FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 1-6948
SPX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 38-1016240
(State of Incorporation) (I.R.S. Employer Identification No.)
700 Terrace Point Drive, Muskegon, Michigan 49443-3301
(Address of Principal Executive Office)
Registrant's Telephone Number including Area Code (616) 724-5000
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
Common shares outstanding April 29, 1999 -- 31,099,177
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions)
(Unaudited)
March 31, December 31,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 78.8 $ 70.3
Accounts receivable 462.1 458.7
Inventories 287.9 282.1
Deferred income tax asset and refunds 89.1 124.1
Prepaid and other current assets 37.2 40.5
---------- ----------
Total current assets 955.1 975.7
Property, plant and equipment, at cost 808.3 791.1
Accumulated depreciation (372.8) (358.0)
---------- ----------
Net property, plant and equipment 435.5 433.1
Goodwill and intangible assets, net 1,197.9 1,219.5
Investment in EGS 82.8 81.5
Other assets 260.9 258.5
---------- ----------
Total assets $ 2,932.2 $ 2,968.3
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
maturities of long-term debt $ 160.8 $ 49.1
Accounts payable 235.2 226.6
Accrued expenses 363.1 396.0
Income taxes payable 10.3 7.7
---------- ----------
Total current liabilities 769.4 679.4
Long-term liabilities 207.6 214.5
Deferred income taxes 242.3 217.4
Long-term debt 1,262.9 1,466.5
Shareholders' equity:
Common stock 352.4 351.7
Paid-in capital 483.7 481.7
Retained deficit (82.3) (113.2)
Common stock in treasury (259.0) (286.4)
Unearned compensation (28.4) (32.2)
Accumulated other comprehensive income (16.4) (11.1)
---------- ----------
Total shareholders' equity 450.0 390.5
---------- ----------
Total liabilities and shareholders' equity $ 2,932.2 $ 2,968.3
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in millions, except per share amounts)
(Unaudited)
Three months Ended
March 31,
------------------------------
1999 1998
----------- ----------
<S> <C> <C>
Revenues $ 646.9 $ 374.4
Costs and expenses:
Cost of products sold 432.9 248.8
Selling, general and administrative 133.3 91.5
Goodwill/intangible amortization 10.6 2.9
Special charges 14.1 -
----------- ----------
Operating income $ 56.0 $ 31.2
Other income (expense), net 30.3 -
Equity in earnings of EGS 9.3 10.0
Interest expense, net (32.1) (3.2)
----------- ----------
Income before income taxes $ 63.5 $ 38.0
Provision for income taxes (32.6) (14.6)
----------- ----------
Net income $ 30.9 $ 23.4
=========== ==========
Basic income per share $ 1.01 $ 1.20
Weighted average number of basic
common shares outstanding 30.475 19.555
Diluted income per share $ 1.01 $ 1.19
Weighted average number of diluted
common shares outstanding 30.707 19.675
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Three Months Ended
March 31,
--------- ---------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 30.9 $ 23.4
Adjustments to reconcile net income to net
cash from operating activities -
Special charge 14.1 -
Undistributed earnings of EGS (1.3) (10.0)
Gain on business divestitures (29.0) -
Deferred income taxes 28.1 4.3
Depreciation 15.9 12.3
Amortization of goodwill and intangibles 10.6 2.9
Pension credits (6.1) (4.0)
Other, net 2.0 0.5
Change in assets and liabilities, net of
effect from acquisitions and divestitures:
Accounts receivable (12.1) 12.1
Inventories (11.8) (7.3)
Accounts payable 11.9 0.2
Accrued Expenses (48.7) (8.8)
Other, net 18.8 (9.1)
--------- ---------
Net cash from operating activities 23.3 16.5
Cash flows from investing activities:
Proceeds from business divestitures 64.2 -
Capital expenditures (26.2) (10.2)
Other, net 5.2 0.9
--------- ---------
Net cash from investing activities 43.2 (9.3)
Cash flows from financing activities:
Net borrowings under revolving credit agreement 15.0 -
Net borrowings(payments) under other debt agreements (106.9) 19.4
Purchases of common stock - (16.3)
Common stock issued under stock incentive programs 5.4 0.4
Treasury stock issued to defined benefit plans 28.5 -
Dividends paid - (12.7)
--------- ---------
Net cash from financing activities (58.0) (9.2)
--------- ---------
Net increase (decrease) in cash and equivalents 8.5 (2.0)
Cash and equivalents, beginning of period 70.3 50.0
--------- ---------
Cash and equivalents, end of period $ 78.8 $ 48.0
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1999 (Unaudited)
(in millions, except per share data)
1. The interim financial statements reflect the adjustments which are, in the
opinion of management, necessary to a fair statement of the results of the
interim periods presented. Adjustments are of a normal recurring nature.
The preparation of SPX Corporation's ("SPX" or the "company") consolidated
condensed financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated
condensed financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
The financial information as of March 31, 1999 should be read in
conjunction with the consolidated financial statements contained in the
company's 1998 Annual Report on Form 10-K.
2. On October 6, 1998 (the "Merger Date"), General Signal Corporation ("GSX")
merged into a subsidiary of SPX Corporation (the "Merger"). On an aggregate
basis, GSX shareholders received 0.4186 share of SPX common stock and
$18.00 in cash for each share owned of GSX common stock. In total,
approximately 18.236 million shares of SPX common stock and $784.2 in cash
were exchanged for the outstanding common stock of GSX. Outstanding
restricted stock and stock options of GSX were either redeemed through
change of control payments or terminated.
The Merger was accounted for as a reverse acquisition whereby GSX was
treated as the acquirer and SPX as the acquiree, because GSX shareholders
owned a majority of the company as of the Merger Date and GSX was
approximately twice the size of SPX. Purchase accounting was performed on
SPX based upon its fair market value at the transaction date. The cash
portion of the consideration was accounted for as a dividend by the
company.
The fair market value of SPX was based on the average per share value of
SPX's common stock near July 17, 1998, the date that the merger agreement
was signed. Additionally, since the stock options of SPX continued to be
outstanding, the fair value of these options was included in determining
the valuation of SPX.
The valuation of SPX was $776.6. A summary of assets and liabilities
acquired, at estimated fair market value was as follows:
Current assets $ 357.2
PP&E 174.3
In-process technology 9.0
Goodwill 679.0
Intangibles 276.8
Other assets 13.0
--------
Total assets 1,509.3
Current liabilities (240.0)
Long-term liabilities (240.8)
Long-term debt (251.9)
Fair market value of SPX $ 776.6
=========
The accompanying consolidated financial statements include the results of
GSX for all periods and the results of SPX beginning on the Merger Date.
The following unaudited 1998 pro forma selected financial data for the
three months ended March 31, 1998 reflect the Merger and related financing
as if they had occurred as the beginning of 1998. The unaudited pro forma
financial data does not purport to represent what the company's results
from continuing operations would actually have been had the transactions in
fact occurred as of an earlier date, or project the results for any future
date or period.
Three months ended March 31,
1999 1998
(Pro forma)
Revenues $ 646.9 $ 604.8
Cost of sales 432.9 416.6
Selling, general and administrative 133.3 133.8
Goodwill/intangible amortization 10.6 10.2
Special charges and (gains) 14.1 (12.8)
--------- ---------
Operating income 56.0 57.0
Other (expense) income, net 30.3 0.7
Equity in earnings of EGS 9.3 10.0
Interest expense, net (32.1) (27.8)
Income taxes` (32.6) (15.7)
---------- ---------
Net income $ 30.9 $ 24.2
========= =========
Diluted income per share $ 1.01 $ 0.75
Weighted average number of shares 30.707 32.112
Unless otherwise noted, historical share and earnings per share disclosures
have been adjusted to reflect the 0.4186 share of SPX common stock that GSX
shareholders received for each share of GSX common stock upon the Merger.
3. The company is comprised of four business segments. Industrial Products and
Services includes operations that design, manufacture and market industrial
valves, mixers, power transformers, electric motors, laboratory freezers
and ovens, industrial furnaces and coal feeders. Major customers include
industrial chemical companies, pulp and paper manufacturers, laboratories
and utilities. Technical Products and Systems includes operations that
design, manufacture and market uninterruptible power supply equipment, fire
detection systems, data networking equipment, broadcast antennas, fare
collection systems and crystal growing furnaces. Major customers are
computer manufacturers and users, construction contractors, municipalities
and semiconductor manufacturers. Service Solutions includes operations that
design, manufacture and market a wide range of specialty service tools,
equipment and services primarily to the motor vehicle industry in North
America and Europe. Major customers are franchised dealers of motor vehicle
manufacturers, aftermarket vehicle service facilities and independent
distributors. Vehicle Components includes operations that design,
manufacture and market transmission and steering components for light and
heavy duty vehicle markets, principally in North America and Europe. Major
customers are vehicle manufacturers and aftermarket private brand
distributors.
Revenues by business segment represent sales to unaffiliated customers, no
one or group of which accounted for more than 10% of consolidated sales.
Intercompany sales among segments are not significant. Operating income
(loss) by segment does not include general corporate expenses, special
charges and gains or incremental costs to implement previously identified
restructuring plans.
Financial data for the company's business segments are as follows:
Three months ended March 31,
1999 1998
Revenues:
Industrial Products and Services............. $ 205.8 $ 181.2
Technical Products and Systems............... 189.2 160.3
Service Solutions (1)........................ 149.6 -
Vehicle Components (1)....................... 102.3 32.9
--------- ---------
$ 646.9 $ 374.4
========= =========
Operating income:
Industrial Products and Services............. $ 35.1 $ 23.1
Technical Products and Systems............... 15.6 11.1
Service Solutions............................ 13.2 -
Vehicle Components........................... 14.3 6.8
General Corporate (2)........................ (22.2) (9.8)
--------- ---------
$ 56.0 $ 31.2
========== =========
(1) Includes the results of SPX businesses in 1999.
(2) Includes special charges of $14.1 related primarily to closing costs
for a manufacturing facility and termination benefits for approximately 250
employees.
4. On March 29, 1999, the company completed the sale of its Dual-Lite
business, which it received from EGS Electrical Group LLC ("EGS") on
October 6, 1998 in a partial rescission of the original EGS venture
formation in the third quarter of 1997. Additionally, the company completed
the sale of a 50% interest in a Japanese joint venture during the quarter.
The company received combined proceeds of $64.2 and recognized a pre-tax
gain of $29.0 ($10.4 after-tax). The relatively high effective tax rate of
this gain was due to a low tax basis of the operations divested. These
operations were not material to the consolidated results.
5. In the first quarter 1999, the company recorded special charges of $14.1.
The first quarter charges included termination benefits ($6.3) for
approximately 250 employees, closing costs for a manufacturing facility
($0.7 for rental and other holding costs) and other non-cash asset
writedowns ($7.1). The facility is expected to close and the employee
termination will be complete by the end of the third quarter of 1999.
Of the approximately 325 hourly and salaried employees who accepted the
company's early retirement offer during the fourth quarter of 1998, all
such employees were retired by March 31, 1999. Additionally, during the
fourth quarter of 1998, the company committed to close eighteen
manufacturing, sales and administrative facilities primarily to consolidate
various GSX operations. As a result of these actions, the company recorded
charges of $10.1 for severance payments to approximately 800 other
employees (approximately 440 of which were terminated by March 31, 1999
with the remaining expected to be terminated by mid-1999) and $8.1 for
facility closing costs. Eleven of the facilities were closed as of March
31, 1999 and the balance are expected to close by the end of the second
quarter of 1999. There have been no significant changes to the estimated
costs or timing of the company's restructuring initiatives.
A rollforward of the company's special charge, disposition and special item
accruals was as follows:
Balance as of December 31, 1998 $ 39.9
Special charges 14.1
Charges against reserves (21.7) (1)
------
Balance as of March 31, 1999 $ 32.3
======
(1) Includes severance related payments of $10.2, facility holding costs of
$3.0 and other non-cash asset write downs of $7.1.
6. In 1997, the former GSX Board of Directors approved a stock-buyback program
of up to $300.0. During the first quarter of 1998, 0.170 shares were
repurchased under the program for $16.3. As of April 15, 1998, the program
was completed.
7. The company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") in 1998. SFAS No. 130
requires certain items of other comprehensive income to be presented as a
separate component of shareholders' equity.
The components of comprehensive income, net of related tax, were as
follows:
Three months ended March 31,
1999 1998
----- -----
Net income $30.9 $23.4
Foreign currency translation adjustments (5.3) 1.0
----- -----
Comprehensive income $25.6 $24.4
===== =====
The components of accumulated other comprehensive income, net of related
tax, were as follows:
March 31, December 31,
1999 1998
Foreign currency translation adjustments $14.0 $ 8.7
Minimum pension liability adjustment,
net of tax of $1.5 in 1999 and 1998 2.4 2.4
----- -----
Accumulated other comprehensive income $16.4 $11.1
===== =====
8. In the first quarter of 1999, the company issued 0.439 shares of treasury
stock to its Retirement Savings Plan and Employee Stock Ownership Plan in
exchange for $28.5 in cash. The proceeds were used to reduce outstanding
debt obligations.
9. Inventory consists of the following:
March 31, December 31,
1999 1998
Finished goods.................................. $ 118.7 $ 115.5
Work in process................................. 58.9 66.2
Raw material and purchased parts................ 122.7 112.1
------- -------
Total FIFO cost................................. 300.3 293.8
Excess of FIFO cost over LIFO inventory value... (12.4) (11.7)
------- -------
$ 287.9 $ 282.1
======= =======
10. The following table sets forth the computation of diluted earnings per
share:
Three months ended March 31,
1999 1998
Numerator:
Net Income...................................... $ 30.9 $ 23.4
Denominator (shares in millions):
Weighted-average shares outstanding............. 30.475 19.555
Effect of dilutive securities:
Employee stock options........................ 0.232 0.078
Restricted stock compensation................. - 0.042
-------- --------
Other 0.232 0.120
-------- --------
Adjusted weighted-average shares and
assumed conversions......................... 30.707 19.675
======== ========
11. The company owns a 44.5% interest in EGS and accounts for its investment in
EGS under the equity method of accounting. The company accounts for its
investment in EGS on a three-month lag basis. EGS operates primarily in the
United States, Canada and Mexico. EGS's results of operations for the
periods October 1 to December 31 of 1998 and 1997 were as follows:
Three months ended December 31,
1998 1997
(unaudited)
Net sales.................................... $116.6 $135.5
Gross margin................................. 48.3 52.8
Net income................................... 18.0 20.3
EGS' pre-tax income for the quarter ended March 31, 1999 was not materially
different than the pre-tax income earned the previous quarter.
The company's equity in earnings of EGS was $9.3 and $10.0 for the quarters
ended March 31, 1999 and 1998, respectively. The company's recorded
investment in EGS at March 31, 1999 was approximately $119.0 less than its
ownership of EGS's net assets at December 31, 1998. This difference is
being amortized on a straight-line basis over an estimated economic life of
40 years.
Condensed balance sheet information of EGS as of December 31, 1998 and
September 30, 1998 was as follows:
December 31, September 30,
1998 1998
(unaudited)
Current assets....................... $146.5 $200.4
Noncurrent assets.................... 351.9 364.0
Current liabilities.................. 58.0 72.7
Noncurrent liabilities............... 16.0 34.3
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (dollars in millions)
The following unaudited information should be read in conjunction with the
company's unaudited consolidated financial statements and related notes.
On October 6, 1998, SPX merged with GSX in a reverse acquisition. As a result,
the historical financial statements of GSX became the accounting history of the
combined company through the third quarter of 1998. Accordingly, the comparison
of the historical financial results for the first quarter does not provide a
basis for meaningful analysis of the operating trends of the business.
Consequently, the following discussion and analysis of "Results of Operations"
on a consolidated basis and by segment will focus on a comparison of the 1998
pro forma operating results in addition to the historical actual results.
Results of Operations - First Quarter 1999 vs. First Quarter 1998
Consolidated:
Three months ended Pro forma
March 31, Three months ended
1999 1998 March 31, 1998
------- ------- -------
Revenues $ 646.9 $ 374.4 $ 604.8
Gross margin 214.0 125.6 188.2
%of revenues 33.1% 33.5% 31.1%
Selling, general and admin expense 133.3 91.5 133.8
%of revenues 20.6% 24.4% 22.1%
Goodwill/intangible amortization 10.6 2.9 10.2
Special charges(gains) 14.1 - (12.8)
------- ------- -------
Operating income 56.0 31.2 57.0
Other (expense) income, net (30.3) - 0.7
Equity in earnings of EGS 9.3 10.0 10.0
Interest expense, net (32.1) (3.2) (27.8)
------- ------- -------
Income before income taxes $ 63.5 $ 38.0 $ 39.9
Provision for income taxes (32.6) (14.6) (15.7)
------- ------- -------
Net income $ 30.9 $ 23.4 $ 24.2
======= ======= =======
Capital expenditures $ 26.2 $ 10.2 $ 18.5
Depreciation and amortization 26.5 15.2 21.1
Revenues - 1999 revenues increased $272.5, or 72.8%, from actual 1998, primarily
due to the Merger. 1999 revenues increased approximately 7% over pro forma 1998
driven by strength in sales of products in the Industrial Products and Services
and Technical Products and Systems segments.
Gross Margin - In 1999, gross margin increased to 33.1% from pro forma gross
margin of 31.1% in 1998. The 1999 gross margin increase was primarily driven by
the benefits of the restructuring actions underway throughout the business.
During the first quarter, the Company completed the closure of 11 of the 18
manufacturing, sales and administrative facilities that were identified to be
closed in the fourth quarter of 1998. Approximately 765 of the 1,000 headcount
reductions identified in the fourth quarter 1998 restructuring plan were
completed and the company initiated the additional reduction of 250 positions.
The restructuring actions are on schedule to achieve the estimated $100 of
annual cost of sales and SG&A savings in 1999. There have been no significant
changes to the estimated cost or timing of the company's restructuring
initiatives.
Selling, general and administrative expense ("SG&A") - SG&A in 1999 increased to
$133.3 primarily as a result of the Merger. SG&A as a percentage of revenues
decreased from 22.1% in pro forma 1998 to 20.6% in 1999. The decrease, as well
as the decrease in actual SG&A expense year to year, was a result of increased
revenues and cost savings realized from restructuring actions initiated in late
1998. Goodwill/intangible amortization - The increased amortization in 1999 is a
result of the Merger.
Special charges - In the first quarter 1999, the company recorded special
charges of $14.1. The first quarter charges included termination benefits ($6.3)
for approximately 250 employees, closing costs for a manufacturing facility
($0.7 for rental and other holding costs) and other non-cash asset writedowns
($7.1). The facility is expected to close and the employee termination will be
complete by the end of the third quarter of 1999.
Charges for the remaining quarters of 1999 could range from $10.0 to $20.0, and
would be recognized in the period in which management approves and commits the
company to further restructuring actions. Additionally, the remaining quarters
of 1999 will include an estimated $10.0 of incremental costs associated with
restructuring actions that were initiated in the fourth quarter of 1998, but did
not qualify to be accrued in that period.
In the first quarter pro forma 1998, SPX recognized a net $12.8 gain on an
investment in Echlin Inc.
Other expense (income), net - 1999 primarily includes the $29.0 gain on the sale
of Dual-Lite and the company's 50% investment in a Japanese joint venture.
Interest expense, net - Interest expense, net, increased significantly in 1999
over actual 1998 primarily due to increased debt incurred on the Merger Date as
a result of the Merger.
Income taxes - The company's effective tax rate from continuing operations was
51.3% and 38.4% in 1999 and 1998, respectively. The relatively high rate in 1999
was due to a low tax basis of the operations divested during the quarter.
Excluding the impact of these divestitures, the first quarter effective income
tax rate was 40.5%, which represents the company's normal anticipated effective
tax rate for 1999.
Capital expenditures - Capital expenditures in 1999 were higher than actual 1998
primarily due to the Merger and significant expenditures for new business
information systems. For the year ended December 31, 1999, the company
anticipates capital expenditures will be approximately $100.0.
Segment Review
Three months ended Pro forma
March 31, Three months ended
1999 1998 March 31, 1998
Revenues:
Industrial Products and Services $205.8 $181.2 $197.9
Technical Products and Systems 189.2 160.3 160.3
Service Solutions 149.6 - 145.7
Vehicle Components 102.3 32.9 100.9
------ ------ ------
Total $646.9 $374.4 $604.8
====== ====== ======
Operating Income:
Industrial Products and Services $ 35.1 $ 23.1 $ 25.9
Technical Products and Systems 15.6 11.1 11.1
Service Solutions 13.2 - 8.3
Vehicle Components 14.3 6.8 13.9
General Corporate Expenses (22.2) (9.8) (15.0)
------ ------ ------
Total $ 56.0 $ 31.2 $ 44.2
====== ====== ======
Industrial Products and Services
Revenues for 1999 increased $7.9, or 4.0%, over pro forma 1998. The increase
over pro forma 1998 was driven by strength in sales of power systems, electric
motors and material handling units. The company expects 1999 revenues to
continue to be relatively stable with modest growth over pro forma 1998.
Operating Margins increased from 13.1% in pro forma 1998 to 17.1% in 1999 due to
the restructuring actions initiated in late 1998.
Operating Income for the remainder of 1999 is expected to continue to improve
over pro forma 1998 primarily due to savings associated with the restructuring
initiatives.
Technical Products and Systems
Revenues for 1999 were up $28.9, or 18.0%, over 1998 primarily as a result of
strength in sales of building life safety systems, digital TV transmission
systems and fare collection systems, as well as the inclusion of Dual-Lite's
sales in 1999 until its sale in late March.
The company expects full year 1999 revenues to modestly exceed 1998 revenues due
to continuing demand for broadcast antenna systems and fire detection products
and recovery in demand for uninterruptible power supply equipment and crystal
growing furnaces.
Operating Income in 1999 of $15.6 was impacted primarily by the increased
revenues and cost savings realized from restructuring actions initiated in late
1998.
Operating income in 1999 is expected to continue to improve over 1998 primarily
due to savings associated with the restructuring initiatives.
Service Solutions
Revenues increased $3.9, or 2.7%, over pro forma 1998. Excluding the impact of
acquisitions completed in mid-1998 and the discontinuance of a product line in
1998, revenues for existing product lines were relatively flat for the quarter.
Growth in this segment is primarily program driven. Revenue growth in excess of
10% is anticipated for the second quarter of 1999.
Operating Margins improved from 5.7% in pro forma 1998 to 8.8% in 1999. The
improvement in operating margins was principally due to the benefits of the
restructuring actions initiated in late 1997.
Vehicle Components
Revenues for 1999 were up $1.4 from pro forma 1998 revenues. The company expects
growth to accelerate during the remainder of 1999 due to a combination of new
business and the impact of the General Motors strike in 1998.
Operating Margins in 1999 increased from 13.8% in pro forma 1998 to 14.0% in
1999, primarily due to changes in product mix.
General Corporate Expenses
These expenses are not allocated to the business segment level. The increase
from actual 1998 to 1999 is due to the 1999 recording of $14.1 of special
charges. The first quarter charges primarily included closing costs for a
manufacturing facility and termination benefits for approximately 250 employees.
Excluding the $14.1 of special charges, general corporate expenses decreased
$1.7, or 17.3% from actual 1998 to 1999 as a result of benefits from
restructuring actions initiated in late 1998.
Liquidity and Financial Condition
The Company's liquidity needs arise primarily from capital investment in
equipment, funding working capital requirements to support business growth
initiatives and to meet debt service costs. Management believes that cash flow
from operations and the company's credit arrangements will be sufficient to
supply funds needed in 1999.
Cash Flow Three months ended March 31,
1999 1998
---------- ----------
Cash flow from:
Operating activities...... $ 23.3 $ 16.5
Investing activities...... 43.2 (9.3)
Financing activities...... (58.0) (9.2)
---------- ----------
Net Cash Flow............ $ 8.5 $ (2.0)
========== ==========
Operating Activities - The principal elements that contributed to the $6.8
increase in first quarter 1999 cash flow from operating activities were
primarily increased earnings after non-cash items, such as deferred income taxes
and gains on the divestiture of businesses offset by a larger use of cash
related to the change in operating assets and liabilities.
Investing Activities - First quarter 1999 cash flow from investing activities
reflected $64.2 of proceeds from the divestitures of the Dual-Lite business and
a Japanese joint venture investment and $26.2 in capital expenditures. Capital
expenditures for 1999 should approximate $100. Cash flow from investing
activities during the first quarter of 1998 primarily reflected $10.2 of capital
expenditures.
Financing Activities - First quarter 1999 cash flow from financing activities
consisted primarily of net debt repayments of $91.9 offset by $28.5 of proceeds
from the issuance of treasury stock to an employee benefit plan. Cash flow from
investing activities during the first quarter of 1998 includes $19.4 in net debt
borrowings, $16.3 in repurchases of common stock and $12.7 of dividend payments.
As of July 17, 1998, the date the Merger was announced, the former GSX
discontinued quarterly dividend payments in-line with SPX's policy.
Total Debt
The following summarizes the debt outstanding and unused credit availability, as
of March 31, 1999:
Total Amount Unused Credit
Commitment Outstanding Availability
Revolving loan $ 250.0 $ 50.0 $136.0 (1)
Tranche A loan 587.5 587.5 -
Tranche B loan 597.0 597.0 -
Interim loan 100.0 100.0 -
Medium term notes 50.0 50.0 -
Industrial revenue bonds 17.1 17.1 -
Other borrowings 22.1 22.1 -
-------- --------- ------
Total $1,623.7 $ 1,423.7 $136.0
======== ========= ======
(1) Decreased by $64.0 of facility letters of credit outstanding at March 31,
1999, which reduce the unused credit availability.
The Revolving loan, Tranche A loan, Tranche B loan and the Interim loan,
collectively referred to as the Credit Facility, are secured by substantially
all of the assets of the company (excluding EGS) and require the company to
maintain certain leverage and interest coverage ratios. The Credit Facility also
requires compliance with certain operating covenants which limit, among other
things, the incurrence of additional indebtedness by the company and its
subsidiaries, sales of assets, the distribution of dividends, capital
expenditures, mergers, acquisitions and dissolutions. Under the most restrictive
of the financial covenants, the company was required to maintain (as defined) a
maximum debt to earnings before income taxes, depreciation and amortization
ratio and a minimum interest coverage ratio beginning as of March 31, 1999 and
becoming more restrictive thereafter. At March 31, 1999, the company was in
compliance with its financial covenants.
Management believes that cash flow from operations and the Credit Facility will
be sufficient to meet operating cash needs, including working capital
requirements, capital expenditures and debt service costs in 1999. In 2000, the
$100.0 Interim Loan becomes due and the company believes that cash flow from
operations, proceeds from certain asset dispositions and the Revolving Loan will
be sufficient to service these obligations.
Other Matters
Readiness for Year 2000 - The company utilizes software and related computer
technology essential to its operations and to certain products that use two
digits rather than four to specify the year, which could result in a date
recognition problem with the transition to the year 2000. In 1997, the company
established a plan, utilizing both internal and external resources, to assess
the potential impact of the year 2000 problem on its systems, including embedded
technology, and operations and to implement solutions to address this issue. The
company has completed the assessment phase of its year 2000 plan, and is
continuing to survey its suppliers and service providers for year 2000
compliance. The company is in the renovation stage of its year 2000 plan and has
substantially completed the correction of many critical systems. The target
completion date of certain other critical systems is June 30, 1999. Third party
compliance and other factors could adversely affect these target dates. The
company does not believe the cost to remediate software and computer
technologies for the year 2000 problem will exceed $5.0 in 1999 and $10.0 in
total, which does not include costs to replace certain existing enterprise
resource planning systems. The company is in the process of implementing such a
new system across several of its businesses. The company estimates that it will
spend approximately $25 in 1999 to acquire and install this new system. There
can be no assurances that the costs of remediation and testing will not be
material. Moreover, there can be no assurances that the company will not
experience material unanticipated costs and/or business interruption due to year
2000 problems in its products, its internal systems, its supply chain or from
customer product migration issues. Based upon currently available information,
the company believes that the greatest risk associated with the year 2000
problem relates to compliance of third parties including, but not limited to,
electrical power and other utilities. A worst case scenario could result in
business interruptions, which could have a material effect on the company's
operations. The company has sent correspondence to all of its key suppliers in
assessing third party compliance as part of its year 2000 plan. The company is
developing contingency plans to mitigate the risks associated with the year 2000
problem and expects to complete these plans by July 1999. The statements set
forth in the foregoing paragraph are year 2000 readiness disclosures (as defined
under the Year 2000 Information and Readiness Act) and shall be treated as such
for all purposes permissible under such Act.
Acquisitions and Divestitures - The company continually reviews each of its
businesses pursuant to its "fix, sell or grow" strategy. These reviews could
result in selected acquisitions to expand an existing business or result in the
disposition of an existing business. Additionally, management has expressed that
it would consider a larger acquisition, more than $1 billion in revenues, if
certain criteria are met.
Environmental and Legal Exposure - The company's operations and properties are
subject to various regulatory requirements relating to environmental protection.
It is the company's policy to comply fully with applicable environmental
requirements. Also from time to time, the company becomes involved in lawsuits
arising from various commercial matters, including but not limited to
competitive issues, contract issues, intellectual property matters, workers'
compensation and product liability.
The company maintains property, cargo, auto, product, general liability and
directors' and officers' liability insurance to protect itself against potential
loss exposures. There can be no assurance that such costs for environmental and
legal exposures could not have a material adverse effect on the company's
results of operations or financial position in the future.
Pending Patent Litigation - The company believes that it should ultimately
prevail on a pending patent infringement lawsuit which could result in a
significant judgement favorable to the company. However, since the amount of the
damages cannot be fully quantified until the legal discovery process proceeds
further and no assurances can be made as to the final timing and outcome of any
litigation, no gain has been recorded. See Note 16 to the consolidated financial
statements included in the company's 1998 Annual Report on Form 10-K for further
discussion.
Significance of Goodwill and Intangibles - The company had net goodwill and
intangibles of $1,197.9 and shareholders' equity of $450.0 at March 31, 1999.
The company amortizes its goodwill and intangible assets on a straight-line
basis over lives ranging from 10 to 40 years. There can be no assurance that
circumstances will not change in the future that will affect the useful life or
carrying value of the company's goodwill.
EVA Incentive Compensation - The company utilizes a measure known as Economic
Value Added ("EVA(R)") for its incentive compensation plans. EVA is internally
computed by the company based on Net Operating Profit aftertax less a charge on
the capital invested in the company. These computations use certain assumptions
that vary from generally accepted accounting principles ("GAAP"). EVA is not a
measure under GAAP and is not intended to be used as an alternative to net
income and measuring operating performance presented in accordance with GAAP.
The company believes that EVA, as internally computed, does represent a strong
correlation to the ultimate returns of the company's shareholders. Annual
incentive compensation expense is dependent upon the annual change in EVA,
relative to preestablished improvement targets and the expense can vary
significantly.
Accounting Pronouncements - Statement of Position 98-1 "Accounting for Computer
Software Developed for or Obtained for Internal Use" ("SOP 98-1") provides
guidance for accounting for software developed for internal use. SOP 98-1, which
the company adopted as of January 1, 1999, did not have a material effect on the
company's results of operations and financial position.
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which will become effective January 2000,
establishes accounting and reporting standards for derivative instruments and
hedging contracts. It also requires all derivatives to be recognized as either
assets or liabilities in the balance sheet at fair value and changes in fair
value to be recognized in income. Management is currently analyzing the impact
of this statement, but does not anticipate that the effect on the company's
results of operations and financial position will be material.
--------------------
The foregoing discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward looking statements, within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and are subject to the safe harbor created thereby. These forward looking
statements, which reflect management's current views with respect to future
events and financial performance, are subject to certain risks and
uncertainties, including but not limited to those matters discussed above. Due
to such uncertainties and risks, readers are cautioned not to place undue
reliance on such forward looking statements, which speak only as of the date
hereof. Reference is made to the company's 1998 Annual Report on Form 10-K for
additional cautionary statements and discussion of certain important factors as
they relate to forward looking statements. In addition, management's estimates
of future operating results are based on the current compliment of businesses,
which is constantly subject to change as management implements its fix, sell or
grow strategy.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) None.
(4) None.
(10) (i) Form of Executive Change of Control Agreement for: Messrs
O'Leary, Kearney, Riordan, Lison and Ladau dated February 15,
1999.
(10) (ii) Executive Change of Control Agreement for John B. Blystone
dated February 15, 1999.
(11) Statement regarding computation of earnings per share. See Note
10 to the Consolidated Financial Statements.
(15) None.
(18) None.
(19) None.
(20) None.
(22) None.
(23) None.
(24) None.
(27) Financial data schedule.
(99) None.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
SPX CORPORATION
(Registrant)
Date: May 14, 1999 By /s/ John B. Blystone
---------------------
John B. Blystone
Chairman, President and
Chief Executive Officer
Date: May 14, 1999 By /s/ Patrick J. O'Leary
----------------------
Patrick J. O'Leary
Vice President, Finance,
Treasurer and Chief
Financial Officer and
Chief Accounting Officer
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</TABLE>
EXECUTIVE CHANGE OF CONTROL AGREEMENT
INDIVIDUAL
February 15, 1999
SPX Corporation (the "Company") recognizes that your contribution to its growth
and success will be substantial and desires to assure your continued employment.
In this regard, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
Change of Control (as defined in Section 2, below) may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its shareholders.
The Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company's
management, including yourself, to their assigned duties without distraction, in
the face of potentially disturbing circumstances arising from the possibility of
a Change of Control.
Further, it is the intent of the Board in adopting this Agreement to assure the
Company and its shareholders (i) of continuity of management in the event of any
actual or threatened Change of Control and (ii) that key executive employees of
the Company will be able to evaluate objectively whether a potential Change of
Control is in the best interests of the shareholders.
In order to induce you to remain in the employ of the Company and to advance the
interests of the Company and its shareholders by providing you with appropriate
financial protection, the Board agrees that you shall receive the severance
benefits set forth in this agreement ("Agreement") in the event that your
employment is terminated due to a Change of Control.
Executive Severance Agreement
Individual
1. Term of Agreement. This Agreement will become effective on the date hereof
(the "Commencement Date")and shall continue in effect through the third
anniversary of the Commencement Date (the "Date of Expiration"). However,
on that initial Date of Expiration, and on each extended Date of Expiration
thereafter, the term of this Agreement will be extended automatically for
one additional year unless, not later than six (6) months prior to such
Date of Expiration, the Company gives written notice to you that it has
elected not to extend this Agreement. However, if a Change of Control
occurs during the term of this Agreement, this Agreement will continue in
effect for thirty-six (36) months beyond the end of the month in which the
Change of Control occurred.
2. Change of Control of the Company. No benefits will be payable under the
terms of this Agreement unless a Change of Control of the Company has
occurred. A "Change of Control" shall be deemed to have occurred if:
(a) Any "Person" (as defined below), excluding for this purpose the
Company or any subsidiary of the Company, any employee benefit plan of
the Company or of any subsidiary of the Company, or any entity
organized, appointed or established for or pursuant to the terms of
any such plan which acquires beneficial ownership of common shares of
the Company, is or becomes the "Beneficial Owner" (as defined below)
of twenty percent (20%) or more of the common shares of the Company
then outstanding; provided, however, that no Change of Control shall
be deemed to have occurred as the result of an acquisition of common
shares of the Company by the Company which, by reducing the number of
shares outstanding, increases the proportionate beneficial ownership
interest of any Person to twenty percent (20%) or more of the common
shares of the Company then outstanding, but any subsequent increase in
the beneficial ownership interest of such a Person in common shares of
the Company shall be deemed a Change of Control; and provided further
that if the Board of Directors of the Company determines in good faith
that a Person who has become the Beneficial Owner of common shares of
the Company representing twenty percent (20%) or more of the common
shares of the Company then outstanding has inadvertently reached that
level of ownership interest, and if such Person divests as promptly as
practicable a sufficient number of shares of the Company so that the
Person no longer has a beneficial ownership interest in twenty percent
(20%) or more of the common shares of the Company then outstanding,
then no Change of Control shall be deemed to have occurred. For
purposes of this paragraph (a), the following terms shall have the
meanings set forth below:
(i) "Person" shall mean any individual, firm, limited liability
company, corporation or other entity, and shall include any
successor (by merger or otherwise) of any such entity.
(ii) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
<PAGE>
(iii)A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(A) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly
(determined as provided in Rule 13d-3 under the Exchange
Act);
(B) which such Person or any of such Person's Affiliates or
Associates has (1) the right to acquire (whether such right
is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and
between underwriters and selling group members with respect
to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights
(other than rights under the Company's Rights Agreement
dated June 25, 1996 with The Bank of New York, as amended),
warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender
or exchange offer made by or on behalf of such Person or any
of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange;
or (2) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security if the agreement, arrangement
or understanding to vote such security (a) arises solely
from a revocable proxy or consent given to such Person in
response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules
and regulations promulgated under the Exchange Act and (b)
is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
<PAGE>
(C) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and
between underwriters and selling group members with respect
to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to subparagraph (a)(iii)(B)(2),
above) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference
to a Person's beneficial ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding
together with the number of such securities not then actually issued
and outstanding which such Person would be deemed to own beneficially
hereunder.
(b) During any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who at
the beginning of such two-year period constitute the Board of
Directors of the Company and any new director or directors (except for
any director designated by a person who has entered into an agreement
with the Company to effect a transaction described in paragraph (a),
above, or paragraph (c), below) whose election by the Board or
nomination for election by the Company's shareholders was approved by
a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease
for any reason to constitute at least a majority of the Board; or
(c) Approval by the shareholders of (or if such approval is not required,
the consummation of) (i) a plan of complete liquidation of the
Company, (ii) an agreement for the sale or disposition of the Company
or all or substantially all of the Company's assets, (iii) a plan of
merger or consolidation of the Company with any other corporation, or
(iv) a similar transaction or series of transactions involving the
Company (any transaction described in parts (i) through (iv) of this
paragraph (c) being referred to as a "Business Combination"), in each
case unless after such a Business Combination the shareholders of the
Company immediately prior to the Business Combination continue to own
at least eighty percent (80%) of the voting securities of the new (or
continued) entity immediately after such Business Combination, in
substantially the same proportion as their ownership of the Company
immediately prior to such Business Combination.
<PAGE>
Any other provision of this Agreement to the contrary notwithstanding, a
"Change of Control" shall not include any transaction described in
paragraph (a) or (c), above, where, in connection with such transaction,
you and/or any party acting in concert with you substantially increase
your, his or its, as the case may be, ownership interest in the Company or
a successor to the Company (other than through conversion of prior
ownership interests in the Company and/or through equity awards received
entirely as compensation for past or future personal services).
3. Definitions. The following definitions shall be used in determining
whether, under the terms of Section 4 hereof, you are entitled to receive
Accrued Benefits and/or Severance Benefits:
(a) Disability. "Disability" shall mean that, as a result of your
incapacity due to physical or mental injury or illness, you shall have
been absent from the full-time performance of your duties with the
Company for at least six (6) consecutive months and, within thirty
(30) calendar days after written notice of suspension is given, you
shall not have returned to the full-time performance of your duties.
(b) Retirement. "Retirement" shall mean your voluntary termination of your
employment (other than for Good Reason, as defined below) at a time
after you have reached age sixty-five (65).
(c) Cause. "Cause" shall mean (i) your willful and continued failure to
substantially perform your duties with the Company (other than any
such failure resulting from Disability or occurring after issuance by
you of a Notice of Termination for Good Reason), after a demand for
substantial performance is delivered to you that specifically
identifies the manner in which the Company believes that you have not
substantially performed your duties, and after you have failed to
resume substantial performance of your duties on a continuous basis
within fourteen (14) calendar days after receiving such demand, (ii)
you willfully engaging in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise, or (iii) your
having been convicted of a felony which impairs your ability
substantially to perform your duties with the Company. For purposes of
this paragraph (c), no act, or failure to act, on your part shall be
deemed "willful" unless done, or omitted to be done, by you not in
good faith and without reasonable belief that your action or omission
was in the best interest of the Company.
(d) Good Reason. You shall be entitled to terminate your employment for
Good Reason. For purpose of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence within three (3)
years following a Change of Control of the Company of any one or more
of the following:
<PAGE>
(i) The assignment to you of duties inconsistent with your duties,
responsibilities, and the status of your position as of the day
prior to the Change of Control of the Company, or a reduction or
alteration in the nature or status of your responsibilities from
those in effect on the day prior to the Change of Control;
(ii) A reduction by the Company in your base salary or in your most
recent annual target incentive award opportunity as in effect on
the date hereof or as the same shall be increased from time to
time;
(iii)The Company's requiring you to be based at a location in excess
of two hundred and fifty (250) miles from the location where you
are currently based;
(iv) The failure by the Company to continue in effect the Company's
Pension Plan, Retirement Savings Plan, Supplemental Retirement
Savings Plan, Supplemental Retirement Plan, Executive EVA
Incentive Compensation Plan, Stock Compensation Plan, any plans
substituted for the above adopted prior to the Change of Control,
or any other of the Company's employee benefit plans, policies,
practices or arrangements in which you participate, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) to provide similar benefits has been made with
respect to such plan(s); or the failure by the Company to
continue your participation therein (or in such substitute or
alternative plan) on substantially the same basis, both in terms
of the amount of benefits provided and the level of your
participation relative to other participants, as existed as of
the time of the Change of Control;
(v) The failure of the Company to reinstate your employment in full
(in the same capacity that you were employed, or in a mutually
agreeable capacity) in the event that your employment was
suspended due to a Disability and, within three years, you
request to be reinstated and are ready, willing, and able to
adequately perform your employment duties;
(vi) The termination, replacement, or reassignment of twenty-five
percent (25%) or more of the elected officers of the Company
existing as of the day prior to a Change of Control, unless the
officer is terminated due to death, Disability, or Retirement, or
by the Company for Cause, or by the officer other than for Good
Reason (all as herein defined);
(vii)The failure of the Company to obtain a satisfactory agreement
from any successor to the Company to assume and agree to perform
this Agreement, as contemplated in Section 5 hereof; and
<PAGE>
(viii) Any purported termination by the Company of your employment
that is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (f), below, and for
purposes of this Agreement, no such purported termination shall
be effective.
(ix) At any time during the one (1)-year period beginning thirty (30)
days following a Change of Control, you shall be entitled to
terminate your employment for any reason, and such termination
shall be deemed to be for Good Reason for all purposes of this
Agreement.
Your right to terminate your employment pursuant to this paragraph (d)
shall not be affected by your suspension due to Disability. Your
continued employment shall not constitute a waiver of your rights with
respect to any circumstance constituting Good Reason hereunder.
(e) Notice of Termination. Any termination by the Company for Cause or by
you for Good Reason shall be communicated by Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the
provisions so indicated.
(f) Date of Termination. "Date of Termination" shall mean the date
specified in the Notice of Termination where required (but not less
than thirty (30) calendar days following delivery of the Notice of
Termination, except that termination for Cause may be effective
immediately) or in any other case upon ceasing to perform services to
the Company; provided that if within twenty (20) calendar days after
any Notice of Termination one party notifies the other party that a
dispute exists concerning the termination, the Date of Termination
shall be the date finally determined to be the Date of Termination,
either by written agreement of the parties or by a binding and final
arbitration decision. In the event that a dispute exists concerning
the Date of Termination, you shall continue to receive your full
compensation (including participation in all benefit and insurance
plans in which you were participating) in effect when the notice
giving rise to the dispute was given, until the Date of Termination is
finally determined. In such event, you will be required to reimburse
the Company for all compensation received beyond the finally
determined Date of Termination either by direct cash reimbursement
within thirty (30) calendar days of resolving the conflict or by
appropriately reducing your remaining benefits to be received under
the terms of this Agreement.
(g) Earned Bonus Amount. For any year for which the Executive EVA
Incentive Compensation Plan (the "EVA Plan") is in effect prior to the
year during which a Change of Control occurs, your "Earned Bonus
Amount" means your Declared Bonus for that year (as determined under
the EVA Plan) multiplied by a fraction the numerator of which is your
Bonus Award Earned for that year (as determined under the EVA Plan)
and the denominator of which is your Available Bonus for that year (as
determined under the EVA Plan). For the year during which a Change of
Control occurs and any subsequent year, your "Earned Bonus Amount"
means your Declared Bonus for that year (as determined under the EVA
Plan).
<PAGE>
4. Compensation Upon Termination Following a Change of Control
(a) Accrued Benefits. In the event that your employment is terminated for
any reason during the term of this Agreement, following a Change of
Control of the Company (as defined in Section 2 herein), you shall
receive your Accrued Benefits through the Date of Termination. For
purposes of this Agreement, your "Accrued Benefits" shall include the
following:
(i) All base salary for the time period ending with your Date of
Termination, at the rate in effect at the time Notice of
Termination is given or on the Date of Termination if no Notice
of Termination is required;
(ii) A bonus payment equal to one hundred percent (100%) of the
greater of (A) your target bonus for the year in which the Date
of Termination occurs, prorated based upon the ratio of the
number of months (full credit for a partial month) you were
employed during that bonus year to the total months in that bonus
year, and (B) your Earned Bonus Amount for the year in which the
Date of Termination occurs, calculated as if the Date of
Termination were the end of that year for purposes of the EVA
Plan;
(iii)A cash equivalent of all unused vacation to which you were
entitled through your Date of Termination;
(iv) Reimbursement for any and all monies advanced in connection with
your employment for reasonable and necessary expenses incurred by
you on behalf of the Company for the time period ending with your
Date of Termination;
(v) Any and all other cash earned through the Date of Termination and
deferred at your election or pursuant to any deferred
compensation plan then in effect;
(vi) Credited service in the Company's Pension Plan (or its successor)
through the Date of Termination for purposes of computing your
accrued pension benefit;
(vii)All other amounts to which you are entitled under any
compensation or benefit plan, program, practice or policy of the
Company in effect as of the Date of Termination; and
(viii) The payments provided for in paragraphs (i), (ii), (iii), (iv)
and (v), above, shall be made not later than the tenth (10th)
business day following the Date of Termination; provided,
however, that if the amounts of such payments cannot be finally
determined on or before such day, the Company shall pay to you on
such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Internal Revenue Code of
1986, as amended (the "Code")) as soon as the amount thereof can
be determined but in no event later than the thirtieth (30th)
calendar day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan
by the Company to you payable on the tenth (10th) business day
after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
<PAGE>
(b) Severance Benefits. In the event that your employment is terminated
during the term of this Agreement following a Change of Control of the
Company (as described in Section 2 herein), unless your termination is
(i) because of your death, Disability, or Retirement; (ii) by the
Company for Cause; or (iii) by you other than for Good Reason, you
shall receive, in addition to your Accrued Benefits, the Severance
Benefits. For purposes of this Agreement, your "Severance Benefits"
shall include the following:
(i) Your annual base salary at the rate in effect immediately prior
to the Change of Control of the Company or, if greater, at the
rate in effect at the time Notice of Termination is given, or on
the Date of Termination if no Notice of Termination is required,
multiplied by three (3);
(ii) (A) The full amount of your individual Bonus Bank balance under
the EVA Plan (or any successor plan) and (B) an amount equal to
three (3) times the greatest of (I) the highest of your Earned
Bonus Amounts for the three (3) years immediately preceding the
year in which the Date of Termination occurs (the "Year of
Termination") or (II) your target bonus under the EVA Plan (or
any successor plan) for the Year of Termination or (III) your
Earned Bonus Amount for the Year of Termination, calculated as if
the Date of Termination were the end of that year for purposes of
the EVA Plan;
(iii)For a three (3)-year period after your Date of Termination, the
Company will arrange to provide to you the same health care
coverage you had prior to your termination, at the Company's
expense, which includes, but is not limited to, hospital,
surgical, medical, dental, and dependent coverages. For purposes
of the Retirement Plan health care coverage, you will receive the
same number of additional years of credited service, for
computing your benefit, as normally computed under the terms of
the Plan. Health care benefits otherwise receivable by you
pursuant to this subparagraph (iii) shall be reduced to the
extent comparable benefits are actually received by you from a
subsequent employer during the three (3)-year period following
your Date of Termination, and any such benefits actually received
by you shall be reported to the Company;
<PAGE>
(iv) For a three (3)-year period after your Date of Termination, the
Company will arrange to provide to you, at the Company's expense,
life insurance coverage in the amount of two (2) times your base
salary in effect at your Date of Termination and, at the end of
the three (3)-year period, for the remainder of your life the
Company will provide to you life insurance coverage in the amount
of your base salary in effect at your Date of Termination;
(v) Under the Company's Pension Plan and Supplemental Retirement Plan
for Top Management, you will receive immediate full vesting as of
your Date of Termination and receive three (3) additional full
years of service credit for computing your accrued retirement
benefit under both plans. Further, in computing the accrued
retirement benefits under both plans, three (3) years will be
added to your actual age, and the definition of "Final Average
Pay" (base and bonus) shall be the greater of (A) your highest
three (3)-year average or (B) the sum of your actual base salary
in effect at your Date of Termination plus the greatest of the
bonus amounts described in parts (B)(I), (II) and (III) of
subparagraph (ii), above, with the additional benefits, to the
extent not payable under the Pension Plan, to be paid through an
additional unfunded arrangement at the same time and in the same
manner as you have elected under the Pension Plan;
(vi) Under the Company's Supplemental Retirement Savings Plan, you
will receive a cash lump sum payment of the full balance (vested
and unvested);
(vii)Each stock option which you have been granted by the Company and
which is not yet vested shall become immediately vested and
exercisable and shall continue to be exercisable for the lesser
of (A) two (2) years following your Date of Termination or (B)
the time remaining until the originally designated expiration
date, unless a longer exercise period is provided for in the
applicable plan or award agreement;
(viii) Any contractual restrictions placed on shares of restricted
stock which you have been awarded pursuant to the Company's Stock
Compensation Plan shall lapse as of your Date of Termination;
<PAGE>
(ix) If any portion of the Severance Payments (in the aggregate,
"Total Payments") will be subject to the golden parachute "Excise
Tax" imposed by Section 4999 of the Code, the Company shall pay
to you an additional amount (the "Gross-Up Payment") such that
the net amount retained by you after deduction of any Excise Tax
(including any related penalties and interest) on the Total
Payments (but not any federal, state, or local income tax on the
Total Payments), and any federal, state, and local income tax and
Excise Tax (including any related penalties and interest) on the
Gross-Up Payment, shall be equal to the Total Payments. The
determination of whether any Excise Tax will be imposed and of
the amount of the Gross-Up Payment will be made by tax counsel
selected by the Company's independent auditors and acceptable to
you. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (A) any other payments or benefit received or to be
received by you in connection with a Change of Control of the
Company or your termination of employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement, or
agreement with the Company) shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless
in the opinion of such tax counsel such other payments or
benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4)(B) of the Code, and (B)
the value of any noncash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors
in accordance with the principles of Sections 280G(d)(3) and (4)
of the Code. For purposes of determining the amount of the
Gross-Up Payment, you shall be deemed to pay federal income taxes
at the highest marginal rate of federal income taxation for the
calendar year in which the Gross-Up Payment is made and state and
local income taxes at the highest marginal rates of taxation in
the state and locality of your residence (at the time at which
the Gross-Up Payment is made) as effective for the calendar year
in which the Gross-Up Payment is made, net of the maximum
reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
The payments provided for in this subparagraph (ix) shall be made
not later than thirty (30) calendar days following your Date of
Termination; provided, however, that if the amounts of such
payments cannot be finally determined on or before such day, the
Company shall pay to you on such day an estimate, as determined
in good faith by such tax counsel, of the minimum amount of such
payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined but in
no event later than sixty (60) calendar days after your Date of
Termination. In the event that the amount of the estimated
payment exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you
payable on the twentieth (20th) calendar day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code). Notwithstanding the foregoing, the
sixty (60)- day period for deferment of the Gross-Up Payment
shall not preempt or otherwise eliminate your right to receive
any other payments to which you are entitled under this
subparagraph or otherwise under the terms of this Agreement and
to receive additional Gross-Up Payments based on such additional
payments pursuant to this subparagraph;
<PAGE>
(x) To the full extent permitted by law, the Company shall indemnify
you (including the advancement of expenses) for any judgments,
fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, incurred by you in connection with the
defense of any lawsuit or other claim to which you are made a
party by reason of being or having been an officer, director or
employee of the Company or any of its subsidiaries. In addition,
you will be covered by director and officer liability insurance
to the maximum extent that such insurance maintained by the
Company from time to time covers any officer or director (or
former officer or director) of the Company.
(xi) You will be entitled to receive outplacement services, at the
expense of the Company, from a provider reasonably selected by
you.
(xii)The Company also shall pay to you all legal fees and expenses
incurred by you as a result of such termination of employment
(including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to
obtain or enforce any right or benefit provided by this Agreement
or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to
any payment or benefit provided hereunder); and
(xiii) The payments provided in paragraphs (i), (ii), (v) if a lump
sum is elected, (vi) and (xii), above, shall be made not later
than the tenth (10th) business day following the Date of
Termination, provided, however, that if the amounts of such
payments cannot be finally determined on or before such day, the
Company shall pay to you on such day an estimate, as determined
in good faith by the Company, of the minimum amount of such
payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined but in
no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you
payable on the tenth (10th) business day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code). As all of the payments referenced in
the first sentence of this subparagraph (xiii) are included for
purposes of determining the Gross-Up Payment, the thirty (30)-day
period identified above shall not preempt or otherwise eliminate
your right to receive any other payments to which you are
entitled under the terms of this Agreement and to receive
additional Gross-Up Payments based on such additional payments.
<PAGE>
(c) Any provision in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if your employment with the Company is
terminated within six (6) months prior to the date on which the Change
of Control occurs, and if you reasonably demonstrate that such
termination of employment (i) was at the request of a third party who
has taken steps reasonably calculated to effect the Change of Control,
(ii) otherwise arose in connection with or anticipation of the Change
of Control, or (iii) would not have occurred or would be less likely
to have occurred if the Change of Control were not anticipated, then
for all purposes of this Agreement the termination of your employment
shall be deemed to have occurred following the Change of Control.
(d) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this
Section 4 be reduced by any compensation earned by you as the result
of employment by another employer after your Date of Termination, or
otherwise, with the exception of a reduction in your insurance
benefits as provided in Section 4(b)(iii).
5. Successors; Binding Agreements.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company or of any division or
subsidiary thereof employing you to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to compensation from
the Company in the same amount and on the same terms to which you
would be entitled hereunder if you terminated your employment for Good
Reason following a Change of Control, except that for purposes of
implementing the foregoing, the date on which any such succession
becomes effective shall be deemed your Date of Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If you should
die while any amount would still be payable to you hereunder if you
had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement,
to your devisee, legatee or other designee or, if there is no such
designee, to your estate.
6. No Funding of Benefits. Nothing herein contained shall require or be deemed
to require the Company to segregate, earmark, or otherwise set aside any
funds or other assets to provide for any payments to be made hereunder.
Your rights under this Agreement shall be solely those of a general
creditor of the Company. However, in the event of a Change of Control, the
Company may deposit cash or property, or both, equal in value to all or a
portion of the benefits anticipated to be payable hereunder into a trust,
the assets of which are to be distributed at such times as are otherwise
provided for in this Agreement and are subject to the rights of the general
creditors of the Company.
<PAGE>
7. Withholding of Taxes. The Company may withhold from any amounts payable
under this Agreement all federal, state, city, or other taxes as legally
shall be required.
8. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth on the first page of this Agreement.
9. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically
designated by the Board. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Michigan.
10. Employment Rights. This Agreement shall not confer upon you any right to
continue in the employ of the Company or its subsidiaries and, except to
the extent that benefits may become payable under Section 4, above, shall
not in any way affect the right of the Company or its subsidiaries to
dismiss or otherwise terminate your employment at any time and for any
reason with or without cause.
11. No Vested Interest. Neither you nor your beneficiaries shall have any
right, title or interest in any benefit under this Agreement prior to the
occurrence of all of the events specified herein as necessary conditions to
such right, title or interest.
12. Prior Agreements. This Agreement contains the understanding between the
parties hereto with respect to severance benefits in connection with a
Change of Control of the Company and supersedes any prior such agreement
between the Company (or any predecessor of the Company) and you. If there
is any discrepancy or conflict between this Agreement and any plan, policy
and program of the Company regarding any term or condition of severance
benefits in connection with a Change of Control of the Company, the
language of this Agreement shall govern.
<PAGE>
13. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
15. Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction. However, you shall be entitled to seek in court specific
performance of your right, pursuant to Section 3(f), above, to be paid
until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
If this letter properly sets forth our agreement on the subject matter hereof,
kindly date, sign and return to the Company the enclosed copy of this letter,
which will then constitute our agreement on this subject.
Sincerely,
SPX CORPORATION
By_____________________________________
John B. Blystone
Chairman and Chief Executive Officer
Agreed to this ________ day of __________________, 1999.
By_____________________________
Individual
EXECUTIVE CHANGE OF CONTROL AGREEMENT
February 15, 1999
Mr. John B. Blystone
480 West Circle Drive
Muskegon, MI 49445
SPX Corporation (the "Company") recognizes that your contribution to its growth
and success will be substantial and desires to assure your continued employment.
In this regard, the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
Change of Control (as defined in Section 2, below) may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its shareholders.
The Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company's
management, including yourself, to their assigned duties without distraction, in
the face of potentially disturbing circumstances arising from the possibility of
a Change of Control.
Further, it is the intent of the Board in adopting this Agreement to assure the
Company and its shareholders (i) of continuity of management in the event of any
actual or threatened Change of Control and (ii) that key executive employees of
the Company will be able to evaluate objectively whether a potential Change of
Control is in the best interests of the shareholders.
In order to induce you to remain in the employ of the Company and to advance the
interests of the Company and its shareholders by providing you with appropriate
financial protection, the Board agrees that you shall receive the severance
benefits set forth in this agreement ("Agreement") in the event that your
employment is terminated due to a Change of Control.
1. Term of Agreement. This Agreement will become effective on the date hereof
(the "Commencement Date") and shall continue in effect through the third
anniversary of the Commencement Date (the "Date of Expiration"). However,
on that initial Date of Expiration, and on each extended Date of Expiration
thereafter, the term of this Agreement will be extended automatically for
one additional year unless, not later than six (6) months prior to such
Date of Expiration, the Company gives written notice to you that it has
elected not to extend this Agreement. However, if a Change of Control
occurs during the term of this Agreement, this Agreement will continue in
effect for thirty-six (36) months beyond the end of the month in which the
Change of Control occurred.
2. Change of Control of the Company. No benefits will be payable under the
terms of this Agreement unless a Change of Control of the Company has
occurred. A "Change of Control" shall be deemed to have occurred if:
(a) Any "Person" (as defined below), excluding for this purpose the
Company or any subsidiary of the Company, any employee benefit plan of
the Company or of any subsidiary of the Company, or any entity
organized, appointed or established for or pursuant to the terms of
any such plan which acquires beneficial ownership of common shares of
the Company, is or becomes the "Beneficial Owner" (as defined below)
of twenty percent (20%) or more of the common shares of the Company
then outstanding; provided, however, that no Change of Control shall
be deemed to have occurred as the result of an acquisition of common
shares of the Company by the Company which, by reducing the number of
shares outstanding, increases the proportionate beneficial ownership
interest of any Person to twenty percent (20%) or more of the common
shares of the Company then outstanding, but any subsequent increase in
the beneficial ownership interest of such a Person in common shares of
the Company shall be deemed a Change of Control; and provided further
that if the Board of Directors of the Company determines in good faith
that a Person who has become the Beneficial Owner of common shares of
the Company representing twenty percent (20%) or more of the common
shares of the Company then outstanding has inadvertently reached that
level of ownership interest, and if such Person divests as promptly as
practicable a sufficient number of shares of the Company so that the
Person no longer has a beneficial ownership interest in twenty percent
(20%) or more of the common shares of the Company then outstanding,
then no Change of Control shall be deemed to have occurred. For
purposes of this paragraph (a), the following terms shall have the
meanings set forth below:
<PAGE>
(i) "Person" shall mean any individual, firm, limited liability
company, corporation or other entity, and shall include any
successor (by merger or otherwise) of any such entity.
(ii) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(iii)A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(A) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly
(determined as provided in Rule 13d-3 under the Exchange
Act);
(B) which such Person or any of such Person's Affiliates or
Associates has (1) the right to acquire (whether such right
is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and
between underwriters and selling group members with respect
to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights
(other than rights under the Company's Rights Agreement
dated June 25, 1996 with The Bank of New York, as amended),
warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender
or exchange offer made by or on behalf of such Person or any
of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange;
or (2) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security if the agreement, arrangement
or understanding to vote such security (a) arises solely
from a revocable proxy or consent given to such Person in
response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules
and regulations promulgated under the Exchange Act and (b)
is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
<PAGE>
(C) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and
between underwriters and selling group members with respect
to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to subparagraph (a)(iii)(B)(2),
above) or disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference
to a Person's beneficial ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding
together with the number of such securities not then actually issued
and outstanding which such Person would be deemed to own beneficially
hereunder.
(b) During any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who at
the beginning of such two-year period constitute the Board of
Directors of the Company and any new director or directors (except for
any director designated by a person who has entered into an agreement
with the Company to effect a transaction described in paragraph (a),
above, or paragraph (c), below) whose election by the Board or
nomination for election by the Company's shareholders was approved by
a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease
for any reason to constitute at least a majority of the Board; or
(c) Approval by the shareholders of (or if such approval is not required,
the consummation of) (i) a plan of complete liquidation of the
Company, (ii) an agreement for the sale or disposition of the Company
or all or substantially all of the Company's assets, (iii) a plan of
merger or consolidation of the Company with any other corporation, or
(iv) a similar transaction or series of transactions involving the
Company (any transaction described in parts (i) through (iv) of this
paragraph (c) being referred to as a "Business Combination"), in each
case unless after such a Business Combination the shareholders of the
Company immediately prior to the Business Combination continue to own
at least eighty percent (80%) of the voting securities of the new (or
continued) entity immediately after such Business Combination, in
substantially the same proportion as their ownership of the Company
immediately prior to such Business Combination.
<PAGE>
Any other provision of this Agreement to the contrary notwithstanding, a
"Change of Control" shall not include any transaction described in
paragraph (a) or (c), above, where, in connection with such transaction,
you and/or any party acting in concert with you substantially increase
your, his or its, as the case may be, ownership interest in the Company or
a successor to the Company (other than through conversion of prior
ownership interests in the Company and/or through equity awards received
entirely as compensation for past or future personal services).
3. Definitions. The following definitions shall be used in determining
whether, under the terms of Section 4 hereof, you are entitled to receive
Accrued Benefits and/or Severance Benefits:
(a) Disability. "Disability" shall mean that, as a result of your
incapacity due to physical or mental injury or illness, you shall have
been absent from the full-time performance of your duties with the
Company for at least six (6) consecutive months and, within thirty
(30) calendar days after written notice of suspension is given, you
shall not have returned to the full-time performance of your duties.
(b) Retirement. "Retirement" shall mean your voluntary termination of your
employment (other than for Good Reason, as defined below) at a time
after you have reached age sixty-five (65).
(c) Cause. "Cause" shall mean (i) your willful and continued failure to
substantially perform your duties with the Company (other than any
such failure resulting from Disability or occurring after issuance by
you of a Notice of Termination for Good Reason), after a demand for
substantial performance is delivered to you that specifically
identifies the manner in which the Company believes that you have not
substantially performed your duties, and after you have failed to
resume substantial performance of your duties on a continuous basis
within fourteen (14) calendar days after receiving such demand, (ii)
you willfully engaging in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise, or (iii) your
having been convicted of a felony which impairs your ability
substantially to perform your duties with the Company. For purposes of
this paragraph (c), no act, or failure to act, on your part shall be
deemed "willful" unless done, or omitted to be done, by you not in
good faith and without reasonable belief that your action or omission
was in the best interest of the Company.
(d) Good Reason. You shall be entitled to terminate your employment for
Good Reason. For purpose of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence within three (3)
years following a Change of Control of the Company of any one or more
of the following:
<PAGE>
(i) The assignment to you of duties inconsistent with your duties,
responsibilities, and the status of your position as of the day
prior to the Change of Control of the Company, or a reduction or
alteration in the nature or status of your responsibilities from
those in effect on the day prior to the Change of Control;
(ii) A reduction by the Company in your base salary or in your most
recent annual target incentive award opportunity as in effect on
the date hereof or as the same shall be increased from time to
time;
(iii)The Company's requiring you to be based at a location in excess
of two hundred and fifty (250) miles from the location where you
are currently based;
(iv) The failure by the Company to continue in effect the Company's
Pension Plan, Retirement Savings Plan, Supplemental Retirement
Savings Plan, Supplemental Retirement Plan, Executive EVA
Incentive Compensation Plan, Stock Compensation Plan, any plans
substituted for the above adopted prior to the Change of Control,
or any other of the Company's employee benefit plans, policies,
practices or arrangements in which you participate, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) to provide similar benefits has been made with
respect to such plan(s); or the failure by the Company to
continue your participation therein (or in such substitute or
alternative plan) on substantially the same basis, both in terms
of the amount of benefits provided and the level of your
participation relative to other participants, as existed as of
the time of the Change of Control;
(v) The failure of the Company to reinstate your employment in full
(in the same capacity that you were employed, or in a mutually
agreeable capacity) in the event that your employment was
suspended due to a Disability and, within three years, you
request to be reinstated and are ready, willing, and able to
adequately perform your employment duties;
(vi) The termination, replacement, or reassignment of twenty-five
percent (25%) or more of the elected officers of the Company
existing as of the day prior to a Change of Control, unless the
officer is terminated due to death, Disability, or Retirement, or
by the Company for Cause, or by the officer other than for Good
Reason (all as herein defined);
(vii)The failure of the Company to obtain a satisfactory agreement
from any successor to the Company to assume and agree to perform
this Agreement, as contemplated in Section 5 hereof; and
<PAGE>
(viii) Any purported termination by the Company of your employment
that is not effected pursuant to a Notice of Termination
satisfying the requirements of paragraph (f), below, and for
purposes of this Agreement, no such purported termination shall
be effective.
(ix) At any time during the one (1)-year period beginning thirty (30)
days following a Change of Control, you shall be entitled to
terminate your employment for any reason, and such termination
shall be deemed to be for Good Reason for all purposes of this
Agreement.
Your right to terminate your employment pursuant to this paragraph (d)
shall not be affected by your suspension due to Disability. Your
continued employment shall not constitute a waiver of your rights with
respect to any circumstance constituting Good Reason hereunder.
(e) Notice of Termination. Any termination by the Company for Cause or by
you for Good Reason shall be communicated by Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the
provisions so indicated.
(f) Date of Termination. "Date of Termination" shall mean the date
specified in the Notice of Termination where required (but not less
than thirty (30) calendar days following delivery of the Notice of
Termination, except that termination for Cause may be effective
immediately) or in any other case upon ceasing to perform services to
the Company; provided that if within twenty (20) calendar days after
any Notice of Termination one party notifies the other party that a
dispute exists concerning the termination, the Date of Termination
shall be the date finally determined to be the Date of Termination,
either by written agreement of the parties or by a binding and final
arbitration decision. In the event that a dispute exists concerning
the Date of Termination, you shall continue to receive your full
compensation (including participation in all benefit and insurance
plans in which you were participating) in effect when the notice
giving rise to the dispute was given, until the Date of Termination is
finally determined. In such event, you will be required to reimburse
the Company for all compensation received beyond the finally
determined Date of Termination either by direct cash reimbursement
within thirty (30) calendar days of resolving the conflict or by
appropriately reducing your remaining benefits to be received under
the terms of this Agreement.
<PAGE>
(g) Earned Bonus Amount. For any year for which the Executive EVA
Incentive Compensation Plan (the "EVA Plan") is in effect prior to the
year during which a Change of Control occurs, your "Earned Bonus
Amount" means your Declared Bonus for that year (as determined under
the EVA Plan) multiplied by a fraction the numerator of which is your
Bonus Award Earned for that year (as determined under the EVA Plan)
and the denominator of which is your Available Bonus for that year (as
determined under the EVA Plan). For the year during which a Change of
Control occurs and any subsequent year, your "Earned Bonus Amount"
means your Declared Bonus for that year (as determined under the EVA
Plan).
4. Compensation Upon Termination Following a Change of Control
(a) Accrued Benefits. In the event that your employment is terminated for
any reason during the term of this Agreement, following a Change of
Control of the Company (as defined in Section 2 herein), you shall
receive your Accrued Benefits through the Date of Termination. For
purposes of this Agreement, your "Accrued Benefits" shall include the
following:
(i) All base salary for the time period ending with your Date of
Termination, at the rate in effect at the time Notice of
Termination is given or on the Date of Termination if no Notice
of Termination is required;
(ii) A bonus payment equal to one hundred percent (100%) of the
greater of (A) your target bonus for the year in which the Date
of Termination occurs, prorated based upon the ratio of the
number of months (full credit for a partial month) you were
employed during that bonus year to the total months in that bonus
year, and (B) your Earned Bonus Amount for the year in which the
Date of Termination occurs, calculated as if the Date of
Termination were the end of that year for purposes of the EVA
Plan;
(iii)A cash equivalent of all unused vacation to which you were
entitled through your Date of Termination;
(iv) Reimbursement for any and all monies advanced in connection with
your employment for reasonable and necessary expenses incurred by
you on behalf of the Company for the time period ending with your
Date of Termination;
(v) Any and all other cash earned through the Date of Termination and
deferred at your election or pursuant to any deferred
compensation plan then in effect;
(vi) Credited service in the Company's Pension Plan (or its successor)
through the Date of Termination for purposes of computing your
accrued pension benefit;
(vii)All other amounts to which you are entitled under any
compensation or benefit plan, program, practice or policy of the
Company in effect as of the Date of Termination; and
(viii) The payments provided for in paragraphs (i), (ii), (iii), (iv)
and (v), above, shall be made not later than the tenth (10th)
business day following the Date of Termination; provided,
however, that if the amounts of such payments cannot be finally
determined on or before such day, the Company shall pay to you on
such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Internal Revenue Code of
1986, as amended (the "Code")) as soon as the amount thereof can
be determined but in no event later than the thirtieth (30th)
calendar day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan
by the Company to you payable on the tenth (10th) business day
after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code).
<PAGE>
(b) Severance Benefits. In the event that your employment is terminated
during the term of this Agreement following a Change of Control of the
Company (as described in Section 2 herein), unless your termination is
(i) because of your death, Disability, or Retirement; (ii) by the
Company for Cause; or (iii) by you other than for Good Reason, you
shall receive, in addition to your Accrued Benefits, the Severance
Benefits. For purposes of this Agreement, your "Severance Benefits"
shall include the following:
(i) Your annual base salary at the rate in effect immediately prior
to the Change of Control of the Company or, if greater, at the
rate in effect at the time Notice of Termination is given, or on
the Date of Termination if no Notice of Termination is required,
multiplied by three (3);
(ii) (A) The full amount of your individual Bonus Bank balance under
the EVA Plan (or any successor plan) and (B) an amount equal to
three (3) times the greatest of (I) the highest of your Earned
Bonus Amounts for the three (3) years immediately preceding the
year in which the Date of Termination occurs (the "Year of
Termination") or (II) your target bonus under the EVA Plan (or
any successor plan) for the Year of Termination or (III) your
Earned Bonus Amount for the Year of Termination, calculated as if
the Date of Termination were the end of that year for purposes of
the EVA Plan;
(iii)For a three (3)-year period after your Date of Termination, the
Company will arrange to provide to you the same health care
coverage you had prior to your termination, at the Company's
expense, which includes, but is not limited to, hospital,
surgical, medical, dental, and dependent coverages. For purposes
of the Retirement Plan health care coverage, you will receive the
same number of additional years of credited service, for
computing your benefit, as normally computed under the terms of
the Plan. Health care benefits otherwise receivable by you
pursuant to this subparagraph (iii) shall be reduced to the
extent comparable benefits are actually received by you from a
subsequent employer during the three (3)-year period following
your Date of Termination, and any such benefits actually received
by you shall be reported to the Company;
(iv) For a three (3)-year period after your Date of Termination, the
Company will arrange to provide to you, at the Company's expense,
life insurance coverage in the amount of two (2) times your base
salary in effect at your Date of Termination and, at the end of
the three (3)-year period, for the remainder of your life the
Company will provide to you life insurance coverage in the amount
of your base salary in effect at your Date of Termination;
<PAGE>
(v) Under the Company's Pension Plan and Supplemental Retirement Plan
for Top Management, you will receive immediate full vesting as of
your Date of Termination and receive three (3) additional full
years of service credit for computing your accrued retirement
benefit under both plans. Further, in computing the accrued
retirement benefits under both plans, three (3) years will be
added to your actual age, and the definition of "Final Average
Pay" (base and bonus) shall be the greater of (A) your highest
three (3)-year average or (B) the sum of your actual base salary
in effect at your Date of Termination plus the greatest of the
bonus amounts described in parts (B)(I), (II) and (III) of
subparagraph (ii), above, with the additional benefits, to the
extent not payable under the Pension Plan, to be paid through an
additional unfunded arrangement at the same time and in the same
manner as you have elected under the Pension Plan;
(vi) Under the Company's Supplemental Retirement Savings Plan, you
will receive a cash lump sum payment of the full balance (vested
and unvested);
(vii)Each stock option which you have been granted by the Company and
which is not yet vested shall become immediately vested and
exercisable and shall continue to be exercisable for the lesser
of (A) two (2) years following your Date of Termination or (B)
the time remaining until the originally designated expiration
date, unless a longer exercise period is provided for in the
applicable plan or award agreement;
(viii) Any contractual restrictions placed on shares of restricted
stock which you have been awarded pursuant to the Company's Stock
Compensation Plan shall lapse as of your Date of Termination;
<PAGE>
(ix) If any portion of the Severance Payments (in the aggregate,
"Total Payments") will be subject to the golden parachute "Excise
Tax" imposed by Section 4999 of the Code, the Company shall pay
to you an additional amount (the "Gross-Up Payment") such that
the net amount retained by you after deduction of any Excise Tax
(including any related penalties and interest) on the Total
Payments (but not any federal, state, or local income tax on the
Total Payments), and any federal, state, and local income tax and
Excise Tax (including any related penalties and interest) on the
Gross-Up Payment, shall be equal to the Total Payments. The
determination of whether any Excise Tax will be imposed and of
the amount of the Gross-Up Payment will be made by tax counsel
selected by the Company's independent auditors and acceptable to
you. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (A) any other payments or benefit received or to be
received by you in connection with a Change of Control of the
Company or your termination of employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement, or
agreement with the Company) shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless
in the opinion of such tax counsel such other payments or
benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4)(B) of the Code, and (B)
the value of any noncash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors
in accordance with the principles of Sections 280G(d)(3) and (4)
of the Code. For purposes of determining the amount of the
Gross-Up Payment, you shall be deemed to pay federal income taxes
at the highest marginal rate of federal income taxation for the
calendar year in which the Gross-Up Payment is made and state and
local income taxes at the highest marginal rates of taxation in
the state and locality of your residence (at the time at which
the Gross-Up Payment is made) as effective for the calendar year
in which the Gross-Up Payment is made, net of the maximum
reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
The payments provided for in this subparagraph (ix) shall be made
not later than thirty (30) calendar days following your Date of
Termination; provided, however, that if the amounts of such
payments cannot be finally determined on or before such day, the
Company shall pay to you on such day an estimate, as determined
in good faith by such tax counsel, of the minimum amount of such
payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined but in
no event later than sixty (60) calendar days after your Date of
Termination. In the event that the amount of the estimated
payment exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you
payable on the twentieth (20th) calendar day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code). Notwithstanding the foregoing, the
sixty (60)- day period for deferment of the Gross-Up Payment
shall not preempt or otherwise eliminate your right to receive
any other payments to which you are entitled under this
subparagraph or otherwise under the terms of this Agreement and
to receive additional Gross-Up Payments based on such additional
payments pursuant to this subparagraph;
<PAGE>
(x) To the full extent permitted by law, the Company shall indemnify
you (including the advancement of expenses) for any judgments,
fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, incurred by you in connection with the
defense of any lawsuit or other claim to which you are made a
party by reason of being or having been an officer, director or
employee of the Company or any of its subsidiaries. In addition,
you will be covered by director and officer liability insurance
to the maximum extent that such insurance maintained by the
Company from time to time covers any officer or director (or
former officer or director) of the Company.
(xi) You will be entitled to receive outplacement services, at the
expense of the Company, from a provider reasonably selected by
you.
(xii)The Company also shall pay to you all legal fees and expenses
incurred by you as a result of such termination of employment
(including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to
obtain or enforce any right or benefit provided by this Agreement
or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to
any payment or benefit provided hereunder); and
(xiii) The payments provided in paragraphs (i), (ii), (v) if a lump
sum is elected, (vi) and (xii), above, shall be made not later
than the tenth (10th) business day following the Date of
Termination, provided, however, that if the amounts of such
payments cannot be finally determined on or before such day, the
Company shall pay to you on such day an estimate, as determined
in good faith by the Company, of the minimum amount of such
payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined but in
no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to you
payable on the tenth (10th) business day after demand by the
Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code). As all of the payments referenced in
the first sentence of this subparagraph (xiii) are included for
purposes of determining the Gross-Up Payment, the thirty (30)-day
period identified above shall not preempt or otherwise eliminate
your right to receive any other payments to which you are
entitled under the terms of this Agreement and to receive
additional Gross-Up Payments based on such additional payments.
<PAGE>
(c) Any provision in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if your employment with the Company is
terminated within six (6) months prior to the date on which the Change
of Control occurs, and if you reasonably demonstrate that such
termination of employment (i) was at the request of a third party who
has taken steps reasonably calculated to effect the Change of Control,
(ii) otherwise arose in connection with or anticipation of the Change
of Control, or (iii) would not have occurred or would be less likely
to have occurred if the Change of Control were not anticipated, then
for all purposes of this Agreement the termination of your employment
shall be deemed to have occurred following the Change of Control.
(d) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this
Section 4 be reduced by any compensation earned by you as the result
of employment by another employer after your Date of Termination, or
otherwise, with the exception of a reduction in your insurance
benefits as provided in Section 4(b)(iii).
5. Successors; Binding Agreements.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company or of any division or
subsidiary thereof employing you to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to compensation from
the Company in the same amount and on the same terms to which you
would be entitled hereunder if you terminated your employment for Good
Reason following a Change of Control, except that for purposes of
implementing the foregoing, the date on which any such succession
becomes effective shall be deemed your Date of Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If you should
die while any amount would still be payable to you hereunder if you
had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement,
to your devisee, legatee or other designee or, if there is no such
designee, to your estate.
6. No Funding of Benefits. Nothing herein contained shall require or be deemed
to require the Company to segregate, earmark, or otherwise set aside any
funds or other assets to provide for any payments to be made hereunder.
Your rights under this Agreement shall be solely those of a general
creditor of the Company. However, in the event of a Change of Control, the
Company may deposit cash or property, or both, equal in value to all or a
portion of the benefits anticipated to be payable hereunder into a trust,
the assets of which are to be distributed at such times as are otherwise
provided for in this Agreement and are subject to the rights of the general
creditors of the Company.
7. Withholding of Taxes. The Company may withhold from any amounts payable
under this Agreement all federal, state, city, or other taxes as legally
shall be required.
8. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth on the first page of this Agreement.
9. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically
designated by the Board. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Michigan.
10. Employment Rights. This Agreement shall not confer upon you any right to
continue in the employ of the Company or its subsidiaries and, except to
the extent that benefits may become payable under Section 4, above, shall
not in any way affect the right of the Company or its subsidiaries to
dismiss or otherwise terminate your employment at any time and for any
reason with or without cause.
11. No Vested Interest. Neither you nor your beneficiaries shall have any
right, title or interest in any benefit under this Agreement prior to the
occurrence of all of the events specified herein as necessary conditions to
such right, title or interest.
12. Prior Agreements. This Agreement contains the understanding between the
parties hereto with respect to severance benefits in connection with a
Change of Control of the Company and supersedes any prior such agreement
between the Company (or any predecessor of the Company) and you, except
that your Employment Agreement dated as of January 1, 1997, remains in full
force and effect and is modified by this Agreement only in the respects and
to the extent that this Agreement provides greater benefits or protection
for you than does your Employment Agreement. If there is any discrepancy or
conflict between this Agreement and any plan, policy and program of the
Company (other than your Employment Agreement) regarding any term or
condition of severance benefits in connection with a Change of Control of
the Company, the language of this Agreement shall govern.
13. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
15. Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction. However, you shall be entitled to seek in court specific
performance of your right, pursuant to Section 3(f), above, to be paid
until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
<PAGE>
If this letter properly sets forth our agreement on the subject matter hereof,
kindly date, sign and return to the Company the enclosed copy of this letter,
which will then constitute our agreement on this subject.
Sincerely,
SPX CORPORATION
By /s/ Christopher J. Kearney
Christopher J. Kearney
Vice President, Secretary and
General Counsel
Agreed to this 15th day of February, 1999.
By /s/ John B. Blystone
John B. Blystone
