon written notice to the Executive. For
the purposes of this Agreement, the Company shall have "Cause" to
terminate this Agreement in the case of theft, dishonesty, fraudulent
misconduct, gross dereliction of duty or other grave misconduct on the
part of the Executive which is substantially injurious to the Company. If
this Agreement is terminated pursuant to this Section 6, all payments
hereunder shall cease except payments through the calendar month in which
such termination occurs and the Company's obligations under Section 4(b)
to repurchase the Executive's home shall cease to the extent the
Executive's option has not yet been exercised.
7. Other Termination. This Agreement shall not terminate for
reasons other than Cause, as defined in Section 6. If the Executive dies
before the Term is completed, any remaining compensation under this
Agreement shall be paid to the estate of the Executive.
8. Notice. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by
United States certified or registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Joseph R. Coppola
The Brittany
4021 Gulf Shore Blvd., Unit 2005
Naples, FL 33940
If to the Company:
Giddings & Lewis, Inc.
Attention: Robert N. Kelley, Vice President-Administration
142 Doty Street
Fond du Lac, WI 54935
or to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
9. Miscellaneous.
a. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the parties hereto. No waiver by any 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.
b. No agreements or representations, oral or otherwise,
express or implied, with respect to the Executive's consulting arrangement
with the Company and Executive's option to require the Company to purchase
his home have been made by either party which are not set forth expressly
in this Agreement. This Agreement supplements but does not amend, modify,
or replace the Employment Agreement entered into between the Executive and
the Company, dated as of June 30, 1993, or the supplemental executive
retirement plan between the Executive and the Company effective as of July
1, 1993.
c. This Agreement shall not be assigned by the Executive
and may not be assigned by the Company without the written consent of the
Executive, and any attempted assignment without such written consent shall
be null and void and without legal effect. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors and
assigns and the Executive and his heirs, executors, administrators and
legal representatives.
d. The Executive shall be liable for all taxes levied
against the Executive relating to amounts paid to the Executive by the
Company, and amounts paid by the Company will be net of all applicable
FICA and income tax withholding, if any.
e. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State
of Wisconsin.
10. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all
of such together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
EXECUTIVE
/s/ Joseph R. Coppola
Joseph R. Coppola
GIDDINGS & LEWIS, INC.
By: Robert N. Kelley
Title: Vice President-Administration
[GIDDINGS & LEWIS, INC. LETTERHEAD]
December 3, 1996
Personal & Confidential
Mr. Richard C. Kleinfeldt
66 Pheasant Drive
Fond du Lac, WI 54936
Dear Dick:
This letter agreement confirms our mutual understanding
regarding your retirement from employment with Giddings & Lewis, Inc. (the
"Company"). In return for your compliance with all of the terms of this
agreement, the Company will provide the following additional consideration
and benefits:
1. Retirement. (a) Upon execution of this agreement by you
on or before December 14, 1996, you shall advise the Company in writing
(substantially in the form of Exhibit A to this agreement) that you are
retiring from the Company effective as of a specific date not later than
April 1, 1997 (your "Retirement Date") and that you are resigning as an
executive officer and director of the Company effective immediately. You
also agree to provide additional resignations from such other positions as
the Company deems necessary, including positions as officer or director of
any affiliated company or as member of any committee or administrative
body relating to the Company and its businesses. During the period from
your execution of this agreement to your Retirement Date no changes will
be made in your current base salary, benefit plans, or fringe benefits as
a result of your resignation as an executive officer of the Company. Upon
execution of this agreement and receipt by the Company of your notice of
retirement and the related resignations, the Company will issue a press
release, in a form acceptable to you, announcing your retirement effective
as of your Retirement Date.
(b) Provided that you sign this agreement and do not execute
your revocation rights, you will be a consulting employee of the Company
during the period beginning on your Retirement Date and ending on the
first to occur of March 31, 1999, or the last day of the month in which
your death occurs (the "Consulting Employment Period") during which time
the covenants and obligations set forth in this agreement continue to be
satisfied in full.
2. Executive Compensation Programs. (a) Any stock options
and/or restricted stock awards previously issued to you shall remain in
effect during your employment with the Company, including any Consulting
Employment Period, according to their terms. To the extent applicable in
connection with your transactions in the Company's securities, you agree
to make all necessary filings and execute all appropriate documents in
order to comply with the provisions of Section 16 of the Securities
Exchange Act of 1934, as amended.
(b) Your coverage under the Company's Supplemental Executive
Retirement Plan and its Deferred Compensation Plan will also continue
during your employment with the Company, including any Consulting
Employment Period.
(c) Your Key Executive Employment and Severance Agreement shall
cease to be effective as of December 3, 1996. You will not be eligible to
participate in any management incentive or other incentive compensation
plan after December 31, 1996.
(d) Except as provided in Paragraph 2(c) your status as a
"consulting employee" shall not limit, waive or adversely affect any
rights regarding any Company benefit plans which you would have had had
you not tendered you resignation pursuant to Paragraph 1(a) and continued
to remain a regular employee through the Consulting Employment Period.
Except as provided in Paragraph 2(c), your "Retirement Date" will not
control or be derminative respecting your rights under any such plans and
your rights under such plans shall credit you with service provided the
Company during the Consulting Employment Period, regardless of the hours
which you work during the Consulting Employment Period.
(e) On or immediately following April 1, 1997, the Company will
transfer to you title of the Company automobile which you have been using.
You will be responsible for sales tax and any income taxes due from you as
the result of the transfer. Thereafter during the Consulting Employment
Period you will be eligible for the Company's monthly automobile allowance
upon submission of appropriate mileage and expense reports as required by
applicable rules and procedures.
3. Duties During Consulting Employment Period. During the
Consulting Employment Period, your employment duties will be as determined
from time to time by the Chief Executive Officer of the Company. Such
duties shall be consistent with your present skills and training and with
your stature in the Company as a long-service, senior management employee
of the Company. Your assigned duties will be in the nature of consulting
employee services and will not require you to maintain regular office
hours at Company offices and should not conflict with other
entrepreneurial activities of interest to you which are not in violation
of this agreement. In order to assure you substantial control over your
schedule during the Consulting Employment Period you will not be obligated
to perform any services requested by the Company on less than thirty (30)
days advance written notice.
4. Consideration. (a) During the Consulting Employment
Period the Company will pay you a monthly salary equal to your current
base salary, payable in the same manner as compensation is provided to
other salaried employees at the Company's Fond du Lac, Wisconsin,
location. In addition, during the Consulting Employment Period, you will
continue to participate in the employee benefit plans and fringe benefits
for the Company's salaried employees located in Fond du Lac Wisconsin, on
the same basis as such other salaried employees. In addition, the Company
will continue to pay dues on your behalf to the South Hills Golf and
Country Club through March 31, 1999. You may, at that time and to the
extent permitted by applicable rules of the country club, elect to
continue membership thereafter at your own expense without reimbursing the
Company for membership fees previously paid by the Company. You shall
retain ownership of stock in the South Hills Golf and Country Club and are
under no obligation to assign such shares to the Company.
(b) The Consulting Employment Period, including the
compensation and benefits provided during such period, is mutually agreed
by us to be additional consideration to you from the Company for your
granting to the Company the covenants and releases set forth in paragraphs
5, 6, and 7, below.
5. Noncompetition. (a) In consideration for the payments and
benefits to be provided to you under paragraph 4, you agree that during
the period from December 3, 1996, to the conclusion of any Consulting
Employment Period (the "Restricted Period"), regardless of whether you
have forfeited rights under this agreement due to breach of its terms, you
will not be employed directly or indirectly by, be a sole proprietor or
partner of, or act as a consultant to, any person or entity which is or is
about to be engaged in any business in North America or Europe which is
substantially similar to or will in any material respect compete with any
portion of the business of the Company and its subsidiaries as currently
conducted, in any capacity where confidential information concerning the
Company which was acquired by you during your employment with the Company
would reasonably be considered to be useful.
(b) You further agree that during the Restricted Period, you
will not join in or participate with any action that would require any
person to file a Schedule 13d (or any successor schedule thereto) under
the Securities Exchange Act of 1934, as amended, with respect to the
Company; you will not make, or participate with any other person who
makes, any proposal for a business combination involving the Company or
the acquisition of the Company, and you will not be a proponent in any
solicitation of proxies with respect to a meeting of shareholders of the
Company.
(c) You further agree to reasonably cooperate with the Company,
its financial and legal advisors and/or government officials, in any
claims, investigations, administrative proceedings including without
limitation environmental proceedings, lawsuits, and other legal, internal
or business matters, as reasonably requested by the Company during the
Restricted Period and for 2 years thereafter. You will be paid a
reasonable daily fee, determined by the Company, for each day after the
Consulting Employment Period on which such service is performed at the
request of the Company and, to the extent you incur travel or other
expenses with respect to such activities, the Company will reimburse you
for such reasonable expenses when submitted according to regular corporate
procedures.
(d) You agree that the Company will suffer irreparable damage
in the event the provisions of this paragraph 5 are breached and your
acceptance of the provisions of this paragraph 5 was a material factor in
your decision to enter into this agreement. You further agree that the
Company shall be entitled as a matter of right to injunctive relief to
prevent a breach by you. Resort to such equitable relief, however, shall
not constitute a waiver of any other rights or remedies the Company may
have. In addition to such equitable relief, and not in limitation of any
other rights or remedies the Company may have, if you breach the
provisions of this paragraph 5 during the Restricted Period the Company
shall have the remedies set forth in paragraph 8 hereof.
6. Nonsolicitation; Confidentiality. (a) You agree that
during the Restricted Period, regardless of whether you have forfeited
rights under this agreement due to breach of its terms, you shall not,
except as provided herein, directly or indirectly solicit for employment
or advise or recommend to any other person that he or she solicit for
employment any person employed at that time by the Company, its
subsidiaries or affiliates. You further agree at all times, whether
during the Restricted Period and for 2 years thereafter, not to exploit,
use, sell, publish, disclose, communicate or divulge to any person any
trade secrets or confidential information, knowledge or data regarding the
Company, its subsidiaries or affiliates or any of their respective
directors, advisors, officers, employees or agents for so long as such
trade secrets or confidential information, knowledge, or data have not
become generally known to the public or the Company's competitors without
your fault or participation. You agree that the Company will suffer
irreparable damage in the event the provisions of this paragraph 6 are
breached and that your acceptance of the provisions of this paragraph 6
was a material factor in your decision to enter into this agreement. You
further agree that the Company shall be entitled as a matter of right to
injunctive relief to prevent a breach by you. Resort to such equitable
relief, however, shall not constitute a waiver of any other rights or
remedies the Company may have. In addition to such equitable relief, and
not in limitation of any other rights or remedies the Company may have, if
you breach the provisions of this paragraph 6 during the Restricted Period
the Company shall have the remedies set forth in paragraph 8 hereof. The
provisions of this paragraph 6 shall not apply to any truthful statement
required to be made by you in any legal proceeding or government or
regulatory investigation, provided, however, that prior to making such
statement you will give the Company reasonable notice and, to the extent
you are legally entitled to do so, afford the Company the ability to seek
a confidentiality order. Nothing herein modifies or reduces your
obligation to comply with applicable laws relating to trade secrets,
confidential information, or unfair competition.
(b) You represent and warrant that you will, on or before your
Retirement Date, deliver to the Company the original and all copies of all
documents, records, and property of any nature whatsoever which are in
your possession or control and which are the property of the Company or
which relate to the business activities, facilities, or customers of the
Company, its subsidiaries, or its affiliates, including any records,
documents or property created by you.
7. Release and Covenants. (a) In consideration of the
benefits and payments provided and to be provided by the Company, you, on
behalf of yourself, your spouse, heirs, executors, administrators, agents,
successors, assigns and representatives of any kind (hereinafter
collectively referred to as the "Releasors") confirm that Releasors have
released the Company, and each of its subsidiaries, affiliates, their
employees, successors, assigns, executors, trustees, directors, advisors,
agents and representatives, and all their respective predecessors and
successors (hereinafter collectively referred to as the "Releasees"), from
any and all actions, causes of action, charges, debts, liabilities,
accounts, demands, damages and claims of any kind whatsoever including,
but not limited to, those arising out of the changes in the terms and
conditions of your relationship with the Company described in this
agreement and those arising under any labor, employment discrimination
(including, without limitation, the Age Discrimination in Employment Act
of 1967, as amended, Title VII of the Civil Rights Act of 1964, as
amended, the Wisconsin Fair Employment Act, as amended), contract or tort
laws, equity or public policy, or negligence standard, whether known or
unknown, certain or speculative, which against any of the Releasees, any
of the Releasors ever had, now has, or hereafter shall have or can have.
You further covenant that you will not initiate any action, claim or
proceeding against any of the Releasees for any of the foregoing, nor will
you participate, assist, or cooperate in any such action, claim, or
proceeding unless required to do so by law.
(b) Notwithstanding the foregoing, this agreement does not
waive rights, if any, you or your successors and assigns may have under or
pursuant to, or release any member of Releasees from obligations, if any,
it may have to you or to your successors and assigns on claims arising out
of, related to or asserted under or pursuant to, this agreement, any
insurance contract, or any indemnity agreement or obligation contained in
or adopted or acquired pursuant to any provision of the charter or by-laws
of the Company or its subsidiaries or affiliates or in any applicable
insurance policy carried by the Company or its affiliates for any matter
which arises or may arise in the future in connection with your employment
with the Company. The Company also agrees to provide such indemnification
and insurance coverage to you for services rendered during the Consulting
Employment Period as is customarily provided to active executive employees
of the Company. Notwithstanding the foregoing, this agreement does not
waive any rights under the Wisconsin Workers' Compensation Act or for any
claim arising after the execution of this agreement.
(c) You hereby acknowledge that you have at least 21 days to
review this agreement from the date you first receive it and you have been
advised to review it with an attorney of your choice. You further
understand that the 21 day review period ends when you sign this
agreement. You also have 7 days after your signing of this agreement to
revoke by so notifying the Company in writing. Any revocation by you
under this paragraph 7(c), however, does not revoke the resignations
provided under paragraph 1(a), and your retirement with the Company shall
remain in effect as set forth herein. You further acknowledge that you
have carefully read this agreement, know and understand the contents
thereof and its binding legal effect. You sign the same of your own free
will and act, and it is your intention that you be legally bound thereby.
(d) You agree to keep this agreement confidential and not to
reveal its contents to anyone other than your attorney, financial
consultant, and immediate family members. The provisions of this
paragraph 7(d) shall not apply to any truthful statement required to be
made by you in any legal proceeding or government or regulatory
investigation, provided, however, that prior to making such statement you
will give the Company reasonable notice and, to the extent you are legally
entitled to do so, afford the Company the ability to seek a
confidentiality order.
(e) The Company hereby releases you from any liability to the
Company arising out of your employment with the Company through the date
of this agreement except to the extent of the obligations set forth in
this agreement.
8. Noncompliance. The additional payments and benefits
provided to you pursuant to paragraph 4 are conditioned upon your
compliance with all of the terms and conditions of this agreement,
particularly paragraphs 5, 6 and 7. Each of the aforementioned provisions
are material terms of this agreement, and (i) in the event of any
violation of any such provision of this agreement by you or anyone acting
at your direction or (ii) in the event you or anyone acting at your
direction at any time shall substantially denigrate any of the Releasees,
including without limitation by way of news media or the expression to
news media of personal views, opinions or judgments, the Company shall be
entitled to withhold and terminate all aforementioned payments and
benefits provided or to be provided in paragraph 4, above, and you agree
to repay to the Company all payments paid to you pursuant to such
paragraph and/or the Company shall be entitled to recover any of the
amounts paid to you pursuant to paragraph 4, without waiving the right to
pursue any other available legal or equitable remedies. The Company
agrees that neither it, nor its officers, directors, or employees, whether
past, present or future, will substantially denigrate you in any manner,
including, but not limited to, statements made to the news media or an
expression of such entities' or individuals' views opinions or judgments.
9. Tax Payments, Withholding and Reporting. You recognize
that the payments and benefits provided under this agreement including
without limitation those provided pursuant to paragraph 4 may result in
taxable income to you which the Company and its affiliates will report to
their appropriate taxing authorities. The Company and its affiliates
shall have the right to deduct from any payment made under this agreement
to you any federal, state, local or other income, employment or other
taxes it determines are required by law to be withheld with respect to
such payments or benefits provided hereunder or to require payment from
you which you agree to pay upon demand, for the purpose of satisfying any
such withholding requirement.
10. Severability. In the event any one or more of the
provisions of this agreement (or any part thereof) shall for any reason be
held to be invalid, illegal or unenforceable, the remaining provisions of
this agreement (or part thereof) shall be unimpaired, and the invalid,
illegal or unenforceable provision (or part thereof) shall be replaced by
a provision (or part thereof), which, being valid, legal and enforceable,
comes closest to the intention of the parties underlying the invalid,
illegal or unenforceable provisions. However, in the event that any such
provision of this agreement (or part thereof) is adjudged by a court of
competent jurisdiction to be invalid, illegal or unenforceable, but that
the other provisions (or part thereof) are adjudged to be valid, legal and
enforceable if such invalid, illegal or unenforceable provision (or part
thereof) were deleted or modified, then this agreement shall apply with
only such deletions or modifications, or both, as the case may be, as are
necessary to permit the remaining separate provisions (or part thereof) to
be valid, legal and enforceable.
11. Other Agreements. (a) This agreement does not limit or
restrict in any way your rights under the Company's employee benefit
plans, including, but not limited to, the Retirement Plan, the Retirement
Savings Plan and the Company's group medical plan. During the Consulting
Employment Period, you will be provided with the same medical benefits
provided to the Company's active executive employees. Thereafter, you and
your spouse will be provided access to such medical coverage, provided you
pay the full premium charges by the Company for such coverage, until you
and your spouse have reached the age for Medicare eligibility as may then
be provided by law.
(b) Subject to paragraph 11(a), and the provisions of this
Agreement, all the terms of our agreement are embodied in this agreement,
which incorporates by reference the Company's Supplemental Executive
Retirement Plan, Deferred Compensation Plan, and Stock Option and
Restricted Stock Plans, and it fully supersedes any and all prior
agreements or understandings between you and any Releasee. This agreement
shall be governed by the substantive laws of the State of Wisconsin
without regard to its conflict of laws provisions. The parties agree that
any proceeding to resolve any dispute arising hereunder will be brought
only in the courts of the State of Wisconsin or in the courts of the
United States of America for the Eastern District of Wisconsin, and that
each party irrevocably submits to such jurisdiction, and hereby waives any
and all objections as to venue, inconvenient forum and the like. It is
the intention of the parties hereto, however, that to the extent
practicable, the parties will endeavor to settle any dispute arising
hereunder first through the process of non-binding mediation to be
conducted in Milwaukee, Wisconsin. This agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns.
12. The Company represents that the Chairman and Chief
Executive Officer has been authorized by the Company's Board of Directors
to prepare and sign this Agreement.
If you find that the foregoing satisfactorily states our mutual
understanding, please sign and date the enclosed copy of this agreement in
the spaces indicated below and return it to me.
Sincerely yours,
/s/ Joseph R. Coppola
Joseph R. Coppola
Chairman and Chief Executive Officer
Giddings & Lewis, Inc.
Agreed and Accepted this 3rd day of December, 1996.
/s/ Richard C. Kleinfeldt
Richard C. Kleinfeldt
As Adopted
March 13, 1997
GIDDINGS & LEWIS, INC.
MANAGEMENT STOCK PURCHASE PROGRAM
Section 1. Purpose
The Giddings & Lewis, Inc. Management Stock Purchase Program
(the "Program") is intended to promote the best interests of Giddings &
Lewis, Inc. (the "Company") and its shareholders by providing key
employees of the Company and its Affiliates with an opportunity to acquire
a, or increase their, proprietary interest in the Company. It is intended
that the Program will promote continuity of management and increased
incentive and personal interest in the welfare of the Company by those key
employees who are primarily responsible for shaping and carrying out the
long-range plans of the Company and securing the Company's continued
growth and financial success. The Program is implemented pursuant to the
Giddings & Lewis, Inc. 1993 Stock and Incentive Plan (the "1993 Plan"),
which was previously approved by the Board of Directors and shareholders
of the Company.
Section 2. Definitions
Capitalized terms used in the Program and defined in the 1993
Plan shall have the respective meanings set forth in the 1993 Plan, and
for purposes of the Program the following terms shall have the respective
meanings set forth below:
(a) "Bank" shall mean National Exchange Bank and Trust, Fond du
Lac, Wisconsin, or another bank or financial institution selected by the
Committee.
(b) "Cause" shall mean, with respect to a Participating Key
Employee: (i) engaging in intentional conduct not taken in good faith
which has caused demonstrable and serious financial injury to the Company,
as evidenced by a determination in a binding and final judgment, order or
decree of a court or administrative agency of competent jurisdiction, in
effect after exhaustion or lapse of all rights of appeal, in an action,
suit or proceeding, whether civil, criminal, administrative or
investigative; (ii) conviction of a felony (as evidenced by a binding and
final judgment, order or decree of a court of competent jurisdiction, in
effect after exhaustion of all rights of appeal) which substantially
impairs the Participating Key Employee's ability to perform his duties or
responsibilities; or (iii) continuing willful and unreasonable refusal by
the Participating Key Employee to perform his duties or responsibilities
(unless such duties or responsibilities have been significantly changed
without the Participating Key Employee's consent).
(c) "Disability" shall mean the complete and permanent
inability of a Participating Key Employee to perform all of his duties
under the terms of his employment with the Company or any of its
Affiliates, as determined by the Committee upon the basis of such
evidence, including independent medical reports and data, as the Committee
deems appropriate or necessary.
(d) "Exercise Date" shall mean the date the Participating Key
Employee notifies the Company that he is exercising the Stock Option or a
portion of the Stock Option.
(e) "Exercise Price" shall mean the aggregate exercise price
paid to the Company for the Purchased Shares by the Participating Key
Employee upon exercise of the Stock Option or a portion of the Stock
Option.
(f) "Gain" shall mean the amount, if any, by which the value of
the aggregate consideration received upon sale of the Purchased Shares
(without deducting any discounts or commissions associated with such sale)
exceeds the Exercise Price of the Purchased Shares being sold.
(g) "Interest" shall mean the interest that accrues from time
to time on the unpaid outstanding principal amount of a Note, including
any late charges or penalties that may arise in connection with such
interest.
(h) "Loss" shall mean the amount, if any, by which the Exercise
Price of the Purchased Shares being sold exceeds the value of the
aggregate consideration received upon sale of the Purchased Shares being
sold (without deducting any discounts or commission associated with such
sale).
(i) "Note" shall mean the promissory note made by a
Participating Key Employee to the Bank to finance his payment of the
Exercise Price.
(j) "Purchased Shares" shall mean the Shares underlying the
Stock Option or that portion of the Stock Option being exercised by the
Participating Key Employee.
(k) "Stock Option" shall mean options to purchase up to a
specified number of Shares pursuant to the 1993 Plan granted to a
Participating Key Employee by the Committee in connection with the
Program.
Section 3. Eligibility
To be eligible to participate in the Program, the Key Employee
must have been granted a Stock Option by the Committee.
Section 4. Participation
To become a Participating Key Employee under the Program, a Key
Employee eligible to participate in the Program must meet the following
requirements within three business days of the grant of the Stock Option:
(a) Submit a completed, signed and irrevocable agreement to
exercise all or a portion of the Stock Option, subject to the terms
and conditions of the 1993 Plan and the applicable stock option award
agreement;
(b) Complete and sign all necessary agreements and other
documents relating to the loan described in Section 6 below; and
(c) Satisfy all other conditions of participation specified in
the Program.
The agreements and other documents specified in subsections 4(a), (b) and
(c) must be in such forms and must be submitted at such times and to such
Company officers as specified by the Committee or its designee(s). No Key
Employee is required to participate in the Program.
Section 5. Payment of Exercise Price
Each Participant must deliver in cash 100% of the Exercise Price
within five business days after the Exercise Date. The Purchased Shares
will not be issued to the Participant until the Company has received such
payment. The payment must be made at the time and place and in the manner
specified by the Committee or its designee(s).
Section 6. Financing
The Company has made arrangements with the Bank to provide a
loan to each Participating Key Employee in an amount equal to the Exercise
Price payable by such Participating Key Employee. Such loan shall be
evidenced by a Note, in such form as may be required by the Bank, which
Note will have an initial term of five years, and automatically extend for
an additional five-year term if the Participating Key Employee is an
employee of the Company or an Affiliate of the Company at the expiration
of the initial term. Interest on the Note will be payable quarterly in
arrears. Each Participating Key Employee will be required to sign a
letter of direction which directs all loan proceeds to be paid directly to
the Company in payment of the Exercise Price. Each Participating Key
Employee is responsible for satisfying all of the lending requirements
specified by the Bank to qualify for the loan. Each Participating Key
Employee will be fully obligated to repay to the Bank all principal,
Interest and any other obligations relating to the Note when due and
payable. The Company will guarantee the repayment to the Bank of 100% of
all principal and Interest on the Note as provided in Section 15 hereof.
Section 7. Payment of Interest on Note
At the end of each calendar quarter the Company shall pay
directly to the Bank on behalf of the Participating Key Employee the
amount, if any, by which the Interest payable on the Note for such quarter
exceeds the amount of cash dividends paid to the Participating Key
Employee with respect to the Purchased Shares during such quarter.
Interest payments made by the Company shall accrue for all purposes to the
benefit of the Participating Key Employee.
Section 8. Registration of Shares
The Purchased Shares will be registered in the name of the
Participating Key Employee and certificated. Each certificate will bear a
legend referring to the Program and the agreements between the
Participating Key Employee and the Company relating to the Purchased
Shares. The certificates for the Purchased Shares will be held by the
Company until all restrictions on the Purchased Shares have lapsed. Each
Participating Key Employee must deliver to the Company a stock power
endorsed in blank with respect to the Purchased Shares. The Purchased
Shares will be subject to the transfer restrictions set forth in Section
10 hereof.
Section 9. Shareholder Rights
During the period in which the Purchased Shares are subject to
restrictions on transfer, each Participating Key Employee will have all
rights of a shareholder (subject to such transfer restrictions) with
respect to the Purchased Shares, including the right to vote the shares
and the right to receive all dividends paid on the shares. To the extent
required by the Note and other loan agreements and documents identified in
subsection 4(b), the Company will be irrevocably directed to deliver all
such dividends directly to the Bank for payment of Interest. Any
dividends in excess of required Interest payments will be deposited in the
Participating Key Employee's account at the Bank.
Section 10. Transfer of Purchased Shares
A Participating Key Employee may not sell, donate, gift, assign
or otherwise transfer (collectively, "Transfer") any Purchased Shares
except as provided in this Section 10. Each Participating Key Employee is
permitted to Transfer all or any portion of the Purchased Shares, subject
to the following restrictions:
(a) No Participating Key Employee may Transfer any portion of
the Purchased Shares unless all principal, Interest and any other
obligations due on the Note have previously been paid or all proceeds
of a Transfer effected by means of a sale are simultaneously applied
first to the payment of all such principal, Interest and other
obligations; and
(b) The Committee has the right to impose such restrictions as
may be required to comply with applicable federal and state
securities laws on the timing, amount and form of any Transfer of the
Purchased Shares by a Participating Key Employee. Each Participating
Key Employee must notify the Company of his intention to Transfer the
Purchased Shares and the proposed terms of such Transfer before such
a Transfer is implemented. In connection with any proposed Transfer,
(i) the Company may elect to allow the Participating Key Employee to
effect the Transfer, including, without limitation, by means of a
sale of the Purchased Shares in the open market, (ii) the Company may
repurchase the Purchased Shares, or (iii) the Company may take other
actions as it deems appropriate. If the Company repurchases the
Purchased Shares, the repurchase price will be the average of the
high and low sale prices of a Share on The Nasdaq National Market (or
such other market or exchange on which the Shares are then traded) on
the day the Company is notified of the intention to Transfer.
Section 11. Benefit and Risk Sharing
Subject to the terms of the Program, the following benefit and
risk sharing provisions shall be in effect as specified below.
(a) Within Three Years of Exercise Date. If the Participating
Key Employee sells all or any portion of the Purchased Shares within
three years of the Exercise Date, the Participating Key Employee (i)
is responsible for 100% of any Loss on such sale and (ii) is entitled
to receive 50% of any Gain on such sale.
(b) After Three Years from Exercise Date. Unless and until all
of the outstanding principal, Interest and any other obligations
relating to the Note are paid in full, if the Participating Key
Employee sells all or any portion of the Purchased Shares more than
three years after the Exercise Date, the Participating Key Employee
(i) is responsible for 50% of any Loss on such sale and (ii) is
entitled to 100% of any Gain on such sale.
Section 12. Acceleration of Loan in Certain Cases
If a Participating Key Employee's employment with the Company
and all its Affiliates terminates due to death, Disability, voluntary
resignation or retirement or is terminated for Cause, the Note provided
for in Section 6 shall immediately accelerate and become due and payable,
and the Company's payment of Interest on the Note provided for in Section
7 shall immediately cease. In the event of all other terminations of
employment, the loan shall continue pursuant to its terms and the other
terms of the Program shall remain in full force and effect.
Section 13. Benefit and Risk Sharing in the Event of Termination Due to
Death or Disability or For Cause
(a) With respect to the Purchased Shares sold after a
Participating Key Employee's death or Disability and while his Note under
Section 6 remains unpaid, the Participating Key Employee is not
responsible for any Loss but is entitled to receive 100% of any Gain.
This subsection 13(a) has no effect on a deceased or disabled
Participating Key Employee's sale of Purchased Shares before death or
Disability or after all of the principal, Interest and any other
obligations under the Participating Key Employee's Note have been repaid.
(b) With respect to Purchased Shares sold after a Participating
Key Employee's termination for Cause and (i) while his Note under
Section 6 remains unpaid or (ii) in the event such repayment occurred
within three years of the Exercise Date, the benefit sharing provisions of
Section 11(a) shall continue in effect, but the risk sharing provisions of
Section 11(b) shall not apply to such sale. This subsection 13(b) has no
effect (i) on the sale of Purchased Shares by a Participating Key Employee
before his termination for Cause or (ii) after the principal, Interest and
any other obligations under the Participating Key Employee's Note have
been repaid unless such repayment occurs within three years of the
Exercise Date in which case the benefit sharing provisions of Section
11(a) shall apply.
Section 14. Implementation of Sharing Arrangement
If a Participating Key Employee sells any portion of the
Purchased Shares at a Loss while his Note under Section 6 is outstanding,
and if the Participating Key Employee is responsible for less than 100% of
that Loss under the provisions of the Program, the Company will assume the
portion of the Loss for which such Participating Key Employee is not
responsible. The Company will assume its portion of the Loss by
delivering cash equal to such portion directly to the Participating Key
Employee simultaneously with the repayment of such Participating Key
Employee's Note under Section 6. Additionally, the Company will pay cash
equal to 45% of such portion directly to the Participating Key Employee at
the same time in order to partially mitigate the tax consequences to the
Key Participating Employee of the payment made by the Company with respect
to the Loss. If a Participating Key Employee sells any portion of the
Purchased Shares at a Gain, and if the Participating Key Employee is
required to repay to the Company a portion of such Gain, the Participating
Key Employee shall do so by delivering cash equal to such portion to the
Company immediately upon receipt of the sale proceeds.
Section 15. Loan Guarantee
The Company will guarantee repayment to the Bank of 100% of all
principal and Interest of each Participating Key Employee under the Note
provided for in Section 6. The Company's loan guarantee is a condition to
the loan arrangement the Company has made with the Bank. The terms and
conditions of the guarantee are as agreed by the Company and the Bank.
Each Participating Key Employee is fully obligated to repay to the Bank
all principal, Interest, and any other amounts on the Note when due and
payable. The Company may take any action relating to the Participating
Key Employee and his assets, which the Committee deems reasonable and
necessary, to obtain full reimbursement for amounts the Company pays to
the Bank under its guarantee related to the Note in excess of any amount
the Company is obligated to pay pursuant to Section 14.
Section 16. General Provisions
(a) Rights and Status of Participants. Participating in the
Program as a Participating Key Employee shall not be construed as giving
such Participating Key Employee the right to be retained in the employ of
the Company or any Affiliate. Further, the Company or any Affiliate may
at any time dismiss a Participating Key Employee from employment, free
from liability, or any claim under the Program, except as otherwise
expressly provided in the Program or in any Award Agreement. Except for
rights accorded under the Program and under any applicable Award
Agreement, Participating Key Employees shall have no rights except as
owners of the Purchased Shares.
(b) Unfunded Status of the Program. Unless otherwise
determined by the Committee, the Program shall be unfunded and shall not
create (or be construed to create) a trust or a separate fund or funds.
The Program shall not establish any fiduciary relationship between the
Company or the Committee and any Participating Key Employee or other
Person. To the extent any Person holds any right by virtue of
participation under the Program, such right (unless otherwise determined
by the Committee) shall be no greater than the right of an unsecured
general creditor of the Company.
(c) Governing Law. The validity, construction and effect of
the Program and any rules and regulations relating to the Program shall be
determined in accordance with the internal laws of the State of Wisconsin
and applicable federal law.
(d) Severability. If any provision of the Program or any Award
Agreement is or becomes or is deemed to be invalid, illegal or
unenforceable in any jurisdiction, or as to any Person, or would
disqualify the Program or any Award Agreement under any law deemed
applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be so construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Program or any Award Agreement, such provision
shall be stricken as to such jurisdiction, Person and the remainder of the
Program and any such Award Agreement and any such Award Agreement shall
remain in full force and effect.
(e) Headings. Headings are given to the Sections and
subsections of the Program solely as a convenience to facilitate
reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Program or any
provision thereof.
(f) Effect of Plan. The operation of the Program is subject to
the provisions of the 1993 Plan.
(g) Amendment. The Committee may amend the Program at any
time; provided, however, that any such amendment that materially reduces
or changes the rights or benefits of a Participating Key Employee shall
not be effective with respect to such Participating Key Employee without
his written consent.
[Page 14 of the Annual Report]
Five-Year Summary
<TABLE>
<CAPTION>
At and for the Years Ended December 31,
(In thousands except per 1996 (c) 1995 (d)(e) 1994(f) 1993((f)(g) 1992
share data)
<S> <C> <C> <C> <C> <C>
Operations Data (a)
Net sales $762,993 $730,552 $619,471 $517,462 $622,934
Net income (loss) (12,542) 6,455 47,880 43,706 35,532
Net income (loss) per share (0.37) 0.19 1.40 1.31 1.16
Cash dividends per share 0.12 0.12 0.12 0.12 0.11
Average number of
shares outstanding 34,025 34,398 34,284 33,415 28,344
Balance Sheet Data
Total assets $811,400 $817,591 $687,226 $614,016 $627,485
Long-term debt 100,000 100,000 - - 68,215
Shareholders' equity 460,823 492,541 485,298 436,010 352,924
Ratio of long-term debt
to long-term capital(b) 17.8% 16.9% 0% 0% 17.3%
(a) See Note 1, "Summary of Significant Accounting Policies," in the Notes to Consolidated
Financial Statements.
(b) Long-term capital consists of long-term debt and common shareholders' equity.
(c) Reflects a charge to pre-tax income of $64.1 million to recognize the costs to achieve
customer satisfaction on certain complex agile transfer line contracts and other related
restructuring costs. Also reflects a pretax adjustment of $16.0 million included in cost
of sales for warranty and inventory valuation reserves established for various product
lines. See Note 2 in the Notes to Consolidated Financial Statements.
(d) On April 24, 1995, the Company acquired Fadal Engineering Company, Inc. (Fadal). The
operations of Fadal have been included in the Company's financial statements since the
acquisition date. See Management's Discussion and Analysis and Note 3 in the Notes to
Consolidated Financial Statements.
(e) Reflects a charge to pretax income of $30.3 million from the adoption of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," and from a severance charge relating to the
Company's German subsidiary. See Note 2 in the Notes to Consolidated Financial Statements.
(f) Reflects cash received on certain fully-reserved Russian contracts and other credits. See
Note 2 in the Notes to Consolidated Financial Statements.
(g) Reflects the prospective adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
</TABLE>
<PAGE>
[Pages 15-19 of the Annual Report]
MANAGEMENTS DISCUSSION & ANALYSIS
Introduction
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and notes thereto included
elsewhere in this Annual Report. In reviewing the company's financial
statements and managements discussion and analysis, the following matters
should be considered:
- The company is organized into four major operating groups:
Automation Technology, Integrated Automation, Automation Measurement
and Control and European Operations. The Automation Technology group
is responsible for the manufacture of cellular and flexible
manufacturing systems, automated stand-alone machine tools and
machining centers, tooling, fixtures, castings and remanufacturing.
The Integrated Automation group produces assembly automation products
and systems and flexible, modular and dedicated transfer lines.
Programmable industrial computers, servo systems, Computer Numerical
Controls and measurement products are produced by the Automation
Measurement and Control group. The European Operations group offers
most of the company's product lines through its sales, engineering,
manufacturing and service facilities in England and Germany.
- Approximately one-half of the company's products are sold pursuant to
long-term contracts. Profits on long-term contracts are recognized
using the percentage-of-completion method. The percentage-of-
completion is measured principally by the percentage of costs
incurred to date versus the estimated total costs for each contract.
Significant adjustments to previous estimates are sometimes required
to reflect experience and other factors. Such adjustments are
recorded as changes in estimates as part of the percentage-of-
completion accounting in the period of change. Revenues recognized
on the percentage-of-completion method, but not yet billed to
customers, are reflected in accounts receivable. The company does
not normally receive the bulk of payments for products sold under
long-term contracts until the product is shipped.
- Revenues related to the remaining portion of the company's products
and services are recognized when the products are shipped. The
majority of payments for these products and services are received
after shipment.
- The company acquired Fadal Engineering Co., Inc. (Fadal), a designer
and manufacturer of computer numerically controlled vertical
machining centers on April 24, 1995. The operations of the acquired
company have been included in the company's financial statements
since the acquisition date. The Fadal operations are a component of
the Automation Technology group.
Results of Operations
1996 Compared with 1995
The following tables set forth the company's bookings by operating
group for the period indicated and consolidated backlog at period-end on a
quarterly basis for 1996 and 1995.
1996 (In thousands) March 31 June 30 Sept. 29 Dec. 31
Operating group:
Automation Technology $85,581 $66,088 $68,864 $68,047
Integrated Automation 35,365 49,040 24,237 24,466
European Operations 35,848 15,425 42,693 12,661
Automation Measurement
and Control 15,615 15,640 15,338 15,376
------- ------- ------- -------
Consolidated bookings $172,409 $146,193 $151,132 $120,550
======= ======= ======= =======
Consolidated backlog $365,953 $305,989 $272,379 $208,298
======= ======= ======= =======
1995 (In thousands) April 2 July 2 Oct. 1 Dec. 31
Operating group:
Automation Technology $41,523 $76,765 $83,534 $75,782
Integrated Automation 91,420 64,884 39,091 (17,956)
European Operations 8,680 27,459 24,470 79,699
Automation Measurement
and Control 17,741 19,364 14,698 16,436
------- ------- ------- -------
Consolidated bookings $159,364 $188,472 $161,793 $153,961
======= ======= ======= =======
Consolidated backlog $430,121 $478,324 $442,507 $388,156
======= ======= ======= =======
Bookings for 1996 of $590.3 million represented an 11.0% decrease
from 1995 bookings of $663.6 million. Automation Technology bookings of
$288.6 million for 1996 increased 4.0% from 1995 bookings of $277.6
million with the benefit of a full year inclusion of Fadal being offset by
a decline in demand for large and medium sized stand-alone machine tools.
Integrated Automation bookings for 1996 totaled $133.1 million, a 25.0%
decrease from 1995 bookings of $177.4 million. The decline in orders at
Integrated Automation in 1996 was due to weakness in transfer line related
orders while the company resolved customer concerns. Customer revisions
to the scope of two orders received earlier in 1995 resulted in contract
reductions that exceeded new bookings by $18.0 million in the fourth
quarter of 1995. Because automotive orders are driven by multi-year
capital investment programs with purchases in large lump sum increments,
quarterly order patterns have been and will continue to be subject to
volatility. European Operations bookings decreased 24.0% to $106.6
million in 1996 from $140.3 million in 1995. The decrease in 1996 was due
to the significant orders received from European automotive companies,
primarily in the United Kingdom, in the fourth quarter of 1995, which were
not repeated in 1996. Automation Measurement and Control bookings of
$62.0 million for 1996 decreased 9.2% from 1995 bookings of $68.3 million,
primarily as a result of softness in demand for measurement products.
Company backlog at December 31, 1996, was $208.3 million, a decrease
of $179.9 million or 46.3% from $388.2 million at 1995 year-end. The
decrease in backlog resulted primarily from decreased booking activity
during 1996 from the domestic and foreign automotive sectors.
Consolidated sales of $763.0 million in 1996 compared to sales of
$730.6 million in the prior year. The increase in year-to-year net sales
was primarily attributable to the inclusion of Fadal for all of 1996 and a
46.9% increase in European sales, partially offset by a decline in sales
at the Integrated Automation Group. Automation Technology net sales of
$332.4 million in 1996 represented an increase of 13.1% from $293.9
million in net sales in 1995. Integrated Automation net sales of $238.5
million in 1996 decreased 14.1% from $277.6 million in the prior year.
The decline in sales at Integrated Automation was due to the decline in
bookings in the second half of 1995 and all of 1996, which were the result
of difficulties with certain agile transfer line contracts. European
Operations net sales of $129.1 million in 1996 increased 46.9% from $87.9
million in 1995. The increase in European sales was the result of the
significant automotive orders received in the fourth quarter of 1995. The
net sales of Automation Measurement and Control decreased 11.5% from $71.2
million in 1995 to $63.0 million in 1996 due to a general decline in
market demand for measurement products.
The company incurred a net loss for 1996 of $12.5 million, compared
with net income in 1995 of $6.5 million. The company had incurred a
pretax loss in 1996 of $33.0 million compared with pretax income of $28.1
million in 1995. As described in further detail in Note 2 in the Notes to
Consolidated Financial Statements, 1995 and 1996 pretax earnings were
impacted by the following factors:
1996
In the fourth quarter of 1996, the company recorded a pretax charge
of $64.1 million related to the company's Integrated Automation business.
The company took the charge in order to achieve customer satisfaction on
certain complex agile transfer line contracts and to recognize costs
associated with the formal adoption of a plan to improve the divisions
business operations, including workforce reductions and reengineering of
certain business processes.
In addition to the $64.1 million charge, adjustments of $16.0 million
were reflected in fourth quarter cost of sales. Of these adjustments,
product rationalization at the Automation Technology group, as well as
additional warranty expenses, resulted in costs of $10.3 million. The
remaining $5.7 million of costs relate primarily to the write-down of
inventory at the company's other business locations.
1995
The company recorded a pretax charge of $6.3 million related to a
formal plan to improve the operations of its German subsidiary, which
included planned employee terminations. In connection with the formal
plan, the company evaluated the fair value of its long-term assets at its
German facility in accordance with the Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, (SFAS No. 121) and recorded a
write-down of $20.5 million. In addition, in accordance with the adoption
of SFAS No. 121, the company determined that the long-term assets
associated with a plant in its Automation Measurement and Control group
were impaired (as indicated by the relatively poor performance of that
entity since its 1991 acquisition) and wrote those assets down by $3.5
million. In both cases, the write-down of the assets (which included
allocated goodwill) was based on those assets estimated fair values, which
were determined using forecasted cash flow estimates discounted at rates
commensurate with the company's cost of capital. The separate $30.3
million operating expense item in the company's 1995 statement of income
consists of the above-described charges.
Other items of note concerning the comparison of 1996 and 1995
results of operations are highlighted below:
The consolidated gross margin percentage (before depreciation and
amortization) decreased from 21.3% in 1995 to 18.4% in 1996. Gross
margins in 1996 were negatively impacted by the $16.0 million adjustment
to cost of sales discussed above. Gross margins for both 1995 and 1996
were adversely impacted by competitive pricing pressures, excess program
costs on certain agile contracts, and increased product development and
warranty spending related to the introduction of RAM machining centers.
These factors more than offset an improvement in the gross profit
percentage resulting from the inclusion of Fadal for a full year. The
company currently expects that the consolidated gross margin percentage
will improve in 1997, but will continue to be impacted by competitive and
economic factors.
Selling, general and administrative expenses increased as a
percentage of net sales from 9.2% in 1995 to 10.6% in 1996. The increase
was the result of costs associated with a change in distribution for a
major domestic territory, and consultant fees and related costs for
strategic external business development efforts. The year-to-year
difference was also affected by favorable settlements of certain
litigation in 1995.
Net interest expense in 1996 of $9.6 million compares with $9.5
million in 1995.
The company's effective tax rate for 1996 was 61.9% as compared to
77.0% for the prior year. The effective tax rate for 1996 was positively
impacted by the tax restructuring of the company's German operations and
the favorable settlement of a federal income tax audit. The effective tax
rate for 1995 was negatively impacted by the write-off of $11.3 million of
non-deductible costs in excess of net acquired assets and $17.8 million of
foreign net operating losses for which no tax benefits were recorded. See
Note 8 in the Notes to Consolidated Financial Statements.
1995 Compared with 1994
The following tables set forth the company's bookings by operating
group in the period and consolidated backlog at period-end on a quarterly
basis for 1995 and 1994.
1995 (In thousands) April 2 July 2 Oct. 1 Dec. 31
Operating group:
Automation Technology $41,523 $76,765 $83,534 $75,782
Integrated Automation 91,420 64,884 39,091 (17,956)
European Operations 8,680 27,459 24,470 79,699
Automation Measurement
and Control 17,741 19,364 14,698 16,436
------- ------- ------- -------
Consolidated bookings $159,364 $188,472 $161,793 $153,961
======= ======= ======= =======
Consolidated backlog $430,121 $478,324 $442,507 $388,156
======= ======= ======= =======
1994 (In thousands) April 3 July 3 Oct. 2 Dec. 31
Operating group:
Automation Technology $32,034 $31,724 $28,973 $40,116
Integrated Automation 117,610 113,870 94,705 91,226
European Operations 6,138 5,771 12,141 8,759
Automation Measurement
and Control 13,647 17,831 16,964 17,948
------- ------- ------- -------
Consolidated bookings $169,429 $169,196 $152,783 $158,049
======= ======= ======= =======
Consolidated backlog $431,448 $460,370 $449,969 $422,172
======= ======= ======= =======
Bookings for 1995 of $663.6 million represented a 2.2% increase from
1994 bookings of $649.5 million. Automation Technology bookings of $277.6
million for 1995 increased 109.0% from 1994 bookings of $132.9 million,
primarily as a result of the acquisition of Fadal in April 1995 and the
demand for the new RAM machining centers, which were introduced in the
second half of 1994. Integrated Automation bookings for 1995 totaled
$177.4 million, a 57.5% decrease from unusually large 1994 bookings of
$417.4 million. Customer revision to the scope of two orders received
earlier in 1995 resulted in contract reductions which exceeded new
bookings by $18 million in the fourth quarter of 1995. European
Operations bookings increased 327.7% to $140.3 million in 1995, from $32.8
million in 1994. The increase in 1995 was due to significant orders
received from European automotive companies primarily in the United
Kingdom. In late 1995, the company took steps to improve the competitive
position of its German operation by initiating a reduction in work force
as discussed above. Automation Measurement and Control bookings of $68.3
million for 1995 increased 2.8% over 1994 bookings of $66.4 million.
Company backlog at December 31, 1995, was $388.2 million, a decrease
of $34.0 million or 8.1% from $422.2 million at 1994 year-end. The
decrease in backlog resulted from decreased booking activity in the
domestic automotive sector.
Consolidated net sales of $730.6 million for 1995 compared to $619.5
million in the prior year. The increase in year-to-year net sales was
primarily attributable to the addition of Fadal in April 1995. Automation
Technology net sales of $293.9 million in 1995 represented an increase of
80.4% from $162.9 million in net sales in 1994. Integrated Automation net
sales of $277.6 million in 1995 increased 3.7% from $267.8 million in the
prior year. European Operations net sales of $87.9 million in 1995
decreased 30.6% from $126.6 million in 1994. The decrease in net sales
related mainly to significantly lower orders received by the European
Operations group in 1994. The net sales of Automation Measurement and
Control increased 14.4% from $62.2 million in 1994 to $71.2 million in
1995.
Net income for 1995 of $6.5 million decreased 86.5% from 1994 net
income available to common shareholders of $47.9 million, pretax income in
1995 was $28.1 million, a 63.8% decrease from 1994 pretax income of $77.6
million. As described in further detail in Note 2 in the Notes to
Consolidated Financial Statements, 1994 and 1995 pretax earnings were
impacted by certain nonrecurring items. These items in 1994 resulted in a
net increase in pretax income of $22.1 million. The effect of actions
related to the adoption of SFAS No. 121 on 1995 net income is described
above.
The consolidated gross margin percentage (before depreciation and
amortization) increased from 20.7% in 1994 to 21.3% in 1995. Gross
margins for both 1994 and 1995 were adversely impacted by competitive
pricing pressures, excess program costs on certain contracts, and
increased product development spending related to the introduction of RAM
machining centers. These factors largely offset an improvement in the
gross profit percentage resulting from the inclusion of Fadal.
Selling, general and administrative expenses decreased as a
percentage of sales from 9.5% in 1994 to 9.2% in 1995. The percentage
decrease was primarily attributable to the favorable settlement associated
with the successful defense of patent infringement litigation and the
effect of a significant increase in sales volume as a result of the
acquisition of Fadal.
Net interest expense increased from $1.0 million of net interest
income in 1994 to net interest expense of $9.5 million in 1995. The
increase in net interest expense is attributable to the borrowings used to
finance the purchase of Fadal.
The provision for income taxes of $21.6 million for 1995 decreased
from $29.7 million in 1994. The company's effective tax rate for 1995 was
77.0% compared with 38.3% for the prior year. The increase in the 1995
effective tax rate is principally due to the write-off of $11.3 million of
non-deductible costs in excess of net acquired assets and $17.8 million of
foreign net operating losses for which no tax benefits were recorded.
Liquidity and Capital Resources at December 31, 1996
On December 31, 1996, the company had $71.7 million of cash and cash
equivalents on hand, which was an increase of $57.5 million from the
balance on hand at the beginning of the year. For the year ended
December 31, 1996, operating activities provided $105.4 million of cash.
Operating assets and liabilities provided net cash flow of $60.6 million,
due primarily to lower accounts receivable and inventory levels offset by
a net decrease in accounts payable and accrued expenses. The $59.6
million in cash provided from the reduction in accounts receivable
balances was due primarily to a decrease in unbilled receivables on the
company's long-term contracts as well as an increase in related customer
deposits offset by an increase in trade receivables. The $13.8 million
net cash provided relating to the lower inventory balance was largely due
to the reduced backlog. There was a $14.3 million decrease in accounts
payable and accrued expenses at December 31, 1996, compared with
December 31, 1995.
Investing activities in 1996 used $20.0 million, which included $19.9
million in capital expenditures, while net proceeds from the sale of fixed
assets generated $1.1 million of cash in 1996.
Financing activities in 1996 used cash of $24.9 million, consisting
mainly of repurchase of stock of $18.6 million, net repayments on lines of
credit of $2.5 million and dividend payments of $4.1 million.
The company's available borrowing capacity at December 31, 1996,
amounted to $131.7 million under a domestic credit agreement and $54.9
million under foreign lines of credit. The company had debt outstanding
of $134.2 million at December 31, 1996.
Capital expenditures were $19.9 million, $16.1 million and $16.7
million in 1996, 1995 and 1994, respectively. The company expects
commitments for capital projects carried over from 1996, along with new
projects proposed for 1997, to result in capital expenditures of
approximately $20 million in 1997. The main focus of 1997 capital
expenditures will be productivity enhancement and process improvement.
In addition, the company expended $51.9 million, $60.4 million and
$67.4 million in 1996, 1995 and 1994, respectively, on research, product
development and customer-sponsored engineering programs. Spending for
such activities is expected to remain steady at approximately $50 million
in 1997 based on the timing of initiating the start-up of long lead-time
products and comparable product development activities.
The company believes its cash flows from operations and funds
available under domestic and foreign credit agreements will be adequate to
finance capital expenditures, fund the estimated $33.3 million future cash
portion of the 1996 year-end adjustments and support working capital
requirements for the foreseeable future.
The company is involved in environmental matters concerning
facilities and sites owned or formerly owned by the company, its
subsidiaries or alleged predecessors. As described in Note 6 in the Notes
to Consolidated Financial Statements, those matters included at December
31,1996, an environmental remediation at the company's former West Allis,
Wisconsin, property and a criminal complaint and civil lawsuits concerning
its Menominee, Michigan, facility.
In connection with these sites, the company has incurred various
expenditures to date on both investigative activities and remediation
efforts. Estimated future clean-up and other costs associated with these
environmental contingencies have been accrued on the company's balance
sheet in instances where losses have been determined to be probable and
reasonably estimable. Management believes that any future costs in excess
of the amounts accrued on all presently known and quantifiable
environmental contingencies will not be material to the company's
financial position or results of operations. Except to the extent as
referenced in Note 6 in the Notes to Consolidated Financial Statements,
information currently available to the company does not allow it to
reasonably estimate the damages, penalties and/or remediation costs, if
any, that may be incurred with respect to the Menominee, Michigan,
facility. Recurring costs incurred by the company and associated with
managing hazardous substances and pollution at ongoing operations
generally are not significant.
The company is also involved in other litigation and proceedings,
including product liability claims. As discussed in Note 6 in the Notes
to Consolidated Financial Statements, management believes that any future
costs in excess of the amounts accrued for all existing litigation will
not be material to the company's financial position or results of
operations.
Market Prices and Dividends
The company's common stock is traded on The Nasdaq Stock Market under
the symbol GIDL. The following table sets forth information as to the
high and low last sales prices per share of common stock as quoted on
Nasdaq and the cash dividends declared per share for the periods
indicated.
Sales Price
Low High Dividends
1996:
First quarter $ 14 3/4 $ 19 9/16 $ .03
Second quarter 16 1/8 19 1/8 .03
Third quarter 10 3/4 16 .03
Fourth quarter 11 3/8 14 .03
1995:
First quarter $ 14 5/8 $ 17 1/4 $ .03
Second quarter 15 1/8 18 7/8 .03
Third quarter 16 18 1/2 .03
Fourth quarter 14 7/8 17 3/8 .03
As of February 18, 1997, there were approximately 2,204 record holders of
the company's common stock.
The Board of Directors of the company intends to consider the payment
of cash dividends on the common stock on a quarterly basis, but the
declaration of future dividends will necessarily be dependent upon
business conditions, the earnings and financial position of the company,
and such other matters as the Board of Directors deems relevant. For
information on restrictions on the payment of cash dividends on the common
stock, see Note 5 in the Notes to Consolidated Financial Statements.
<PAGE>
[Pages 20-35 of the Annual Report]
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
(In thousands, except per share data) 1996 1995 1994
Net sales $762,993 $730,552 $619,471
Costs and expenses:
Cost of sales (Note 2) 622,323 575,234 491,397
Selling, general and
administrative
expenses (Note 2) 80,592 67,556 58,977
Depreciation and amortization 20,293 19,308 15,399
Other charges (credits) (Note 2) 64,100 30,280 (22,128)
------- ------- -------
Total operating expenses 787,308 692,378 543,645
------- ------- -------
Operating income (loss) (24,315) 38,174 75,826
Interest expense (income), net 9,584 9,501 (1,025)
Other expense (income) (947) 610 (755)
------- ------- -------
Income (loss) before income taxes (32,952) 28,063 77,606
Provision (benefit) for income
taxes (Note 8) (20,410) 21,608 29,726
------- ------- -------
Net income (loss) $(12,542) $6,455 $47,880
======= ======= =======
Net income (loss) per share $(0.37) $0.19 $1.40
======= ======= =======
Cash dividends per share $0.12 $0.12 $0.12
======= ======= =======
Average number of shares outstanding 34,025 34,398 34,284
======= ======= =======
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(In thousands) 1996 1995 1994
Operating activities
Net income (loss) $(12,542) $6,455 $47,880
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 20,293 19,308 15,399
Other charges (Note 2) 64,100 30,280
Deferred income taxes (26,902) 3,948 20,996
Long-term employee benefits and
other long-term liabilities (5,451) (4,105) (4,696)
Changes in operating assets and
liabilities:
Accounts receivable 59,636 30,816 (91,621)
Inventories 13,815 (6,546) (16,719)
Other current assets 1,474 8,780 (6,928)
Accounts payable and accrued
liabilities (14,319) (31,920) 20,267
Foreign currency transaction losses 1,055 179 669
Other 4,225 (4,922) 291
------- ------- -------
Net cash provided by (used in) operating
activities 105,384 52,273 (14,462)
Investing activities
Acquisition of business (Note 3) - (179,579) -
Additions to property, plant and
equipment (19,893) (16,097) (16,747)
Proceeds from sale of assets 1,052 1,546 5,875
Other (1,203) (140) (1,759)
------- ------- -------
Net cash used in investing activities (20,044) (194,270) (12,631)
Financing activities
Proceeds from draws on lines of credit 146,463 382,931 49,000
Repayments under lines of credit and
notes payable (149,000) (346,168) (49,000)
Proceeds from sale of debt securities - 100,000 -
Payments for debt issue costs - (1,182) -
Payment for repurchase of stock (18,639) - -
Proceeds from additional stock
issuance - - 487
Proceeds from stock options
exercised 304 - -
Cash dividends (4,069) (4,129) (4,115)
------ ------- -------
Net cash provided by (used in)
financing activities (24,941) 131,452 (3,628)
Effect of exchange rate changes
on cash (2,957) 689 916
------- ------- -------
Net increase (decrease) in cash and
cash equivalents 57,442 (9,856) (29,805)
Cash and cash equivalents at
beginning of year 14,216 24,072 53,877
------- ------- -------
Cash and cash equivalents at end
of year $71,658 $14,216 $24,072
======= ======= =======
Supplemental disclosure of cash flow
information -
Cash paid during the year for:
Interest $9,755 $7,648 $848
======= ======= =======
Income taxes, net of refunds
received $14,176 $11,334 $12,073
======= ======= =======
See accompanying notes.
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands) 1996 1995
Assets
Current assets:
Cash and cash equivalents $71,658 $14,216
Accounts receivable, net of allowance for
doubtful accounts (Notes 1 and 4) 280,985 350,593
Inventories (Notes 1 and 4) 88,969 102,281
Deferred income taxes (Note 8) 29,048 4,776
Other current assets 3,951 5,921
------- -------
Total current assets 474,611 477,787
Fixed assets, net (Notes 1 and 4) 118,484 111,382
Intangible assets (Notes 1 and 4) 185,276 192,522
Deferred income taxes (Note 8) 19,524 19,700
Other assets 13,505 16,200
------- -------
Total assets $811,400 $817,591
======= =======
Liabilities and shareholders' equity
Current liabilities:
Notes payable (Note 5) $34,226 $36,763
Accounts payable 30,141 67,676
Accrued expenses and other liabilities
(Note 4) 148,938 77,888
------- -------
Total current liabilities 213,305 182,327
Long-term debt (Note 5) 100,000 100,000
Long-term employee benefits and other
long-term liabilities (Notes 4 and 7) 37,272 42,723
------- -------
Total liabilities 350,577 325,050
Commitments and contingencies (Note 6)
Shareholders' equity (Notes 5 and 9):
Class A preferred stock - -
Common stock, 34,623 and 34,422 shares
issued and outstanding at December 31,
1996 and 1995, respectively 3,462 3,442
Capital in excess of par 328,668 326,608
Retained earnings 144,172 160,783
Cumulative translation adjustment 6,755 4,223
------- -------
483,057 495,056
Less: Treasury stock (1,495 shares)
at cost (Note 9) (18,639) -
Unamortized compensation expense (3,595) (2,515)
------- -------
Total shareholders' equity 460,823 492,541
------- -------
Total liabilities and shareholders' equity $811,400 $817,591
======= =======
See accompanying notes.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
Years Ended December 31, 1996, 1995 and 1994
(In thousands except share amounts)
Common Stock Capital in Cumulative Unamortized Total
Excess of Retained Translation Treasury Compensation Shareholders'
Shares Amount Par Earnings Adjustment Stock Expense Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993 34,254,068 $ 3,425 $ 323,679 $ 114,692 $ (3,444) - $ (2,342) $ 436,010
Net issuance of shares
under restricted
stock awards and
stock option plans 40,370 4 530 - - - (852) (318)
Tax benefit related to
exercise of stock
options and vesting
of restricted stock - - 854 - - - - 854
Net income - - - 47,880 - - - 47,880
Amortization of
compensation expense - - - - - - 1,369 1,369
Cash dividends - - - (4,115) - - - (4,115)
Translation adjustment - - - - 3,618 - - 3,618
Other (34) - - - - - - -
---------- ------- ------- ------- ------ ------- -------- -------
Balance, December 31,
1994 34,294,404 3,429 325,063 158,457 174 - (1,825) 485,298
Net issuance of shares
under restricted
stock awards and
stock option plans 127,639 13 1,351 - - - (2,098) (734)
Tax benefit related to
exercise of stock
options and vesting
of restricted stock - - 194 - - - - 194
Net income - - - 6,455 - - - 6,455
Amortization of
compensation expense - - - - - - 1,408 1,408
Cash dividends - - - (4,129) - - - (4,129)
Translation adjustment - - - - 4,049 - - 4,049
---------- ------- ------- ------- ------ ------- -------- -------
Balance, December 31,
1995 34,422,043 3,442 326,608 160,783 4,223 - (2,515) 492,541
Net issuance of shares
under restricted
stock awards and
stock option plans 200,812 20 1,943 - - - (1,902) 61
Tax benefit related to
exercise of stock
options and vesting
of restricted stock - - 117 - - - - 117
Net loss - - - (12,542) - - - (12,542)
Stock repurchase - - - - - (18,639) - (18,639)
Amortization of
compensation expense - - - - - - 822 822
Cash dividends - - - (4,069) - - - (4,069)
Translation adjustment - - - - 2,532 - - 2,532
---------- ------- ------- ------- ------ ------- -------- -------
Balance, December 31,
1996 34,622,855 $ 3,462 $ 328,668 $ 144,172 $ 6,755 $(18,639) $ (3,595) $ 460,823
========== ======= ======= ======= ====== ======= ======== =======
</TABLE>
See accompanying notes.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Giddings & Lewis, Inc. and all of its wholly owned subsidiaries
(collectively, the company). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The company considers all highly liquid investments with a maturity
of three months or less at date of purchase to be cash equivalents.
Revenue Recognition and Receivables
Revenue is reported on the percentage-of-completion (POC) method of
accounting for all long-term contracts and the completed contract method
for other products. Progress on POC contracts is measured by costs
incurred to date compared with an estimate of total costs at the projects
completion. Provision is made for the entire amount of expected losses,
if any, in the period in which such losses are first determinable.
Revenue on completed contract sales is recognized upon shipment to the
customer.
The company's POC calculations are made using managements best
estimates based on existing information with respect to contracts in
progress. The nature of the company's contracts, however, are such that
significant subsequent changes in estimates are possible. The effects of
such changes are recognized in the period that they occur.
Customers are billed according to the terms of the contract.
Unbilled receivables include amounts recognized as revenue under the POC
basis but not yet billed to the customer. Retainers are billed upon
shipment and are due upon customer acceptance. Substantially all
receivables, including retainers, are due within one year.
Included in accounts receivable are unbilled receivables of
$141,741,000 and $202,672,000 at December 31, 1996 and 1995, respectively.
At December 31, 1996 and 1995, there were $57,359,000 and $51,692,000,
respectively, of retainers included in accounts receivable.
The company is subject to certain credit risks, including a
concentration of accounts receivable balances with its worldwide
automotive and related customers, which totaled approximately $197,000,000
and $237,000,000 at December 31, 1996 and 1995, respectively.
Inventories
Inventories are stated at the lower of cost or net realizable value.
Cost is determined by the first-in, first-out (FIFO), last-in, first-out
(LIFO) or average cost methods. Approximately $8,553,000 and $9,116,000
of the inventories at December 31, 1996 and 1995, respectively, are valued
on the LIFO basis. If the FIFO inventory method, which approximates
replacement cost, had been used for these inventories, they would have
been $432,000 and $481,000 greater at December 31, 1996 and 1995,
respectively. The FIFO and average costing methods produce materially
consistent results.
Fixed Assets
Property, plant and equipment are carried at cost. Depreciation of
plant and equipment is determined on the straight-line basis over the
estimated useful lives of the assets, which range from 3 to 20 years.
Intangible Assets
Intangible assets include trade name, distributor network, and other
intangible assets identified in connection with purchase business
combinations, along with the residual component of the excess purchase
price that is referred to as costs in excess of net acquired assets.
Allocation of costs to identified intangible assets was made primarily
using independent valuations.
Costs in excess of net acquired assets represent the excess purchase
price recorded in (a) the 1995 acquisition of Fadal Engineering Co., Inc.
(Fadal) (see Note 3), and (b) the 1991 acquisition of Cross & Trecker
Corporation (Cross & Trecker). The company is amortizing costs in excess
of net acquired assets using the straight-line method over periods from 25
to 40 years. Accumulated amortization was $21,816,000 and $14,704,000 at
December 31, 1996 and 1995, respectively. Costs in excess of net acquired
assets related to the Cross & Trecker acquisition are also reduced for the
initial recognition of acquired tax loss carryforwards and temporary
deductible differences (see Note 8). Other intangible assets are
amortized on the straight-line basis over periods ranging from 13 to 30
years.
The company assesses long-lived assets for impairment under FASB
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. Under those rules, costs in excess of net acquired assets
associated with long-lived assets acquired in purchase business
combinations are included in impairment evaluations when events or
circumstances exist that indicate the carrying amount of those assets may
not be recoverable.
Research, Development and Custom Engineering
Research and development expense pertaining to new products or
significant improvement to existing products was $9,367,000, $3,183,000,
and $3,857,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. The total expenditure for research, development and custom
engineering was $51,895,000, $60,395,000, and $67,398,000, respectively,
for the periods noted above.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Foreign Currency Translation and Transactions
The functional currencies of the company's foreign subsidiaries are
the local currencies. Accordingly, assets and liabilities of the
company's foreign subsidiaries are translated into U.S. dollars using
current exchange rates, and statement of operations items are translated
using average exchange rates for the year. For the years ended December
31, 1996, 1995 and 1994, gain/(losses) on foreign currency transactions
amounted to $273,000, ($1,217,000), and ($669,000), respectively, and are
included in other expense/income in the accompanying consolidated
statements of operations.
The company enters into forward foreign exchange contracts mainly to
fix the price of certain loans to, and receivables from, its foreign
subsidiaries denominated in European currencies. The company also enters
into forward foreign exchange contracts to fix the price of certain
contracts of its foreign subsidiaries denominated in currencies other than
the subsidiaries local currency. The primary purpose of the company's
foreign currency activities is to protect the company from the risk that
the eventual dollar cash flows resulting from the repayment of such loans
and the collection of the accounts receivable will be adversely affected
by changes in exchange rates. At December 31, 1996, the company had
forward exchange contracts that require it to convert these foreign
currencies, at various rates and dates through February 1998 into
approximately $20.8 million, DM 5.0 million, and 29.8 million. At
December 31, 1995, the company had forward exchange contracts that
required it to convert foreign currencies, at various rates and dates
through April 1997, into approximately $21.2 million, DM 5.0 million, and
20.3 million.
The company is exposed to credit loss in the event of nonperformance
by counterparties on the foreign exchange contracts; however, the company
does not anticipate nonperformance by any of these counterparties. The
amount of such exposure is generally any unrealized gains in such
contracts.
Net Income (Loss) Per Common Share
Net income (loss) per common share in 1996, 1995 and 1994 was
computed by dividing net income (loss) by the weighted average number of
common shares outstanding during the respective periods. Stock options
were not materially dilutive for any of these years.
Environmental
In October 1996, the AICPA issued Statement of Position (SOP) No. 96-
1, Environmental Remediation Liabilities, which provides authoritative
guidance on the recognition, measurement, display and disclosure of
environmental remediation liabilities. SOP No. 96-1 is effective for the
company on January 1, 1997. The impact of adoption is not expected to be
material to the consolidated financial statements.
Nature of Operations
The company's operations are conducted in one business segment: the
design, production and integration of flexible manufacturing systems,
flexible transfer lines, automated assembly systems, high-precision
automated machine tools, coordinate measuring machines, industrial control
systems and other related products and services. Organizationally, the
company comprises four major operating groups: Automation Technology,
Integrated Automation, Automation Measurement and Control, and European
Operations. The company's products are sold throughout the world
primarily to manufacturers in the automotive, construction, aerospace,
defense, appliance, energy and electronics industries. The company's
subsidiaries in England, Canada and Germany account for a significant part
of the company's sales outside of the U.S. (refer to Note 11 for
information about foreign operations and export sales).
A substantial amount of the company's flexible transfer lines and
automated assembly systems are sold to large manufacturers in the
automotive industry. In that regard, approximately 18.7% and 10.3% of the
company's 1996 sales were to two such automotive industry customers.
Approximately 23.2% and 6.3% of the company's 1995 sales were to the same
automotive industry customers, respectively. In 1994, approximately 15.9%
and 14.2% of the company's sales were derived from two such automotive
industry customers.
2. Other Charges (Credits)
1996
In the fourth quarter of 1996, the company recorded a pretax charge
of $64.1 million related to the company's Integrated Automation business.
The company took this charge to achieve customer satisfaction on certain
complex agile transfer line contracts and to recognize costs associated
with the formal adoption of a plan to improve operations including
workforce reductions and reengineering of certain business processes.
In addition to the $64.1 million charge, adjustments of $16.0 million
were reflected in cost of sales. Product rationalization at the
Automation Technology group, as well as additional warranty expenses,
resulted in costs of $10.3 million. The remaining $5.7 million of costs
relate primarily to the write-down of inventory at the company's other
business locations.
1995
The separate $30.3 million operating expense item in the company's
1995 statement of income consists of the charges listed below.
In the fourth quarter of 1995, the company entered into a formal plan
to improve the operations of its German subsidiary, which included the
planned termination of 145 employees at that location. As a result of its
decision, the company recorded a pretax charge of $6.3 million relating to
the planned employee terminations. The termination benefit payments were
made during 1996.
In conjunction with the above plan, the company evaluated the ongoing
value of the property, plant and equipment, and related intangible assets,
associated with its German subsidiary in accordance with SFAS No. 121.
Based on this evaluation, the company determined that assets were impaired
and wrote them down by $20.5 million to their estimated fair value. The
fair value estimate was based on estimated future cash flows of the
subsidiary discounted at an interest rate commensurate with the risk
involved.
Also during the fourth quarter of 1995, in connection with the
adoption of SFAS No. 121, the company determined that the long-term and
intangible assets associated with a plant in its Automation Measurement
and Control group were impaired. That impairment evaluation was triggered
by the relatively poor operating performance of that entity since its 1991
acquisition. Such assets were written down $3.5 million to their
estimated fair value, which was determined using a discounted future cash
flow estimate.
1994
In connection with the 1991 Cross & Trecker acquisition, the company
wrote off the uncollected receivables and reserved for the costs committed
to be incurred with respect to two Russian contracts entered into by Cross
& Trecker prior to the acquisition.
The Russian contracts totaled approximately $48.2 million. During
the fourth quarter of 1994, the necessary conditions were met such that a
credit guarantee was activated in connection with one of the Russian
contracts referred to above. As a result, the company received a net
payment of $32.3 million, which represented the remaining balance owed
under the contract and covered by the guarantee.
The receipt resulted in a $22.1 million increase to pretax income
recorded in the fourth quarter of 1994. The income recorded was net of
various costs expected to be incurred in connection with shipment and
installation.
Due to the economic conditions in Russia and the financial position
of the former customer associated with the other Russian contract,
management does not believe they will execute a credit guarantee or
collect any moneys relating to this contract. As the receivable was
previously written off, there was no significant impact on the
consolidated financial statements of the company.
3. Acquisition of Fadal
On April 24, 1995, the company acquired for cash all of the issued
and outstanding shares of capital stock of Fadal, and the land and
building used by Fadal in the operation of its business. Fadal is
principally involved in the design, manufacture and sale of computer
numerically controlled vertical machining centers. The acquisition was
financed with amounts borrowed under existing and new credit facilities.
The Fadal acquisition was accounted for using the purchase method of
accounting and, accordingly, the operations of Fadal are included in the
company's consolidated statements of operations since the April 24, 1995,
acquisition date. The total purchase price was approximately $180 million
and included $123 million allocated to intangible assets, which includes
the residual component of costs in excess of net acquired assets that is
being amortized over 25 years.
Pro forma unaudited results of operations for the years ended
December 31, 1995 and 1994, assuming consummation of the Fadal purchase as
of January 1, 1994, are as follows:
(In thousands) 1995 1994
Net sales $783,546 $757,299
Net income 9,784 55,920
Net income per common share 0.28 1.63
4. Additional Balance Sheet and Cash Flow Information
(In thousands) 1996 1995
Receivables -
Allowance for doubtful accounts $2,196 $1,836
Inventories:
Raw materials $51,310 $52,694
Work-in-process 26,356 38,038
Finished goods 11,303 11,549
------- -------
$88,969 $102,281
======= =======
Fixed assets:
Land $9,258 $9,504
Buildings 69,054 64,557
Machinery and equipment 156,015 141,973
------- -------
234,327 216,034
Less accumulated depreciation (115,843) (104,652)
------- -------
$118,484 $111,382
======= =======
Intangible assets:
Trade name $18,878 $19,544
Distributor network 21,065 22,214
Costs in excess of net
acquired assets 143,860 149,180
Other 1,473 1,584
------- -------
$185,276 $192,522
======= =======
Accrued expenses and other
liabilities:
Payroll and related expenses $18,263 $16,163
Installation and warranty
accruals 49,303 17,218
Restructuring and contract
reserves 46,618 6,313
Self-insurance reserves 3,431 4,156
Other 31,323 34,038
------- -------
$148,938 $77,888
======= =======
Long-term employee benefits and other
long-term liabilities
Postretirement health-care
obligations $12,542 $13,224
Pension and retirement plan
obligations 14,911 18,765
Environmental liabilities 9,116 9,993
Other 703 741
------- -------
$37,272 $42,723
======= =======
A significant non-cash transaction during 1995 was as follows:
In the purchase of Fadal, the purchase price was allocated as follows
(in thousands):
Purchase price $179,579
Estimated fair value of tangible assets acquired (68,536)
Estimated fair value of liabilities assumed 12,370
-------
Excess purchase price allocated to intangible assets $123,413
=======
A significant non-cash transaction during 1994 was as follows:
Decrease in intangible assets of $4.0 million, due to the recognition
of certain acquired foreign net operating loss carryforwards.
5. Financing Arrangements and Long-Term Debt
Notes payable under revolving credit facilities and long-term debt
consisted of the following at December 31:
(In thousands) 1996 1995
Borrowings under 1992 Credit Agreement $34,226 $36,763
7.5% unsecured notes maturing in 2005 100,000 100,000
------- -------
Total debt 134,226 136,763
Less current maturities 34,226 36,763
------- -------
Long-term debt $100,000 $100,000
======= =======
The company has a multicurrency credit agreement with a syndicate of
financial institutions for an unsecured $175.0 million revolving credit
facility (1992 Credit Agreement). The 1992 Credit Agreement matures in
December 1997. At December 31, 1996 and 1995, outstanding borrowings and
letters of credit under the 1992 Credit Agreement totaled $34.2 million
and $9.1 million and $36.8 million and $13.8 million, respectively.
Letters of credit reduce the amount available for additional borrowings
under the agreement. The 1992 Credit Agreement carries an interest rate
equal to a Base Rate, as defined, or LIBOR plus a spread. At December 31,
1996 and 1995, the weighted average interest rate on outstanding
borrowings under the 1992 Credit Agreement was 5.725% and 6.82%,
respectively. The company is required to pay certain fees and expenses
from time to time, including agent fees and commitment fees of .125% of
the unused portion available under the Credit Agreement.
The 1992 Credit Agreement contains various covenants and
restrictions, including customary financial covenants, additional debt
limitations and restrictions on payment of dividends. The dividend
restrictions prohibit the company from paying cash dividends on its common
stock in excess of 40% of the company's consolidated net earnings after
tax in any fiscal quarter, less amounts paid to redeem capital stock in
such quarter. This limitation is subject to certain carryforward
provisions.
The company has obtained a waiver of covenant default for the period
ended December 31, 1996, and an amendment to the 1992 Credit Agreement
that excludes the impact of the December 1996 other charges and
adjustments, as disclosed in Note 2, from the financial covenant tests
through the remaining term of the agreement.
At December 31, 1996, the company had foreign lines of credit that
approximated $68.1 million, with no borrowings outstanding. Borrowings
under the foreign lines of credit bear interest at an average rate of
6.4%. Outstanding foreign letters of credit at December 31, 1996 and
1995, approximated $13.2 million and $41.8 million, respectively, and
reduce the amounts available under the foreign lines of credit.
In connection with the April 1995, Fadal acquisition, the company
entered into an additional $100 million one-year revolving credit facility
with a bank (1995 Credit Agreement). Amounts borrowed under the 1995
Credit Agreement to finance the acquisition were subsequently repaid or
refinanced in 1995.
During 1995, the company filed a shelf registration with the
Securities and Exchange Commission enabling the company to issue to the
public up to $250.0 million in unsecured debt securities. On October 2,
1995, $100.0 million of such securities were issued in a public offering
at an interest rate of 7.5%. The proceeds from the offering were used to
repay amounts borrowed under the 1992 and 1995 Credit Agreements in
connection with the Fadal acquisition. The notes issued in 1995 mature in
the year 2005.
Interest expense for the years ended December 31, 1996, 1995 and
1994, was $11,059,000, $10,548,000, and $1,970,000, respectively.
6. Commitments and Contingencies
The company has operating leases and service contracts covering
primarily office space and data processing equipment. Future minimum
lease payments under these commitments at December 31, 1996, were as
follows (in thousands):
1997 $2,120
1998 976
1999 450
2000 171
2001 73
Thereafter 65
-----
$3,855
=====
Total expense for all operating leases for the years ended December 31,
1996, 1995 and 1994, was $2,889,000, $3,431,000, and $3,645,000,
respectively.
The company is involved in various environmental matters, including
matters in which the company and certain of its subsidiaries have been
named as potentially responsible parties under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA).
One such matter is the company's implementation of a Wisconsin
Department of Natural Resources (WDNR) approved clean-up plan on a nine-
acre parcel of land adjacent to its former West Allis, Wisconsin
manufacturing facility. The company has completed the soil removal
portion of the plan and is currently engaged in limited groundwater
monitoring to support its application to the WDNR for site closure.
The company has established accruals ($9.1 million and $10.0 million
at December 31, 1996 and 1995, respectively) for all environmental
contingencies of which management is currently aware in accordance with
generally accepted accounting principles. In establishing these accruals,
management considered: (a) reports of environmental consultants retained
by the company; (b) the costs incurred to date by the company at sites
where clean-up is presently ongoing and the estimated costs to complete
the necessary remediation work remaining at such sites; (c) the financial
solvency, where appropriate, of other parties that have been responsible
for effecting remediation at specified sites; and (d) the experience of
other parties who have been involved in the remediation of comparable
sites. The accruals recorded by the company with respect to environmental
matters have not been reduced by potential insurance or other recoveries
and are not discounted. Although the company has and will continue to
pursue such claims against insurance carriers or other responsible
parties, future potential recoveries remain uncertain and, therefore, were
not recorded as a reduction to the estimated gross/environmental
liabilities. Based on the foregoing and given current information,
management believes that future costs in excess of the amounts accrued on
all presently known and quantifiable environmental contingencies will not
be material to the company's financial position or results of operations.
In another matter, a Michigan Department of Environmental Quality
(State) investigation into alleged environmental violations at the
company's Menominee, Michigan, facility resulted in the issuance of
criminal complaints against the company and two of its employees in
November 1994. The complaints, filed in Menominee County, Michigan,
district and circuit courts, generally focus on alleged releases of
hazardous substances and the alleged illegal treatment and disposal of
hazardous waste. In December 1996, the seven charges then pending against
the company in circuit court were dismissed on the grounds, among other
things, that the criminal provision under which the company was charged is
unconstitutional. In February 1997, the company and the State reached a
tentative agreement, subject to the negotiation of a final written
settlement and plea agreement and its entry by the court. The general
parameters of the tentative agreement are as follows: (i) the State will
dismiss with prejudice and release the company from all charges and
covenant not to sue on any matters, administrative, civil or criminal,
raised in the criminal complaint or investigation; (ii) the company will
reimburse the States investigation costs in an amount to be determined,
not to exceed $492,000; (iii) the company will plead no contest (not
admitting liability) to one misdemeanor charge and (iv) the circuit court
decision holding the statute unconstitutional will be vacated. Pending
this final resolution, cross appeals have been filed. The three
misdemeanor counts against the two employees of the company remain pending
in district court.
Also, two civil lawsuits are pending against the company in Menominee
County, Michigan, district court which seek unspecified damages based on
allegations of improper disposal and emissions at this facility. The
company remains committed to vigorously defending itself against all
suits, charges and allegations to the extent they are not resolved on
terms satisfactory to the company. Except to the extent described above,
information presently available to the company does not enable it to
reasonably quantify potential civil or criminal penalties, or remediation
costs, if any, related to any of these pending matters.
The company is also involved in other litigation and proceedings,
including product liability claims. In the case of product liability, the
company is partially self-insured and has accrued for all claim exposure
for which a loss is probable and reasonably estimable. Based on current
information, management believes that future costs in excess of the
amounts accrued for all existing litigation will not be material to the
company's financial position or results of operations.
7. Employee Benefit Plans
Domestic Defined Benefit Plans
The company has defined benefit plans that cover substantially all
U.S. employees. Benefits for salaried employees generally are based on
earnings and years of service while hourly employee benefits generally are
a fixed amount for each year of service. The company annually contributes
to the defined benefit plans amounts which are actuarially determined to
provide the plans with sufficient assets to meet future benefit payment
requirements. Plan assets are invested primarily in listed stocks, mutual
funds, money market instruments, fixed income securities and U.S.
corporate bonds.
Net periodic pension expense for the company's domestic defined
benefit retirement plans includes the following components:
(In thousands) 1996 1995 1994
Service cost $5,373 $3,411 $3,436
Interest cost 8,691 7,988 7,047
Actual (return)/loss on assets (10,272) (16,615) 744
Net amortization and deferral 3,199 10,174 (7,097)
------- ------- -------
Net periodic pension expense $6,991 $4,958 $4,130
======= ======= =======
The following table presents a reconciliation of the funded status of
the company's domestic defined benefit plans at December 31:
(In thousands) 1996 1995
Actuarial present value of benefit
obligations:
Vested benefits $105,146 $ 98,419
Nonvested benefits 5,938 6,963
------- -------
Accumulated benefit obligation 111,084 105,382
Effect of assumed increases in
compensation levels 14,766 16,152
------- -------
Projected benefit obligation 125,850 121,534
Plan assets at fair value 111,036 94,983
------- -------
Projected benefit obligation in excess
of plan assets (14,814) (26,551)
Unrecognized net (gain)/loss (591) 7,504
Unrecognized prior service cost 1,418 1,230
------- -------
Accrued pension cost $(13,987) $(17,817)
======= =======
The assumptions used in determining pension expense (for the
following year) and funded status information shown above were as follows:
1996 1995 1994
Discount rate 7.5% 7.5% 8.25%
Rate of salary progression 4.5 4.5 5.0
Long-term rate of return on assets 8.5 8.5 8.0
The change in the discount rate and rate of salary progression
assumptions at December 31, 1995 increased the projected benefit
obligation by $13,054,000.
Foreign Defined Benefit Plans
Benefits of the defined benefit plans for the company's foreign
employees are based on years of service and the employees compensation
during employment. Substantially all of the plan assets are held in
commingled trust accounts. The company's foreign funding policy is to
contribute annually the minimum amount required to comply with local
statutory requirements.
Net periodic pension income for the company's foreign defined benefit
plans includes the following components:
(In thousands) 1996 1995 1994
Service cost $ 890 $ 884 $ 729
Interest cost 2,286 2,026 1,595
Actual (return)/loss on assets (3,895) (4,800) 1,650
Net amortization and deferral (292) 1,253 (5,333)
------- ------ -------
Net periodic pension income $(1,011) $ (637) $(1,359)
======= ====== =======
During 1995, settlements relating to the company's foreign plans
resulted in gains of approximately $400,000.
The following table presents a reconciliation of the funded status of
the company's foreign defined benefit plans at December 31:
(In thousands) 1996 1995
Actuarial present value of benefit
obligations:
Accumulated benefit obligation-all
vested $25,707 $24,686
Effect of assumed increases
in compensation levels 3,277 3,727
------- -------
Projected benefit obligation 28,984 28,413
Plan assets at fair value 39,007 36,020
------- -------
Plan assets in excess of projected
benefit obligation 10,023 7,607
Unrecognized net loss 414 1,362
Unrecognized net transition asset (5,009) (5,198)
Unrecognized prior service cost 1,097 1,078
------- -------
Prepaid pension cost $6,525 $4,849
======= =======
The assumptions used in determining foreign pension expense (for the
following year) and funded status information shown above were as follows:
1996 1995 1994
Discount rate 8.5% 8.0% 9.0%
Rate of salary progression 5.5 5.0 5.0
Long-term rate of return
on assets 9.5 9.5 9.0
The change in the above assumptions decreased the projected benefit
obligation by approximately $1,406,000 at December 31, 1996 and increased
the projected benefit obligation by approximately $3,415,000 at
December 31,1995.
Defined Contribution Plans
The company also has certain defined contribution plans that cover
substantially all full-time employees. Contributions to the plans are
based on a percentage of employee earnings. Costs of these plans charged
to operations were $2,570,000, $2,108,000 and $2,024,000 in 1996, 1995 and
1994, respectively.
Other Postretirement Benefit Plans
The company provides health-care benefits, and certain life insurance
benefits, to certain retired employees who retired prior to June 1, 1992.
The types of benefits, retiree contributions, and eligibility for benefits
varied among the various divisions and are unfunded. The company's
contribution level is frozen such that all health-care cost increases are
borne by retirees. Benefits for plan participants age 65 and older are
integrated with Medicare under all plans. The company funds costs as
incurred under the plans.
The following sets forth the plans status reconciled with the amounts
recognized in the company's balance sheet as of December 31:
(In thousands) 1996 1995
Accumulated postretirement benefit
obligation:
Current retirees $(10,963) $(11,857)
Unrecognized net gain (1,541) (1,367)
------- -------
Accrued long-term employee benefit $(12,504) $(13,224)
======= =======
The periodic postretirement benefit cost included in the statements
of operation is as follows:
(In thousands) 1996 1995 1994
Interest $820 $924 $934
Amortization (61) (74) (68)
---- ---- ----
Total $759 $850 $866
==== ==== ====
Due to the nature of the plans, a one percent change in the health-
care trend rate assumption does not have any material impact on the
company's obligation. Similarly, the health-care cost trend rate is not a
factor in computing the benefit obligation. A discount rate of 7.5% was
used to present value all future health-care and life insurance
liabilities at December 31, 1996 and 1995.
8. Income Taxes
At December 31, 1996, the company had U.S. federal net operating loss
carryforwards totaling approximately $14.8 million and various state net
operating loss carryforwards. The federal carryforwards expire in 2003,
while the state carryforwards expire in 1997 through 2011. The company
also had foreign tax loss carryforwards totaling approximately $37.3
million at December 31, 1996, that can be carried forward indefinitely.
The U.S. federal amount and $16.8 million of the foreign amount represent
acquired net operating loss carryforwards resulting from the Cross &
Trecker acquisition. The tax benefit of these loss carryforwards has
been, or will be in the case of certain foreign loss carryforwards,
recorded as a reduction to goodwill (i.e., reduce intangible assets) when
initially recognized.
The decrease in the valuation allowance during 1994 primarily
reflects the recognition of approximately $4.0 million in certain acquired
foreign net operating loss carryforwards as a reduction to goodwill. The
increases in the valuation allowance during 1996 and 1995 relate to newly
generated foreign deferred tax assets, the benefit of which can not be
recognized under the provisions of generally accepted accounting
principles.
Net deferred tax assets for all foreign and state net operating loss
carryforwards, together with various deductible temporary differences
related to certain of the company's foreign subsidiaries, continue to be
fully offset by a valuation allowance based on managements judgment with
respect to the realizability of those items.
Significant components of the company's deferred tax assets and
liabilities as of December 31, 1996 and 1995, are as follows:
(In thousands) 1996 1995
Deferred tax liabilities:
Tax over book depreciation $9,332 $8,005
LIFO book/tax difference relating
to acquisition 2,180 2,193
Percentage of completion accounting 1,487 2,436
Other, net 3,277 9,039
------- -------
Total deferred tax liabilities $16,276 $21,673
======= =======
Deferred tax assets:
Environmental accruals $3,548 $3,874
Inventory reserves 10,996 1,837
Restructuring and contract reserves 15,444 -
Warranty accruals 8,935 2,956
Pension, other postretirement,
and other longer term
employee benefit obligations 10,443 7,885
Other accrued expenses
not currently deductible 8,373 14,786
Net operating loss carryforwards 25,521 31,298
------- -------
Total deferred tax assets 83,260 62,636
Valuation allowance for deferred tax assets (18,412) (16,487)
------- -------
Deferred tax assets, net of valuation
allowance 64,848 46,149
------- -------
Net deferred tax asset $48,572 $24,476
======= =======
The net current and noncurrent components of deferred taxes
recognized in the December 31, 1996 and 1995, balance sheets are as
follows:
(In thousands) 1996 1995
Net current asset $29,048 $4,776
Net noncurrent asset 19,524 19,700
------- -------
$48,572 $24,476
======= =======
Details of income (loss) before provision for income taxes are as
follows:
(In thousands) 1996 1995 1994
Domestic $(36,494) $57,446 $77,525
Foreign 3,542 (29,383) 81
------- ------- -------
$(32,952) $28,063 $77,606
======= ======= =======
Details of the provision for income taxes for the years ended
December 31, 1996, 1995 and 1994, are as follows:
(In thousands) 1996 1995 1994
Current:
Federal $3,424 $13,963 $4,650
State 825 1,460 1,627
Foreign 199 702 1,599
------ ------- ------
4,448 16,125 7,876
Deferred:
Federal (25,198) 6,606 19,908
State (1,658) 867 2,655
Foreign (46) (3,525) (1,567)
------- ------- -------
(26,902) 3,948 20,996
Effect of using acquired
loss carryforwards (1) 1,730 887 -
Tax benefit related to exercise
of options and other items
charged to equity 314 648 854
------- ------- -------
$(20,410) $21,608 $29,726
======= ======= =======
(1) Reduction in current taxes due (not previously recognized) and
credited to goodwill.
The differences between the provision for income taxes and income
taxes computed using the U.S. federal income tax rate (35%) for the years
ended December 31, 1996, 1995 and 1994, are as follows:
(In thousands) 1996 1995 1994
Provision (benefit) at
statutory rates $(11,533) $9,822 $27,162
State taxes, net of federal benefit (541) 1,513 2,783
Foreign loss for which no tax
benefit recorded 1,006 6,215 -
Write-off of costs in excess of net
acquired assets - 3,957 -
Amortization of costs in excess of
net acquired assets 631 631 668
Effect of different foreign tax rates (104) (946) (513)
Benefit from tax restructuring of
foreign operations (5,530) - -
Addition to (reduction of)
tax reserves (3,000) 114 (520)
Other (1,339) 302 146
------- ------- -------
Actual provision (benefit) for
income taxes $(20,410) $21,608 $29,726
======= ======= =======
On March 20, 1996, the company adopted a tax planning strategy to
capture U.S. tax benefits for losses arising from its German subsidiary.
As such, income and losses from this date forward will be included in the
consolidated federal income tax return of the company. Upon adoption, a
benefit of $1.2 million was recorded as a decrease to income tax expense.
The flow-through of losses from the company's German subsidiary resulted
in the recording of an additional $4.3 million tax benefit for 1996.
Future tax benefits or expenses will be dependent on the profitability of
the German operations.
Undistributed earnings of the company's foreign subsidiaries, which
are not significant at December 31, 1996, are considered to be permanently
invested. Therefore, no deferred taxes (including withholding taxes
payable) have been provided for the remittance of those earnings.
9. Capital Stock
The company's capital structure consists of the following at December
31:
(In thousands, except share amounts) 1996 1995
Class A preferred stock, $.10 par value,
authorized 3,000,000 shares; 350,000 shares
designated as Series A and 700,000 shares
designated as Series B; none issued and
outstanding $ - $ -
Common stock, $.10 par value, authorized
70,000,000 shares; 34,622,855 and
34,422,043 shares issued and outstanding
at December 31, 1996 and 1995,
respectively 3,462 3,442
On July 18, 1996, the company announced that the Board of Directors
had authorized management to repurchase up to 10% of the company's
outstanding common stock (3.5 million shares). Such repurchases are
expected to be made principally through open market transactions from time
to time as the share price and market conditions warrant. The company
intends to fund any such repurchases with cash from operations and
additional short-term borrowings. At December 31, 1996, the company had
repurchased 1.5 million shares at an aggregate purchase price of $18.6
million.
On August 23, 1995, the Board of Directors of the company declared a
rights dividend of one preferred share purchase right (Right) for each
share of common stock outstanding on September 8, 1995, and provided that
one Right would be issued with each share of common stock thereafter
issued. Each Right entitles the registered holder to purchase from the
company, upon the occurrence of certain events, one one-hundredth of a
share of Class A preferred stock, Series B at an initial exercise price of
$60 per one one-hundredth of a share or, upon the occurrence of certain
events, common stock or other property having a value of twice the
exercise price. The redemption price for the Rights is $.01 per Right.
Simultaneous with this rights dividend, the company redeemed outstanding
rights from a 1990 rights dividend for $172,000.
1989 Nonvested Stock Plan
Under the company's 1989 nonvested stock plan, the company may grant
to key employees the right to purchase up to an aggregate of 500,000
shares of common stock (the nonvested shares) at $.10 per nonvested share,
with such shares not vesting for a period, as determined by the
Compensation Committee of the Board of Directors, of up to 10 years from
the effective date of the award (the restricted period). During the
restricted period, the nonvested shares may not be sold, transferred or
otherwise alienated by the recipient. The nonvested shares currently
outstanding have a restricted period from one to five years from the
effective date of the award.
1989 Stock Option Plan
The company's 1989 stock option plan authorizes the granting of
incentive and nonqualified stock options to key employees for up to an
aggregate of 1,500,000 shares of common stock. Stock options granted
under the 1989 stock option plan will have an exercise price of not less
than 90% of the fair market value of the common stock on the date of
grant. Options granted will vest and become exercisable in accordance
with the terms and conditions established by the Compensation Committee of
the Board of Directors and set forth in the applicable option agreement,
except that no options may be exercised later than 10 years after the date
of its grant.
1991 Independent Director Stock-Based Incentive Plan
During 1991, the company adopted a stock-based incentive plan for
members of the Board of Directors who are not employees of the company.
Under the 1991 plan, on each date on which an independent director is
elected or re-elected to serve on the Board of Directors (as the case may
be), such independent director automatically receives options to purchase
1,000 shares of the company's common stock. The plan authorizes the
granting of nonqualified stock options to independent directors for up to
an aggregate of 50,000 shares of common stock. Stock options granted
under the 1991 plan have an exercise price equal to the closing price of a
share of common stock at the date of grant and become exercisable (subject
to immediate vesting in certain cases) upon expiration of the independent
directors term.
1993 Stock and Incentive Plan
In 1993, the company adopted the 1993 stock and incentive plan. The
1993 plan authorizes the granting to key employees of (a) stock options
(either incentive stock options or nonqualified options), (b) stock
appreciation rights, (c) non-vested stock, and (d) performance shares and
performance units. In addition, under the 1993 plan, independent
directors receive annual nonvested stock grants based on an established
formula. In total, the 1993 plan allows for the granting of awards
relating to 2,000,000 shares of common stock.
Options granted under the 1993 plan shall have exercise prices no
less than 90% (100% in the case of incentive stock options) of the fair
market value of a share of common stock at the date of grant. The term of
the option is to be determined at the time of the grant but in no event
can exceed ten years. Nonvested stock issued under the 1993 plan may
contain restrictions similar to those described above for the 1989
nonvested stock plan, as well as other terms, including vesting based on
the achievement of specified performance criteria. Subject to the terms
of the 1993 plan, awards of stock appreciation rights and performance
shares and performance units may have such terms as are specified by the
Compensation Committee of the Board of Directors.
A summary of nonvested stock activity, including shares issued to
independent directors, is as follows:
Number of Shares
1996 1995 1994
Nonvested stock:
Outstanding at beginning of year 250,871 208,315 385,515
Granted 185,056 129,556 58,840
Canceled - (15,000) (29,298)
Vested (42,000) (72,000) (206,742)
Outstanding at end of year 393,927 250,871 208,315
======= ======= =======
Weighted-average fair value of
shares granted during the year $15.176
=======
A summary of option activity under the above-described stock option
and incentive plans is as follows:
1996
Weighted
average
1996 exercise 1995 1994
Options price Options Options
Options:
Outstanding at
beginning of year 840,012 $17.473 697,676 584,370
Granted 308,700 15.177 272,600 229,750
Canceled (12,000) 19.938 (88,264) (67,656)
Exercised (31,000) 9.807 (42,000) (48,788)
--------- ------- ------- -------
Outstanding at end
of year 1,105,712 $17.020 840,012 697,676
========= ======= ======= =======
Weighted-average
fair value of
shares granted
during the year $6.482
=========
All options granted through December 31, 1996, are nonqualified stock
options. There were 576,271; 315,381 and 209,299 options exercisable at
December 31, 1996, 1995 and 1994, respectively.
A summary of options outstanding at December 31, 1996, is as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average Average Weighted Average
Option Exercise Price Exercise Price Remaining
Price Options of Options Options of Exercisable Contractual Life
(per share) Outstanding Outstanding Exercisable Options (years)
<C> <C> <C> <C> <C> <C>
7.00-10.00 128,000 8.039 128,000 8.039 3.18
10.01-20.00 740,662 16.228 259,230 17.524 7.98
20.01-28.00 237,050 24.343 189,041 24.199 7.14
----------- --------- -------- -------- -------- -------
7.00-28.00 1,105,712 17.020 576,271 17.607 7.24
=========== ========= ======== ======== ======== =======
</TABLE>
A total of approximately 2,577,000 shares of the company's authorized
but unissued common stock are reserved for potential future issuance under
the company's various stock option and incentive plans. (See summary
below.)
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, became effective January 1, 1996
for the company. As permitted under SFAS No. 123, the company elected to
continue to account for employee stock compensation (e.g., nonvested stock
and stock options) in accordance with AICPA Accounting Principles Board
(APB) No. 25, Accounting for Stock Issued to Employees. Under APB No. 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.
SFAS No. 123 calculates the total compensation expense to be
recognized as the fair value at the date of grant for effectively all
awards. The company's net income would not have been materially different
had compensation expense for employee stock compensation been recognized
consistent with SFAS No. 123. In determining the effect of SFAS No. 123,
the Black-Scholes option pricing model was used with the following
weighted-average assumptions for 1996: risk-free interest rate of 6.0%;
dividend yield ranging from .67 to .80; volatility factor of the expected
market price of the company's common stock ranging from .34 to .40; and a
weighted-average expected life of the option of 3 to 9 years.
The pro forma calculations only included the effects of 1996 and 1995
grants. As such, the impact on pro forma net income (loss) of these
options during these years are not necessarily indicative of the effects
on the pro forma results of operations in future years.
10. Fair Values of Financial Instruments
The following methods and assumptions were used by the company in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents
The carrying amount reported in the balance sheets for cash and cash
equivalents approximates fair value.
Notes Payable and Long-Term Debt
The carrying amounts of the company's borrowings under the 1992
Credit Agreement approximate fair value. The fair value of the company's
7.5% unsecured notes was estimated based on the quoted market price of
those securities.
Foreign Currency Exchange Contracts
The fair values of the company's forward foreign currency exchange
contracts are estimated based on quoted market prices of comparable
contracts.
The carrying amounts and fair values (i.e., unrealized gains/(losses)
in the case of forward exchange contracts) of the company's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In thousands)
<S> <C> <C> <C> <C>
Cash and
cash equivalents $ 71,658 $ 71,658 $ 14,216 $ 14,216
Notes payable (34,226) (34,226) (36,763) (36,763)
Long-term debt (100,000) (98,910) (100,000) (104,400)
Foreign currency
exchange contracts - 4,828 - (73)
</TABLE>
11. Foreign Operations
Information relating to the company's foreign operations, consisting
principally of operations in the United Kingdom and continental Europe, at
December 31, 1996, 1995 and 1994, and for each of the three years then
ended is as follows:
<TABLE>
<CAPTION>
Sales
Operating
Assets Gross Intergeographic(1) Net Income (Loss)
(In thousands)
<S> <C> <C> <C> <C> <C>
1996 $165,177 $143,810 $22,307 $121,503 $3,102
1995 $139,813 $122,032 $29,216 $ 92,816 $ (660)
1994 $185,382 $148,625 $20,493 $128,132 $1,832
(1) Represents sales from the company's foreign subsidiaries to the
company in the United States, which are at prices approximating those
charged to unaffiliated customers.
</TABLE>
In 1996, 1995 and 1994, the foreign subsidiaries had sales to
unaffiliated U.S. customers of $9,513,000, $0 and $1,640,000,
respectively.
Export sales to unaffiliated customers were $45,854,000, $59,775,000
and $23,647,000 in 1996, 1995 and 1994, respectively.
(Quarterly Financial Data - Unaudited)
1996
<TABLE>
<CAPTION>
Quarter Ended
March 31 June 30 Sept. 29 Dec. 31(1)
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $192,420 $199,646 $185,794 $185,133
Gross profit (before
depreciation and
amortization) $ 42,695 $ 42,948 $ 35,024 $ 20,003
Net income (loss) $ 10,417 $ 9,278 $ 5,597 $(37,834)
Net income (loss) per
share $0.30 $0.27 $0.17 $(1.14)
(1) Includes a $40.1 million, or $1.18 per share, after-tax charge to
achieve customer satisfaction on certain agile transfer line
contracts and other related restructuring costs (see Note 2). Also
includes after-tax adjustment of $10.0 million, or $.29 per share,
included in cost of sales for warranty and inventory valuation
reserves established for various product lines (see Note 2).
<CAPTION>
1995
Quarter Ended
April 2 July 2 Oct. 1 Dec. 31(2)
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $154,576 $171,125 $195,921 $208,930
Gross profit (before
depreciation and
amortization) $ 31,714 $ 37,790 $ 42,258 $ 43,556
Net income (loss) $ 7,096 $ 9,319 $ 8,543 $(18,503)
Net income (loss) per
share $0.21 $0.27 $0.25 $(0.54)
(2) Includes a $29.0 million, or $.84 per share, impairment and severance
after-tax charge (see Note 2).
</TABLE>
<PAGE>
INDEPENDENT AUDITORS REPORT
The Board of Directors and Shareholders
Giddings & Lewis, Inc.
We have audited the accompanying consolidated balance sheets of
Giddings & Lewis, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in shareholders equity and
cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Giddings & Lewis, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 2 in the notes to the consolidated financial
statements, effective December 31, 1995, the company changed its method of
accounting for the impairment of long-lived assets and related goodwill.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
February 10, 1997
Exhibit 21
SUBSIDIARIES OF GIDDINGS & LEWIS, INC.
Jurisdiction of Percent Ownership
Name Incorporation Direct Indirect
Giddings & Lewis, Ltd. United Kingdom 100%
Giddings & Lewis Foreign Sales U.S. Virgin
Corp. Islands 100%
Cross & Trecker Corporation Michigan 100%
Fadal Engineering Company, Inc. Wisconsin 100%
The Cross Company Michigan 100%(1)
Kearney & Trecker Corporation Wisconsin 100%(1)
The Warner & Swasey Company Michigan 100%(1)
Cross & Trecker Credit Corporation Michigan 100%(1)
Giddings & Lewis Canada, Ltd. Canada 100%(2)
Kirloskar Warner & Swasey Limited India 38%(3)
Giddings & Lewis GmbH Germany 100%(4)
________________________________
(1) Direct percent ownership by Cross & Trecker Corporation.
(2) Direct percent ownership by The Cross Company.
(3) Direct percent ownership by The Warner & Swasey Company.
(4) 99.9% direct ownership by Cross & Trecker Corporation and 0.1% direct
ownership by The Cross Company.
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Giddings & Lewis, Inc. of our report dated February 10, 1997,
included in the 1996 Annual Report to Shareholders of Giddings & Lewis,
Inc.
Our audits also included the financial statement schedule of Giddings &
Lewis, Inc. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in (a) the Form S-8
Registration Statements (No. 33-64936, No. 33-31950 and No. 33-31951)
pertaining to the Giddings & Lewis, Inc. 1993 Stock and Incentive Plan,
the Giddings & Lewis, Inc. 1989 Restricted Stock Plan and the Giddings &
Lewis, Inc. 1989 Stock Option Plan; (b) the Form S-8 Registration
Statements (No. 33-40542, No. 33-44325, and No. 33-44518) pertaining to
the Giddings & Lewis, Inc. Retirement Savings Plan; and (c) the Form S-3
Registration Statement (No. 33-61237) and related prospectus pertaining to
the $250 million debt securities shelf registration of our report dated
February 10, 1997, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included in
this Annual Report (Form 10-K) of Giddings & Lewis, Inc.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GIDDINGS &
LEWIS' CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 71,658
<SECURITIES> 0
<RECEIVABLES> 283,181
<ALLOWANCES> 2,196
<INVENTORY> 88,969
<CURRENT-ASSETS> 474,611
<PP&E> 234,327
<DEPRECIATION> 115,843
<TOTAL-ASSETS> 811,400
<CURRENT-LIABILITIES> 213,305
<BONDS> 100,000
3,462
0
<COMMON> 0
<OTHER-SE> 457,361
<TOTAL-LIABILITY-AND-EQUITY> 811,400
<SALES> 762,993
<TOTAL-REVENUES> 762,993
<CGS> 702,915
<TOTAL-COSTS> 702,915
<OTHER-EXPENSES> 84,393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,584
<INCOME-PRETAX> (32,952)
<INCOME-TAX> (20,410)
<INCOME-CONTINUING> (12,542)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,542)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
