-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VwXjCZmWxHstdYbULYhvEVYQmBYRyoqZu1a5C5NUFQhHwe0DfHSySLwVVo86bPbD oHj7uZbWwAS1BZvdW6+GrQ== 0000950148-00-000502.txt : 20000329 0000950148-00-000502.hdr.sgml : 20000329 ACCESSION NUMBER: 0000950148-00-000502 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNOVA INC CENTRAL INDEX KEY: 0001044590 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY (NO METALWORKING MACHINERY) [3550] IRS NUMBER: 954647021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13279 FILM NUMBER: 581297 BUSINESS ADDRESS: STREET 1: 360 NORTH CRESCENT DRIVE CITY: BEVERLY HILLS STATE: CA ZIP: 90210 BUSINESS PHONE: 3108882500 MAIL ADDRESS: STREET 1: 360 NORTH CRESCENT DRIVE CITY: BEVERLY HILLS STATE: CA ZIP: 90210 10-K 1 FORM 10-K DATED DECEMBER 31, 1999 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 001-13279 UNOVA, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4647021 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 21900 BURBANK BOULEVARD 91367-7418 WOODLAND HILLS, CALIFORNIA (ZIP CODE) WWW.UNOVA.COM (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 992-3000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK STOCK EXCHANGE RIGHTS TO PURCHASE SERIES A JUNIOR NEW YORK STOCK EXCHANGE PARTICIPATING PREFERRED STOCK
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. On February 29, 2000, the aggregate market value of the Registrant's voting stock held by non-affiliates was $630.7 million. On February 29, 2000, there were 55,551,929 shares of Common Stock outstanding, exclusive of treasury shares. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 UNOVA, INC. INDEX TO ANNUAL REPORT ON FORM 10-K
PAGE ---- PART I Item 1: Business.................................................... 1 Item 2: Properties.................................................. 10 Item 3: Legal Proceedings........................................... 11 Item 4: Submission of Matters to a Vote of Security Holders......... 11 PART II Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 11 Item 6: Selected Financial Data..................................... 12 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 13 Item 7A: Quantitative and Qualitative Disclosures about Market Risk........................................................ 18 Item 8: Financial Statements and Supplementary Data................. 18 Item 9: Disagreements on Accounting and Financial Disclosure........ 18 PART III Item 10: Directors and Executive Officers of the Registrant.......... 19 Item 11: Executive Compensation...................................... 20 Item 12: Security Ownership of Certain Beneficial Owners and Management.................................................. 20 Item 13: Certain Relationships and Related Transactions.............. 20 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 20 Signatures.................................................. 23
3 PART I: ITEM 1. BUSINESS GENERAL UNOVA, Inc. and subsidiaries (the "Company" or "UNOVA") is an industrial technologies company providing global customers with solutions for improving their efficiency and productivity. The Company operates in two primary businesses: Automated Data Systems ("ADS") and Industrial Automation Systems ("IAS"). The IAS businesses are further disaggregated into two reportable segments based on their respective markets: Integrated Production Systems ("IPS") and Advanced Manufacturing Equipment ("AME"). For the year ended December 31, 1999, UNOVA reported revenues and segment operating profits of $2,108.7 million and $118.9 million, respectively. The Automated Data Systems segment comprises wireless networking and mobile computing products and services, and Internet-enabled automated data collection, principally serving industrial and logistics/supply chain management markets. Customers include logistics, distribution and transportation companies, food and beverage operations, manufacturing industries, health care providers and government agencies. Within the IAS businesses, the Integrated Production Systems segment includes integrated manufacturing systems, metal-cutting production systems, body welding and assembly systems, and precision grinding and abrasive operations, primarily serving the worldwide automotive, off-road vehicle, and diesel engine industries. The Advanced Manufacturing Equipment segment provides stand-alone machine tools, primarily for the aerospace and manufacturing industries. UNOVA became an independent public company upon the distribution of its common stock to the shareholders of Western Atlas Inc. ("WAI") on October 31, 1997. The Company is a Delaware Corporation and its headquarters are located in Woodland Hills, California. See Note K to the consolidated and combined financial statements for financial information by reportable segment and by geographical area. Information related to business acquisitions, investments, and dispositions is set forth in Note B to the consolidated and combined financial statements. PRODUCTS AND SERVICES AUTOMATED DATA SYSTEMS SEGMENT The Automated Data Systems segment provides complete supply-chain management, automated data collection ("ADC") and mobile computing systems solutions and is operated by the Company's wholly owned subsidiary, Intermec Technologies Corporation. Norand Corporation ("Norand") and United Barcode Industries, Inc. ("UBI") were acquired early in 1997 and merged into the existing Intermec organization. In 1998, Intermec acquired the radio-frequency identification ("RFID") business unit of Amtech Corporation known as the Amtech Systems Group ("Amtech Systems"). Amtech Systems is a supplier of wireless data technologies for intelligent item tracking and identification, electronic toll collection, rail and motor fleet tracking, and access control to parking and other structures. ADS accounted for 41%, 50% and 44% of the Company's consolidated and combined revenues in 1999, 1998 and 1997, respectively. Major ADS offices and manufacturing facilities are located in the states of Iowa, Ohio and Washington; and internationally in the United Kingdom, the Netherlands, Sweden, and France. Intermec is organized to deliver "solutions" involving customized combinations of technology, services, and software to customers in the healthcare, retail, industrial/manufacturing, transportation and utilities markets. ADS products are primarily used by non-office workers such as field representatives, warehouse and delivery personnel, manufacturing and other employees who typically operate outside the traditional 1 4 ITEM 1. BUSINESS (CONTINUED) office environment. Product applications include sales order input, order tracking, and order delivery; tracking of work-in-process and finished goods through manufacturing, distribution and other commercial operations; and real-time monitoring of inventory levels and order status to improve productivity, quality and responsiveness. The data collected and exchanged by workers in these applications is often the most critical, and is also the most susceptible to errors or omissions due to illegible handwriting, inaccurate keystrokes, or overlooked transactions. Customers purchase ADC and data exchange technologies to improve the accuracy of data transferred to and from these front-line workers. This access to better overall information provides them with competitive advantages. In addition to existing applications, ADC technologies are increasingly used for automating information exchange within supply chains, and facilitating shipment and fulfillment of Internet e-commerce orders. Wireless Networks Products & Services: Intermec has market leadership in developing wireless Local Area Network ("LAN") software and systems. It was the first to provide a network architecture that allows customers to use multiple radio technologies within one LAN system. This Radio Independent(TM) wireless LAN solution supports all major radio technologies, including synthesized UHF, 900 MHz and 2.4 GHz direct sequence and frequency-hopping, spread-spectrum radio technologies, and gives customers the ability to choose the most efficient radio technology for their facilities to solve data rate, transmission speed and range issues in order to create a reliable communications environment. To ensure compatibility with customer host systems, all major industry standard networks are supported. Most recently, Intermec has joined the Wireless Ethernet Compatibility Alliance ("WECA") initiative which is a move to provide open constructive standards for wireless networking. Intermec has developed an extensive line of hand-held computers and vehicle-mounted terminals that combine PC-type capability with scanning and data transmission abilities. Intermec's family of products ranges from low-cost, hand-held batch data collection devices to sophisticated and powerful terminals, computers and network products. Its "open systems" design philosophy delivers maximum product flexibility to customers with diverse application requirements. Industrial Computing and Communications Terminals: The Company is a leader in ruggedized mobile computing systems that provide front-line workers with comprehensive data communications, wide-area networks, application software, hand-held and truck-mounted PC-based products with peripherals and printer solutions. In combination with wireless communications, mobile computing enables remote workers to have access to centralized computer applications and databases and to send and receive information through wireless networks for improved productivity, efficiency and accuracy of data. Mobile computing applications provide real-time automation of sales, distribution, electronic billing, dispatching, routing and other customer information. Identification Systems: Intermec's Identification Systems products, which include wands, imagers, charge-couple devices (CCD), badge and laser scanners and printers and media products, are able to read or collect data, and then print the data on customized labels and tags. The Company's line of flexible "on demand" bar code printers ranges from low-cost, light to heavy-duty industrial models that accommodate a wide array of printing widths, materials and label configurations. A variety of specialty printers provides custom capabilities including color printing, a global language enabler and high-resolution (400 DPI) printing that ensures sharp fonts and precise graphics, even on extremely small labels such as those used by the electronics industry. Intermec also supports its customers with a broad range of label and tag solutions and other supplies for its printer product range. Radio-Frequency Identification: Marketed under the Amtech brand name, the Company designs, markets, manufactures, integrates and supports innovative RFID products and services for electronic toll and traffic management; rail, intermodal and fleets; and access control for parking, security, airports and ground transportation. The Company is currently developing the next generation of low-cost RFID products for supply chain applications such as shipping labels and pallet tags with embedded electronic 2 5 ITEM 1. BUSINESS (CONTINUED) memory chips that can be reprogrammed via low-power radio signals. These "intelligent" labels, and other examples of RFID technology, are being evaluated by customers in the transportation, security, manufacturing and logistics markets. Intermec plans to offer its new technology for integration with existing automatic identification and data capture solutions such as bar code, mobile computing and other enterprise-wide information systems. Technologies/Trends. Intermec is consistently broadening the application of wireless networking, ADC and mobile computing by developing or integrating new technologies into its products. Recent examples include new high-speed wireless networking products, new Windows CE data collection computers, and new devices that use the Internet to simplify the management of wireless networks. The Company is also developing a complete range of products based on its RFID technology, comprising labels, printers, and scanners. INDUSTRIAL AUTOMATION SYSTEMS The Company is a leading developer of value-added manufacturing technologies and products that span the production cycle from process engineering and design and prototyping to systems integration. The Integrated Production Systems segment primarily serves the global automotive, off-road vehicle and diesel engine industries. The Advanced Manufacturing Equipment segment satisfies customer needs in the aerospace, electronics, durable goods and general job shop markets. IAS major offices and production facilities are located in Illinois, Kentucky, Michigan, Ohio and Pennsylvania and internationally in Canada, the United Kingdom and Germany. INTEGRATED PRODUCTION SYSTEMS SEGMENT To create an integrated manufacturing solution, many of the segment's products and systems are sold in combination, including metal-cutting solutions, precision grinding machines or assembly and testing systems. By working closely with customers, especially in the product design and engineering phases, the Company is able to design manufacturing processes that reduce capital requirements, lower lifecycle costs, eliminate costly shop floor programming and improve productivity by reducing downtime during operations. Major industrial manufacturers use one or more of the Company's dedicated and flexible/modular systems to make the following products: powertrain components (engines, transmissions and connecting rods); chassis components (steering knuckles, rear axle housings and brake calipers); automotive and truck bodies (welding and assembly systems); engine components (precision camshafts and crankshafts). The Integrated Production Systems Segment accounted for 45%, 43% and 56% of the Company's consolidated and combined revenues in 1999, 1998 and 1997, respectively. Metal-Cutting: Manufacturing solutions designed and integrated by the Company range from stand-alone machines for light duty, general purpose metalworking, to complete, turnkey manufacturing solutions for heavy-duty or high-volume metal-cutting operations. Product lines include machining centers; non-synchronous, ring- or dial-transfer systems for low-volume requirements; modular, flexible systems for medium-volume production requirements; and dedicated modular transfer lines for high-volume production. Through its Assembly and Test Systems operations, the Company also designs and builds specialized assembly and/or testing equipment and systems for a variety of automotive manufacturing and other industries. Precision Grinding and Abrasives: The Company is an innovator of cylindrical grinding products and processes that improve accuracy and reliability in critical mechanical parts. For example, precision-ground camshafts and cam lobes for internal combustion engines translate into improved engine durability and performance, with lower emissions and better fuel economies. Precision-ground air compressor pistons result in lower friction and energy consumption in air conditioning systems. Superabrasive grinding wheels, electronic controls, high-precision, maintenance-free hydrostatic bear- 3 6 ITEM 1. BUSINESS (CONTINUED) ings and other state-of-the-art grinding technologies enable today's car manufacturers to machine parts with precision measured in the sub-micron range. Research into the processing of new materials also has resulted in the development of ultra-high-precision grinding and finishing techniques. These advances are being applied to requirements of the microelectronics, computer, aerospace and optics industries for the manufacture of materials such as composites, silicon, glass and ceramics. Auto Body Assembly Systems: The Company designs and integrates automated systems to form, assemble and weld high-quality auto and truck bodies as well as other industrial products. Robotic systems are integrated with high-precision holding and alignment fixtures and high-volume welding equipment to produce components and subassemblies. Proprietary processes have been developed specifically to assemble doors, hoods and trunk lids, which historically represent the most critical "fit and finish" manufacturing parts of car bodies. Using 3-D computer simulations, the Company has established one of the broadest process and tool design capabilities in the industry. Tool design and prototyping are now linked into the product engineering process, reducing costs and risks for automotive and aerospace customers long before their programs move into the capital investment stage. ADVANCED MANUFACTURING EQUIPMENT SEGMENT The Company's AME segment offers stand-alone equipment such as multi-axis machines; profiling, tape-laying and fiber placement systems for composite structures; vertical and horizontal metal-cutting machining centers; and test and automation equipment for integration into production lines. The Company also makes unique, CNC-controlled machinery that forms large-scale structures from unidirectional composite tapes and fibers. These machines are used by defense, commercial and general aviation aircraft manufacturers to make airframes, rockets or spacecraft components (vertical stabilizers, missile casings, fuselages). Acquired in October of 1998, Advanced Manufacturing Equipment accounted for 14%, and 7% of the Company's consolidated and combined revenues in 1999 and 1998, respectively. Technologies/Trends. IAS continues to develop manufacturing technologies to broaden its product offerings and respond to automotive customers' needs to lower costs, improve fuel consumption and decrease car emissions. New "agile" machining centers and flexible fixturing systems have been introduced, or are under development, to reduce fixed costs for high-volume machining. Advances in grinding technologies may allow IAS to move into other markets, where the Company's machines can be applied to finish ceramic and silicon materials with extreme accuracy. The Company is also continuing to advance its capabilities for processing advanced materials such as composites, aluminum alloys, titanium and compacted graphite iron (CGI). BUSINESS STRATEGY The Company's strategy is to develop products, processes and services that help improve productivity and efficiency in a variety of manufacturing and distribution applications. Each of the Company's segments offers single products as well as integrated solutions to its customers. Future growth in these businesses is expected to result from expansion of the Company's existing operations and customer base, and through selected acquisitions. In seeking acquisitions, the Company will concentrate on technologies, products and services that enhance customer productivity and efficiency, and that can be characterized as growth drivers. AUTOMATED DATA SYSTEMS SEGMENT In the ADS market, the growth of Internet e-commerce has created increased opportunities and demand for technologies that improve levels of service and responsiveness. 4 7 ITEM 1. BUSINESS (CONTINUED) Warehouses and logistics operations already rely on wireless networks and hand-held and mobile computers to transmit inventory data to central host computers. When information is updated real time, customers have greater visibility into their current business operations, and avoid inventory shortages and improve customer service by providing more accurate shipping and delivery information. That capability becomes more vital in e-commerce operations because technologically savvy customers demand instant information about product availability and rapid order delivery. As competition places more pressure on customers for faster operational performance, they are upgrading their supply chain "execution" technologies to improve financial measures such as inventory and asset turnover, and customer satisfaction standards, such as delivery speed, in-stock availability and order accuracy. The Company plans to increase its product development and marketing activities in the areas of e-commerce and supply-chain execution to capitalize on strong demand and overall market growth. INDUSTRIAL AUTOMATION SYSTEMS For the IAS businesses, the Company plans to continue developing its existing customer base by seeking a greater role in customer projects by continuing its emphasis on product development and by expanding its international activities. The ongoing development of the Company's systems and solutions activities will depend primarily on the application of new technologies and products to maintain its position in this technology-driven market. The Company believes it has the necessary technical expertise to achieve this goal. Future geographic opportunities have been identified outside North America, particularly in Europe, South America and Asia. To capitalize on these markets, the Company has recently changed the organizational structure of these segments to a more global span of control. IAS now manages its marketing and operating resources on a global, rather than regional basis. In recent years, cost-cutting needs and quality requirements in the automotive industry have strengthened the Company's relationships with its customers. The carmakers' trend toward fewer suppliers has benefited the Company and allowed it to expand its market participation. These market-driven changes also have forced many smaller competitors to either withdraw from the market or to reduce their role to that of second or third tier suppliers. The Company's strategy is to maintain its extensive outsourcing network of qualified suppliers in North America and overseas, thereby avoiding unnecessary vertical integration and gaining flexibility in its market approach. MARKETS AND CUSTOMERS AUTOMATED DATA SYSTEMS SEGMENT The Automated Data Systems market is extensive because its technologies, including low-cost small systems, can be used by customers of any size. Worldwide sales of automated data systems equipment reached over $8 billion in 1999, according to estimates from independent research sources. These sources also predict that the overall market will continue to grow at an annual rate of approximately 12% to 15% over the next several years. Market growth is driven by the global need for technologies and solutions that improve quality, productivity and cost-efficiency in business and government, particularly through logistics automation, supply-chain management, ERP and e-commerce solutions. Worldwide coverage is accomplished through a dedicated sales and service organization, supplemented with indirect channel partners and distributors. Through its application of technologies in the manufacturing, warehouse-distribution, transportation, health care, government, field service and utilities markets, the Company maintains a strong position in the global ADC market. 5 8 ITEM 1. BUSINESS (CONTINUED) The Company sells and services its products through multiple sales and distribution channels; a direct field sales force that concentrates on large, complex systems sales; value-added resellers who offer applications-specific solutions; and alliances with major systems integrators and distributors. The Company's direct sales organization serves customers from offices throughout North America and Europe and in some selected countries outside these regions. An indirect sales channel includes long-time exclusive relationships with value-added distributors and master resellers. Although the Company obtains a majority of its sales through indirect sales channels, no individual value-added distributor or reseller is material to our overall revenues. The Company also maintains contact with customers and prospective users through user forums for automated data systems applications and technologies. The mobile computing systems market consists of several applications, such as route accounting for the distribution and package/parcel delivery industries, sales merchandising, remote delivery and field service. These applications are generally used in the consumer products, food, beverage, wholesale, parcel delivery, freight, field service, and home service industries. Manufacturing applications include the collection and communication of information related to receipt of materials, work-in-process, finished goods inventory and other manufacturing functions. Warehousing and distribution center applications involve the collection and communication of information related to receiving materials to be stored, storage locations, materials retrieval and shipping. Retail applications include the automation of shelf label maintenance and product shipping and receiving functions. The Company also designs, manufactures, markets, installs and supports equipment and systems based on its RFID technology that are used extensively by railroads, toll collection and parking operations. These customers are located in North and South America, Europe and Asia. Additional international sales opportunities exist in countries where mobile computing systems market practices and other applications are similar to those in the U.S. The extent of RF systems opportunities in any particular country is based on the level of industrialization, the status of bar coding implementation, and the RF regulatory environment. The major markets for printers are manufacturing, distribution, warehousing, transportation, health care, government and other services. INDUSTRIAL AUTOMATION SYSTEMS The Company participates in the automotive, aerospace and general manufacturing markets. Investments by automotive customers are driven by model changes, competitive pressures, government regulations such as emission standards and gasoline consumption rates, and the customers' own internal spending cycles. Investments in diesel engine manufacturing are influenced by the infrastructure needs of emerging industrial nations and by the efficiency benefits diesel engines offer for heavy and light trucks and utility vehicles. Integrated Production Systems' customers are the major auto and diesel manufacturers and their Tier One suppliers. Although the passenger car and light truck industries continue to represent IPS' largest market, business from diesel engine manufacturers also has grown in recent years. The Company believes that future growth in the IPS and AME segments will be dependent on their ability to market their full range of products and services to their combined customer base and to expand into other industrial manufacturing markets. This strategy is supported by a global IAS management structure that provides for unified marketing and product support. A substantial part of the IPS segment's total revenue is currently generated by worldwide automotive and diesel engine industry purchases of automated manufacturing systems, including integrated machining, body welding and assembly and precision grinding systems. Among customers for such equipment, U.S. and Canadian auto and auto-related manufacturers currently account for the majority of IPS sales. The 6 9 ITEM 1. BUSINESS (CONTINUED) remainder of sales represents products manufactured and sold in Europe and those exported from the Company's production facilities, mostly for installation in Latin America and Asia. Both IAS segments' revenues are influenced by the capital investment plans of customers. These plans are typically strategic and long-range, driven by customers' competitive product issues, as well as environmental issues related to compliance with emissions. Short-term business cycles, such as monthly product sales, typically do not delay or interrupt capital investment decisions of major automotive customers. Recent major customers include U.S.-based Boeing Corporation, Briggs & Stratton, Cummins, DaimlerChrysler, Ford, General Motors, Navistar, and Raytheon; and Western Europe-based BMW/Rover, Fiat, Mercedes Benz, Jaguar, Peugeot, Renault, Volkswagen, Volvo and the European subsidiaries of the large U.S. manufacturers. The Company also has won major systems contracts for the "transplant" manufacturing facilities of foreign automakers, including both European and Japanese, and also serves the automotive components manufacturing market. COMPETITION Strong competition exists both in the domestic and international markets for the Company's products and services. Products are sold and projects are won in the marketplace based on price, technology, and service. AUTOMATED DATA SYSTEMS SEGMENT The market for ADC/mobile computing systems is highly fragmented. Based on independent market surveys, management believes that Intermec Technologies Corporation is one of the largest participants in terms of revenues. The other two major participants are Symbol Technologies and Telxon. The Company also faces strong competition for single product lines from specialized suppliers, like Zebra, for printers. The market for mobile computing and RF products is highly competitive and rapidly changing. Some firms manufacture and market hand-held systems for route accounting applications, including Telxon and Fujitsu. In addition, a number of firms manufacture and market radio-linked data communication products, including LXE, Symbol, Teklogix and Telxon. On the printer side, the Company faces competition from Zebra/Eltron, Datamax and many others, depending on the geographic area. The Company competes primarily on the basis of its technologies: open-systems architecture, networking and communications expertise and applications software. Other attributes, such as quality of support services, product functionality, performance and ruggedness are important for market success. INDUSTRIAL AUTOMATION SYSTEMS While product quality and innovation are key competitive factors to win market share, pricing is a major decision point in the global market for Integrated Productions Systems and Advanced Manufacturing Equipment. IAS' strength is the ability to design reliable and efficient manufacturing processes for its customers and combine them with cost-effective machining solutions in order to win orders against strong global competition. The North American and European markets for high-volume production systems for engines and transmissions is divided among approximately 10 major competitors and numerous smaller participants. Major competitors are Thyssen, Ingersoll Milling and Grob-Werke (Germany). In the body welding and assembly systems market, the Company is faced with competitors that are involved in a broad range of assembly equipment and other competitors that provide "niche" machines. Primary competitors include DCT, PICO (Comau), Valiant (Thyssen), and Utica in North America; Thyssen, FFT, Kuka and Comau in Europe. 7 10 ITEM 1. BUSINESS (CONTINUED) In the worldwide market for high-precision grinding of engine parts, the Company has achieved a strong market position through innovative products that improve customer efficiency while reducing their capital costs. Major competitors are the foreign companies Koyo and Toyoda in Japan; the Schleifring Group, Junker in Germany; and Giustina in Italy. Advanced Manufacturing Equipment faces separate competitors in its different product markets such as Ingersoll Milling, DST (Germany) and Forrest Line (France) in aerospace systems; Mazak, Okuma and Mori Seiki (all Japan) in production systems; and Thyssen/Fadal and Haas (both North America) in the market for stand-alone machines. RESEARCH AND DEVELOPMENT Company-wide expenditures on research and development activities amounted to $74.1 million, $71.5 million and $53.1 million, substantially all of which was sponsored by the Company, in the years ended December 31, 1999, 1998 and 1997, respectively. The Company expensed a total of $211.5 million of acquired in-process research and development in 1997. See further discussion in Note B to the consolidated and combined financial statements. PATENTS AND TRADEMARKS The Company owns a large number of patents, trademarks and copyrights relating to its manufactured products, which have been secured over a period of years. These patents, trademarks and copyrights have contributed to the Company's growth and may continue to be of value in the future. However, the Company generally is not dependent upon the protection of any patent, patent application or patent license agreement, or group thereof, and would not be materially affected by expiration thereof. SEASONALITY; BACKLOG Sales backlog was $856 million, $831 million and $395 million at December 31, 1999, 1998 and 1997, respectively. The operations of the Company are not seasonal to any appreciable degree. The majority of the Company's backlog is concentrated in the IAS segments. The ADS market typically operates without a significant backlog of firm orders and does not consider backlog to be a relevant measure of future sales. EMPLOYEES At December 31, 1999, the Company had approximately 9,577 full-time employees, of which approximately 3,740 are engaged in the ADS segment, approximately 4,130 in the IPS segment, approximately 1,601 in the AME segment, and approximately 106 in corporate and shared services. ENVIRONMENTAL AND REGULATORY MATTERS During 1999, the amounts incurred to comply with federal, state and local legislation pertaining to environmental standards did not have a material effect upon the capital expenditures or earnings of the Company. Radio emissions are the subject of governmental regulation in all countries in which the Company currently conducts business. In North America, both the Canadian and the U.S. governments publish relevant regulations, and changes to these regulations are made only after public discussion. In some countries regulatory changes can be introduced with little or no grace period for implementing the specified changes. Furthermore, there is little consistency among the regulations of various countries outside North America, and future regulatory changes in North America are possible. These conditions introduce uncertainty into the product planning process and could have an adverse effect on the ADC/ Mobile Computing business. 8 11 ITEM 1. BUSINESS (CONTINUED) The European Community ("EC") has passed a directive requiring its members to adopt laws relating to electro-magnetic compatibility and emissions standards. These standards will apply to ADC/Mobile Computing products sold in EC member countries as those countries adopt the EC standards into law. Currently, the Company believes that its products materially comply with the regulations in force for each of the EC member countries. RAW MATERIALS The Company uses a wide variety of raw materials in the manufacture of its products and obtains such raw materials from a variety of suppliers. No single supplier provides 10% or more of the Company's raw materials, nor do raw materials from any one supplier generate 10% or more of the Company's consolidated revenues. The Company does not have any long-term supply agreements relating to raw materials. 9 12 ITEM 2. PROPERTIES The Company's executive offices, in leased premises, are located at 21900 Burbank Boulevard, Woodland Hills, California. Its principal plants and offices have an aggregate floor area of approximately 6,343,030 square feet, of which 5,213,020 square feet (82%) are located in the United States, and 1,130,010 square feet (18%) are located outside of the United States, primarily in the United Kingdom, Germany and Canada. These properties are used by the business segments as follows:
SQUARE FEET --------- Automated Data Systems...................................... 925,045 Integrated Production Systems............................... 3,445,594 Advanced Manufacturing Equipment............................ 1,933,472 --------- 6,304,111 =========
Approximately 4,549,461 square feet (72%) of the principal plant, office and commercial floor area is owned by the Company, and the balance is held under lease. The Company's plants and offices in the United States are situated in 21 locations in the following states:
SQUARE STATE FEET - ----- --------- Ohio........................................................ 1,791,258 Michigan.................................................... 1,614,478 Pennsylvania................................................ 495,662 Washington.................................................. 325,500 Illinois.................................................... 309,571 Iowa........................................................ 258,325 Kentucky.................................................... 152,483 Other states................................................ 265,743 --------- 5,213,020 =========
The above-mentioned facilities are in satisfactory condition and suitable for the particular purposes for which they were acquired or constructed and are adequate for present operations. The foregoing information excludes Company-held properties leased to others and also excludes plants or offices which, when added to all other of the Company's plants and offices in the same city, have a total floor area of less than 50,000 square feet. 10 13 ITEM 3. LEGAL PROCEEDINGS The Company is currently, and is from time to time, subject to claims and suits arising in the ordinary course of its business. Although the results of litigation proceedings cannot be predicted with certainty, the Company believes that the ultimate resolution of these proceedings will not have a material adverse effect on the Company's financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters have been submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended December 31, 1999. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PAGE ---- Quarterly Financial Information (unaudited)................. F-25
11 14 ITEM 6. SELECTED FINANCIAL DATA UNOVA, INC.
YEAR ENDED DECEMBER 31, --------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- ------- (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA) OPERATING RESULTS:(1) Sales and Service Revenues............. $2,108.7 $1,662.7 $1,426.2 $1,164.7 $ 942.9 -------- -------- -------- -------- ------- Operating Costs and Expenses Cost of sales and service............ 1,501.0 1,110.8 981.4 841.8 669.3 Selling, general and administrative(2)................. 454.4 383.7 535.9 218.7 194.1 Depreciation and amortization........ 66.0 57.0 40.6 27.0 26.1 -------- -------- -------- -------- ------- Total........................ 2,021.4 1,551.5 1,557.9 1,087.5 889.5 -------- -------- -------- -------- ------- Other Income, Net...................... 31.5 -------- Earnings (Loss) before Interest and Taxes................................ 87.3 142.7 (131.7) 77.2 53.4 Interest Expense, Net(3)............... (38.0) (25.7) (16.7) (7.1) (9.3) Taxes on Income........................ (19.7) (47.3) (23.0) (28.1) (17.9) -------- -------- -------- -------- ------- Net Earnings (Loss).................... $ 29.6 $ 69.7 $ (171.4) $ 42.0 $ 26.2 ======== ======== ======== ======== ======= Basic Net Earnings (Loss) per Share.... $ 0.54 $ 1.28 $ (3.17) $ 0.78 $ 0.49 Diluted Net Earnings (Loss) per Share................................ $ 0.54 $ 1.27 $ (3.17) $ 0.78 $ 0.49 Shares used for Basic Earnings (Loss) per Share(4)......................... 55,111 54,620 54,056 53,892 53,892 Shares used for Diluted Earnings (Loss) per Share(4)......................... 55,120 54,703 54,056 53,892 53,892 FINANCIAL POSITION (AT END OF YEAR):(1) Total Assets........................... $1,903.5 $1,979.2 $1,356.4 $1,073.8 $ 919.0 Notes Payable and Current Portion of Long-term Obligations................ $ 64.0 $ 237.3 $ 86.6 $ 27.5 $ 22.2 Long-term Obligations.................. $ 365.4 $ 366.5 $ 216.9 $ 14.5 $ 14.1 Allocated Portion of Western Atlas Debt................................. $ 109.6 $ 112.4 Working Capital........................ $ 447.8 $ 392.2 $ 277.8 $ 266.0 $ 194.7 Current Ratio.......................... 1.7 1.5 1.6 1.6 1.6 Total Debt as a Percentage of Total Capitalization....................... 37% 46% 34% 21% 23%
- --------------- (1) Information related to business acquisitions, investments, and dispositions is included in Note B to the consolidated and combined financial statements. (2) Selling, general and administrative costs include allocated charges from Western Atlas of $13.5 million, $22.2 million and $19.9 million for the years ended December 31, 1997, 1996 and 1995, respectively. The year ended December 31, 1997 includes charges of $211.5 million, or $3.91 per share, for the value of acquired in-process research and development activities resulting from acquisitions made during the year. (3) Interest expense includes allocated charges from Western Atlas of $12.0 million, $8.3 million and $8.4 million for the years ended December 31, 1997, 1996 and 1995, respectively. (4) In thousands. The number of common shares used to calculate basic and diluted earnings per share prior to 1997 is based on the number of shares of Western Atlas common stock that was outstanding as of June 30, 1997. 12 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company operates in two primary businesses: Automated Data Systems ("ADS") and Industrial Automation Systems ("IAS"). The IAS businesses are further disaggregated into two reportable segments based on their respective markets: Integrated Production Systems and Advanced Manufacturing Equipment. Sales and service revenues and segment operating profit for the years ended December 31, 1999, 1998 and 1997 (excluding the $211.5 million charges for acquired in-process research and development), were as follows:
YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- -------- -------- (MILLIONS OF DOLLARS) SALES AND SERVICE REVENUES Automated Data Systems.................................... $ 877.2 $ 829.4 $ 636.4 Industrial Automation Systems: Integrated Production Systems........................... 937.3 719.3 789.8 Advanced Manufacturing Equipment........................ 294.2 114.0 -------- -------- -------- Total Sales and Service Revenues................ $2,108.7 $1,662.7 $1,426.2 ======== ======== ======== SEGMENT OPERATING PROFIT Automated Data Systems.................................... $ 26.4 $ 55.4 $ 9.1 Industrial Automation Systems: Integrated Production Systems........................... 86.8 73.2 94.6 Advanced Manufacturing Equipment........................ 5.7 3.7 -------- -------- -------- Total Segment Operating Profit.................. $ 118.9 $ 132.3 $ 103.7 ======== ======== ========
Year Ended December 31, 1999 Compared to 1998 Total sales and service revenues increased $446.0 million, or 27%, for the year ended December 31, 1999 compared with the corresponding prior year. Total segment operating profit decreased $13.4 million, or 10%, for the year ended December 31, 1999 compared to the corresponding prior year. Automated Data Systems: ADS segment sales increased $47.8 million, or 6%, and operating profit decreased $29.0 million, or 52%, for the year ended December 31, 1999 compared with the corresponding prior year. The increase in sales is due primarily to the inclusion of a full year's results in 1999 from the acquisition of Amtech Systems in May 1998, and an increase in intellectual property ("IP") licensing revenues, offset partially by decreased sales of other ADS products, primarily mobile computing. Mobile computing revenues were impacted by customers' focus on internal Year 2000 issues. The decrease in operating profit was the result of additional operating expenses and order fulfillment costs related to the implementation of a new management information system at Intermec's main production facility and decreased product sales, offset partially by IP licensing margins. Industrial Automation Systems: Integrated Production Systems revenues increased $218.0 million, or 30%, and related operating profit increased $13.6 million, or 19%, for the year ended December 31, 1999 compared with the corresponding prior year. The increase in revenues is primarily attributable to 1999 including the full year's results of the 1998 acquisition of R&B Machine Tool and an increase in activity for the domestic operations. The increase in operating profit was due to the increase in activity for the domestic operations and operating profits contributed by the 1998 acquisition, partially offset by costs associated with product and operational process problems at Honsberg Lamb in Germany. Operating profits as a percentage of sales decreased primarily due to contract losses at Honsberg Lamb. Integrated Production Systems backlog increased from $556.6 million at December 31, 1998 to $627.7 million at December 31, 1999. 13 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) In October 1998, UNOVA acquired the machine tool business of Cincinnati Milacron, which was renamed Cincinnati Machine, a UNOVA Company ("Cincinnati Machine") for approximately $187.3 million in cash. The division, which comprises the Company's Advanced Manufacturing Equipment segment, is engaged in the design, manufacture, sale and servicing of standard and advanced computer numerically controlled metal cutting machine tools for the industrial component, aerospace, job shop, fluid power and automotive industries. The acquisition was funded using the Company's committed credit facility and was accounted for under the purchase method of accounting. Advanced Manufacturing Equipment revenues increased $180.2 million, or 158%, while related operating profit increased $2.0 million, or 54%, for the year ended December 31, 1999 compared with the corresponding prior year. The increase in revenues and operating profit is attributable to 1999 including the full year's results of the 1998 acquisition of Cincinnati Machine. Operating profit as a percentage of sales decreased due to lower utilization levels. Backlog decreased from $148.9 million at December 31, 1998 to $102.5 million at December 31, 1999. Depreciation and amortization increased from $57.0 million to $66.0 million from the year ended December 31, 1998 to the year ended December 31, 1999. This increase is primarily due to additional depreciation from acquisitions and an increase in the level of fixed assets over the prior year. Selling, general and administrative ("SG&A") expense increased $70.8 million from $383.7 million for the year ended December 31, 1998 to $454.5 million for the year ended December 31, 1999. As a percentage of sales, SG&A decreased from 23% in 1998 to 22% in 1999. The percentage decrease is attributable to the change in the business mix of the Company from 1998 to 1999 offset by amortized costs and discounts in SG&A from the sale of undivided interests in UNOVA's trade accounts receivable. The two IAS segments' sales increased as a percentage of total company sales from 50% for the year ended December 31, 1998 to 58% for the year ended December 31, 1999, while ADS sales decreased from 50% to 42% for the same years. The IAS businesses carry lower SG&A ratios compared to the ADS segment. Net interest expense was $38.0 million and $25.7 million for the years ended December 31, 1999 and 1998, respectively. The increase is attributable to higher outstanding debt during 1999 that was incurred to finance the 1998 acquisitions of Cincinnati Machine, R&B Machine and Amtech Systems and the normal capital expenditures and working capital needs of the operations. Year Ended December 31, 1998 Compared to 1997 Total sales and service revenues increased $236.5 million, or 17%, for the year ended December 31, 1998 compared with the corresponding prior period. Total segment operating profit increased $28.6 million, or 28%, for the year ended December 31, 1998 compared to the corresponding prior period. Automated Data Systems: ADS segment sales increased $193.0 million, or 30%, and operating profit increased $46.3 million, or 509%, for the year ended December 31, 1998 compared with the corresponding prior year. The sales and operating profit increases are due primarily to new IP licensing revenues, internal growth and the contribution of a full year of operations and the realization of improved profitability from the integration of the 1997 acquisitions of Norand Corporation ("Norand") and United Barcode Industries ("UBI"), offset by information system problems that negatively impacted the results of the third and fourth quarter. Industrial Automation Systems: Integrated Production Systems revenues decreased $70.5 million, or 9%, while related operating profit decreased $21.4 million, or 23%, for the year ended December 31, 1998 compared with the corresponding prior year. The Integrated Production Systems segment began several new projects in 1998 that did not materially impact sales and operating profits until 1999. Delays caused by unexpected customer changes were encountered in the engineering phase of these new 14 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) projects. Conversely, during the first half of 1997, the manufacturing systems operations experienced a higher level of sales and profits from contracts in the final delivery and installation phase. Startup issues on a new product line at Honsberg Lamb also impacted operating profit in 1998. Backlog increased from $332.0 million at December 31, 1997 to $556.6 million at December 31, 1998. During the third quarter of 1998, UNOVA acquired R&B Machine Tool Company ("R&B Machine"), a specialty machine and retooling company. This acquisition was funded using short-term uncommitted credit lines. In June 1998, the Company acquired the radio frequency identification ("RFID") business unit of Amtech Corporation known as the Amtech Systems Division ("Amtech Systems"). Amtech Systems is a supplier of wireless data technologies for electronic toll collection, rail and motor fleet tracking, and access control to parking and other structures. Depreciation and amortization increased from $40.7 million to $57.0 million from the year ended December 31, 1997 to the year ended December 31, 1998. This increase is primarily due to higher amortization of goodwill and other intangibles resulting from the Norand and UBI acquisitions, as well as additional depreciation from capital expenditures and business acquisitions. Selling, general and administrative expense increased $59.3 million from the year ended December 31, 1997 to the year ended December 31, 1998. However, as a percentage of sales, SG&A remained constant at 23% in both years. The increase in the amount is due primarily to 1998 acquisitions as well as the increase in the Company's sales and service revenues over the prior year. Net interest expense was $25.7 million and $16.7 million for the years ended December 31, 1998 and 1997, respectively. The increase is attributable to an increase in outstanding debt due primarily to the acquisitions of Norand and UBI in 1997 and Cincinnati Machine, R&B Machine and Amtech Systems in 1998. Other income, net consists of a gain of $35.5 million recognized on the sale of UNOVA's corporate headquarters building, offset by other non-operating expenses. FOREIGN CURRENCY TRANSACTIONS The Company is subject to the effects of international currency fluctuations due to the global nature of its operations. Currency transaction net losses for the year ended December 31, 1999 were $3.0 million, net of taxes. Currency transaction gains and losses for the years ended December 31, 1998 and 1997 were not significant. It is not possible to predict the Company's exposure to foreign currency fluctuations beyond the near term because revenues generated from particular foreign jurisdictions vary widely over time. For fiscal year 1999, the Company derived approximately 26% of its revenues and 10% of its operating profits (exclusive of corporate overhead) from non-U.S. operations. At December 31, 1999, identifiable assets attributable to foreign operations comprised 19% of total assets. As the largest components of these foreign assets are attributable to European operations, the exposure of identifiable assets to foreign currency fluctuations or expropriations is not significant. LIQUIDITY AND CAPITAL RESOURCES Cash and marketable securities increased from $17.7 million at December 31, 1998 to $25.2 million at December 31, 1999. Total debt decreased from $603.8 million at December 31, 1998 to $429.4 million at December 31, 1999. Improved working capital management provided funds from operations that were utilized to repay borrowings. The Company has two unsecured committed credit facilities with banks from which it may borrow up to $500.0 million. Under these credit facilities, the Company may borrow at the prime rate or at rates based 15 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) on the London Inter Bank Offered Rate, rates borne by certificates of deposit or other rates that are mutually acceptable to the banks and the Company. At February 11, 2000, $300.0 million of these credit facilities was available for the Company's general use. In June 1999, a financing subsidiary of UNOVA entered into an agreement to sell undivided interests in a revolving pool of the Company's trade accounts receivable to a financial institution which issues its short-term debt backed by receivables acquired in similar transactions. The financing subsidiary purchased these receivables, irrevocably and without recourse, from the Company under a separate agreement. Under the terms of these agreements, UNOVA is entitled to receive up to $100.0 million of proceeds from the sale of undivided interests in the receivables. At December 31, 1999, net proceeds from these agreements were approximately $100.0 million and have been reflected as a reduction of accounts receivable on the consolidated balance sheet. Costs associated with these agreements were $2.6 million for the year ended December 31, 1999 and have been classified as selling, general and administrative expenses. In March 1998, the Company sold $200.0 million principal amount of senior unsecured debt in an underwritten offering. The debt comprised $100.0 million of 6.875% seven-year notes, at a price of 99.867 and $100.0 million of 7.00% ten-year notes, at a price of 99.856. Including underwriting fees, discounts and effects of forward rate agreements, the effective interest rates on the seven-year and ten-year notes are 7.125% and 7.175%, respectively. The net proceeds of approximately $198.0 million were used by the Company to repay outstanding debt. The Company expects that cash flow from operations, along with available borrowing capacity, will be adequate to meet working capital requirements. YEAR 2000 The Year 2000 issue is the result of computer programs designed to define a year using two digits rather than four. As such, a date sensitive field using "00" could be recognized as the year 1900 rather than the year 2000, potentially causing a system failure or other business disruption. The operating segments of the Company formed internal review teams that assessed the Company's exposure to Year 2000 problems. As a result of these reviews, non-Year 2000 compliant information technology and non-information technology systems were identified. The Company completed modifications or replacements and testing to achieve Year 2000 compliance utilizing both internal and external resources. In addition, the Company actively worked with its significant suppliers and customers to assess their Year 2000 compliance efforts and the Company's exposure from them. The Company also assessed the capability of its products to determine whether they are Year 2000 compliant. The Company believes that all of its current products are Year 2000 compliant. UNOVA has not tested products that are no longer sold by the Company and the Company does not believe it is legally responsible for costs incurred by customers related to ensuring their Year 2000 capability. However, the Company is providing customer support services related to Year 2000 issues. UNOVA defines "Year 2000 compliant" as a product that, when used properly and in conformity with the product information provided by the Company, will accurately convey data between the twentieth and twenty-first centuries, including leap year calculations, provided that all other technology used in combination with the product properly exchanges data with the UNOVA product. Management is not aware of any significant adverse effects of Year 2000 on the systems and operations of the Company. Through December 31, 1999, the total cumulative cost of these Year 2000 compliance activities was approximately $10.1 million. Of these costs, approximately $1.5 million were expensed and the remaining $8.6 million were capitalizable. Management does not anticipate significant additional Year 2000 costs. Based on currently available information, management does not believe that Year 2000 issues had or will have a material adverse impact on the Company's financial condition or results of 16 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) operations. However, the Year 2000 problem has potential consequences, some of which are not reasonably foreseeable, and there can be no assurance that unforeseen consequences will not arise. While management believes that no customer, vendor, or service provider is individually significant to the Company's operations, we have no information that indicates a significant customer may be unable to purchase from the Company; a significant vendor may be unable to sell to the Company; or a significant service provider may be unable to provide services to the Company, in each case because of Year 2000 compliance problems. While the Company currently does not anticipate problems related to third party Year 2000 issues, the Company will continue to assess potential risk from third parties. However, there can be no assurance that Year 2000 problems originating with a customer, vendor, service provider or other third party will not occur. INFLATION In the opinion of management, inflation has not been a significant factor in the markets in which the Company operates and has not had a significant impact upon the results of its operations. NEW ACCOUNTING PRONOUNCEMENTS In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133 (an amendment of FASB Statement No. 133). Under the provisions of this statement, the effective date of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"), is deferred to fiscal years beginning after June 15, 2000. The Company is currently evaluating the impact of adopting SFAS No. 133. FORWARD-LOOKING STATEMENTS The Company cautions readers that, in addition to the historical information covered in this discussion and analysis, included are certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements are based on management's beliefs as well as on assumptions made by and information currently available to management. They include, but are not limited to, statements about the demand for the Company's products and services, the Company's ability to profitably exploit new technologies acquired or developed, and the Company's ability to realize its intentions with respect to the future performance of acquired operations. Such forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which could cause the Company's future results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company. Such factors include, but are not limited to, the following: fluctuations in the strength of the automotive and aerospace markets; technological changes and developments, particularly in the ADC/Mobile Computing System industry; the presence of competitors with greater financial and other resources; the availability and cost of materials and supplies; relations with the Company's employees; the Company's ability to manage its operating costs and to integrate acquired businesses in an effective manner; worldwide political stability and economic conditions; regulatory uncertainties; operating risks associated with international operations; and the risk that the Company's due diligence procedures may have failed to reveal undisclosed material information concerning acquired operations. Any forward-looking statements should be considered in light of these factors, many of which are beyond the Company's ability to control or predict. Readers are cautioned not to place undue reliance on forward-looking statements. The Company disclaims any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 17 20 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate risk primarily from its short-term and long-term borrowings and to exchange rate risk with respect to its foreign operations and from foreign currency transactions. Interest Rates: The information presented below summarizes the Company's cash flows for its borrowings and related interest rates by dates of maturity. Variable interest rates disclosed represent the weighted average rates of the borrowings at December 31, 1999. Fair values for fixed rate borrowings have been determined based on quoted market prices. The fair values for variable rate borrowings approximate their carrying value. The information presented below should be read in conjunction with Note C to the Consolidated and Combined Financial Statements.
DEBT 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE ---- ------- ----- -------- -------- -------- ---------- -------- ---------- (THOUSANDS OF DOLLARS) Fixed Rate $200,000 $200,000 $167,882 Average Interest Rate 6.94% Variable Rate $64,002 $179 $150,003 $15,204 $229,388 $229,388 Average Interest Rate 4.56% 7.22% 7.18% 5.96%
Foreign Exchange Rates: Due to its global operations, the Company's cash flow and earnings are exposed to foreign exchange rate fluctuations. When appropriate, the Company may attempt to limit its exposure to changing foreign exchange rates by entering into short-term foreign currency exchange contracts. As of December 31, 1999, the Company held short-term contracts for the purpose of hedging foreign currency cash flows with an aggregate notional amount of $86.8 million. The Company does not enter into any foreign currency contracts for speculative or trading purposes. Contracts that effectively meet risk reduction and correlation criteria are accounted for as hedges and, accordingly, gains and losses from mark-to-market are deferred in the cost basis of the underlying transaction. In those circumstances when it is not appropriate to account for contracts as hedges, gains and losses from mark-to-market are recorded currently in earnings. A hypothetical 10% change in the relevant currency rates at December 31, 1999 would not result in a material gain or loss. Additionally, any change in the value of the contracts, real or hypothetical, should be substantially offset by an inverse change in the value of the underlying hedged item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE ---- Management's Responsibility for Financial Reporting......... F-1 Independent Auditors' Report................................ F-2 Consolidated and Combined Statements of Operations.......... F-3 Consolidated Balance Sheets................................. F-4 Consolidated and Combined Statements of Cash Flows.......... F-5 Consolidated and Combined Statements of Changes in Shareholders' Investment.................................. F-6 Notes to Consolidated and Combined Financial Statements..... F-7 Quarterly Financial Information (unaudited)................. F-25
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 18 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See the information relating to directors of the Company under "Board of Directors" in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 11, 2000 (the "2000 Proxy Statement"), which is incorporated herein by reference. The executive officers of the Company are elected each year by the Board of Directors at its first meeting following the Annual Meeting of Shareholders to serve during the ensuing year and until their respective successors are elected and qualify. There are no family relationships between any of the executive officers of the Company. The following information indicates the positions and ages of the Company's executive officers at March 15, 2000 and their business experience during the prior five years:
POSITION WITH THE COMPANY AND PRINCIPAL BUSINESS AFFILIATIONS NAME AGE DURING PAST FIVE YEARS ---- --- ------------------------------------------------------------- Daniel S. Bishop............... 50 Senior Vice President and General Counsel since October 1999. Prior thereto, Vice President, General Counsel and Secretary of Paxar Corporation from November 1997 to October 1999. Vice President, Strategic Development, Human Resources, General Counsel and Secretary of Monarch Marking Systems, Inc. from March 1996 to November 1997. Vice President and Associate General Counsel of Western Atlas from March 1993 to March 1996. Larry D. Brady................. 57 President and Chief Operating Officer since August 1999. For prior business experience, see the description of Directors in "Board of Directors" in the 2000 Proxy Statement. Alton J. Brann................. 58 Chairman of the Board and Chief Executive Officer since October 1997. For prior business experience, see the description of Directors in "Board of Directors" in the 2000 Proxy Statement. Charles A. Cusumano............ 53 Vice President, Finance, and Controller since May 1999. Vice President, Finance, from October 1997 to May 1999. Prior thereto, Vice President, Finance, of Western Atlas from October 1996 to October 1997. Vice President and Controller of Western Atlas from March 1994 to September 1996. Elmer C. Hull, Jr. ............ 43 Vice President and Treasurer since July 1999. Prior thereto, Treasurer from October 1998 to July 1999. Vice President, Finance, of the Company's Landis division from July 1995 to October 1998. Held various positions with Landis beginning with Chief Accountant in 1978. Michael E. Keane............... 44 Senior Vice President and Chief Financial Officer since October 1997. Prior thereto, Senior Vice President and Chief Financial Officer of Western Atlas since October 1996. Vice President and Treasurer of Western Atlas from March 1994 to September 1996. Robert G. O'Malley............. 54 Senior Vice President since July 1999 and President of Intermec Technologies Corporation since June 1999. Prior thereto, Chief Executive Officer from March 1998 to June 1999 and President from November 1996 to March 1998 of Pinacor, Inc. Vice President -- Services Marketing of Pinacor from January 1996 to November 1996. President, MicroAge Data Services, MCCI, from May 1995 to December 1995. Prior thereto, held various positions with IBM Corporation since January 1976. Charles E. Wolfbauer........... 61 Vice President since October 1997 and President of the Company's Lamb Technicon Machining Systems division since May 1998 and previously President of the Company's Lamb Technicon Body & Assembly Systems division from October 1997 to May 1998. Prior thereto, Vice President of Western Atlas Inc. from May 1994 to October 1997 and President of its Lamb Technicon, North American Operations from March 1994 to October 1997.
19 22 ITEM 11. EXECUTIVE COMPENSATION See the information relating to executive compensation under the captions "Summary Compensation Table," "Stock Option Information," "Change of Control Employment Arrangements" and "Retirement Benefits" of the Company's 2000 Proxy Statement, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the information with respect to beneficial ownership of the Company's voting securities by each director, certain executive officers and all executive officers and directors as a group, and by any person known to beneficially own more than 5% of any class of voting security of the Company, under the caption "Security Ownership by Certain Beneficial Owners and Management" of the Company's 2000 Proxy Statement, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the information with respect to certain relationships and related transactions under the caption "Certain Relationships and Related Transactions" of the Company's 2000 Proxy Statement, which is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE ---- (a)(1) Financial Statements See Part II, Item 8 (a)(2) Financial Statement Schedules All schedules and notes specified under Regulation S-X are omitted because they are either not applicable, not required or the information called for therein appears in the consolidated and combined financial statements or notes thereto. (a)(3) Executive Compensation Plans and Arrangements 21 (b) Reports on Form 8-K No reports on Form 8-K have been filed by the Registrant during the quarter ended December 31, 1999 (c) Index to Exhibits E-1
20 23 UNOVA, INC. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
REPORT WITH WHICH DESCRIPTION EXHIBIT NO. EXHIBIT WAS FILED ----------- ----------- ----------------- Employee Benefits Agreement dated October 31, 1997, 10.3 September 30, 1997 between Western Atlas Inc. and UNOVA, Inc. Form 10-Q Form of Change of Control Employment Agreements with 10.5 September 30, 1997 Alton J. Brann, Michael E. Keane, Norman L. Roberts, Form 10-Q Larry D. Brady, Robert G. O'Malley and certain other officers of the Company. Amendment to the Form of Change of Control Employment 10.6 December 31, 1999 Agreements with Alton J. Brann, Larry D. Brady, Michael Form 10-K E. Keane, Robert G. O'Malley and certain other officers of the Company. Form of Change of Control Employment Agreement with 10.7 December 31, 1999 Charles E. Wolfbauer and certain other officers of the Form 10-K Company. Employment Agreement between Intermec Corporation and 10.8 Form 10 Michael Ohanian, dated May 18, 1995, as amended. Amendment No. 1 to Employment Agreement between 10.9 December 31, 1997 Intermec Corporation and Michael Ohanian, dated Form 10-K February 28, 1997. Amendment No. 2 to Employment Agreement between 10.10 December 31, 1997 Intermec Technologies Corporation and Michael Ohanian, Form 10-K dated February 28, 1998. Amendment No. 3 to Employment Agreement between 10.11 December 31, 1998 Intermec Corporation and Michael Ohanian, dated May 20, Form 10-K 1998. Amendment No. 4 to Employment Agreement between 10.12 December 31, 1998 Intermec Corporation and Michael Ohanian, dated Form 10-K February 28, 1999. Amendment No. 5 to Employment Agreement between 10.13 June 30, 1999 Intermec Corporation and Michael Ohanian, dated May 18, Form 10-Q 1999. UNOVA, Inc. Restoration Plan. 10.16 Form 10 UNOVA, Inc. Supplemental Executive Retirement Plan. 10.17 Form 10 Amendment No. 1 Amendment No. 1 to UNOVA, Inc. Supplemental Executive 10.18 September 30, 1998 Retirement Plan, dated September 23, 1998. Form 10-Q Amendment No. 2 to UNOVA, Inc. Supplemental Executive 10.19 December 31, 1998 Retirement Plan, dated March 11, 1999. Form 10-K Amendment No. 3 to UNOVA, Inc. Supplemental Executive 10.20 December 31, 1999 Retirement Plan, dated March 15, 2000. Form 10-K Supplemental Retirement Agreement between UNOVA, Inc. 10.21 Form 10 Amendment No. 1 and Alton J. Brann dated October 1997. Amendment No. 1 to Supplemental Retirement Agreement 10.22 September 30, 1998 between UNOVA, Inc. and Alton J. Brann, dated September Form 10-Q 23, 1998.
21 24 EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS (CONTINUED)
REPORT WITH WHICH DESCRIPTION EXHIBIT NO. EXHIBIT WAS FILED ----------- ----------- ----------------- Amendment No. 2 to Supplemental Executive Retirement 10.23 December 31, 1998 Agreement between UNOVA, Inc. and Alton J. Brann, dated Form 10-K March 11, 1999. Amendment No. 3 to Supplemental Executive Retirement 10.24 December 31, 1999 Agreement between UNOVA, Inc. and Alton J. Brann, dated Form 10-K March 15, 2000. Supplemental Executive Retirement Agreement between 10.25 December 31, 1999 UNOVA, Inc. and Larry D. Brady dated March 15, 2000. Form 10-K Employment Agreement between UNOVA, Inc. and Clayton A. 10.26 Form 10 Amendment No. 1 Williams, dated August 1997. Amendment No. 1 to Employment Agreement between UNOVA, 10.27 December 31, 1997 Inc. and Clayton A. Williams, dated March 24, 1998. Form 10-K Amendment No. 2 to Employment Agreement between UNOVA, 10.28 December 31, 1998 Inc. and Clayton A. Williams, dated May 18, 1998. Form 10-K UNOVA, Inc. 1997 Stock Incentive Plan. 10.29 September 30, 1997 Form 10-Q UNOVA, Inc. Executive Severance Plan (As Amended 10.31 December 31, 1999 November 18, 1999). Form 10-K Form of Promissory Notes in favor of the Company given 10.32 September 30, 1997 by certain officers and key employees. Form 10-Q Board resolution dated September 24, 1997 establishing 10.33 September 30, 1997 the UNOVA, Inc. Incentive Loan Program. Form 10-Q UNOVA, Inc. Group Executive Survivor Benefit Plan. 10.34 December 31, 1999 Form 10-K UNOVA, Inc. 1999 Stock Incentive Plan. 10.35 1999 Proxy Statement UNOVA, Inc. Management Incentive Compensation Plan. 10.36 1999 Proxy Statement UNOVA, Inc. Executive Medical Benefit Plan. 10.37 December 31, 1998 Form 10-K Letter Offering Employment to Larry Brady as President 10.38 June 30, 1999 and Chief Operating Officer of UNOVA, Inc., accepted by Form 10-Q Mr. Brady on June 16, 1999. Restricted Stock Agreement between UNOVA, Inc. and 10.39 September 30, 1999 Larry Brady. Form 10-Q Letter Offering Employment to Robert O'Malley as 10.40 December 31, 1999 President of Intermec Technologies Corporation, as Form 10-K accepted by Mr. O'Malley on May 26, 1999.
22 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNOVA, INC. /s/ MICHAEL E. KEANE -------------------------------------- Michael E. Keane Senior Vice President and Chief Financial Officer March 15, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: /s/ PAUL BANCROFT, III Director March 15, 2000 - -------------------------------------------------------- Paul Bancroft, III /s/ LARRY D. BRADY Director, President, and March 15, 2000 - -------------------------------------------------------- Chief Operating Officer Larry D. Brady /s/ ALTON J. BRANN Director, Chairman of the March 15, 2000 - -------------------------------------------------------- Board, and Chief Executive Alton J. Brann Officer /s/ JOSEPH T. CASEY Director March 15, 2000 - -------------------------------------------------------- Joseph T. Casey /s/ WILLIAM C. EDWARDS Director March 15, 2000 - -------------------------------------------------------- William C. Edwards /s/ STEPHEN E. FRANK Director March 15, 2000 - -------------------------------------------------------- Stephen E. Frank /s/ CLAIRE W. GARGALLI Director March 15, 2000 - -------------------------------------------------------- Claire W. Gargalli /s/ ORION L. HOCH Director March 15, 2000 - -------------------------------------------------------- Orion L. Hoch /s/ STEVEN B. SAMPLE Director March 15, 2000 - -------------------------------------------------------- Steven B. Sample /s/ WILLIAM D. WALSH Director March 15, 2000 - -------------------------------------------------------- William D. Walsh /s/ CHARLES A. CUSUMANO Vice President, Finance, March 15, 2000 - -------------------------------------------------------- and Controller (Chief Charles A. Cusumano Accounting Officer)
23 26 UNOVA, INC. MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The consolidated and combined financial statements of UNOVA, Inc. and subsidiaries and related financial information included in this Annual Report, have been prepared by the Company, whose management is responsible for their integrity. These statements, which necessarily reflect estimates and judgments, have been prepared in conformity with generally accepted accounting principles. The Company maintains a system of internal controls to provide reasonable assurance that assets are safeguarded and transactions are properly executed and recorded. As part of this system, the Company has an internal audit staff to monitor compliance with and the effectiveness of established procedures. The consolidated and combined financial statements have been audited by Deloitte & Touche LLP, independent auditors, whose report appears on page F-2. The Audit and Compliance Committee of the Board of Directors, which consists solely of directors who are not employees of the Company, meets periodically with management, the independent auditors and the Company's internal auditors to review the scope of their activities and reports relating to internal controls and financial reporting matters. The independent and internal auditors have full and free access to the Audit and Compliance Committee and meet with the Committee both with and without the presence of Company management. /s/ Michael E. Keane Senior Vice President and Chief Financial Officer February 11, 2000 F-1 27 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders UNOVA, Inc. Woodland Hills, California We have audited the accompanying consolidated balance sheets of UNOVA, Inc. and subsidiaries (as described in Note A) as of December 31, 1999 and 1998, and the related consolidated and combined statements of operations, changes in shareholders' investment, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated and combined financial statements present fairly, in all material respects, the financial position of UNOVA, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP Los Angeles, California February 11, 2000 F-2 28 UNOVA, INC. CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Sales and Service Revenues......................... $2,108,749 $1,662,663 $1,426,247 ---------- ---------- ---------- Costs and Expenses Cost of sales and service........................ 1,500,974 1,110,799 981,380 Selling, general and administrative.............. 454,473 383,663 324,405 Depreciation and amortization.................... 65,974 57,043 40,672 Acquired in-process research and development charges....................................... 211,500 Interest, net.................................... 38,015 25,715 16,689 ---------- ---------- ---------- Total Costs and Expenses................. 2,059,436 1,577,220 1,574,646 ---------- ---------- ---------- Other Income, Net.................................. 31,523 ---------- Earnings (Loss) before Taxes on Income............. 49,313 116,966 (148,399) Taxes on Income.................................... (19,725) (47,253) (22,968) ---------- ---------- ---------- Net Earnings (Loss)................................ $ 29,588 $ 69,713 $ (171,367) ========== ========== ========== Basic Earnings (Loss) per Share.................... $ 0.54 $ 1.28 $ (3.17) ========== ========== ========== Diluted Earnings (Loss) per Share.................. $ 0.54 $ 1.27 $ (3.17) ========== ========== ==========
See accompanying notes to consolidated and combined financial statements. F-3 29 UNOVA, INC. CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS)
DECEMBER 31, ------------------------ 1999 1998 ---------- ---------- ASSETS Current Assets Cash and cash equivalents................................. $ 25,239 $ 17,708 Accounts receivable, net of allowance for doubtful accounts of $20,375 (1999) and $24,021 (1998).......... 596,885 662,885 Inventories, net of progress billings..................... 310,175 336,005 Deferred tax assets....................................... 158,170 141,773 Other current assets...................................... 19,873 21,129 ---------- ---------- Total Current Assets.............................. 1,110,342 1,179,500 Property, Plant and Equipment, Net.......................... 270,899 286,171 Goodwill and Other Intangibles, Net of Accumulated Amortization of $87,883 (1999) and $70,244 (1998)...................... 399,131 400,164 Other Assets................................................ 123,167 113,381 ---------- ---------- Total Assets................................................ $1,903,539 $1,979,216 ========== ========== LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities Accounts payable and accrued expenses..................... $ 509,188 $ 456,812 Payroll and related expenses.............................. 89,309 93,199 Notes payable and current portion of long-term obligations............................................ 64,002 237,276 ---------- ---------- Total Current Liabilities......................... 662,499 787,287 ---------- ---------- Long-term Obligations....................................... 365,386 366,487 ---------- ---------- Deferred Tax Liabilities.................................... 44,777 42,154 ---------- ---------- Other Long-term Liabilities................................. 99,577 81,863 ---------- ---------- Commitments and Contingencies............................... Shareholders' Investment Preferred stock; 50,000,000 shares authorized............. Common stock; shares outstanding: 55,551,064 (1999) and 54,942,655 (1998)................ 556 549 Additional paid-in capital................................ 652,157 645,054 Retained earnings......................................... 91,260 61,672 Accumulated other comprehensive loss: Cumulative currency translation adjustment............. (12,673) (5,850) ---------- ---------- Total Shareholders' Investment.................... 731,300 701,425 ---------- ---------- Total Liabilities and Shareholders' Investment.............. $1,903,539 $1,979,216 ========== ==========
See accompanying notes to consolidated and combined financial statements. F-4 30 UNOVA, INC. CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- --------- Cash and Cash Equivalents at Beginning of Year........... $ 17,708 $ 13,685 $ 149,467 --------- --------- --------- Cash Flows from Operating Activities: Net earnings (loss).................................... 29,588 69,713 (171,367) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities (net of acquisitions): Acquired in-process research and development charges... 211,500 Depreciation and amortization..................... 65,974 57,043 40,672 Change in prepaid pension costs, net.............. (15,246) (14,620) (11,217) Deferred taxes.................................... (6,065) (437) 2,162 Gain on sale of property plant and equipment, net............................................ (1,333) (35,043) Changes in operating assets and liabilities: Proceeds from sale of accounts receivable...... 100,000 Accounts receivable............................ (36,741) (109,096) 39,752 Inventories.................................... 24,287 (67,223) (9,167) Other current assets........................... (1,019) 13,889 (12,540) Accounts payable and accrued expenses.......... 39,898 69,922 (53,830) Payroll and related expenses................... (12,587) 13,493 6,238 Other operating activities........................ 7,021 6,823 (1,247) --------- --------- --------- Net cash provided by operating activities...... 193,777 4,464 40,956 --------- --------- --------- Cash Flows from Investing Activities: Capital expenditures................................... (61,149) (83,776) (30,310) Proceeds from sale of property, plant and equipment.... 30,356 71,118 7,198 Changes in other assets................................ 8,926 (3,402) (16,987) Acquisition of businesses, net of cash acquired........ (287,350) (400,754) Other investing activities............................. 3,914 (1,089) 206 --------- --------- --------- Net cash used in investing activities.......... (17,953) (304,499) (440,647) --------- --------- --------- Cash Flows from Financing Activities: Repayment of borrowings................................ (288,573) (457,271) (95,607) Proceeds from borrowings............................... 114,029 754,780 276,698 Dividend paid to Western Atlas Inc. ................... (230,000) Net transactions with Western Atlas Inc. .............. 190,338 Change in due to Western Atlas Inc. ................... 120,426 Other financing activities............................. 6,251 6,549 2,054 --------- --------- --------- Net cash provided by (used in) financing activities................................... (168,293) 304,058 263,909 --------- --------- --------- Resulting Increase (Decrease) in Cash and Cash Equivalents... 7,531 4,023 (135,782) --------- --------- --------- Cash and Cash Equivalents at End of Year................. $ 25,239 $ 17,708 $ 13,685 ========= ========= =========
See accompanying notes to consolidated and combined financial statements. F-5 31 UNOVA, INC. CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT (THOUSANDS OF DOLLARS)
ACCUMULATED NET ADDITIONAL RETAINED OTHER INVESTMENT COMMON PAID-IN EARNINGS COMPREHENSIVE BY WESTERN TOTAL STOCK CAPITAL (DEFICIT) INCOME (LOSS) ATLAS -------- ------- ---------- --------- ------------- ---------- BALANCE, JANUARY 1, 1997.............. $574,508 $ 574,508 -------- Comprehensive Loss before Distribution Date: Net loss to Distribution Date....... (163,326) (163,326) Currency translation adjustment to Distribution Date................. (3,699) (3,699) -------- Comprehensive Loss before Distribution Date............... (167,025) -------- Net transactions with Western Atlas Inc................................. 190,338 190,338 -------- Distribution of common stock to UNOVA shareholders......................... $ 545 $601,689 $ (4,413) (597,821) Comprehensive Loss from Distribution Date to December 31, 1997: Net loss from Distribution Date to December 31, 1997................. (8,041) $(8,041) Currency translation adjustment from Distribution Date to December 31, 1997............................... (2,345) (2,345) -------- Comprehensive Loss from Distribution Date to December 31, 1997........................ (10,386) -------- Other................................. 2,054 2,054 -------- ------- -------- ------- -------- --------- BALANCE, DECEMBER 31, 1997............ 589,489 545 603,743 (8,041) (6,758) - -------- Comprehensive Income: Net earnings........................ 69,713 69,713 Currency translation adjustment..... 908 908 -------- Comprehensive Income.............. 70,621 -------- Distribution-related tax benefit...... 34,809 34,809 Issuances of common stock............. 6,506 4 6,502 -------- ------- -------- ------- -------- --------- BALANCE, DECEMBER 31, 1998............ 701,425 549 645,054 61,672 (5,850) - -------- Comprehensive Income: Net earnings........................ 29,588 29,588 Currency translation adjustment..... (6,823) (6,823) -------- Comprehensive Income.............. 22,765 -------- Issuances of common stock............. 7,110 7 7,103 -------- ------- -------- ------- -------- --------- BALANCE, DECEMBER 31, 1999............ $731,300 $ 556 $652,157 $91,260 $(12,673) $ - ======== ======= ======== ======= ======== =========
See accompanying notes to consolidated and combined financial statements. F-6 32 UNOVA, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS NOTE A: SIGNIFICANT ACCOUNTING POLICIES General Information. UNOVA, Inc. and subsidiaries ("UNOVA" or the "Company") became an independent public company on October 31, 1997 (the "Distribution Date"), when all of the UNOVA common stock was distributed to holders of common stock of Western Atlas Inc. ("WAI"), in the form of a dividend (the "Distribution"). Every WAI shareholder of record on October 24, 1997 was entitled to receive one share of UNOVA common stock for each WAI share of common stock held. Nature of Operations. UNOVA is an industrial technologies company providing global customers with solutions for improving their efficiency and productivity. The Company operates in two primary businesses: Automated Data Systems ("ADS") and Industrial Automation Systems ("IAS"). The IAS businesses are further disaggregated into two reportable segments based on their respective markets served: Integrated Production Systems ("IPS") and Advanced Manufacturing Equipment ("AME"). The ADS business segment comprises mobile computing and wireless communication systems products and services, principally serving the industrial market. Customers are global distribution and transportation companies, food and beverage operations, manufacturing industries, health care providers and government agencies. The IPS segment includes integrated manufacturing systems, body welding and assembly systems, and precision grinding and abrasives operations, primarily serving the worldwide automotive, off-road vehicle, and diesel engine industries. The AME segment comprises machining systems and stand alone machine tools primarily serving the aerospace and manufacturing industries. Principles of Consolidation and Combination. The consolidated and combined financial statements include the accounts of UNOVA, Inc. and its wholly owned subsidiaries and companies in which UNOVA has a controlling interest. Investments in companies over which UNOVA has influence but not a controlling interest are accounted for using the equity method. Investments in other companies are carried at cost. All material intercompany transactions have been eliminated. The combined financial statements for all periods presented prior to the Distribution Date include the historical accounts and operations of the former WAI businesses that comprised the Company at the Distribution Date. They include, at their historical amounts, the assets, liabilities, revenues and expenses directly related and those allocated to these businesses. A pro-rata share of certain general and administrative corporate costs incurred by WAI prior to the Distribution Date have been allocated to the Company based on the relative ratio of projected costs to be incurred by WAI and the Company individually. Such costs include general management, legal, tax, treasury, insurance, financial audit, financial reporting, human resources and real estate services. The Company's debt prior to the Distribution Date includes an allocation of a portion of WAI's corporate debt, based on the Company's estimated past capital requirements. Interest expense related thereto has been included in the Company's statements of operations and cash flows at WAI's estimated blended historical rate of interest on long-term borrowings of 7.5%. Management believes the above stated allocations were made on a reasonable basis; however, they do not necessarily reflect the results of operations which would have occurred had the Company been an independent entity nor are they necessarily indicative of future expenses or income (see Note J). Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for each reported period. Actual results could differ from those estimates. Cash Equivalents. The Company considers time deposits and commercial paper purchased within three months of their date of maturity to be cash equivalents. F-7 33 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out or last-in, first-out method. Revenue Recognition. Revenues are generally recognized when products are shipped or as services are performed. Revenues and profits on long-term contracts are recorded under the percentage-of-completion, cost to cost method of accounting. Any anticipated losses on contracts are charged to operations as soon as they are determinable. General and administrative costs are expensed as incurred. Research and Development. Research and development costs are charged to expense as incurred. Total expenditures on research and development activities amounted to $74.1 million, $71.5 million and $53.1 million, in the years ended December 31, 1999, 1998, and 1997, respectively. The Company expensed a total of $211.5 million of acquired in-process research and development in 1997. See further discussion in Note B. Other Income, Net. In the year ended December 31, 1998, other income, net consists of a gain of $35.5 million recognized on the sale of UNOVA's corporate headquarters building, offset by other non-operating expenses. Property, Plant and Equipment. Property, plant and equipment is stated at cost. Depreciation, computed generally by the straight-line method for financial reporting purposes, is provided for over the estimated useful lives of the related assets. Income Taxes. The Company accounts for income taxes using the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. This method also requires the recognition of future tax benefits such as net operating loss carryforwards and other tax credits. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered. Valuation allowances are provided for deferred tax assets if it is more likely than not that they will be realized. The Company's domestic operations and their foreign branches were included in WAI's consolidated tax returns (for periods prior to the Distribution Date). Any tax benefits related to these operations have been recorded in these financial statements if such were realizable by WAI on a consolidated basis. Foreign entities included in these financial statements pay taxes in accordance with local laws and regulations. Concentrations of Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high credit quality institutions and limits the amount of credit exposure with any one institution. Concentrations of credit risk with respect to trade receivables are limited because a large number of geographically diverse customers make up the Company's customer base, thus spreading the credit risk. The Company evaluates the creditworthiness of its customers and maintains an allowance for anticipated losses. No customer was significant to the Company's revenues in 1999 and 1998. In 1997, one automotive customer represented 13% of revenues. Foreign Currencies. The currency effects of translating the financial statements of the Company's foreign entities that operate in local currency environments are included in the "cumulative currency translation adjustment" component of accumulated other comprehensive income (loss). Currency transaction gains and losses are included in the consolidated and combined statements of operations. Currency transaction net losses for the year ended December 31, 1999 were $3.0 million, net of taxes. Currency transaction gains and losses for the years ended December 31, 1998 and 1997 were not significant. F-8 34 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial Instruments. When appropriate, the Company may attempt to limit its exposure to changing foreign exchange rates by entering into short-term foreign currency exchange contracts. As of December 31, 1999, the Company held short-term contracts for the purpose of hedging foreign currency cash flows with an aggregate notional amount of $86.8 million. The Company does not enter into any foreign currency contracts for speculating or trading purposes. Contracts that effectively meet risk reduction and correlation criteria are accounted for as hedges and, accordingly, gains and losses from mark-to-market are deferred in the cost basis of the underlying transaction. In those circumstances when it is not appropriate to account for contracts as hedges, gains and losses from mark-to-market are recorded currently in earnings. Goodwill and Other Intangibles. Goodwill is amortized on a straight-line basis over periods ranging from 15 to 40 years. Other intangibles are amortized on a straight-line basis over periods ranging from 4 to 18 years. Impairment of Long-Lived Assets and Goodwill. The Company assesses the recoverability of long-lived assets and goodwill when circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment is recorded to writedown long-lived assets and goodwill to their estimated fair value if the undiscounted cash flows estimated to be generated by the asset are less than its carrying amount. Environmental Costs. Provisions for environmental costs are recorded when the Company determines its responsibility for remedial efforts and such amounts are reasonably estimable. New Accounting Pronouncements. In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133 (an amendment of FASB Statement No. 133). Under the provisions of this statement, the effective date of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"), is deferred to fiscal years beginning after June 15, 2000. The Company is currently evaluating the impact of adopting SFAS No. 133. Reclassifications. Certain prior year amounts have been reclassified to conform to the current year presentation. F-9 35 NOTE B: BUSINESS ACQUISITIONS AND INVESTMENTS ACQUISITIONS AND INVESTMENTS In October 1998, UNOVA acquired the machine tool business of Cincinnati Milacron for approximately $187.3 million in cash. The division, which was renamed Cincinnati Machine, a UNOVA Company ("Cincinnati Machine"), is engaged in the design, manufacture, sale and servicing of standard and advanced computer numerically controlled metal cutting machine tools for the industrial component, aerospace, job shop, fluid power and automotive industries. The acquisition was funded using the Company's committed credit facility and was accounted for under the purchase method of accounting. Accordingly, the acquisition cost has been allocated to the net assets acquired based on their relative fair values. In conjunction with the acquisition management began to formulate a plan to cease domestic manufacturing of certain machines models, and to terminate employees at domestic and foreign locations. During 1999, the Company adjusted the preliminary allocation of the purchase price to include approximately $19.8 million of additional liabilities for costs to exit the manufacturing activities and terminate employees, and $4.1 million for additional postretirement obligations and pension liabilities. The acquisition resulted in $17.8 million allocated to goodwill that is being amortized over 25 years using the straight-line method. At December 31, 1999, the Company has substantially completed the process of exiting these activities and terminating employees. During the third quarter of 1998, UNOVA acquired R&B Machine Tool Company ("R&B Machine"), a specialty machine and retooling company. This acquisition was funded using short-term uncommitted credit lines. In June 1998, the Company acquired the radio frequency identification ("RFID") business unit of Amtech Corporation known as the Amtech Systems Division ("Amtech Systems"). Amtech Systems is a supplier of wireless data technologies for electronic toll collection, rail and motor fleet tracking, and access control to parking and other structures. The Company had previously purchased $10.0 million of Amtech Corporation common stock which was applied towards the purchase price of Amtech Systems. Although these acquisitions are integral to the Company's business strategy, they are not material in the aggregate to UNOVA's consolidated financial statements. The Company acquired Norand Corporation ("Norand") on March 3, 1997, and United Barcode Industries ("UBI") on April 4, 1997. Norand designs, manufactures and markets mobile computing systems and wireless data communications networks using radio frequency technology. UBI, a European-based ADC company, manufactures bar code on-demand printers with labels and ribbons as well as hand-held scanners. These two companies were consolidated in Intermec Technologies Corporation, the Company's Automated Data Systems segment. Both acquisitions were funded by Western Atlas borrowings and cash on hand, and have been accounted for under the purchase method of accounting. Accordingly, the acquisition costs (approximately $280.0 million and $107.0 million for Norand and UBI, respectively) were allocated to the net assets acquired based upon their relative fair values. Such allocation resulted in $203.3 million assigned to acquired in-process research and development activities; $154.1 million assigned to goodwill (amortized over 25 years using the straight-line method); and $29.0 million assigned to other intangibles (amortized over periods ranging from four to 18 years using the straight-line method). During the second quarter of 1997, the Company expensed the amounts assigned to acquired in-process research and development projects that had not yet achieved technological feasibility in accordance with Financial Accounting Standards Board Interpretation No. 4 ("FIN 4"). The Company acquired the remaining 51% of Honsberg, a German machine tool maker, in the second quarter of 1997. The initial 49% of Honsberg was acquired during 1995. The Company purchased the stamping, engineering and prototyping division of Modern Prototype Company in September 1997. In December 1997, UNOVA acquired Goldcrown Machinery, Inc., a manufacturer of precision centerless grinding systems. Although these acquisitions are integral to the Company's business strategy, they are not material in the aggregate to UNOVA's consolidated and combined financial statements. In December 1997, the Company acquired radio frequency identification ("RFID") technology from IBM Corporation. In connection with this acquisition, the Company recorded a $13.0 million after-tax charge in 1997 to expense acquired in-process research and development in accordance with FIN 4 and the F-10 36 NOTE B: BUSINESS ACQUISITIONS AND INVESTMENTS (CONTINUED) anticipated loss on a related long-term contract. The Company is using this acquired technology to further develop its own RFID technology. CASH FLOW DISCLOSURE The fair values of acquired assets and liabilities, at their respective acquisition dates, are presented below for supplemental cash flow disclosure purposes. The 1998 balances include the preliminary allocations to the acquired assets and liabilities of Cincinnati Machine, R&B Machine and Amtech. The 1997 balances include Norand, UBI, Honsberg, Modern Prototype and Goldcrown Machinery.
YEAR ENDED DECEMBER 31, ----------------------- 1998 1997 --------- ---------- (THOUSANDS OF DOLLARS) Current assets.............................................. $263,266 $ 164,153 Property, plant and equipment............................... 111,593 29,093 Goodwill and intangibles.................................... 50,983 201,380 Other non-current assets.................................... 17,864 55,956 Total debt.................................................. (29,221) (84,163) Other current liabilities................................... (85,049) (146,724) Other non-current liabilities............................... (9,154) (11,642) In-process research and development......................... 203,300 -------- --------- Purchase price.............................................. 320,282 411,353 Less non-cash payment of Amtech common stock................ (10,000) Less cash acquired.......................................... (22,932) (10,599) -------- --------- Cash paid for acquisitions, net of cash acquired............ $287,350 $ 400,754 ======== =========
NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST Cash and cash equivalents amounted to $25.2 million and $17.7 million at December 31, 1999 and December 31, 1998, respectively, and consisted mainly of time deposits and commercial paper. Notes payable and long-term obligations consist of the following:
DECEMBER 31, ----------------------- 1999 1998 --------- ---------- (THOUSANDS OF DOLLARS) Borrowings under credit facility, with interest at 7.0% (1999) and 5.4% (1998), due 2002.......................... $150,000 $ 200,000 Debentures, with interest at 6.875%, due 2005............... 100,000 100,000 Debentures, with interest at 7.00%, due 2008................ 100,000 100,000 Notes payable, with average interest at 4.5% (1999) and 5.3% (1998), due 2000.......................................... 62,888 186,024 Industrial revenue bonds, with average interest at 5.3% (1999) and 5.5% (1998), due July 2005..................... 13,500 13,500 Other, with average interest at 7.1% (1999) and 6.9% (1998), due through 2002.......................................... 3,000 4,239 -------- --------- 429,388 603,763 Less notes payable and current portion of long-term obligations............................................... (64,002) (237,276) -------- --------- Long-term obligations....................................... $365,386 $ 366,487 ======== =========
F-11 37 NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED) Notes payable and long-term obligations at December 31, 1999 mature as follows:
(THOUSANDS YEAR ENDING DECEMBER 31, OF DOLLARS) ------------------------ ------------ 2000........................................................ $ 64,002 2001........................................................ 179 2002........................................................ 150,003 2003........................................................ 2004........................................................ Thereafter.................................................. 215,204 -------- $429,388 ========
The Company maintains two unsecured committed credit facilities with a group of banks from which it may borrow up to an aggregate of $500.0 million. Under these facilities the Company may borrow at the Prime Rate, the London Inter Bank Offered Rate, rates borne by certificates of deposit or other rates that are mutually acceptable to the banks and the Company, plus a respective rate margin, that varies based on outstanding borrowing levels and the Company's credit rating. The $400 million credit facility expires in September 2002 and had outstanding borrowings of $150.0 million at December 31, 1999. The $100 million credit facility expires in November 2000 and had no outstanding borrowings at December 31, 1999. At February 11, 2000, $300.0 million of these credit facilities was available for the Company's general use. In addition, the Company maintains other uncommitted credit facilities and lines of credit of which $35.4 million was available to the Company at February 11, 2000. The Company is in compliance with its various debt covenants the most restrictive of which relate to the Company's incurrence of debt, mergers, consolidations and sale of assets and which require the Company to satisfy certain leverage ratios. In June 1999, a financing subsidiary of UNOVA entered into an agreement to sell undivided interests in a revolving pool of the Company's trade accounts receivable to a financial institution which issues its short-term debt backed by receivables acquired in similar transactions. The financing subsidiary purchased these receivables, irrevocably and without recourse, from the Company under a separate agreement. Under the terms of these agreements, UNOVA is entitled to receive up to $100.0 million of proceeds from the sale of undivided interests in the receivables. At December 31, 1999, net proceeds from these agreements were approximately $100.0 million and have been reflected as a reduction of accounts receivable on the consolidated balance sheet. Costs associated with these agreements were $2.6 million for the year ended December 31, 1999 and have been classified as selling, general and administrative expenses. In March 1998, the Company sold $200.0 million principal amount of senior unsecured debt in an underwritten offering. The debt comprised $100.0 million of 6.875% seven-year notes, at a price of 99.867 and $100.0 million of 7.00% ten-year notes, at a price of 99.856. Including underwriting fees, discounts and effects of forward rate agreements, the effective interest rates on the seven-year and ten-year notes are 7.125% and 7.175%, respectively. The net proceeds of approximately $198.0 million were used by the Company to repay outstanding short-term debt. Financial instruments on the Company's consolidated balance sheets include accounts receivable, notes payable, and accounts payable which approximate their market values due to their short maturity. The $365.4 million of long-term obligations had an estimated fair market value of $333.3 million as of December 31, 1999, based primarily on quoted market prices. UNOVA also has off-balance-sheet guarantees and letter-of-credit reimbursement agreements with respect to liabilities totaling a maximum amount of $381.6 million at December 31, 1999. These agreements primarily relate to the guarantee of performance on contracts. F-12 38 NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED) Net interest expense is composed of the following:
YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 ------- ------- ------- (THOUSANDS OF DOLLARS) Interest expense........................................ $38,867 $28,182 $20,234 Interest income......................................... (852) (2,467) (3,545) ------- ------- ------- Net interest expense.................................... $38,015 $25,715 $16,689 ======= ======= =======
The Company made interest payments to non-related parties of $39.5 million, $25.3 million, and $6.6 million in the years ended December 31, 1999, 1998 and 1997, respectively. Capitalized interest costs in each of the periods presented were not material. Interest expense for the year ended December 31, 1997 includes $12.0 million based on a rate of 7.5% on the allocated portion of WAI corporate debt. NOTE D: ACCOUNTS RECEIVABLE AND INVENTORIES Accounts receivable consists of the following:
DECEMBER 31, ---------------------- 1999 1998 --------- --------- (THOUSANDS OF DOLLARS) Trade receivables, net...................................... $224,876 $365,232 Receivables related to long-term contracts Amounts billed............................................ 104,356 125,920 Unbilled costs and accrued profit on progress completed and retentions......................................... 267,653 171,733 -------- -------- Accounts receivable, net.................................... $596,885 $662,885 ======== ========
The unbilled costs and retentions at December 31, 1999 are expected to be entirely billed and collected during 2000. Inventories consist of the following:
DECEMBER 31, ---------------------- 1999 1998 --------- --------- (THOUSANDS OF DOLLARS) Raw materials and work in process........................... $237,822 $232,010 Finished goods.............................................. 44,336 82,434 Inventoried costs related to long-term contracts............ 51,834 56,823 Less progress billings...................................... (23,817) (35,262) -------- -------- Inventories, net of progress billings....................... $310,175 $336,005 ======== ========
F-13 39 NOTE E: PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
DECEMBER 31, ---------------------- 1999 1998 --------- --------- (THOUSANDS OF DOLLARS) Property, plant and equipment, at cost Land..................................................... $ 20,186 $ 27,313 Buildings and improvements............................... 107,417 120,142 Machinery and equipment.................................. 344,626 316,932 Less accumulated depreciation.............................. (201,330) (178,216) --------- --------- Net property, plant and equipment.......................... $ 270,899 $ 286,171 ========= =========
Depreciation expense was $47.9 million, $40.9 million and $27.4 million for the years ended December 31, 1999, 1998 and 1997, respectively. The range of estimated useful lives of the major classes of assets are: Buildings................................................... 10-45 years Building improvements....................................... 2-20 years Machinery and equipment..................................... 2-15 years
As of December 31, 1999, the Company deferred $13.3 million of gains related to sale-leaseback transactions. These deferred gains are being amortized over the terms of the related leases. Minimum rental commitments (including commitments to a related party of $8.14 million, see Note J), net of deferred gain amortization, under noncancellable operating leases were as follows at December 31, 1999:
YEAR ENDING OPERATING LEASES ----------- ---------------- (THOUSANDS OF DOLLARS) 2000........................................................ $ 21,406 2001........................................................ 14,914 2002........................................................ 11,036 2003........................................................ 8,413 2004........................................................ 7,283 Thereafter.................................................. 45,001 -------- $108,053 ========
Rental expense for operating leases, including amounts for short-term leases with nominal, if any, future rental commitments, was $27.1 million, $20.5 million and $17.9 million, for the years ended December 31, 1999, 1998 and 1997, respectively. Proceeds totaling approximately $25.5 million were received in 1999 on the sale-leaseback of an operating facility. In 1998, $71.1 million was received on the sale of the Company's corporate headquarters building and two other buildings, and the sale-leaseback of an operating facility. F-14 40 NOTE F: SHAREHOLDERS' INVESTMENT CAPITAL STOCK At December 31, 1999, there were authorized 250 million shares of common stock, par value $0.01, and 50 million shares of preferred stock, par value $0.01. SHAREHOLDER RIGHTS PLAN In September 1997, the Company's Board of Directors adopted a Share Purchase Rights Plan (the "Plan") and, in accordance with such Plan, declared a dividend of one preferred share purchase right (the "Right") for each outstanding share of Company common stock, payable to shareholders of record on October 31, 1997. The Plan will cause substantial dilution to a party that attempts to acquire the Company in a manner or on terms not approved by the Board of Directors. Each Right entitles the holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock at a price of seventy dollars. The Rights become exercisable if a person other than a person which presently holds more than 15 percent of the Company's common stock acquires 15 percent or more, or announces a tender offer for 15 percent or more, of the Company's outstanding common stock. If a person acquires 15 percent or more of the Company's outstanding common stock, each right will entitle the holder to purchase the Company's common stock having a market value of twice the exercise price of the Right. The Rights, which expire in September 2007, may be redeemed by UNOVA at a price of one cent per Right at any time prior to a person acquiring 15 percent or more of the outstanding common stock. EARNINGS PER SHARE For the years ended December 31, 1999 and 1998, basic earnings per share is calculated using the weighted average number of common shares outstanding for the period while diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options using the "treasury stock" method. For the year ended December 31, 1997, basic earnings per share is calculated using the weighted average of the number of shares outstanding for post-Distribution Date periods and the outstanding shares of WAI common stock at June 30, 1997 for the period prior to the Distribution Date, while diluted earnings per share is computed by adding the dilutive effect of outstanding stock options using the "treasury stock" method to the basic weighted average balance. Shares used for basic and diluted earnings per share were computed as follows for the years ended December 31:
1999 1998 1997 ---------- ---------- ---------- Weighted average common shares -- Basic........ 55,110,655 54,620,208 54,056,243 Dilutive effect of stock options............... 8,863 82,859 ---------- ---------- ---------- Weighted average shares -- Diluted............. 55,119,518 54,703,067 54,056,243 ========== ========== ==========
At December 31, 1999 and 1998, Company employees and directors held options to purchase 5,524,700 and 3,937,750 shares, respectively, of Company common stock that were antidilutive to the diluted earnings per share computation. These options could become dilutive in future periods if the average market price of the Company's common stock exceeds the exercise price of the outstanding options. F-15 41 NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED) STOCK AWARDS The UNOVA, Inc. 1999 and 1997 Stock Incentive Plans (the "Stock Incentive Plans," collectively) provide for the grant of incentive awards to officers and other key employees. Incentive awards may be granted in the form of stock options, with or without related stock appreciation rights, or in the form of restricted stock. Under the Stock Incentive Plans, stock options may not be granted at a price less than the market value of the Company's common stock on the date of grant. The Stock Incentive Plans options generally vest in equal increments over five years. The Director Stock Option and Fee Plan (the "Director Plan") provides for the grant of stock options to the Company's non-employee directors. Under the Director Plan, stock options are granted annually at the market value of the Company's common stock on the date of grant. The number of options granted annually is fixed by the Director Plan. Such options become fully exercisable on the first anniversary of their grant. Under the Stock Incentive Plans and Director Plan, there were 1,570,002 options exercisable and 2,534,811 options available for grant as of December 31, 1999. The following table summarizes the activity of the Company's stock option plans:
WEIGHTED-AVERAGE NUMBER EXERCISE PRICE OF SHARES PER SHARE --------- ---------------- 1997 Granted.................................................. 2,504,500 $18.80 --------- Outstanding at December 31, 1997........................... 2,504,500 18.80 1998 Granted.................................................. 1,706,200 16.97 Canceled................................................. (255,950) 18.37 --------- Outstanding at December 31, 1998........................... 3,954,750 18.04 1999 Granted.................................................. 2,209,000 14.36 Canceled................................................. (190,050) 18.07 --------- Outstanding at December 31, 1999........................... 5,973,700 16.67 =========
Outstanding stock option data as of December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------ ----------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE RANGE OF REMAINING EXERCISE EXERCISE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE ---------------- ----------- ---------------- --------- ----------- --------- $12.38 to $16.59........ 3,622,200 9.38 $15.21 423,700 $16.52 17.19 to 22.00........ 2,351,500 7.90 18.92 1,146,302 18.81 --------- ---- ------ --------- ------ 5,973,700 8.80 $16.67 1,570,002 $18.20 ========= ==== ====== ========= ======
F-16 42 NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED) The weighted-average fair value of stock options granted during 1999, 1998 and 1997 were $6.33, $7.10, and $7.76 per option, respectively. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1999, 1998 and 1997, respectively: risk-free interest rates of 5.88%, 4.63% and 5.80%; expected life of five years for each year; and expected volatility of 40.07%, 39.60% and 36.00%. The 1999 and 1998 expected volatility was determined from historical UNOVA stock price fluctuations, while the 1997 expected volatility was determined from historical industry stock price fluctuations. There is no assurance that the assumptions used in determining the fair values of stock options will prove true in the future. The actual value of the options depends on several factors, including the actual market price of the common stock on the date of exercise. Changes in any of these factors as well as fluctuations in the market price of the Company's common stock will cause the actual value of these options to vary from the theoretical value indicated above. In 1999, the Company granted 109,585 shares of restricted stock to an officer under the provisions of the 1999 Stock Incentive Plan. The fair value at the grant date of the restricted stock (without regard to restrictions on transfer), which vests in installments in 2002, 2003, and 2004, was $12.84 per share. The unearned portion of this grant is being amortized as compensation expense on a straight-line basis over the vesting period and was not material for the year ended December 31, 1999. EMPLOYEE STOCK PURCHASE PLAN In January 1998, UNOVA adopted an Employee Stock Purchase Plan under which the Company is authorized to sell up to five million shares of common stock to its eligible full-time employees. The purchase price of the stock is 85% of the lower of the market price on the first day or last day of the applicable offering period, which is normally six months in duration. In 1999 and 1998, employees purchased 496,450 and 433,506 shares, respectively. The weighted-average fair value of purchase rights granted in 1999 and 1998 was $4.42 per share and $5.14 per share, respectively. The fair value of the stock purchase rights were determined using the following weighted-average assumptions in 1999 and 1998, respectively; risk-free interest rate of 4.63% for each year; expected life equal to the applicable offering periods for each year; and expected volatility of 40.07% in 1999 and 39.60% in 1998. As previously noted, the actual value of purchase rights may vary from the theoretical value determined using the Black-Scholes option pricing model. PRO FORMA COMPENSATION COST DISCLOSURE The Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, under which no compensation cost has been recognized at the grant of stock options. Had compensation cost for these plans been determined consistent with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, the Company's pro forma net income (loss) and diluted earnings (loss) per share for 1999, 1998, and 1997 would have been $22.8 million and $0.41, $64.6 million and $1.18, and $(173.6) million and $(3.21), respectively. F-17 43 NOTE G: TAXES ON INCOME Earnings (loss) before taxes on income by geographic area are as follows:
YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 ------- -------- --------- (THOUSANDS OF DOLLARS) United States....................................... $44,113 $ 90,976 $(113,075) Other nations....................................... 5,200 25,990 (35,324) ------- -------- --------- $49,313 $116,966 $(148,399) ======= ======== =========
Taxes on income consist of the following provisions (benefits):
YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 ------- -------- --------- (THOUSANDS OF DOLLARS) Currently Payable: U.S. taxes........................................ $ 4,964 $ 20,416 $ 13,821 International taxes............................... 3,849 12,451 10,124 ------- -------- --------- 8,813 32,867 23,945 ------- -------- --------- Deferred: U.S. taxes........................................ 10,336 13,689 242 International taxes............................... 576 697 (1,219) ------- -------- --------- 10,912 14,386 (977) ------- -------- --------- $19,725 $ 47,253 $ 22,968 ======= ======== =========
Deferred taxes result from the effect of transactions which are recognized in different periods for financial and tax reporting purposes. The primary components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, 1999 DECEMBER 31, 1998 -------------------- -------------------- ASSET LIABILITY ASSET LIABILITY -------- --------- -------- --------- (THOUSANDS OF DOLLARS) Accrued liabilities................................. $ 40,355 $ 56,863 Receivables and inventories......................... 22,232 18,872 Retiree medical benefits............................ 12,680 10,176 Intangibles......................................... 13,473 12,963 Tax credit carryforwards............................ 23,419 6,395 Deferred income..................................... 9,244 2,718 Net operating loss carryforwards.................... 54,830 41,511 Pensions............................................ $28,048 $23,588 Accelerated depreciation............................ 16,729 18,566 Other items......................................... 1,327 1,220 -------- ------- -------- ------- Total before valuation allowance.................... 177,560 44,777 150,718 42,154 Valuation allowance................................. (19,390) (8,945) -------- ------- -------- ------- $158,170 $44,777 $141,773 $42,154 ======== ======= ======== =======
F-18 44 NOTE G: TAXES ON INCOME (CONTINUED) The Company has available at December 31, 1999, a net operating tax loss carryforward in the United States of approximately $67.8 million. Approximately $7.7 million and $13.9 million of the net operating tax loss carryforwards will expire in 2010 and 2011, respectively. Approximately $4.5 million, $25.1 million and $16.6 million of the remaining net operating tax loss carryforwards will expire in 2017, 2018 and 2019, respectively. The Company has foreign tax credit carryforwards of $2.5 million at December 31, 1999 to offset future tax liability in the United States through 2004. The Company also has general business credit and other tax credits carryforward of approximately $20.9 million to offset future tax liability in the United States through 2019. At December 31, 1999, the Company has foreign net operating tax loss carryforwards of $76.5 million. Valuation allowances of $19.4 million and $8.9 million, as of December 31, 1999 and 1998, respectively, have been provided for deferred income tax benefits related to the foreign loss carryforwards that may not be realized. The valuation allowance for each year includes $4.4 million related to the acquired German net operating loss carryforwards; any tax benefits subsequently recognized for the acquired German net operating loss carryforwards will be allocated to goodwill. The following is a reconciliation of income taxes at the U.S. statutory rate to the provision for income taxes:
YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 -------- ------- -------- (THOUSANDS OF DOLLARS) Tax at U.S. statutory rate................................ $ 17,260 $40,938 $(51,940) Nondeductible acquired in-process research and development............................................. 71,050 State income taxes net of federal benefit................. 2,998 3,055 1,625 Amortization of nondeductible goodwill.................... 4,852 4,272 4,431 Tax credits and FSC benefit............................... (13,870) (3,276) (1,250) Foreign earnings (losses) taxed at other than U.S. statutory rate... 6,174 4,240 (223) Other items............................................... 2,311 (1,976) (725) -------- ------- -------- $ 19,725 $47,253 $ 22,968 ======== ======= ========
The Company made net tax payments of $13.7 million, $4.5 million and $44.4 million in the years ended December 31, 1999, 1998 and 1997, respectively. The Company has provided for federal income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries. F-19 45 NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS The Company has retirement and pension plans which cover most of its employees. Most of the Company's U.S. employees are covered by a contributory defined benefit plan, under which annual contributions are made to the extent such contributions are actuarially determined to adequately fund the plan. Certain of the Company's non-U.S. subsidiaries also have retirement plans for employees. There are also defined contribution voluntary savings programs generally available for U.S. employees, which are intended to qualify under Sections 401(a) and 401(k) of the Internal Revenue Code. These plans are designed to enhance the retirement programs of participating employees. Under these plans, the Company matches up to 50% of a certain portion of participants' contributions. U.S. PENSION PLANS The following table sets forth the change in benefit obligations and plan assets of the Company's U.S. pension plans and the amounts recognized in the Company's balance sheets.
DECEMBER 31, ----------------------- 1999 1998 ---------- --------- (THOUSANDS OF DOLLARS) CHANGE IN BENEFIT OBLIGATIONS Benefit obligation at beginning of year................... $ 181,842 $151,649 Service cost.............................................. 9,948 6,140 Interest cost............................................. 12,989 10,982 Plan participants' contributions.......................... 621 431 Actuarial loss (gain)..................................... (1,604) 22,659 Benefits paid............................................. (10,440) (10,019) --------- -------- Benefit obligation at end of year......................... 193,356 181,842 --------- -------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year............ 316,241 345,347 Actual return on plan assets.............................. 148,407 (11,858) Plan participants' contributions.......................... 621 431 Benefits paid............................................. (9,975) (9,554) Spin-off related adjustment............................... (8,125) --------- -------- Fair value of plan assets at end of year.................. 455,294 316,241 --------- -------- Funded status............................................. 261,938 134,399 Unrecognized net actuarial gain........................... (190,750) (76,901) Unrecognized prior service cost........................... 3,735 4,201 Unrecognized transition asset............................. (7,468) (9,381) --------- -------- Prepaid pension cost...................................... $ 67,455 $ 52,318 ========= ========
F-20 46 NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED) The preceding table includes prepaid pension cost presented net of pension liabilities for plans in which accumulated benefits exceed plan assets. As of December 31, 1999 and 1998, these liabilities amounted to $21.2 million and $17.1 million, respectively. Actuarial assumptions for the Company's U.S. defined benefit plans included an expected long-term rate of return on plan assets of 9.25% for fiscal years 1999 and 1998. The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.50% and 7.00% at December 31, 1999 and 1998, respectively. The rate of increase in future compensation levels was 4.50% at December 31, 1999 and 1998. Plan assets consist primarily of equity securities and U.S. Government securities. The excess of plan assets over the projected benefit obligation at August 1, 1986 (when the Company adopted SFAS No. 87) and subsequent unrecognized gains and losses are fully amortized over the average remaining service period of active employees expected to receive benefits under the plans, generally 15 years. A summary of the components of net periodic pension income for the U.S. defined benefit plans and defined contribution plans is as follows:
YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- -------- -------- (THOUSANDS OF DOLLARS) COMPONENTS OF NET PERIODIC PENSION INCOME Service cost...................................... $ 9,948 $ 6,140 $ 5,988 Interest cost..................................... 12,989 10,982 10,075 Expected return on plan assets.................... (32,179) (25,531) (20,784) Amortization of prior service cost................ 466 461 406 Recognized net actuarial gain..................... (3,993) (4,313) (3,043) Amortization of transition asset.................. (2,477) (2,477) (2,477) -------- -------- -------- (15,246) (14,738) (9,835) Defined contribution plans........................ 5,808 4,500 4,160 -------- -------- -------- Net periodic pension income....................... $ (9,438) $(10,238) $ (5,675) ======== ======== ========
NON-U.S. PENSION PLANS For the principal non-U.S. pension plans located in the United Kingdom and Germany, the weighted-average discount rate used was approximately 6.49% at December 31, 1999. The rate of increase in future compensation used was approximately 3.35%, and the rate of return on assets was 8.50% at December 31, 1999. Pension costs for non-U.S. pension plans were not material for any of the periods presented herein. The actuarial present value of projected benefits at December 31, 1999 was $111.1 million compared with net assets available for benefits of $128.7 million. F-21 47 NOTE H: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (CONTINUED) OTHER POSTRETIREMENT BENEFITS In addition to pension benefits, certain of the Company's U.S. employees are covered by postretirement health care and life insurance benefit plans provided by UNOVA. These benefit plans are unfunded. The following table sets forth the change in benefit obligation of the Company's other postretirement benefits and amounts recognized in the Company's balance sheets.
DECEMBER 31, ---------------------- 1999 1998 --------- --------- (THOUSANDS OF DOLLARS) CHANGE IN POSTRETIREMENT BENEFIT OBLIGATIONS Benefit obligation at beginning of year................... $ 40,408 $ 27,789 Service cost.............................................. 928 292 Interest cost............................................. 2,785 2,037 Acquisitions.............................................. 940 11,423 Actuarial (gain) loss..................................... (4,227) 104 Benefits paid............................................. (2,183) (1,237) -------- -------- Benefits obligation at end of year........................ 38,651 40,408 -------- -------- Funded status............................................. (38,651) (40,408) Unrecognized net actuarial loss........................... 3,772 8,198 Unrecognized transition obligation........................ 1,475 1,594 -------- -------- Accrued postretirement benefit obligation................. $(33,404) $(30,616) ======== ========
A summary of the Company's net periodic postretirement benefit cost is as follows:
YEAR ENDED DECEMBER 31, -------------------------- 1999 1998 1997 ------ ------ ------ (THOUSANDS OF DOLLARS) COMPONENTS OF NET PERIODIC POSTRETIREMENT BENEFIT COST Service cost............................................. $ 928 $ 292 $ 586 Interest cost............................................ 2,785 2,037 1,688 Recognized actuarial loss and transition obligation...... 318 328 ------ ------ ------ Net periodic postretirement benefit cost................. $4,031 $2,657 $2,274 ====== ====== ======
Actuarial assumptions used to measure the accumulated benefit obligation include a discount rate of 7.50% and 7.00% at December 31, 1999 and 1998. The assumed health care cost trend rate for fiscal year 1999 was 11.67% and is projected to decrease over 17 years to 6.00%, where it is expected to remain thereafter. The effect of a one-percentage-point increase or decrease in the assumed health care cost trend rate on the service cost and interest cost components of the net periodic postretirement benefit cost is not material. A one-percentage-point increase in the assumed health care cost trend rate on the postretirement benefit obligation results in an increase of approximately $3.0 million, while a one-percentage point decrease results in a decrease of $2.7 million. F-22 48 NOTE I: LITIGATION, COMMITMENTS AND CONTINGENCIES The Company is currently, and is from time to time, subject to claims and suits arising in the ordinary course of its business. In the opinion of the Company's General Counsel, the ultimate resolution of currently pending proceedings will not have a material adverse effect on the Company's consolidated and combined financial statements. NOTE J: RELATED PARTY TRANSACTIONS Included in other assets are amounts due from certain Company officers and other related parties of $2.0 million and $1.9 million at December 31, 1999 and 1998, respectively. The Company leases executive offices that are located in a building owned by the UNOVA Master Trust, an entity which holds the assets of the Company's primary U.S. pension plans. The ten-year operating lease, which was approved by the Department of Labor under the provisions of the Employee Retirement Income Security Act of 1974, commenced on February 1, 1999. The lease provides for fixed monthly rental payments subject to certain indexed escalation clauses. Rental expense under the provisions of this lease was $0.7 million for the year ended December 31, 1999. Immediately prior to the Distribution in 1997, the Company paid a dividend of $230.0 million to WAI with funds borrowed under the Company's revolving credit facility. Included in general and administrative expenses are allocated charges from WAI of $13.5 million for the year ended December 31, 1997. Included in interest expense are allocated charges from WAI of $12.0 million for the year ended December 31, 1997. NOTE K: SEGMENT REPORTING The Company operates in two primary businesses: Automated Data Systems ("ADS") and Industrial Automation Systems ("IAS"). The IAS businesses are further disaggregated into two reportable segments based on their respective markets: Integrated Production Systems and Advanced Manufacturing Equipment. The Company uses operating profit, which is computed by adding net interest expense to earnings before taxes on income, to evaluate performance. Corporate and other amounts include corporate operating costs and currency transaction gains and losses (see Notes A and J). Assets classified as corporate and other amounts consist of cash and cash equivalents, retained interest in securitized trade receivables, and other corporate assets. Activities are primarily product sales oriented. Export sales are not material. All material intercompany transactions have been excluded. F-23 49 NOTE K: SEGMENT REPORTING (CONTINUED) OPERATIONS BY BUSINESS SEGMENT (MILLIONS OF DOLLARS)
INDUSTRIAL AUTOMATION SYSTEMS -------------------------- CORPORATE AUTOMATED INTEGRATED ADVANCED AND YEAR ENDED DATA PRODUCTION MANUFACTURING OTHER DECEMBER 31, SYSTEMS SYSTEMS EQUIPMENT AMOUNTS TOTAL ------------ --------- ---------- ------------- --------- ------ Revenues............................ 1999 $ 877 $ 937 $295 $2,109 1998 830 719 114 1,663 1997 636 790 1,426 Operating profit (loss)............. 1999 26 87 6 $(32) 87 1998 55 73 4 11(B) 143(B) 1997 (202)(A) 95 (25) (132)(A) Capital expenditures................ 1999 37 14 5 5 61 1998 46 34 4 84 1997 16 14 30 Depreciation and amortization expense........................... 1999 37 18 10 1 66 1998 38 17 2 57 1997 25 15 1 41 Total assets at year end............ 1999 665 838 253 148 1,904 1998 775 820 308 76 1,979 1997 642 650 64 1,356
(A) Includes the $211.5 million charges for acquired in-process research and development. (B) Includes gain of $35.5 million on sale of UNOVA's corporate headquarters building. OPERATIONS BY GEOGRAPHIC AREA (MILLIONS OF DOLLARS)
CORPORATE AND YEAR ENDED UNITED OTHER DECEMBER 31, STATES EUROPE OTHER AMOUNTS TOTAL ------------ ------ ------ ----- --------- ------ Revenues..................... 1999 $1,555 $392 $162 $2,109 1998 1,064 442 157 1,663 1997 989 363 74 1,426 Operating profit (loss)...... 1999 107 5 7 $(32) 87 1998 98 28 6 11 143 1997 (78) (35) 6 (25) (132) Total assets at year end..... 1999 1,399 329 28 148 1,904 1998 1,470 388 45 76 1,979 1997 1,015 261 16 64 1,356
F-24 50 UNOVA, INC. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
COMMON BASIC DILUTED STOCK SALES GROSS NET EARNINGS EARNINGS PRICE SALES PROFIT EARNINGS PER SHARE PER SHARE HIGH/LOW ------ ------ -------- --------- --------- ------------ (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, 1999 First Quarter............. $493.4 $134.4 $ 3.5 $0.06 $0.06 $20 11 7/8 Second Quarter............ 494.4 136.6 3.3 0.06 0.06 $18 12 3/4 Third Quarter............. 503.4 140.6 9.4 0.17 0.17 $15 5/8 11 7/8 Fourth Quarter............ 617.5 168.0 13.4 0.24 0.24 $15 1/16 12 1/16 YEAR ENDED DECEMBER 31, 1998 First Quarter............. $333.4 $110.1 $ 7.8 $0.14 $0.14 $20 9/16 13 7/8 Second Quarter............ 345.2 117.8 9.2 0.17 0.17 $24 19 15/16 Third Quarter............. 405.7 133.2 13.3 0.24 0.24 $22 15 1/2 Fourth Quarter............ 578.4 166.2 39.4(1) 0.72 0.72 $18 1/4 12 3/8
As of January 31, 2000 there were approximately 19,251 holders of record of the Company's common stock. (1) In December 1998, the Company recognized a gain of $35.5 million on the sale of its corporate headquarters building. F-25 51 UNOVA, INC. INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------------------------------------------------------------ 2.1 Amended and Restated Purchase and Sale Agreement dated August 20, 1998, between UNOVA, Inc., UNOVA Industrial Automation Systems, Inc., and UNOVA UK Limited, on the one hand, and Cincinnati Milacron Inc., on the other hand, filed on October 2, 1998 as Exhibit 2 to the Company's Current Report on Form 8-K, and incorporated herein by reference. 3.1 Certificate of Incorporation of UNOVA, Inc., filed on October 22, 1997 as Exhibit 3A to Amendment No. 2 to the Company's Registration Statement on Form 10 No. 001-13279, and incorporated herein by reference. 3.2 By-laws of UNOVA, Inc., as amended on February 5, 1999, filed as Exhibit 3.2 to the Company's 1998 Annual Report on Form 10-K, and incorporated herein by reference. 4.1 $400,000,000 Credit Agreement dated September 24, 1997, among UNOVA, Inc., the Banks listed therein, and Morgan Guaranty Trust Company of New York, as Agent (the "$400,000,000 Credit Agreement"), filed on October 1, 1997 as Exhibit 10M to Amendment No. 1 to the Company's Registration Statement on Form 10 No. 001-13279, and incorporated herein by reference. 4.2 Amendment No. 1 to the $400,000,000 Credit Agreement, dated January 15, 1998, filed as Exhibit 4.4 to the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference. 4.3 Amendment No. 2 to the $400,000,000 Credit Agreement, dated May 15, 1998, filed as Exhibit 4.7 to the Company's June 30, 1998 Quarterly Report on Form 10-Q, and incorporated herein by reference. 4.4 Amendment No. 3 to the $400,000,000 Credit Agreement, dated September 24, 1998, filed as Exhibit 4.8 to the Company's September 30, 1998 Quarterly Report on Form 10-Q, and incorporated herein by reference. 4.5 Amendment No. 4 to the $400,000,000 Credit Agreement, dated November 24, 1999.* 4.6 Rights Agreement dated September 24, 1997, between UNOVA, Inc. and The Chase Manhattan Bank, as Rights Agent, to which is annexed the form of Right Certificate as Exhibit A, filed on October 22, 1997 as Exhibit 3C to Amendment No. 2 to the Company's Registration Statement on Form 10 No. 001-13279, and incorporated herein by reference. 4.7 Indenture dated as of March 11, 1998 between the Company and The First National Bank of Chicago, Trustee, providing for the issuance of securities in series, filed as Exhibit 4.5 to the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference. 4.8 Form of 6.875% Notes due March 15, 2005 issued by the Company under such indenture, filed as Exhibit 4.6 to the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference. 4.9 Form of 7.00% Notes due March 15, 2008 issued by the Company under such indenture, filed as Exhibit 4.7 to the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference. 4.10 $100,000,000 Credit Agreement dated January 13, 1999, among UNOVA, Inc., the Banks listed therein, and Morgan Guaranty Trust Company of New York, as Agent, filed as Exhibit 4.9 to the Company's 1998 Annual Report on Form 10-K, and incorporated herein by reference. 4.11 Amended and Restated Credit Agreement (364 Day Agreement), among UNOVA, Inc., the banks listed therein, and Morgan Guaranty Trust Company of New York, as agent, dated December 1, 1999.*
E-1 52 UNOVA, INC. INDEX TO EXHIBITS (CONTINUED) Instruments defining the rights of holders of other long-term debt of the Company are not filed as exhibits because the amount of debt authorized under any such instrument does not exceed 10% of the total assets of the Company and its consolidated subsidiaries. The Company hereby undertakes to furnish a copy of any such instrument to the Commission upon request. 4.12 Transfer and Administration Agreement dated June 18, 1999, among Enterprise Funding Corporation, as Company, KCH Funding, L.L.C., as Transferor, UNOVA, Inc., Individually and as Servicer, and Nationsbank, N.A., as Lead Arranger, Agent and Bank Investor (the "Transfer and Administration Agreement"), filed as Exhibit 4.10 to the Company's June 30, 1999 Quarterly Report on Form 10-Q, and incorporated herein by reference. 4.13 Amendment No. 1 to the Transfer and Administration Agreement dated September 15, 1999.* 4.14 Amendment No. 2 to the Transfer and Administration Agreement dated December 15, 1999.* 4.15 Receivables Purchase Agreement dated June 18, 1999, between UNOVA, Inc., as Seller, and KCH Funding, L.L.C., as Purchaser (the "Receivables Purchase Agreement"), filed as Exhibit 4.11 to the Company's June 30, 1999 Quarterly Report on Form 10-Q, and incorporated herein by reference. 4.16 Amendment No. 1 to the Receivable Purchase Agreement dated December 15, 1999.* 4.17 Originator Receivables Purchase Agreement dated June 18, 1999, among UNOVA Industrial Automation Systems, Inc. and Intermec Technologies Corporation, as Sellers, and UNOVA, Inc., as Purchaser, filed as Exhibit 4.12 to the Company's June 30, 1999 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.1 Distribution and Indemnity Agreement dated October 31, 1997, between Western Atlas Inc. and UNOVA, Inc, filed as Exhibit 10.1 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.2 Tax Sharing Agreement dated October 31, 1997, between Western Atlas Inc., and UNOVA, Inc., filed as Exhibit 10.2 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.3 Employee Benefits Agreement dated October 31, 1997, between Western Atlas Inc., and UNOVA, Inc., filed as Exhibit 10.3 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.4 Intellectual Property Agreement dated October 31, 1997, between Western Atlas Inc., and UNOVA, Inc., filed as Exhibit 10.4 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.5 Form of Change of Control Employment Agreements with Alton J. Brann, Michael E. Keane, Norman, L. Roberts, Larry D. Brady, Robert G. O'Malley and certain other officers of the Company, filed as Exhibit 10.5 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.6 Amendment to the Form of Change of Control Employment Agreements with Alton J. Brann, Larry D. Brady, Michael E. Keane, Robert G. O'Malley and certain other officers of the Company.* 10.7 Form of Change of Control Employment Agreement with Charles E. Wolfbauer and certain other officers of the Company.* 10.8 Employment Agreement between Intermec Corporation and Michael Ohanian, dated May 18, 1995, as amended, filed on August 18, 1997 as exhibit 10J to the Company's Registration Statement on Form 10 No. 001-13279 and incorporated herein by reference.
E-2 53 UNOVA, INC. INDEX TO EXHIBITS (CONTINUED) 10.9 Amendment No. 1 to Employment Agreement between Intermec Corporation and Michael Ohanian, dated February 28, 1997, filed as Exhibit 10.18 to the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference. 10.10 Amendment No. 2 to Employment Agreement between Intermec Technologies Corporation and Michael Ohanian, dated February 28, 1998, filed as Exhibit 10.19 to the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference. 10.11 Amendment No. 3 to Employment Agreement between Intermec Technologies Corporation and Michael Ohanian, dated May 20, 1998, filed as Exhibit 10.9 to the Company's 1998 Annual Report on Form 10-K, and incorporated herein by reference. 10.12 Amendment No. 4 to Employment Agreement between Intermec Technologies Corporation and Michael Ohanian, dated February 28, 1999, filed as Exhibit 10.10 to the Company's 1998 Annual Report on Form 10-K, and incorporated herein by reference. 10.13 Amendment No. 5 to Employment Agreement between Intermec Technologies Corporation and Michael Ohanian, dated May 18, 1999, filed as Exhibit 10.11 to the Company's June 30, 1999 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.14 UNOVA, Inc. Director Stock Option and Fee Plan, filed as Exhibit 10.7 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.15 Amendment No. 1 to the UNOVA, Inc. Director Stock Option and Fee Plan filed as Exhibit 10.13 to the Company's September 30, 1999 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.16 UNOVA, Inc. Restoration Plan, filed on August 18, 1997 as Exhibit 10I to the Company's Registration Statement on Form 10 No. 001-13279 and incorporated herein by reference. 10.17 UNOVA, Inc. Supplemental Executive Retirement Plan, filed on October 1, 1997 as Exhibit 10H to Amendment No. 1 to the Company's Registration Statement on Form 10 No. 001-13279 and incorporated herein by reference. 10.18 Amendment No. 1 to UNOVA, Inc. Supplemental Executive Retirement Plan, dated September 23, 1998, filed as Exhibit 10.22 to the Company's September 30, 1998 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.19 Amendment No. 2 to UNOVA, Inc. Supplemental Executive Retirement Plan, dated March 11, 1999, filed as Exhibit 10.15 to the Company's 1998 Annual Report on Form 10-K, and incorporated herein by reference. 10.20 Amendment No. 3 to UNOVA, Inc. Supplemental Executive Retirement Plan, dated March 15, 2000.* 10.21 Supplemental Retirement Agreement between UNOVA, Inc. and Alton J. Brann, filed on October 1, 1997 as Exhibit 10L to Amendment No. 1 to the Company's Registration Statement on Form 10 No. 001-13279 and incorporated herein by reference. 10.22 Amendment No. 1 to Supplemental Retirement Agreement between UNOVA, Inc. and Alton J. Brann, dated September 23, 1998, filed as Exhibit 10.21 to the Company's September 30, 1998 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.23 Amendment No. 2 to Supplemental Executive Retirement Agreement between UNOVA, Inc. and Alton J. Brann, dated March 11, 1999, filed as Exhibit 10.18 to the Company's 1998 Annual Report on Form 10-K, and incorporated herein by reference . 10.24 Amendment No. 3 to Supplemental Executive Retirement Agreement between UNOVA, Inc. and Alton J. Brann, dated March 15, 2000.* 10.25 Supplemental Executive Retirement Agreement between UNOVA, Inc. and Larry D. Brady, dated March 15, 2000.*
E-3 54 UNOVA, INC. INDEX TO EXHIBITS (CONTINUED) 10.26 Employment Agreement dated August 1997, between UNOVA, Inc., and Clayton A. Williams, filed on October 1, 1997 as Exhibit 10K to Amendment No. 1 to the Company's Registration Statement on Form 10 No. 001-13279 and incorporated herein by reference. 10.27 Amendment No. 1 to Employment Agreement between UNOVA, Inc. and Clayton A. Williams, dated March 24, 1998, filed as Exhibit 10.20 to the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference. 10.28 Amendment No. 2 to Employment Agreement between UNOVA, Inc. and Clayton A. Williams, dated May 18, 1998, filed as Exhibit 10.21 to the Company's 1998 Annual Report on Form 10-K, and incorporated herein by reference. 10.29 UNOVA, Inc. 1997 Stock Incentive Plan, filed as Exhibit 10.12 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.30 Removed and reserved. 10.31 UNOVA, Inc. Executive Severance Plan (As Amended November 18, 1999).* 10.32 Form of Promissory Notes in favor of the Company given by certain officers and key employees, filed as Exhibit 10.14 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.33 Board resolution dated September 24, 1997 establishing the UNOVA, Inc. Incentive Loan Program, filed as Exhibit 10.15 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.34 UNOVA, Inc. Executive Survivor Benefit Plan, filed as Exhibit 10.17 to the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference. 10.35 UNOVA, Inc. 1999 Stock Incentive Plan, filed as Annex A to the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 7, 1999 (the "1999 Proxy Statement"), and incorporated herein by reference. 10.36 UNOVA, Inc. Management Incentive Compensation Plan, filed as Annex B to the Company's 1999 Proxy Statement, and incorporated herein by reference. 10.37 UNOVA, Inc. Group Executive Medical Benefit Plan.* 10.38 Letter Offering Employment to Larry D. Brady as President and Chief Operating Officer of UNOVA, Inc., as accepted by Mr. Brady on June 16, 1999, filed as Exhibit 10.32 to the Company's June 30, 1999 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.39 Restricted Stock Agreement between UNOVA, Inc. and Larry D. Brady, filed as Exhibit 10.34 to the Company's September 30, 1999 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.40 Letter of Offering Employment to Robert O'Malley as President of Intermec Technologies Corporation, as accepted by Mr. O'Malley on May 26, 1999.* 21 Subsidiaries of the Registrant included herein on page E-6. 23 Independent Auditors' Consent included herein on page E-7. 27 Financial Data Schedule (filed only electronically with the Securities and Exchange Commission).*
* Copies of these documents have been included in this Annual Report on Form 10-K filed with the Securities and Exchange Commission. E-4 EX-4.5 2 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDER 1 EXHIBIT 4.5 AMENDMENT NO. 4 TO CREDIT AGREEMENT AMENDMENT dated as of November 24, 1999 to the Credit Agreement dated as of September 24, 1997 (as heretofore amended, the "CREDIT AGREEMENT") among UNOVA, INC. (the "BORROWER"), the BANKS party thereto (the "BANKS") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT"). The parties hereto agree as follows: SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. SECTION 2. Amendments. (a) The Pricing Schedule annexed to this Amendment No. 4 is hereby substituted for the Pricing Schedule annexed to the Existing Agreement. (b) The following definition is added to Section 1.01 in its alphabetic position: "Borrower's 1998 Form 10-K" means the Borrower's annual report on Form 10-K for 1998, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. (c) Section 2.07(a) is amended to read as set forth below: Section 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the sum of the Base Rate plus the Base Rate Margin for such day. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on 2 demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. "Base Rate Margin" means a rate per annum determined in accordance with the Pricing Schedule. (d) The reference to December 31, 1996 in Section 4.04(a) is changed to December 31, 1998, and the reference to the "Borrower's Form 10" is changed to the "Borrower's 1998 Form 10-K". (e) The date June 30, 1997 appearing in Sections 4.04(b) and 4.04(c) is changed to September 30, 1999, and each reference in Section 4.04(b) to "six" is changed to "nine." (f) Section 4.13 is added to Article IV, Representations and Warranties, to read as follows: Section 4.13. Year 2000 Compliance. The Borrower has (i) initiated a review and assessment of all areas within the business and operations of the Borrower and each of its Subsidiaries (including those areas affected by suppliers and vendors) that could be adversely affected by the "YEAR 2000 PROBLEM" (that is, the risk that computer applications used by it or any of its Subsidiaries (or their respective suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented such plan in accordance with such timetable. The Borrower reasonably believes that all computer applications (including those of suppliers and vendors) that are material to the business or operations of the Borrower or any of its Subsidiaries will on a timely basis be able to perform properly date-sensitive functions for all dates before and from and after January 1, 2000 (that is, be "YEAR 2000 COMPLIANT"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. (g) Section 5.05 is amended to read in its entirety as set forth below: Section 5.05. Leverage Ratio. The Leverage Ratio will not exceed, at any time during any period set forth below, the maximum ratio set forth below for such period: 2 3
Period Maximum Ratio ------ ------------- Effective Date- 3.95 to 1.0 March 30, 2001 March 31, 2001 and 3.5 to 1.0 thereafter
SECTION 3. Representations of Borrower. The Borrower represents and warrants, as of the date hereof and after giving effect hereto, that (i) the representations and warranties of the Borrower set forth in Article 4 of the Credit Agreement are true and (ii) no Default has occurred and is continuing. SECTION 4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 6. Effectiveness. This Amendment shall become effective as of the date hereof when the Agent shall have received from each of the Borrower and Banks comprising the Required Banks a counterpart hereof duly signed by such party or facsimile or other written confirmation (in form satisfactory to the Agent) that such party has signed a counterpart hereof. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. UNOVA, INC. By: /s/ Elmer C. Hull, Jr. ---------------------------------------- Title: Vice President and Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Robert Bottamedi ---------------------------------------- Title: Vice President BANK OF AMERICA, N.A. By: /s/ Michelle L. Hilse ---------------------------------------- Title: Vice President THE BANK OF NEW YORK By: /s/ Jennifer S. Ellerman ---------------------------------------- Title: Vice President 5 THE CHASE MANHATTAN BANK By: /s/ Lenard Weiner ---------------------------------------- Title: Managing Director CIBC INC. By: /s/ Lindsay Gordon ---------------------------------------- Title: Executive Director BANK ONE, NA F/K/A THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Mark A. Isley ---------------------------------------- Title: First Vice President CREDIT SUISSE FIRST BOSTON By: /s/ Thomas G. Muoio ---------------------------------------- Title: Vice President By: /s/ Jennifer E. Toth ---------------------------------------- Title: Analyst 6 DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ A. Richard Morris ---------------------------------------- Title: First Vice President By: /s/ Ken Hamilton ---------------------------------------- Title: Senior Vice President MELLON BANK, N.A. By: /s/ L. C. Ivey ---------------------------------------- Title: Vice President THE NORTHERN TRUST COMPANY By: /s/ David J. Mitchell ---------------------------------------- Title: Vice President 7 PRICING SCHEDULE The "EURO-DOLLAR MARGIN", "CD MARGIN", "BASE RATE MARGIN" and "FACILITY FEE RATE" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day:
- ------------------------------------------------------------------------------------------------------ Level Level Level Level Level Level Status I II III IV V VI - ------------------------------------------------------------------------------------------------------ Euro-Dollar Margin Usage <25% .32% .40% .50% .60% .95% 1.25% Usage =>25% .42% .525% .625% .725% .95% 1.25% - ------------------------------------------------------------------------------------------------------ CD Margin Usage <25% .445% .525% .625% .725% 1.075% 1.375% Usage =>25% .545% .65% .75% .85% 1.075% 1.375% - ------------------------------------------------------------------------------------------------------ Base Rate Margin .00% .00% .00% .00% .00% .50% - ------------------------------------------------------------------------------------------------------ Facility Fee Rate .08% .10% .125% .15% .175% .25% - ------------------------------------------------------------------------------------------------------
For purposes of this Schedule, the following terms have the following meanings: "LEVEL I STATUS" exists at any date if, at such date, the Borrower's long-term debt is rated A/A2 or higher by at least two Rating Agencies. "LEVEL II STATUS" exists at any date if, at such date, the Borrower's long-term debt is rated A-/A3 or higher by at least two Rating Agencies and (ii) Level I Status does not exist at such date. "LEVEL III STATUS" exists at any date if, at such date, the Borrower's long-term debt is rated BBB+/Baa1 or higher by at least two Rating Agencies and (ii) neither Level I Status nor Level II Status exists at such date. "LEVEL IV STATUS" exists at any date if, at such date, the Borrower's long-term debt is rated BBB/Baa2 or higher by at least two Ratings Agencies and (ii) none of Level I Status, Level II Status, Level III Status exists at such date. "LEVEL V STATUS" exists at any date if, at such date, the Borrower's long-term debt is rated BBB-/Baa3 or higher by at least two Rating Agencies and (ii) none of Level I Status, Level II Status, Level III Status or Level IV Status exists as such date. 8 "LEVEL VI STATUS" exists at any date, if at the close of business on such date, none of Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status exists. "PRICING" refers to the determination of which of Level I Pricing, Level II Pricing, Level III Pricing, Level IV Pricing, Level V Pricing or Level VI Pricing applies at any date. "STATUS" refers to the determination of which of Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status or Level VI Status exists at any date. The "USAGE" applicable to any date is the percentage equivalent of a fraction the numerator of which is the aggregate outstanding principal amount of the Loans at such date and the denominator of which is the aggregate amount of the Commitments at such date. If for any reason any Loans remain outstanding following the termination of the Commitments, Usage will be deemed to be 25% or more. The credit ratings to be utilized for purposes of determining a Status hereunder are those assigned to the senior unsecured debt of the Borrower without third-party credit enhancement, and any rating assigned to any other debt of the Borrower shall be disregarded; provided that if at any time the Borrower's senior unsecured debt is rated by exactly two Rating Agencies and the ratings assigned to such debt by such two Rating Agencies are more than one full rating category apart, Status shall be determined based on a rating one category higher than the lower of such two ratings (e.g., if the S&P rating is A+, the Moody's rating is Baa1 and there is no D&P rating, then Level II Status shall exist); provided further that if at any time the Borrower's senior unsecured debt, without third party credit enhancement, is not rated by at least two Rating Agencies, then Status shall be Level VI Status. The rating in effect at any date is that in effect at the close of business on such date. EX-4.11 3 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDER 1 EXHIBIT 4.11 AMENDED AND RESTATED CREDIT AGREEMENT (364 Day Agreement) AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 1, 1999 amending and restating the $100,000,000 364 Day Credit Agreement dated as of January 13, 1999 among UNOVA, Inc. (the "BORROWER"), the BANKS party thereto (the "BANKS"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "AGENT"). W I T N E S S E T H : WHEREAS, the parties hereto desire to amend the Existing Agreement as set forth herein and to restate the Existing Agreement in its entirety to read as set forth in the Existing Agreement and the amendments set forth below; and WHEREAS, at the date hereof, there are no Loans outstanding under the Existing Agreement; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each capitalized term used herein which is defined in the Existing Agreement has the meaning assigned to such term in the Existing Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Existing Agreement shall from and after the date hereof refer to the Existing Agreement as amended and restated hereby. The term "Notes" defined in the Agreement shall include from and after the date hereof the New Notes. The following terms, as used herein, have the following meanings: "Agreement" means the Existing Agreement as amended and restated by this Amendment and Restatement. "Existing Agreement" means the $100,000,000 364 Day Credit Agreement dated as of January 13, 1999 among UNOVA, Inc., the Banks listed therein, and Morgan Guaranty Trust Company of New York, as Agent. 2 "New Bank" has the meaning set forth in Section 3 of this Amendment and Restatement. "New Notes" has the meaning set forth in Section 6 of this Amendment and Restatement. "Restatement Effective Date" means the date this Amendment and Restatement becomes effective in accordance with Section 6 hereof. SECTION 2. Amendment of the Existing Agreement. (a) The definitions of "Borrower's 1997 Form 10-K" and "Borrower's Latest Form 10-Q" are replaced with the following definitions, respectively: "Borrower's 1998 Form 10-K" means the Borrower's annual report on Form 10-K for 1998, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "Borrower's Latest Form 10-Q" means the Borrower's quarterly report on Form 10-Q for the quarter ended September 30, 1999, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. (b) The definition of "Termination Date" is amended to read as follows: "Termination Date" means November 29, 2000 (or if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day). (c) Section 2.07(a) is amended to read as set forth below: Section 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the sum of the Base Rate plus the Base Rate Margin for such day. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. "Base Rate Margin" means a rate per annum determined in accordance with the Pricing Schedule. 2 3 (d) The reference to December 31, 1997 in Section 4.04(a) is changed to December 31, 1998. (e) The date September 30, 1998 appearing in Sections 4.04(b) and 4.04(c) is changed to September 30, 1999. (f) Section 5.05, Leverage Ratio, is amended to read as follows: "The Leverage Ratio will at no time exceed 3.95 to 1.0." (g) The Pricing Schedule annexed to this Amendment and Restatement is hereby substituted for the Pricing Schedule annexed to the Existing Agreement. SECTION 3. Change in Commitments. With effect from and including the date this Amendment and Restatement becomes effective in accordance with Section 6 hereof, (i) each Person listed on the signature pages hereof which is not a party to the Existing Agreement (a "NEW BANK") shall become a Bank party to the Agreement and (ii) the Commitment of each Bank shall be the amount set forth opposite the name of such Bank on the signature pages hereof. Any Bank whose Commitment is changed to zero shall upon such effectiveness cease to be a Bank party to the Agreement, and all accrued fees and other amounts payable under the Existing Agreement for the account of such Bank shall be due and payable on such date; provided that the provisions of Sections 8.03, 8.04 and 11.03 of the Agreement shall continue to inure to the benefit of each such Bank. SECTION 4. Representations and Warranties. The Borrower hereby represents and warrants that as of the Restatement Effective Date and after giving effect thereto: (a) no Default has occurred and is continuing; and (b) each representation and warranty of the Borrower set forth in the Agreement is true and correct as though made on and as of such date. SECTION 5. Governing Law. This Amendment and Restatement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 6. Counterpart; Effectiveness. This Amendment and Restatement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment and Restatement shall become effective, and the Existing Agreement shall be amended and restated as set forth herein to read as set 3 4 forth in the Existing Agreement with the amendments set forth herein, on the date that each of the following conditions shall have been satisfied: (i) receipt by the Agent of duly executed counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (ii) receipt by the Agent of a duly executed Note for each of the New Banks (a "NEW NOTE"), dated on or before the date of effectiveness hereof and otherwise in compliance with Section 2.05 of the Existing Agreement; (iii) receipt by the Agent of an opinion of the General Counsel or the Deputy General Counsel of the Borrower (or such other counsel for the Borrower as may be acceptable to the Agent), substantially to the effect of Exhibit E to the Existing Agreement with reference to this Amendment and Restatement, the Existing Agreement and the New Notes; and (iv) receipt by the Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of the Agreement and any other matters relevant hereto, all in form and substance satisfactory to the Agent; provided that this Amendment and Restatement shall not become effective or binding on any party hereto unless all of the foregoing conditions are satisfied not later than December 15, 1999. The Agent shall promptly notify the Borrower and the Banks of the Restatement Effective Date, and such notice shall be conclusive and binding on all parties hereto. 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Restatement to be duly executed by their respective authorized officers as of the day and year first above written. UNOVA, Inc. By: /s/ Elmer C. Hull Jr. ------------------------------------- Title: Vice President and Treasurer 5 6 Commitments $25,000,000 DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Hans-Josef Thiele ---------------------------------------- Title: Director By: /s/ Oliver Schwarz ---------------------------------------- Title: Assistant Vice President $20,000,000 ABN AMRO BANK N.V. By: /s/ John A. Miller ---------------------------------------- Title: Group Vice President By: /s/ Delia B. Fance ---------------------------------------- Title: Vice President $20,000,000 CITICORP USA, INC. By: /s/ George E. Moyer, Jr. ---------------------------------------- Title: Vice President 6 7 $11,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Robert Bottamedi ---------------------------------------- Title: Vice President $8,000,000 BANK ONE, NA (FKA THE FIRST NATIONAL BANK OF CHICAGO) By: /s/ Kandis A. Jaffrey ---------------------------------------- Title: Vice President $8,000,000 CREDIT SUISSE FIRST BOSTON By: /s/ Thomas G. Muoio ---------------------------------------- Title: Vice President By: /s/ Jennifer E. Toth ---------------------------------------- Title: Analyst 7 8 $8,000,000 DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ A. Richard Morris ---------------------------------------- Title: First Vice President By: /s/ Deborah Slusarczyk ---------------------------------------- Title: Vice President $0 MELLON BANK, N.A. By: /s/ Lawrence C. Ivey ---------------------------------------- Title: Vice President - ----------------- Total Commitments $100,000,000 ================= MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: /s/ Robert Bottamedi ---------------------------------------- Title: Vice President 8 9 EXHIBIT A PRICING SCHEDULE The "EURO-DOLLAR MARGIN", "CD MARGIN", "BASE RATE MARGIN" and "FACILITY FEE RATE" for any day are the respective rates per annum set forth below in the applicable row under the column corresponding to the Pricing Level that applies on such day:
- ----------------------------------------------------------------------------------------------------- Level Level Level Level Level Level Pricing I II III IV V VI - ----------------------------------------------------------------------------------------------------- Euro-Dollar Margin Usage <25% Usage =>25% .34% .42% .525% .625% .975% 1.30% .44% .545% .65% .75% .975% 1.30% - ----------------------------------------------------------------------------------------------------- CD Margin Usage <25% .465% .545% .65% .75% 1.10% 1.425% Usage =>25% .565% .67% .775% .875% 1.10% 1.425% - ----------------------------------------------------------------------------------------------------- Base Rate Margin .00% .00% .00% .00% .00% .50% - ----------------------------------------------------------------------------------------------------- Facility Fee Rate .06% .08% .10% .125% .15% .20% - -----------------------------------------------------------------------------------------------------
For purposes of this Schedule, the following terms have the following meanings: "LEVEL I PRICING" applies at any date if, at such date, the Borrower's senior unsecured debt is rated A/A2 or higher by at least two Rating Agencies. "LEVEL II PRICING" applies at any date if, at such date, (i) the Borrower's senior unsecured debt is rated A-/A3 or higher by at least two Rating Agencies and (ii) Level I Pricing does not apply at such date. "LEVEL III PRICING" applies at any date if, at such date, (i) the Borrower's senior unsecured debt is rated BBB+/Baa1 or higher by at least two Rating Agencies and (ii) neither Level I Pricing nor Level II Pricing applies at such date. "LEVEL IV PRICING" applies at any date if, at such date, (i) the Borrower's senior unsecured debt is rated BBB/Baa2 or higher by at least two Rating Agencies and (ii) none of Level I Pricing, Level II Pricing or Level III Pricing applies at such date. 9 10 "LEVEL V PRICING" applies at any date if, at such date, (i) the Borrower's senior unsecured debt is rated BBB-/Baa3 or higher by at least two Rating Agencies and (ii) none of Level I Pricing, Level II Pricing, Level III Pricing or Level IV Pricing applies at such date. "LEVEL VI PRICING" applies at any date, if at the close of business on such date, none of Level I Pricing, Level II Pricing, Level III Pricing, Level IV Pricing or Level V Pricing applies. "PRICING" refers to the determination of which of Level I Pricing, Level II Pricing, Level III Pricing, Level IV Pricing, Level V Pricing or Level VI Pricing applies at any date. The "USAGE" applicable to any date is the percentage equivalent of a fraction the numerator of which is the aggregate outstanding principal amount of the Loans at such date and the denominator of which is the aggregate amount of the Commitments at such date. If for any reason any Loans remain outstanding following the termination of the Commitments, Usage will be deemed to be 25% or more. The credit ratings to be utilized for purposes of determining a Pricing hereunder are those assigned to the senior unsecured long-term debt of the Borrower without third-party credit enhancement, and any rating assigned to any other debt of the Borrower shall be disregarded; provided that if at any time the Borrower's senior unsecured long-term debt is rated by exactly two Rating Agencies and the ratings assigned to such debt by such two Rating Agencies are more than one full rating category apart, Pricing shall be determined based on a rating one category higher than the lower of such two ratings (e.g., if the S&P rating is A+, the Moody's rating is Baa1 and there is no D&P rating, then Level II Pricing shall exist); provided further that if at any time the Borrower's senior unsecured long-term debt, without third party credit enhancement, is not rated by at least two Rating Agencies, then Pricing shall be Level VI Pricing. The rating in effect at any date is that in effect at the close of business on such date. 10 EX-4.13 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDER 1 EXHIBIT 4.13 AMENDMENT NO.1 TO THE TRANSFER AND ADMINISTRATION AGREEMENT This AMENDMENT NO.1 dated September 15, 1999 to the TRANSFER AND ADMINISTRATION AGREEMENT (as amended, supplemented or otherwise modified and in effect from time to time, this "Agreement"), dated as of June 18, 1999, by and among KCH FUNDING, L.L.C., a Delaware limited liability company, as transferor (in such capacity, the "Transferor"), UNOVA, INC., a Delaware corporation, as the parent of the Transferor (in such capacity, the "Parent") and as servicer (in such capacity, the "Servicer"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the "Company"), BANK OF AMERICA, N.A., as successor by merger to NATIONSBANK, N.A., a national banking association ("Bank of America"), as Lead Arranger, as agent for the Company and the Bank Investors (in such capacity, the "Agent"), as Administrative Agent and as a Bank Investor. PRELIMINARY STATEMENTS WHEREAS, the parties hereto have entered into the Agreement whereby the Transferor may convey, transfer, and assign from time to time undivided interests in certain accounts receivable, and the Company may, and the Bank Investors, if requested, shall accept such conveyance, transfer and assignment of such undivided percentage interests, subject to the terms and conditions of the Agreement and WHEREAS, the parties to the Agreement desire to make certain amendments to the Agreement. NOW, THEREFORE, the parties hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Defined Terms. As used in this Amendment, all capitalized terms not otherwise defined herein shall have the meanings assigned such terms in the Agreement ARTICLE II THE AMENDMENTS SECTION 2.1 Amendment to Section 1.1 of the Agreement Section 1.1 of the Agreement is amended hereby by deleting the definition for "Loss Percentage" in its entirety and inserting in lieu thereof the following: "Loss Percentage" means on any day the greatest of (a) 2.5 times for the period of June 17, 1999 through August 30, 1999, 2.44 times for the period of August 31, 1999 through September 29, 1999, and 2.5 times from September 30, 1999 and beyond, the highest Loss-to-Liquidation Ratio as of the last day of 1 2 each of the twelve (12) calendar months preceding the then current month, (b) 4 times the highest Concentration Factor of all Designated Obligors (exclusive of Class 2 Obligors, Class 3 Obligors and Special Concentration Obligors), and (c) ten percent (10%). ARTICLE III MISCELLANEOUS SECTION 3.1 Representations and Warranties. The Transferor hereby makes to the Company, on and as of the date hereof, all of the representations and warranties as set forth in Section 3.1 of the Agreement. The Servicer hereby makes to the Company, on and as of the date hereof, all of the representations and warranties as set forth in Section 3.2 of the Agreement. SECTION 3.2 Counterparts. This Amendment to the Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. SECTION 3.3 Ratification. Except as expressly affected by provisions hereof, the Agreement as amended by this Amendment shall remain in full force and effect in accordance with its terms and ratified and confirmed by the parties hereto. On and after the date hereof, each reference in the Agreement to "this Agreement", "hereunder", "herein", or words of like import shall mean by reference to the Agreement as amended by this Amendment. SECTION 3.4 Captions. The captions in this Amendment are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. 2 3 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment No. 1 to the Transfer and Administration Agreement as of the date first written above. ENTERPRISE FUNDING CORPORATION, as Company By: /s/ Kevin P. Burns ---------------------------------------- Title: Vice President KCH FUNDING, L.L.C., as Transferor By: /s/ Elmer C. Hull Jr. ---------------------------------------- Title: VP and Treasurer UNOVA, INC., as Parent and as Servicer By: /s/ Charles Cusumano ---------------------------------------- Title: Vice President, Finance BANK OF AMERICA, N.A., as successor by merger to NationsBank, N.A., as Agent and a Bank Investor By: /s/ Elliott T. Lemon ---------------------------------------- Title: Vice President 3 EX-4.14 5 INSTRUMENT DEFINING THE RIGHTS OF SECURITY HOLDERS 1 EXHIBIT 4.14 AMENDMENT NO. 2 TO THE TRANSFER AND ADMINISTRATION AGREEMENT AMENDMENT NO. 2 (this "Amendment"), dated as of December 15, 1999 to the TRANSFER AND ADMINISTRATION AGREEMENT (as amended by Amendment No. 1, dated September 15, 1999, the "Agreement"), dated as of June 18, 1999, by and among KCH FUNDING, L.L.C., a Delaware limited liability company, as transferor (in such capacity, the "Transferor"), UNOVA, INC., a Delaware corporation, as the parent of the Transferor (in such capacity, the "Parent") and as servicer (in such capacity, the "Servicer"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation (the "Company"), BANK OF AMERICA N.A., a national banking association ("Bank of America"), as Lead Arranger, as agent for the Company and the Bank Investors (in such capacity, the "Agent"), as Administrative Agent and as a Bank Investor. PRELIMINARY STATEMENTS WHEREAS, the parties hereto have entered into the Agreement whereby the Transferor may convey, transfer, and assign from time to time undivided interests in certain accounts receivable, and the Company may, and the Bank Investors, if requested, shall accept such conveyance, transfer and assignment of such undivided percentage interests, subject to the terms and conditions of the Agreement; and WHEREAS, the parties to the Agreement desire to make a certain amendments to the Agreement. NOW, THEREFORE, the parties hereby agree as follows: 1. Definitions. Except as otherwise stated herein, capitalized terms not defined herein shall have the respective meanings assigned to them in the Agreement. 2. Amendments to the Agreement. (a) Section 1.1 of the Agreement is hereby amended by amending the definition of "Originator Subsidiaries" to read in its entirety as follows: "Originator Subsidiaries" means, collectively, (i) the divisions listed on Annex 2 hereto of IAS, (ii) Intermec, (iii) MM&E and (iv) such other divisions of IAS or other entities which are listed on Annex 2 as such annex may from time to time be amended by the written agreement of the parties hereto. (b) Section 1.1 of the Agreement is further amended by adding the following new definition: 2 "MM&E" means M M & E, Inc., a Nevada corporation. (c) The first sentence of Section 5.3 of the Agreement is hereby amended to read in its entirety as follows: "The Leverage Ratio shall at no time exceed 3.95 to 1.0." (d) Section 7.1 (l) of the Agreement is hereby amended to read in its entirety as follows: "(l) the Dilution Ratio averaged for any period of two (2) consecutive months exceeds 4.5%; or" (e) Section 7.1 (n) of the Agreement is hereby amended to read in its entirety as follows: "(n) the Delinquency Ratio averaged for any period of three (3) consecutive months exceeds 25%; or" (f) Annex 2 to the Agreement is hereby amended to read in its entirety as set forth in Exhibit A hereto. 3. Representations and Warranties. To induce the Company and the Bank Investors to enter into this Amendment, each of the Transferor and the Parent hereby represents and warrants (each as to itself) as of the Effective Date (as hereinafter defined) that: (a) it has the power, authority and legal right to make and deliver this Amendment and to perform its obligations under the Agreement, as amended by this Amendment, without any notice, consent, approval or authorization not already obtained, and that it has taken all necessary action to authorize the same. (b) the making and delivery of this Amendment and the performance of the Agreement, as amended by this Amendment, do not violate any provision of law or any regulation, or its charter or by-laws, or result in the breach of or constitute a default under or require any consent under any indenture or other agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected. The Agreement, as amended by this Amendment, constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally. (c) The representations and warranties made by it contained in any Transaction Document are true and correct on and as of the date of this Amendment and after giving effect hereto. -2- 3 (d) No Termination Event or Potential Termination Event has occurred and is continuing under the Agreement as of the date of this Amendment and after giving effect hereto. 4. Conditions to Closing. On or prior to the date of execution hereof, the Agent shall have received original copies of this Amendment and each of the documents set forth in Exhibit B hereto, each in form and substance satisfactory to the Agent. 5. Effective Date. The effective date of this Amendment (the "Effective Date") is June 18, 1999; provided, however that Sections 2(c), (d) and (e) of this Amendment shall be effective as of the date hereof. 6. Reference to and Effect on the Transaction Documents. On and after the Effective Date (i) each reference in the Agreement to "This Agreement", "hereunder", "hereof" or words of like import, and each reference in any other Transaction Document to "the Transfer and Administration Agreement", "thereunder", "thereof" or words of like import, referring to the Agreement, shall mean and be a reference to the Agreement as amended hereby. 7. Agreement and all other Transaction Documents in Full Force and Effect. Except as specifically amended hereby, each Transaction Document and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lender, any Bank Investor or the Agent under any Transaction Document, nor constitute a waiver of any provision of any Transaction Document. 8. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original and all of which taken together shall constitute a single instrument with the same effect as if the signatures thereto and hereto were upon the same instrument. 9. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. -3- 4 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. ENTERPRISE FUNDING CORPORATION, as Company By: /s/ Andrew L. Stidd ---------------------------------------- Title: President KCH FUNDING, L.L.C., as Transferor By: /s/ Elmer C. Hull Jr. ---------------------------------------- Title: Treasurer UNOVA, INC., as Parent and as Servicer By: /s/ Elmer C. Hull Jr. ---------------------------------------- Title: VP & Treasurer BANK OF AMERICA, N.A., as Agent and a Bank Investor By: : /s/ Robert R. Wood ---------------------------------------- Title: Vice President 5 EXHIBIT A Annex 2 Originator Subsidiaries and Divisions A. UNOVA Industrial Automation Systems, Inc. Divisions Lamb Technicon Machining Systems Lamb Technicon Body & Assembly Systems Cincinnati Machine B. Intermec Technologies Corporation C. M M & E, Inc. 6 EXHIBIT B CONDITIONS PRECEDENT TO AMENDMENT NO. 2 1. Amendment No. 1 to the Receivables Purchase Agreement 2. Amended Originator Receivables Purchase Agreement 3. Certificate of Sale 4. Subordinated Note 5. Subservicer Letter Agreement 6. Certificate of the Secretary of MME with the following items attached: - Articles of Incorporation of MME - Bylaws of MME - Resolutions of the Board of Directors of MME 7. Articles of Incorporation of MME, certified by the Secretary of State of Nevada. 8. Certificate of good standing of MME from the Secretary of State of Nevada. 9. Certificate of qualification as a foreign corporation of MME in Michigan. 10. Resolutions of the Transferor. 11. Enforceability and no conflict opinion of counsel to MME. 12. Opinion of in-house counsel to the Seller, the Transferor and MME. 13. UCC-1 Financing Statements by MME in favor of UNOVA, Inc. 14. Search Results for MME covering UCC liens, judgments and tax liens. EX-4.16 6 INSTRUMENT DEFINING THE RIGHTS OF SECURITY HOLDERS 1 EXHIBIT 4.16 AMENDMENT NO. 1 TO THE RECEIVABLES PURCHASE AGREEMENT AMENDMENT NO. 1 (this "Amendment"), dated as of December 15, 1999 to the RECEIVABLES PURCHASE AGREEMENT (as amended, supplemented or otherwise modified and in effect from time to time, the "Agreement"), dated as of June 18, 1999, between KCH FUNDING, L.L.C., a Delaware limited liability company, as purchaser (in such capacity, the "Purchaser") and UNOVA, INC., a Delaware corporation, as the seller (in such capacity, the "Seller"). PRELIMINARY STATEMENTS WHEREAS, the parties hereto have entered into the Agreement whereby the Seller shall sell and assign from time to time such certain accounts receivable to the Purchaser subject to the terms and conditions of the Agreement and the Purchaser shall purchase from the Seller from time to time such accounts receivable; and WHEREAS, the parties to the Agreement desire to make a certain amendments to the Agreement. NOW, THEREFORE, the parties hereby agree as follows: 1. Definitions. Except as otherwise stated herein, capitalized terms not defined herein shall have the respective meanings assigned to them in the Agreement. 2. Amendments to the Agreement. (a) The first recital to the Agreement is hereby amended to read in its entirety as follows: "WHEREAS, the Purchaser desires to purchase from the Seller from time to time certain accounts receivable owing from Obligors which are purchased from the divisions listed on Annex 1 hereto of UNOVA Industrial Automation Systems, Inc., a Delaware corporation ("IAS"), Intermec Technologies Corporation, a Washington corporation ("Intermec"), M M & E, Inc., a Nevada corporation ("MM&E," together with such divisions of IAS and Intermec, and other divisions of IAS or other entities which are listed on Annex 1 as such annex may from time to time be amended by the written agreement of the parties hereto, collectively, the "Originator Subsidiaries") and which are generated in the normal course of the Originator Subsidiaries' business pursuant to, or evidenced by, purchase orders, invoices or other written agreements or with invoices on open accounts;" 2 (b) Exhibit B to the Agreement is hereby amended to read in its entirety as set forth in Exhibit A hereto. (c) Exhibit D to the Agreement is hereby amended to read in its entirety as set forth in Exhibit B hereto. (d) Annex 1 to the Agreement is hereby amended to read in its entirety as set forth in Exhibit C hereto. 3. Representations and Warranties. To induce the Purchaser to enter into this Amendment, the Seller hereby represents and warrants as of the Effective Date (as hereinafter defined) that: (a) it has the power, authority and legal right to make and deliver this Amendment and to perform its obligations under the Agreement, as amended by this Amendment, without any notice, consent, approval or authorization not already obtained, and that it has taken all necessary action to authorize the same. (b) the making and delivery of this Amendment and the performance of the Agreement, as amended by this Amendment, do not violate any provision of law or any regulation, or its charter or by-laws, or result in the breach of or constitute a default under or require any consent under any indenture or other agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected. The Agreement, as amended by this Amendment, constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors' rights generally. (c) The representations and warranties made by it contained in any Transaction Document are true and correct on and as of the date of this Amendment and after giving effect hereto. (d) No Termination Event or Potential Termination Event has occurred and is continuing under the Agreement as of the date of this Amendment and after giving effect hereto. 4. Conditions to Closing. On or prior to the date of execution hereof, the Agent shall have received original copies of this Amendment and each of the documents set forth in Exhibit B to Amendment No. 2 to the Transfer Agreement, each in form and substance satisfactory to the Agent. 5. Effective Date. The effective date of this Amendment (the "Effective Date") is June 18, 1999. -2- 3 6. Reference to and Effect on the Transaction Documents. On and after the Effective Date (i) each reference in the Agreement to "This Agreement", "hereunder", "hereof" or words of like import, and each reference in any other Transaction Document to "the Receivables Purchase Agreement", "thereunder", "thereof" or words of like import, referring to the Agreement, shall mean and be a reference to the Agreement as amended hereby. 7. Agreement and all other Transaction Documents in Full Force and Effect. Except as specifically amended hereby, each Transaction Document and shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lender, any Bank Investor or the Agent under any Transaction Document, nor constitute a waiver of any provision of any Transaction Document. 8. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original and all of which taken together shall constitute a single instrument with the same effect as if the signatures thereto and hereto were upon the same instrument. 9. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. -3- 4 IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. KCH FUNDING, L.L.C., as Purchaser By: /s/ Elmer C. Hull, Jr. --------------------------------- Title: Treasurer UNOVA, INC., as Seller By: /s/ Elmer C. Hull, Jr. --------------------------------- Title: VP & Treasurer The foregoing Amendment No. 1 to Receivables Purchase Agreement has been acknowledged and consented to by: Bank of America, N.A., as successor by merger to Nationsbank, N.A. By: /s/ Robert R. Wood --------------------------------- Title: Vice President 5 EXHIBIT A EXHIBIT B [TO THE RPA] Principal Places of Business and Location of Records 1. UNOVA, Inc. 21900 Burbank Blvd. Woodland Hills, CA 91367-7418 Phone: (818) 992-2880 Fax: (818) 992-2627 Location of Records: California 2. UNOVA Industrial Automation Systems, Inc. 5663 East Nine Mile Road Warren, MI 48091 USA Phone: (810) 497-6000 Fax: (870) 497-6082 Location of Records: Warren, MI; Cincinnati, OH a) Lamb Technicon Machining Systems 5363 E. Nine Mile Road Warren, MI 48091-2593 b) Lamb Technicon Body and Assembly Systems 29770 Commerce Blvd. Chesterfield Township, ME 48051 c) Cincinnati Machine 4701 Marburg Avenue Cincinnati, OH 45209-1025 3. Intermec Technologies Corporation 6001 36th Avenue West P.O. Box 4280 Everett, WA 98203-9280 Phone; (425) 345-2600 Fax: (425) 385-9551 Location of Records: Everett, WA; Cedar Rapids, IA; Fairfield, OH In Cedar Rapids, IA 550 Second Street S.E. Cedar Rapids, IA 52401 In Cincinnati, OH 9290 LeSaint Drive Fairfield, OH 45014 4. M M & E, Inc. 255 South Fenway Drive Fenton, Michigan 48430 Phone: (810) 750-7901 Fax: (810) 750-7990 Location of Records: 5363 E. Nine Mile Road, Warren, MI 6 EXHIBIT B EXHIBIT D [TO THE RPA] Former Names, Mergers and Trade Names (in last l8 months) UNOVA, INC. FORMER NAME(S) None MERGERS None TRADE NAMES None UNOVA INDUSTRIAL AUTOMATION SYSTEMS, INC. FORMER NAME(S) None TRADE NAMES for Lamb Technicon Machining Systems - Lamb Technicon Machining Systems - Lamb Assembly & Test for Lamb Technicon Body & Assembly Systems - Lamb Technicon Body & Assembly Systems - Modern prototype for Cincinnati Machine - Cincinnati Milacron MERGERS None INTERMEC TECHNOLOGIES CORPORATION FORMER NAME(S) None MERGERS Norand Corporation merged with and into Intermec Technologies Corporation on December 28, 1997 Intermec/Ultra Print Inc. merged with and into Intermec Technologies Corporation on January 16, 1998 TRADE NAMES Intermec Technologies Corporation Intermec IP Corporation Norand Corporation (Merged into Intermec) Norand Technology Corporation (name changed to Intermec IP Corporation) Norand Mobile Systems Division of Intermec Technologies Corporation Amtech Systems Division Amtech Systems Corporation Identification Systems Division of Intermec Technologies Corporation Government Systems Division of Intermec Technologies Corporation Local Area Systems Division of Intermec Technologies Corporation United Bar Code Industries MM&E FORMER NAME(S) None MERGERS None TRADE NAMES Michigan Machine & Engineering 7 EXHIBIT C Annex 1 Originator Subsidiaries and Divisions A. UNOVA Industrial Automation Systems, Inc. Divisions Lamb Technicon Machining Systems Lamb Technicon Body & Assembly Systems Cincinnati Machine B. Intermec Technologies Corporation C. M M & E, Inc. EX-10.6 7 MATERIAL CONTRACTS 1 EXHIBIT 10.6 AMENDMENT TO CHANGE OF CONTROL EMPLOYMENT AGREEMENT WHEREAS, UNOVA, Inc., a Delaware corporation (the "Company"), and [Name of Executive] (the "Executive") have previously entered into a certain Change of Control Employment Agreement (the "Agreement") dated as of October 31, 1997; and WHEREAS, the Company and the Executive desire to amend the Agreement in the respects set forth herein; NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. Section 1(b) of the Agreement is hereby amended so as to delete the present text thereof (constituting the definition of "Change of Control Period") and to substitute in its place and stead the following text: "(b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the fourth anniversary of the date hereof; provided, however, that commencing on the date two years after the date hereof, and on each second anniversary of such date (such date and each such second anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate four years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended." 2. Section 4(b)(ii) of the Agreements is hereby amended so as to delete the present text thereof and to substitute in its place and stead the following text: "(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus in cash at least equal to the higher of (A) the Executive's highest award or awards for any fiscal year under the UNOVA, Inc. Management Incentive Compensation Plan (effective for the 1999 fiscal year and thereafter) or under any predecessor or successor plan or plans which provide for the grant of annual cash bonuses or other short-term cash incentive awards during the last three full fiscal years prior to the Effective Date or (B) the Target Bonus (as that term is defined in the UNOVA, Inc. Management Incentive Compensation Plan) applicable to the Executive for the fiscal year during which the Effective Date occurs, or if the Management Incentive Compensation Plan is not in effect for such fiscal year, the target bonus or award which the Executive would earn for such year under any plan 2 or arrangement in which the Executive participates or is eligible to participate assuming the attainment of any performance goals or similar criteria to the extent necessary for the Executive to qualify to receive the target award thereunder. The amount which is the higher of the amounts described in clause (A) and clause (B) above is hereinafter called the "Annual Bonus." "Notwithstanding the foregoing, the following additional provisions shall be applicable to the definition of "award" or "awards" or "bonus" or "bonuses" as those terms are used in the preceding paragraph: "(1) When made under the UNOVA, Inc. Management Incentive Compensation Plan or any other annual incentive plan which provides that a portion of an annual award shall be deposited in a so-called "Bonus Bank" and shall remain "at risk," the award or bonus, in such case, shall (except as provided in clause (2) below) comprise ONLY the portion of the annual award which is paid to the Executive on a current basis and shall NOT include any amount of the award required to be deposited to a Bonus Bank. However, the award or bonus shall also include any amount paid to the Executive as a periodic payment from the Bonus Bank during the year with respect to which the amount was made (but shall not include any payment from the Bonus Bank made solely as a result of termination of employment); "(2) The award or bonus for any fiscal year or portion thereof shall include any part of such bonus or award, the payment of which is deferred to a subsequent fiscal year or years at the election of the Executive; and "(3) In the case of any bonus or award made with respect to a period other than a full fiscal year, the amount of such bonus shall not be annualized, and the bonus or award, if it related to more than one fiscal year, shall be prorated so that only the portion thereof attributable to a particular fiscal year shall be counted as part of the total award or bonus for that fiscal year. "Any Annual Bonus plus unpaid but due amounts from prior awards plus any amounts payable from a so called Bonus Bank shall be paid in accordance with the applicable plan but in no event later than the last day of the Employment Period. In no event shall the Executive forfeit any balance in a Bonus Bank upon termination of employment for any reason following a Change of Control." 3. Section 5(c) of the Agreement is hereby amended so as to delete the final sentence thereof and to substitute in its place and stead the following two sentences: -2- 3 "Anything in this Agreement to the contrary notwithstanding, if (A) a Change of Control has occurred and (B) in connection with, or as a result of, such Change of Control, prior to the first anniversary of the Effective Date, individuals who were members of the Board immediately prior to such Change of Control cease to constitute a majority of the Board or a majority of the board of directors of the corporation resulting from a Business Combination that constituted such Change of Control, then a termination by the Executive for any reason during the Window Period (as defined in the following sentence) shall be deemed to be a termination for Good Reason for all purposes of this Agreement. The "Window Period" shall mean the 30-day period commencing on the first anniversary of the later of (1) the Effective Date and (2) the date of the event described in clause (B) of the preceding sentence." 4. Except as specifically amended by this instrument, each and every term of the Agreement is hereby ratified and confirmed and shall remain in full force and effect. 5. This Amendment shall become effective as of the date set forth below when a counterpart hereof has been signed by the Executive and lodged with the Secretary of the Company. 6. This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflicts of law. IN WITNESS WHEREOF, this Amendment has been executed by the Company and the Executive as of the date hereafter set forth. DATE: ------------------------------- UNOVA, INC. By -------------------------- ----------------------------- [Name of Executive] -3- EX-10.7 8 MATERIAL CONTRACTS 1 EXHIBIT 10.7 [UNOVA LOGO] CHANGE OF CONTROL EMPLOYMENT AGREEMENT AGREEMENT by and between UNOVA, INC., a Delaware corporation (the "Company"), and NAME, dated as of the (DAY) of (MONTH) (YEAR). The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the fourth anniversary of the date hereof; provided, however, that commencing on the date two years after the date hereof, and on each second anniversary of such date (such date and each such second anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate four years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: 2 (a) An acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30 percent or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); excluding, however, the following acquisitions of Outstanding Company Common Stock and Outstanding Company Voting Securities: (i) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii), and (iii) of subsection (c) of this Section 2; or (b) Individuals who, as of the effective date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual who becomes a member of the Board subsequent to such effective date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or (c) The approval by the shareholders of the Company of a reorganization, merger, or consolidation or sale or other disposition of all or substantially all of the assets of the Company ("Business Combination") or if consummation of such Business Combination is subject, at the time of such approval by shareholders, to the consent of any government or governmental agency, obtaining of such consent (either explicitly or implicitly by consummation); excluding, however, such a Business Combination pursuant to which (i) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination will beneficially own, directly or indirectly, more than 60 percent of, respectively, the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than any employee benefit plan (or related -2- 3 trust) sponsored or maintained by the Company or any corporation controlled by the Company or such corporation resulting from such Business Combination) will beneficially own, directly or indirectly, 30 percent or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination will have been members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles, and reporting requirements), authority, duties, and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised, and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic, or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements, or teach at educational institutions, and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. -3- 4 (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling, or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus in cash at least equal to the higher of (A) the Executive's highest award or awards for any fiscal year under the UNOVA, Inc. Management Incentive Compensation Plan (effective for the 1999 fiscal year and thereafter) or under any predecessor or successor plan or plans which provide for the grant of annual cash bonuses or other short-term cash incentive awards during the last three full fiscal years prior to the Effective Date or (B) the Target Bonus (as that term is defined in the UNOVA, Inc. Management Incentive Compensation Plan) applicable to the Executive for the fiscal year during which the Effective Date occurs, or if the Management Incentive Compensation Plan is not in effect for such fiscal year, the target bonus or award which the Executive would earn for such year under any plan or arrangement in which the Executive participates or is eligible to participate assuming the attainment of any performance goals or similar criteria to the extent necessary for the Executive to qualify to receive the target award thereunder. The amount which is the higher of the amounts described in clause (A) and clause (B) above is hereinafter called the "Annual Bonus." Notwithstanding the foregoing, the following additional provisions shall be applicable to the definition of "award" or "awards" or "bonus" or "bonuses" as those terms are used in the preceding paragraph: (1) When made under the UNOVA, Inc. Management Incentive Compensation Plan or any other annual incentive plan which provides that a portion of an annual award shall be deposited in a so-called "Bonus Bank" and shall remain "at risk," the award or bonus, in such case, shall (except as provided in clause (2) below ) comprise ONLY the portion of the annual award which is paid to the Executive on a current basis and shall NOT include any amount of the award required to be deposited to a Bonus Bank. However, the award or bonus shall also include any amount paid to the Executive as a periodic payment from the Bonus Bank during the year with respect to which the amount was made (but shall not include any payment from the Bonus Bank made solely as a result of termination of employment); -4- 5 (2) The award or bonus for any fiscal year or portion thereof shall include any part of such bonus or award, the payment of which is deferred to a subsequent fiscal year or years at the election of the Executive; and (3) In the case of any bonus or award made with respect to a period other than a full fiscal year, the amount of such bonus shall not be annualized, and the bonus or award, if it related to more than one fiscal year, shall be prorated so that only the portion thereof attributable to a particular fiscal year shall be counted as part of the total award or bonus for that fiscal year. Any Annual Bonus plus unpaid but due amounts from prior awards plus any amounts payable from a so called Bonus Bank shall be paid in accordance with the applicable plan but in no event later than the last day of the Employment Period. In no event shall the Executive forfeit any balance in a Bonus Bank upon termination of employment for any reason following a Change of Control. (iii) Incentive, Savings, and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive (including stock option or similar incentive plans), savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies, and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies, and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies, and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death, and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies, and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies, and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in -5- 6 accordance with the most favorable policies, practices, and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, if applicable, tax and financial planning services, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs, and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs, and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. -6- 7 (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles, and reporting requirements), authority, duties, or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties, or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial, and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; -7- 8 (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination, and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company Upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: -8- 9 A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Annual Bonus, and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), any awards under the Performance Award Plan or any comparable or successor plan and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) two and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Annual Bonus, or if higher, any bonus paid with respect to any fiscal year during the Employment Period; and C. utilizing actuarial assumptions no less favorable to the Executive than those in effect immediately prior to the Effective Date, an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the "Retirement Plan") and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") which the Executive would receive if the Executive's employment continued for two years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination; (ii) for two years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, practice, policy, or program, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices, and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs, and policies, the Executive shall be considered to have remained employed until two years after the Date of Termination and to have retired on the last day of such period; (iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his or her sole discretion; and -9- 10 (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy, or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices, and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices, and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period or if the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his or her Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. -10- 11 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, practice, policy, or program provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice, or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, practice, policy, or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim, right, or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as (the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the -11- 12 amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity, or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses -12- 13 (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge, or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions -13- 14 of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly 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. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Mr. Charles A. Cusumano 22307 Dunmore Drive Calabasas, CA 91302 If to the Company: UNOVA, Inc. Attention: General Counsel 21900 Burbank Boulevard Woodland Hills, CA 91367-7418 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. -14- 15 (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local, or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. -------------------------------------------- Name UNOVA, INC. By ----------------------------------------- CS/99-10 COC VP Corp Secy's Office -15- EX-10.20 9 MATERIAL CONTRACTS 1 EXHIBIT 10.20 AMENDMENT NO. 3 TO UNOVA, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN WHEREAS, UNOVA, Inc. (the "Company") has previously adopted the UNOVA, Inc. Supplemental Executive Retirement Plan as amended by Amendment No. 1 thereto dated September 23, 1998 and Amendment No. 2 thereto dated March 11, 1999 (the "Plan"); and WHEREAS, the Board of Directors of the Company deems it desirable that the Plan be further amended in the manner set forth hereinafter; NOW, THEREFORE, this Amendment No. 3 to the Plan is hereby adopted by the Company with the following effect: 1. Section 2.3 of the Plan is hereby amended so that the such Section 2.3 shall read in its entirely as follows: "Average Earnings" shall mean the average of gross base salary payments plus Bonuses as defined in Section 2.7 (except, for a Retired Participant receiving a Retirement Benefit as of the Distribution Date, Bonuses shall mean gross cash payments of Bonuses) from the Company to the Participant in the three twelve consecutive month periods (with no overlap), in which such Participant's gross base salary payments plus gross Bonuses are the highest, in the Participant's final 120 months of employment. For all purposes of calculating "Average Earnings" under this Supplemental Plan "gross base salary" shall include (i) any amounts deferred pursuant to Section 401(k) or Section 125 of the Code, (ii) any amounts deferred at the election of the Participant pursuant to any plan of the Company which permits such deferral, and (iii) cash payments, during the relevant period, of commissions payable to a Participant as a regular part of the Participant's compensation, e.g. to a person engaged in sales or marketing; however, commissions not payable as a regular part of a Participant's compensation shall not be included in the calculation of Average Earnings. Commissions or portions thereof otherwise included in the calculation of Average Earnings pursuant to the preceding sentence which are deferred (other than at the election of a Participant) shall be included in the calculation of Average Earnings in the relevant period in which cash payments are made. For purposes of calculating Average Earnings under this Supplemental Plan salary (including relevant commission payments and bonuses) paid in a non-U.S. currency shall be converted to U.S. dollar equivalents using the quarterly UNOVA, Inc. official rates of exchange, as determined by the Chief Financial Officer and as utilized generally for corporate purposes. 2 (a). Average Earnings for purposes of calculating a Disability or Death Benefit for or with respect to a Disabled Participant shall be calculated using the 120 months that include and precede the month that his or her Disability commenced. If a formerly Disabled Participant who has returned to active employment with the Company does not have a minimum of 36 consecutive calendar months of employment with the Company after such return to active employment, then Average Earnings shall be calculated by the Committee in accordance with subparagraph (e). (b). Average Earnings in the case of an Active Participant who dies prior to attaining age 65 shall be calculated using the 120 months that include and precede the month of the Participant's death (or Disability, in the case of a Disabled Participant who dies). For purposes of calculating a lump sum payment pursuant to Section 4.1(d) in the event of a Change of Control, with respect to a person (other than a Disabled or deceased Participant) who is an Active Participant as of the date of such calculation, Average Earnings shall be calculated as if the person's employment with the Company ended on such date. (c). For purposes of calculating Average Earnings, the Participant's gross base salary plus gross Bonuses received while employed by Western Atlas (beginning on or after March 17, 1994) or Litton (prior to such date), if and to the extent such Western Atlas or Litton employment is included within the period of 120 months to be used in such calculation, shall be taken into account, provided that the Participant's benefits under the Western Atlas retirement plans were transferred to the Company pursuant to the Employee Benefits Agreement between Western Atlas and UNOVA, Inc. (the "Employee Benefits Agreement"). (d). If a Participant is eligible to receive payments under the Supplemental Plan but does not have 36 consecutive months of employment with Western Atlas and the Company, then Average Earnings shall be calculated by the Committee in accordance with subparagraph (e). (e). Notwithstanding the foregoing, the Committee may determine Average Earnings for the purposes of this Section by another methodology which it determines to be more appropriate under the facts and circumstances; provided, however, that, following a Change of Control, the authority of the Committee under this subparagraph (e) shall be limited to matters referred to in the last sentence of subparagraph (a) above and the matters referred to in subparagraph (d) above unless the 2 3 methodology for determining Average Earnings selected by the Committee is more advantageous to the Participant. 2. Except as specifically provided in this Amendment No. 3, each and every provision of the Plan is hereby ratified, approved, and confirmed. 3. This Amendment No. 3 shall be deemed effective for all purposes on and as of the date hereof, except that this Amendment No. 3 shall not be effective with respect to any Participant who retired from the Company subsequent to the Distribution Date and commenced receiving a Retirement Benefit under the Plan prior to the date hereof. 4. This Amendment No. 3 shall be governed by the laws of Delaware except to the extent preempted by ERISA. 5. Capitalized terms used in this Amendment No. 3 and not defined herein shall have the meaning assigned to such terms in the Plan. IN WITNESS HEREOF, the Company has caused this Amendment No. 3 to be executed by its duly authorized officers this 15th day of March, 2000. UNOVA, Inc. WITNESS: /s/ Virginia S. Young By: /s/ Michael E. Keane ----------------------------- ------------------------------------ Michael E. Keane WITNESS: /s/ Christine McVeigh By: /s/ Charles A. Cusumano ----------------------------- ------------------------------------ Charles A. Cusumano 3 EX-10.24 10 MATERIAL CONTRACTS 1 EXHIBIT 10.24 AMENDMENT NO. 3 TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT This Amendment No. 3 to Supplemental Executive Retirement Agreement (this "Amendment"), made and entered into as of this 15th day of March, 2000, by and between UNOVA, Inc., a Delaware corporation (the "Company"), and Alton J. Brann, its Chairman and Chief Executive Officer (the "Executive"). W I T N E S S E T H: WHEREAS, the Company and the Executive have previously entered into a certain Supplemental Executive Retirement Agreement dated as of October 31, 1997, as amended by Amendment No. 1 thereto dated September 23, 1998, and Amendment No. 2 thereto dated March 11, 1999 (as so amended, the "Retirement Agreement"); and WHEREAS, the Company and the Executive deem it desirable that the Retirement Agreement be further amended as hereinafter set forth; NOW, THEREFORE, the Company and the Executive hereby agree as follows: 1. Section 2.3 of the Retirement Agreement is hereby further amended so that said Section 2.3 shall read in its entirety as follows: Section 2.3 "Average Earnings" shall mean the average of gross base salary payments plus Bonuses as defined in Section 2.6 from the Company (as used in this Section 2.3 and hereinafter the term "Company" shall have the meaning specified in Section 2.12) to the Executive in any three twelve consecutive month periods (with no overlap), in which such Executive's gross base salary payments plus gross Bonuses are the highest, in the Executive's final 120 months of employment. For all purposes of calculating "Average Earnings" under this Supplemental Plan "gross base salary" shall include all payments credited to Executive related to base compensation before subtracting any amounts deferred pursuant to Section 401(k) or 125 of the Code or deferred at the election of the Executive pursuant to any plan of the Company which permits such deferral, but does not include any amounts credited as compensation to Executive as a result of the grant or exercise of any award under any Company stock-based plan. (a). Average Earnings for purposes of calculating Disability or Death Benefit for or with respect to Executive shall be calculated using the 120 months that include and precede the month that his Disability commenced. If Executive has returned to active employment with the Company after a period of Disability but does not have a minimum of 36 consecutive calendar months of employment with the Company after such return to active employment, then Average Earnings shall be calculated by the Committee in accordance with subparagraph (e). 2 (b). Average Earnings in the case Executive dies while employed by the Company and prior to attaining age 62 shall be calculated using the 120 months that include and precede the month of Executive's death (or Disability, in the case Executive dies while Disabled). (c). For purposes of calculating a lump sum payment pursuant to Section 3.1(c) in the event of a Change of Control, with respect to Executive (other than while Disabled or when deceased) and who is an Active Participant as of the date of such calculation, Average Earnings shall be calculated as if Executive's employment with the Company ended on such date or the date as revised pursuant to the terms of any Change of Control Agreement existing between the Company and the Executive ("Change of Control Agreement" shall mean any agreement between the Company and the Executive which provides for the employment of Executive and/or the payment of compensation to Executive upon or following a Change of Control). (d). For purposes of calculating Average Earnings, Executive's gross base salary plus gross Bonuses received while employed by Western Atlas or Litton, if and to the extent such Western Atlas or Litton employment is included within the period of 120 months to be used in such calculation, shall be taken into account to the extent Executive's benefits under the Western Atlas retirement plans were transferred to the Company pursuant to the Employee Benefits Agreement between Western Atlas and UNOVA, Inc. (the "Employee Benefits Agreement"). (e). Notwithstanding the foregoing, the Committee may determine Average Earnings for the purposes of this Section by another methodology, if that method is more advantageous to Executive. 2. Clause (1) of subsection (a) of Section 3.1 of the Retirement Agreement is hereby amended to read in its entirety as follows: "(1) attained age 60"; 3. Subsection (b) of Section 3.1 of the Retirement Agreement is hereby amended to delete the reference to the number "62" in the title and in the text of such subsection and to substitute in lieu thereof the number "60." 4. The first sentence of Section 3.2 of the Retirement Agreement is hereby amended so as to read in its entirety as follows: "Executive's annual Retirement Benefit shall be the amount resulting from (A) multiplying Average Earnings by the Percentage Factor set forth in Exhibit A attached hereto and made a part hereof corresponding to the age of Executive at the earlier of the date of Executive's retirement or the age of Executive upon Executive's termination of employment for any reason other than a Change of Control or the age of Executive while an Active Participant as of the date of a Change of Control except as such Retirement Benefit is adjusted pursuant to Section 3.1(c) and Section 3.6(c) and (B) subtracting from the product so obtained -2- 3 the Offset Amount; provided however, that if payment of the Retirement Benefit commences prior to the Executive's 62nd birthday, and no Change of Control has occurred, the amount computed pursuant to this Section 3.2 shall be reduced by _ of 1% for each month by which the commencement of payment of the Executive's Retirement Benefit precedes the Executive's 62nd birthday." 5. Section 3.3 of the Retirement Agreement is hereby amended to delete both references to the number "62" and to substitute in lieu thereof the number "60." 6. Subsection (b) of Section 3.4 of the Retirement Agreement is hereby deleted in its entirety." 7. The final sentence of subsection (b) of Section 3.5 is hereby amended to read in its entirety as follows: "If Executive, who has satisfied the conditions of Section 3.1(a)(3) (including consideration of Years of Service accrued for Disabled or deceased Participants pursuant to Section 2.1), dies prior to the commencement of the payment of Retirement Benefits, and was married at the date of death, the spouse Beneficiary of Executive shall have the right to a survivor Retirement Benefit, commencing at the date Executive would have attained age 62, except for the fact that the Participant died prior to attaining age 62, or at the election of the spouse Beneficiary of Executive, a date on which Executive would have attained an age between 60 and 62 (subject to the reduction factor specified in Section 3.2), or commencing on the first day of the month following the month in which the Executive died, if the Executive continued in continuous employment with the Company after attaining age 62 and until the date of Executive's death, calculated under Section 3.2 as if the Executive had survived to such entitlement date and begun receiving payment of the Retirement Benefit at such entitlement date as a joint and 100% survivor annuity and then died on the following date." 8. Section 4.3 of the Retirement Agreement is hereby amended to read in its entirety as follows: "Section 4.3 Spouse Retirement Benefit. To the extent that a spouse Beneficiary is receiving a Death Benefit on the date the Executive would have attained age 62, or such earlier age elected by the spouse Beneficiary of Executive under Section 3.5, the spouse Beneficiary thereafter shall receive a Retirement Benefit pursuant to Article III, if eligible, in the amount calculated pursuant to Article III, and no further Death Benefit payments shall be payable to the spouse Beneficiary or to any Dependent Children Beneficiaries or otherwise." 9. Section 6.2 of the Retirement Agreement is hereby amended to delete the four references therein to the number "62" and to substitute in lieu thereof the number "60." 10. Except as specifically amended hereby, each and every term of the Retirement Agreement is hereby ratified, approved, and confirmed. -3- 4 11. This Amendment shall be deemed effective for all purposes on and as of the date hereof. 12. This Amendment shall be governed by the laws of Delaware. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. UNOVA, INC. By: /s/ Virginia S. Young ------------------------------------- Title: VP & Secretary ---------------------------------- /s/ Alton J. Brann ---------------------------------------- Alton J. Brann -4- EX-10.25 11 MATERIAL CONTRACTS 1 EXHIBIT 10.25 SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT THIS AGREEMENT CONTAINS ARBITRATION CLAUSES This Supplemental Executive Retirement Agreement ("Agreement") made and entered into as of this 15th day of March, 2000, by and between UNOVA, Inc., a Delaware corporation (the "Company"), and Larry D. Brady ("Executive"). WHEREAS, the Executive is presently employed by the Company as its President and Chief Operating Officer; and WHEREAS, the Executive was previously employed by FMC Corporation and earned certain vested retirement benefits while in the employ of such corporation; and WHEREAS, as an inducement of the Executive to accept employment with the Company, the Company agreed to provide the Executive with the supplemental retirement benefits provided in this Agreement and, in addition, the Company desires to provide the Executive with the disability and death benefits provided for herein; NOW, THEREFORE, the Company and the Executive covenant, agree, represent, warrant and understand as follows: ARTICLE I -- PURPOSE The purpose of this Agreement is to provide for supplemental retirement, disability, and death benefits to Executive and thereby fulfilling an undertaking made in connection with the Company's employment of the Executive, and to encourage Executive to continue providing services to the Company. This Agreement is intended to provide benefits solely for a management or highly compensated employee within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Payments under this Agreement shall be made either from general assets of the Company or from the assets of a trust which may, in the sole discretion of the Company, be established hereunder. It is intended that this Agreement remain at all times an unfunded plan for purposes of ERISA and that the trust, if established, shall constitute a grantor trust under Sections 671 through 679 of the Internal Revenue Code of 1986, as amended (the "Code"). ARTICLE II -- DEFINITIONS Section 2.1 "Active Participant" shall mean Executive so long as he remains employed by the Company continuously from the date hereof, except as provided for below as to Disability or death. Other than during a period of Disability, Executive shall be treated as having terminated from employment during any period of Leave of Absence, unless the Committee, in its sole and absolute discretion, and subject to such terms and conditions as the Committee may specify, decides otherwise. However, Executive, while Disabled or if Executive dies while an Active Participant, shall continue to be treated as an Active Participant and, thus, continue to accrue additional Years of Service until the earlier of the date that the Executive attains (or, if deceased, would have attained) age 62, or the date that Executive is no longer Disabled. If Executive returns to active employment with the Company when Disability ends, he shall thereafter be an Active Participant, so long as such employment continues, without further 2 action. If Executive terminates employment with the Company (other than for Disability) and is subsequently re-employed with the Company he shall not be treated as an Active Participant unless the Committee determines otherwise. Section 2.2 "Actuarial Equivalent" shall mean the adjustment of an amount or amounts using actuarial methods and factors identical with those actuarial methods and factors then being used, at the time such calculations are to be made hereunder, under the UNOVA Retirement Plan adopted by UNOVA, Inc. and intended to be qualified under Section 401(a) of the Code, as such Plan may be amended from time to time and any retirement plan intended to replace such Plan (the "Qualified Plan"). Section 2.3 "Average Earnings" shall mean one-fifth of the sum of the Executive's gross base salary payments made to the Executive as an Active Participant plus Bonuses as defined in Section 2.6 awarded to the Executive from the Company (as used in this Section 2.3 and hereinafter the term "Company" shall have the meaning specified in Section 2.12) for the 60 consecutive calendar months which produce the highest sum (not taking into account months in which the Executive received no base salary payments) out of the past 120 calendar months or, if the Executive has been employed by the Company for less than 120 calendar months as of the date of any calculation (retirement, disability or death benefits) which utilizes the concept of Average Earnings, then Average Earnings shall also include a sufficient amount of the Executive's highest "Earnings" from the Final Average Yearly Earnings figures on page 3 of the Worksheet and, in the case of 1999, the sum of: 1.) the gross base salary payments plus gross Bonuses received from the Company during 1999 including for this purpose the signing bonus paid by UNOVA to the Executive and 2.) Compensation and Excess Compensation, as defined in the FMC Corporation Non-Qualified Retirement and Thrift Plan, received from FMC during 1999, in order to bring the total period covered in such calculation to 120 calendar months. For all purposes of calculating "Average Earnings" from the Company under this Supplemental Plan "gross base salary" shall include all payments credited to Executive related to base compensation before subtracting any amounts deferred pursuant to Section 401(k) or 125 of the Code or deferred at the election of the Executive pursuant to any deferred compensation plan of the Company and does not include any amounts credited as compensation to Executive relating to the exercise or award under Company Stock-based option or award plans. (a). Average Earnings for purposes of calculating a Disability Benefit for or with respect to Executive shall be calculated using the 120 months or such shorter period of time described in Section 2.3 above, that include and precede the month that his Disability commenced. If Executive has returned to active employment with the Company after a period of Disability but does not have a minimum of 60 consecutive calendar months of employment with the Company after such return to active employment, then Average Earnings shall be calculated by the Committee in accordance with subparagraph (d). (b). Average Earnings in the case Executive dies while employed by the Company and prior to attaining age 62 shall be calculated using the 120 months or such shorter period of time described in Section 2.3 above, that include and precede the month of Executive's death (or Disability, in the case Executive dies while Disabled). (c). For purposes of calculating a lump sum payment pursuant to Section 3.1() (b) in the event of a Change of Control, with respect to Executive (other than while Disabled or when deceased) and who is an Active Participant as of the date of such calculation, Average Earnings shall be calculated as if Executive's employment with the Company ended on such date or the date as revised pursuant to the terms of any Change of Control Agreement existing between the 2 3 Company and the Executive ("Change of Control Agreement" shall mean any agreement between the Company and the Executive which provides for the employment of Executive and/or the payment of compensation to Executive upon or following a Change of Control). (d). Notwithstanding the foregoing, the Committee may determine Average Earnings for the purposes of subparagraphs (a) or (b) of this Section by another methodology, if that method is more advantageous to Executive, including without limitations inclusion of "Earnings" with which the Executive was credited under the FMC Plan. Section 2.4 "Beneficiary" or "Beneficiaries" shall mean those who are designated under this Agreement to receive payment of a benefit on account of Executive's death. If and to the extent the spouse of Executive is living at the time of Executive's death, only the spouse may be the Beneficiary. Upon the death of the spouse after the death of Executive but prior to commencement of Retirement Benefit payments, the Dependent Children of the Participant may be Beneficiaries, but only of the Death Benefit. Section 2.5 "Board" shall mean the Board of Directors of UNOVA, Inc. or of its Successor, as of the time in question, the succession of which did not result from or constitute or follow a Change of Control ("Successor" or "Successors"). Section 2.6 "Bonus" or "Bonuses" shall mean the full amount of the bonus or similar cash incentive determined and awarded to the Executive by the Committee (or any other body or individual having authority to award such Bonus) with respect to any given fiscal year or portion thereof and shall be deemed, for purposes of the calculation of Average Earnings, to have been paid by the Company to the Executive in equal monthly installments during the fiscal year or portion thereof with respect to which the Bonus was awarded under Company-sponsored, formal or informal, incentive compensation or bonus plans, excluding, however, any payments under stock-based option or award plans; provided, however, that, for purposes of calculating Average Earnings, any portion of a Bonus, the payment of which is deferred at the election of the Executive, shall be treated as having been paid in equal monthly installments during the fiscal year or portion thereof with respect to which the Bonus was awarded, notwithstanding such elected deferral, and payment of the deferred portion shall be disregarded for purposes of calculating Average Earnings. "Bonus or Bonuses" shall not include any bonus, commission or fee paid to the Executive for the accomplishment of a particular non-ordinary achievement, transaction, or circumstance as determined by the Committee prior to or at the time of the award thereof. Notwithstanding the foregoing, the following additional provisions shall be applicable to the definition of "Bonus" or "Bonuses" in the case of an award or awards made under the UNOVA, Inc. Management Incentive Compensation Plan or any other annual incentive plan which provides that a portion of an annual award shall be deposited in a so-called "Bonus Bank" and shall remain "at risk." The Bonus, in such case, shall comprise only the portion of the annual award which is paid to the Executive on a current basis and shall not include any amount of the award required to be deposited to a Bonus Bank; however, the Bonus shall also include any amount paid to the Executive as a periodic payment from the Bonus Bank during the year with respect to which the amount was made (but shall not include any payment from the Bonus Bank made solely as a result of termination of employment). Section 2.7 "Business Combination" shall have the meaning specified in Section 2.8(c). 3 4 Section 2.8 "Change of Control" shall mean: (a). The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended [the "Exchange Act"] (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either (1) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of Directors (the "Outstanding Company Voting Securities"); excluding, however, the following acquisitions of Outstanding Company Common Stock and Outstanding Company Voting Securities: (A) any acquisition directly from the Company other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company; (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D) any acquisition by any Person pursuant to a transaction which complies with clauses (1), (2), and (3) of paragraph (c) below of this Section 2.8; or (b). Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual who becomes a member of the Board subsequent to such effective date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but provided further that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Regulation 14a-11 of Regulation 14A promulgated under The Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or (c). The approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), or, if such consummation of such Business Combination is subject, at the time of such approval by shareholders to the consent of any government or governmental agency, the obtaining of such consent (either explicitly or implicitly by consummation), excluding, however, such Business Combination pursuant to which (1) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination will beneficially own, directly or indirectly, more than sixty percent (60%) of, respectively, the outstanding shares of common stock and the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (2) no Person (other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or such corporation resulting from such Business Combination) will beneficially own, directly or indirectly, thirty percent (30%) or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of 4 5 the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed with respect to the Company prior to the Business Combination; and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination will have been members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d). Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. Section 2.9 "Chief Executive Officer" shall mean the chief executive officer of UNOVA, Inc. or of its Successor. Section 2.10 "Code" shall mean the Internal Revenue Code of 1986, as amended. Section 2.11 "Committee" shall mean: (a). The Compensation Committee of the UNOVA, Inc. Board of Directors. (b). Notwithstanding Section 2.11(a), upon a Change of Control, the Committee shall mean exclusively the "Special Administrators." The "Special Administrators" shall be the individuals who constituted the Company's Compensation Committee of the Board immediately prior to the Change of Control. The "Special Administrators" shall constitute the Committee until the earlier of the termination of this Agreement or the last day of the 18-month period following the month in which the Change of Control occurred. The "Special Administrators" shall have all rights and authority reserved to the Committee under this Agreement, including, but not limited to, the rights specified in Section 10.2. (c). If a "Special Administrator" dies, becomes disabled, or resigns as "Special Administrator" during the period that the "Special Administrators" constitute the Committee, the remaining "Special Administrator(s)" shall continue to serve as the Committee without interruption, and successor "Special Administrator(s)" shall be designated, by the remaining "Special Administrators". If at any time there are no remaining "Special Administrators," the presiding Judge of the Superior Court of the State of California for Los Angeles County shall designate three "Special Administrators". Section 2.12 "Company" shall mean UNOVA, Inc., a Delaware corporation, and its Successors, and their respective subsidiaries. Any reference to stock or securities of the Company shall mean only the stock or securities of UNOVA, Inc. or of its Successor. Section 2.13 "Death Benefit" shall mean the benefit payable pursuant to Article IV to the Executive's Beneficiary or Beneficiaries, if any. Section 2.14 "Dependent Children" shall mean a natural or legally adopted son or daughter who either: (a) has not attained age 19; or (b) has attained age 19 but has not attained age 23 and is a full-time student at an accredited educational institution: Section 2.15 "Director" shall mean a member of the Board of Directors of UNOVA, Inc. or of its Successor. 5 6 Section 2.16 "Disability" or "Disabled" shall mean the condition of the Executive, or the Executive, when it has been determined by the Committee that the Executive is unable to perform the material and substantive duties of the Executive's position or profession, to an extent which prevents the Executive from engaging in the Executive's regular position or profession, due to injury or sickness for which the person is receiving medical care from, or with respect to which a current certification of disability is received by the Committee from, a professional person appropriate for such injury or sickness. Section 2.17 "Disability Benefit" shall mean the benefit payable pursuant to Article V to the Executive because of Disability. Section 2.18 "ERISA" shall have the meaning specified in Article I. Section 2.19 "Exchange Act" shall have the meaning specified in Section 2.8(a). Section 2.20 "Leave of Absence," with respect to Executive, shall mean and refer to a discontinuance of regular, full-time services by the Executive for the Company resulting in the discontinuance, in whole or in part, of base salary payments by the Company to Executive during such discontinuance of service, provided, however, that, to the extent federal or state so-called "Family Leave Acts" or "Maternity or Pregnancy Leave Acts" may make unlawful the treatment of an absence or a portion of an absence as a termination for purposes of this Agreement, such absence or portion shall not constitute a Leave of Absence. Section 2.21 "Normal Form" shall mean the form of Retirement Benefit payable under Section 3.7 to a Retired Participant. Section 2.22 "Normal Retirement Date" shall mean the Executive's 65th birthday. Section 2.23 "Offset Amount" shall mean the sum of the annual "FMC Pension Benefit" and the annual "Company-provided pension." (a). The "FMC Pension Benefit" shall mean the annualized retirement plan benefit specified on line 24 of the Worksheet actuarially adjusted by the "early retirement reduction factor" described in Section 3.3 to reflect the commencement of benefit payments under this Agreement. (b). The "Company-provided pension" shall mean the annual amount that is payable to the Executive under any defined benefit or defined contribution plan sponsored by the Company, which is either intended to qualify under Section 401(a) of the Code or is intended to restore benefits under such plan (excluding only this Agreement and Parts II and III of the UNOVA FSSP and of the Restoration Plan). Any non-United States defined benefit or defined contribution plan of the Company which is not subject to the Code but which is comparable in purpose to plans which would qualify under Section 401(a) of the Code shall be included within the meaning of "Company-provided pension." The amount of the "Company-provided pension" shall be calculated under the terms that were in effect during the Executive's actual participation, except that a subsequent, retroactive amendment to any of such plans shall be taken into account only to the extent that it actually would have increased the Executive's benefit under that plan. The "Company-provided pension" shall be computed as if the Executive actually received the plan benefits under such "Company-provided pension" as a single life annuity beginning on the date that Retirement Benefits commence under this Agreement and actuarially adjusted by the early retirement reduction factors used under each of the plans. 6 7 Section 2.24 "Outstanding Company Common Stock" and "Outstanding Company Voting Securities" shall have the meanings specified for those items in Section 2.8(a). Section 2.25 "Person" shall have the meaning specified in Section 2.8(a). Section 2.26 "Qualified Plan" shall have the meaning specified in Section 2.2. Section 2.27 "Retirement Benefit" shall mean the benefits payable to Executive and, if applicable, the Beneficiary of Executive, as provided in Article III. Section 2.28 "Social Security Covered Compensation Base" means the average of the compensation and benefit bases in effect under Section 230 of the Social Security Act for each year in the 35-year period ending with the year in which the participant attains Social Security retirement age as defined in Section 415(b)(8) of the Code. Section 2.29 "Special Administrators" shall have the meaning specified in Section 2.11(b). Section 2.30 "Successor" or "Successors" shall have the meaning specified in Section 2.5. Section 2.31 "Trust" shall mean a grantor trust under Section 671 through 679 of the Code, if and when established. The decision to establish a Trust shall be in the sole and absolute discretion of the Company. Section 2.32 "Trustee" shall mean the trustee of the Trust. Section 2.33 "Trust Agreement" shall mean the terms of the agreement, entered into between UNOVA, Inc. or its Successor and the Trustee, that establishes the Trust. Section 2.34 "Worksheet" shall mean the three page document marked Exhibit A, attached to this Agreement, entitled "Salaried Employees' Retirement Plan Calculation Worksheet", calculated on 7/15/99, for Larry Brady. Section 2.35 "Years of Service" shall mean the number resulting from: (a). The division of twelve into the number of consecutive and continuous calendar months of employment with the FMC Corporation and the Company that elapse from and include the month that Executive commenced employment with FMC Corporation and which ends: (1) upon the Executive's death; or (2) upon termination of Executive's employment with the Company other than by death, until and including the earlier of the month of such death or termination; provided, however, that for an Executive who dies or becomes Disabled while an Active Participant, Executive shall continue to accrue Years of Service from the date of such death or Disability until the earlier of the calendar month (x) in which Executive attains or, if deceased, would have attained age 62, or (y) in which Executive is no longer Disabled. (b). In its discretion, the Committee may credit Executive with Years of Service in addition to the Years of Service accrued while actually employed with FMC or the Company. 7 8 (c). For purposes of calculating a lump sum payment pursuant to Section 3.1(b) in the event of a Change of Control, with respect to Executive while an Active Participant, Years of Service shall be determined as if the Executive's employment with the Company ended on such date or, if that date is adjusted pursuant to the terms of any Change of Control Agreement between the Company and the Executive, then that later date. ARTICLE III -- RETIREMENT BENEFITS Section 3.1 Eligibility for Retirement Benefit. (a). General. Executive shall be eligible to begin receiving a Retirement Benefit if Executive has (1) attained age 55 (subject to the "early retirement reduction factor" specified in Section 3.3); (2) filed an election to receive payments under Article VI; (3) terminated employment with the Company; and, (4) except when Executive's employment with the Company is terminated in connection with a Change of Control, the Executive agrees that for a period of five years after commencement of receipt of Retirement Benefits under this Agreement, not to engage in any activity which interferes with the economic or business interests, or contractual relationships of UNOVA, Inc. or its Successors or of any of its subsidiaries or affiliates with third parties in connection with which the Participant worked for UNOVA, Inc. or its subsidiaries or affiliates or to perform services for any entity in competition with a business of UNOVA, Inc. or of its subsidiaries or affiliates for which the Executive worked and with respect to which the Executive possesses trade secrets or business confidential information of UNOVA, Inc. or of its subsidiaries or affiliates. In the event that any provision of the covenant provided for in (4) immediately above shall be held invalid or unenforceable by reason of the geographic or business matter scope, or the duration thereof, such invalidity or unenforceability shall attach only to such provisions and shall not affect or render invalid or unenforceable any other provision of this Agreement, and this Agreement shall be construed as if the geographic or subject matter scope, or the duration thereof, had been more narrowly drafted so as not to be invalid or unenforceable. (b). Change of Control. Except as otherwise provided in any Change of Control Agreement between the Company and the Executive, notwithstanding anything herein to the contrary, upon a Change of Control, if Executive is an Active Participant or if Executive has satisfied the conditions of Section 3.1(a)(3), Executive shall be entitled to a lump sum payment equal to the Actuarial Equivalent, at the age of such Participant at the date of the Change of Control, of the Retirement Benefit which would be payable to such Participant at the Executive's Normal Retirement Date, assuming, for such purposes, that the Retirement Benefit is payable in the form of a single life annuity. In addition, there shall be waived any condition concerning eligibility for payment of a Retirement Benefit that requires: (1) the filing of any election; (2) an agreement not to engage in competitive activities with the Company; (3) the application of the early retirement reduction factor described in Section 3.3; and (4) as to the Executive, termination of employment with the Company, in order to begin receiving Retirement Benefits. Section 3.2 Retirement Benefit Formula. Subject to the provisions of Section 3.3, the Executive's Retirement Benefit shall be equal to: the product of (a) multiplied by (b) below minus (c). (a) one-twelfth (1/12) of the sum of (i) and (ii) below: (i). the sum of (A) one percent (1%) of the Executive's Average Earnings up to the Social Security Covered Compensation Base and (B) one and one-half percent 8 9 (1 1/2%) of the Executive's Average Earnings in excess of the Social Security Covered Compensation Base multiplied by the Executive's Years of Service at age 65 up to 35 Years of Service; and (ii). One and one-half percent (1 1/2%) of the Executive's Average Earnings multiplied by the Executive's expected Years of Service at age 65 in excess of 35 Years of Service. (b). The ratio of actual Years of Service to expected Years of Service at age 65. (c). One-twelfth (1/12) of the Offset Amount. Section 3.3 Early Retirement Benefits. If the Executive retires prior to the age of 65, the Executive shall be entitled to receive a Retirement Benefit, subject to the "early retirement reduction factor," commencing as of the first of the month after the Executive retires or, if the Executive elects, as of the first day of any subsequent month. Any such election of a deferred commencement date may be revoked at any time prior to such date by the Executive, and a new date may be elected by giving 60 days written notice to the Committee or its designee for purposes of administering this Agreement. The "early retirement reduction factor" provides that the Retirement Benefit computed under section 3.2 shall be reduced by 1/3 of 1% for each month by which the commencement of the payment of the Retirement Benefits precedes the Executive's 62nd birthday. Section 3.4 Retirement After Age 65. If the Executive retires after his Normal Retirement Date, he shall be entitled to receive a Retirement Benefit determined under Section 3.2 commencing as of the first day of the month coinciding with or next following the date the Executive actually retires, and the Executive shall accrue additional benefits hereunder after the Executive's Normal Retirement Date. Section 3.5 Vested Retirement Benefit. Executive has a vested right to a Retirement Benefit under this Agreement as of the date hereof. Section 3.6 Retirement Benefit Forms. Unless Executive had made an election to receive payment of Retirement Benefits in an available alternative form, Executive shall be deemed to have elected the Normal Form. Section 3.7 Normal Form of Retirement Benefit. (a). Single Life Annuity. The Normal Form of payment of a Retirement Benefit for Executive who is living at the time payment commences and who is unmarried on such date shall be a single life annuity. All payments shall cease upon Executive's death. (b). Joint and Survivor Annuity. If Executive is married at the time that payment of the Retirement Benefit commences, the Normal Form of Retirement Benefit shall be a 100% joint and survivor annuity (which shall be the Actuarial Equivalent of a single life annuity) for the benefit of the Executive's spouse as of the date that payment of the Retirement Benefit commences. Under the Normal Form of a joint and survivor annuity, Executive shall receive a monthly benefit for life and, upon the Executive's death, the spouse, if living, shall receive a monthly benefit for life equal to 100% of the monthly benefit that was payable to the Executive. If Executive dies prior to the commencement of the payment of Retirement Benefits, and was married at the date of death, the spouse Beneficiary of Executive shall have the right to a 9 10 survivor Retirement Benefit, commencing at the date Executive would have attained age 62, except for the fact that the Participant died prior to attaining age 62, or commencing on the first day of the month following the month in which the Executive died, if the Executive continued in continuous employment with the Company after attaining age 62 and until the date of Executive's Participant's death, calculated under Section 3.2 as if the Executive had survived to such age and begun receiving payment of the Retirement Benefit at such age as a joint and 100% survivor annuity and then died on the following date. Section 3.8 Alternative Forms of Benefit. (a). Election of Forms of Benefit. Prior to the commencement of payment of a Retirement Benefit, Executive may file an election designating a payment form other than the Normal Form of Retirement Benefit; provided, however, that any such alternate payment form is a payment form available under the Qualified Plan and, if Executive is entitled to a benefit under such Qualified Plan, is the same as the payment form elected under such Qualified Plan. The amount of payment under such alternative payment form shall be the Actuarial Equivalent of a single life annuity. If Executive is married, an election to receive a Retirement Benefit in a form other than the Normal Form shall be valid only if such election includes the written consent of the Executive's spouse in the form and manner specified by the Committee. However, a joint and survivor annuity shall not be available under this Agreement with respect to any Beneficiary other than the spouse of the Executive as of the date that the Retirement Benefit commences. (b). Additional Forms of Benefit. From time to time, the Committee may, in its sole discretion, make other forms of payment of Retirement Benefits available; provided, however, that once Executive or Executive's Beneficiary begins receiving Retirement Benefit payments, no change may be made in the form of payment except as provided for in Section 3.8(c) below. (c). Form of Benefit on Change of Control. Notwithstanding the other provisions of this Section, upon a Change of Control, all Retirement Benefits including, without limitation, benefits payable to Active Participants who remain employed by the Company, shall be paid in a single sum payment that is the Actuarial Equivalent at the age of the Executive as of the date of Change of Control of a single life annuity payable at the later of age 62 or, if the Executive had remained in continuous employment with the Company after attaining age 62, the age of the Executive at the date of Change of Control. ARTICLE IV -- BENEFITS UPON EXECUTIVE'S DEATH Section 4.1 Eligibility for Death Benefit. The Beneficiary or Beneficiaries of Executive in the event Executive dies while an Active Participant or while Disabled and prior to attaining age 62 and prior to the time Retirement Benefits to Executive commence, shall be eligible to begin receiving a Death Benefit if the Beneficiary or Beneficiaries have filed a claim under Article VI. The Beneficiary or Beneficiaries of Executive shall not be eligible for a Death Benefit, if the Executive's employment with the Company terminated prior to Executive's death other than by reason of Disability. If there are no Beneficiaries at the date of the Executive's death, no Death Benefit shall be payable. The class of individuals who are eligible to be Beneficiaries of the Death Benefit is limited to the Executive's spouse, as of the date of the Executive's death, and the Executive's Dependent Children as of the date of Executive's death; provided, however, that such term also shall include any natural children of Executive born after Executive's death and any child who is in the process of being adopted by the Executive at the date of Executive's death and the adoption of whom is completed by the spouse of Executive after the date of Executive's death. If there is both a living spouse and Dependent Children as 10 11 of the date of Executive's death, the Beneficiary shall be the spouse. The Dependent Children shall become the Beneficiaries of the Death Benefit, but only upon the death of Executive's spouse prior to the earlier of the date the Executive would have attained age 62, or the date the Participant's spouse commences to receive a Retirement Benefit. Section 4.2 Death Benefit. (a). Spousal Benefit. The Death Benefit for the surviving spouse of Executive shall be an annual amount equal to 40% of Executive's Average Earnings. The spouse Beneficiary shall receive the Death Benefit as a monthly benefit equal to 1/12 of the Death Benefit. The Death Benefit for the spouse Beneficiary shall cease on the earlier of: (1) the death of the spouse Beneficiary; or (2) the date at which the Executive would have attained age 62. (b). Dependent Children Benefit. If there is no spouse Beneficiary or a spouse Beneficiary of Executive dies prior to the death of Executive and the Executive dies prior to attaining age 62 while an Active Participant or while Disabled, then a Death Benefit shall be paid to any then Dependent Children for so long as any such remain Dependent Children. The aggregate amount of any Death Benefit payable to Dependent Children for each month is the amount equal to the monthly Death Benefit that would be payable to a spouse Beneficiary multiplied by a fraction (not greater than one), the numerator of which is the number of Dependent Children at the time of each monthly payment and the denominator of which is three. If there are no remaining living Dependent Children Beneficiaries, no further Death Benefit shall be paid. (c). Vesting in Death Benefit. While an Active Participant or Disabled, Executive shall at all times be vested in his right to a Death Benefit. Section 4.3 Spouse Retirement Benefit. To the extent that a spouse Beneficiary is receiving a Death Benefit on the date the Executive would have attained age 62, the spouse Beneficiary thereafter shall receive a Retirement Benefit pursuant to Article III, if eligible, in the amount calculated pursuant to Article III, and no further Death Benefit payments shall be payable to the spouse Beneficiary or to any Dependent Children Beneficiaries or otherwise. Section 4.4 Change of Control. Upon a Change of Control, after the Executive's death while an Active Participant or after the Executive's death while Disabled but in either case prior to the date the Executive would have attained age 62, the Executive's spouse, if then living, shall receive a single sum payment that is the Actuarial Equivalent, the date of such lump payment, of the Death Benefit, calculated through the date that Executive would have attained age 62. The spouse Beneficiary, if then living, shall also be entitled to the lump sum payment of the Retirement Benefit, if any, pursuant to Section 4.3. Upon a Change of Control occurring after commencement of the payment of Death Benefits to the Dependent Children Beneficiaries pursuant to Section 4.2(b), the Dependent Children shall receive a single sum payment that is the Actuarial Equivalent, based upon the ages of the Dependent Children, of the Death Benefit calculated without regard to the date the Executive would have attained age 62. ARTICLE V -- BENEFITS OF DISABLED EXECUTIVE Section 5.1 Eligibility for Disability Benefit. If while an Active Participant, Executive becomes Disabled prior to attaining age 62, Executive shall be eligible to begin receiving a Disability Benefit. The Disability Benefit shall cease on the earlier of: (1) the first day of the calendar month following the Executive's attainment of age 62; (at which time a Retirement 11 12 Benefit may be payable under Article III), (2) the date on which the Committee determines that the Executive is no longer Disabled; or (3) the date of the Executive's death (in which case a Death Benefit may be payable under Article IV). Section 5.2 Disability Formula. A Disability Benefit shall be a monthly amount equal to 1/12 of 40% of the Executive's Average Earnings, offset by the sum of: (a) any other payment to the Executive that would be made by or on behalf of the Company on account of the Disability (including, without limitation, a Company-sponsored disability insurance plan or any other benefit plan of the Company, any amounts payable as sick pay, and any amounts payable under so-called Workers Compensation Acts or similar laws of foreign governments other than lump sum amounts for the loss of an organ or other body member and other than amounts paid for medical expenses), calculated as if the Executive participated to the fullest extent possible in such disability programs; and (b) the Social Security disability benefits received by the Executive. For purposes of determining any offset under the preceding sentence, any payments that are not made on a monthly basis shall be converted to monthly payments under a methodology approved by the Committee. Section 5.3 Vesting Disability Benefit. Executive, while an Active Participant shall at all times be vested in his right to a Disability Benefit. Section 5.4 Disabled Executive's Retirement Benefit. If Executive attains age 62 while Disabled, then he may be eligible to receive a Retirement Benefit subject to the rules of Article III, as if Executive continued his or her employment until age 62 with Average Earnings calculated as provided for in Section 2.3(a). ARTICLE VI -- ELECTIONS, CLAIMS, COMMENCEMENT OF PAYMENT AND BENEFICIARY DESIGNATIONS Section 6.1 General. All elections to receive benefits under this Agreement must be made in writing to the Committee in the form specified by the Committee and include the information or documentation that the Committee deems necessary. The Committee, in its discretion, may request additional information or reasonable documentation from time to time in order to determine whether Executive receiving a Disability Benefit continues to be Disabled, and in order to determine whether any Beneficiary who is receiving a Death Benefit is entitled hereunder to continue receiving a Death Benefit or the amount thereof. Section 6.2 Commencement of Payments. Payments of benefits under this Agreement shall begin as soon as administratively feasible after the Executive (or Beneficiary, if applicable) has provided a claim for benefits in writing to the Committee, including any supporting documentation required by the Committee, and the Committee has determined that the Executive (or Beneficiary, if applicable) satisfies the requirements for payment. Disability and Death Benefits shall be payable from the first day of the month following the month in which the Executive becomes disabled or dies, as the case may be. In the event of any administrative delay in actual payments, payments shall be made retroactively to the first day of the month following the month in which the event which is the basis for the payment occurs but without any payment of interest or other compensation for such delay in payment. Notwithstanding any provision of this Agreement, upon a Change of Control the Committee may, in its sole discretion, determine to postpone the lump sum payment of Retirement, Death and Disability Benefits payable upon a Change of Control, in which case such Benefit payments shall be made as otherwise provided in this Agreement, without regard to the Change of Control, provided however, that if Executive is party to a Change of Control Agreement, such Benefit 12 13 payments shall be calculated using the age of Executive as adjusted pursuant to the Change of Control Agreement. In the event the Committee later determines, in its sole discretion, to effect such a lump sum payment of the remainder of such Benefits, it shall have the power and authority to do so. Section 6.3 Form of Benefit Elections. An election to receive payment of Retirement Benefits in a form other than the Normal Form must be submitted to the Committee in writing at any time prior to the commencement of payments. An election must be made in the form specified by the Committee and include the information or documentation that the Committee deems necessary, including written consent of the spouse in the case Executive is married and elects a Retirement Benefit in a form other than the Normal Form. The filing of an election as to the form of Retirement Benefits shall revoke any pre-existing election, except that a revocation of an election by Executive while married shall be valid only if accompanied by the spouse's written consent to the subsequent election (other than a subsequent election to receive payments in the Normal Form), and except that once Retirement Benefits have commenced under this Agreement, the form of the Retirement Benefit payable is irrevocable. Section 6.4 Beneficiaries. If the Committee makes available alternative benefit forms that provide for payments after an Executive's death, the Executive shall designate the Beneficiary under such payment form in accordance with the procedures set forth by the Committee. Section 6.5 Failure to Claim. If Executive upon termination of employment with the Company, fails to claim payment of Retirement Benefits until a date after such termination of employment, the Retirement Benefits payable to or with respect to Executive shall, nevertheless, be the monthly amount which would have been payable to Executive upon termination of employment with the Company, and Executive shall be entitled to receive Retirement Benefit payments retroactive to the month such payments would have first accrued following termination of employment, but without interest or other payment on account of such deferred payment. ARTICLE VII -- ADMINISTRATION The Committee shall administer the Agreement in accordance with its terms and purposes. The Committee shall have full authority and discretion to interpret the Agreement, to determine benefits pursuant to the terms of the Agreement, to establish rules and procedures necessary to carry out the terms of the Agreement, and to waive or modify any requirements or conditions on the receipt or calculation of benefits under the Agreement where the Committee determines that such a waiver or modification is appropriate. In the event Executive is or was also a participant in a similar supplemental retirement plan for highly-compensated employees within the meaning of Sections 201(2), 301(a), and 401(a)(I) of Title I of ERISA and maintained by UNOVA, Inc. or one of its subsidiaries or affiliates (a "Subsidiary Plan"), the Committee shall have the power and authority to modify and integrate the benefits payable under this Agreement with the benefits payable under the Subsidiary Plan. All decisions by the Committee shall be final and binding on all parties. The Committee may appoint one or more officers or employees of the Company to act on the Committee's behalf with respect to administrative matters related to the Agreement. ARTICLE VIII -- SOURCE OF PAYMENTS Section 8.1 General Assets of Company. Benefits payable under this Agreement shall be paid directly to the Executive, or to the Executive's Beneficiary, as applicable, from the 13 14 general assets of the Company, including the assets of the grantor Trust to the extent that such a trust is created and so provides. If any person acquires a right to receive payments from the Company under this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Company notwithstanding the fact that the Company may establish an advance accrual reserve on its books against its future liability under this Agreement. ARTICLE IX -- CLAIMS AND ENFORCEMENT Section 9.1 Administrative Procedures. (a). Notice of Denial. If the Committee determines that any person who has submitted a claim for payment of benefits under this Agreement is not eligible for payment of benefits or, if applicable, is not eligible for payment of benefits in the form or amount requested, then the Committee shall, within a reasonable period of time, but no later than 90 days after receipt of the written claim, notify the claimant of the denial of the claim. Such notice of denial: (1) shall be in writing; (2) shall be written in a manner calculated to be understood by the claimant; and (3) shall contain: (A) the specific reason or reasons for denial of the claim; (B) a specific reference to the pertinent Agreement provisions or administrative rules and regulations upon which the denial is based; (C) a description of any additional material or information necessary for the claimant to perfect the claim; and (D) an explanation of the Agreement's appeal procedures. (b). Reconsideration Procedures. Within 90 days of the receipt by the claimant of the written notice of denial of the claim, the claimant may file a written request with the Committee that it conduct a full and fair review of the denial of the claimant's claim for benefits. The claimant's written request must include a statement of the grounds on which the claimant appeals the original claim denial. The Committee shall deliver to the claimant a written decision on the claim promptly, but not later than 60 days after the receipt of the claimant's request for review, except that if there are special circumstances that require an extension of time for processing, the 60-day period shall be extended to 120 days, in which case written notice of the extension shall be furnished to the claimant prior to the end of the 60-day period. Section 9.2 Enforcement. (a). Right to Enforce. Within 90 days after exhaustion of the review and appeal procedures provided for in Section 9.1 or, if the Committee fails to grant or deny the claim within 120 days after the claimant's original claim or fails to provide the written decision of the Committee on any written request for reconsideration within the time period in Section 9.1(b), within 90 days after such failure, the Company's obligations under the Agreement may be enforced only through binding arbitration as provided for hereinafter, initiated by Executive or, upon the death of Executive, by Executive's surviving spouse, Dependent Child, or personal representative (as the case may be, the "Claimant"). (b). Attorneys' Fees and Costs. If, prior to a Change of Control, any Claimant is denied a claim, in whole or in part, for benefits under this Agreement and the Claimant requests reconsideration under the procedures described in Section 9.1(b), or initiates any other legal proceeding (other than binding arbitration pursuant to the following provisions of this Article IX) with respect to such alleged claim, the Company shall have no obligation to pay or reimburse the Claimant for attorneys' fees and costs. If, on or after a Change of Control, any Claimant is denied a claim for benefits under this Agreement and the Claimant has requested reconsideration under the procedures described in Section 9.1(b), or initiates binding arbitration 14 15 or both reconsideration and binding arbitration, to enforce any obligation of the Company under this Agreement the basis of which is alleged failure of the Committee to administer this Agreement in accordance with its terms or, if following a Change of Control, the Company fails to make payment of Benefits as determined by the Committee, the Company shall pay such Claimant's attorneys' fees and costs incurred in connection with the review and binding arbitration proceedings, provided that the arbitrator determines that the claim is not frivolous. All attorneys' fees and costs payable under this Section 9.2(b) shall be paid by the Company as they are incurred by the Claimant, but no later than 30 days from the date that the Claimant submits a bill or other statement to the Company. (c) Interest. If any Claimant prevails in a reconsideration procedure described in Section 9.1(b), or if a Claimant prevails in the binding arbitration proceeding pursuant to Section 9.3(a) to enforce the payment of benefits under this Agreement, the Company shall pay interest to the Claimant on any unpaid benefits accruing from the date that benefit payments should have commenced and continuing until the date that such owed and unpaid benefits are paid to the Claimant in full. For purposes of the preceding sentence; interest shall accrue at an annual rate equal to one percent, plus the prime rate reported by The Wall Street Journal as in effect from time to time, each change in the prime rate to be effective for purposes of any interest computation on the date of publication of such changed prime rate in The Wall Street Journal. Section 9.3 Arbitration. The rights of Executive hereunder are conditional upon the acceptance by Executive, on the Executive's behalf and on behalf of the Claimants, of all of the terms and conditions of this Agreement including specifically and without limitation this Article IX. Any controversy or claim arising out of or under the Agreement which is not resolved by the reconsideration referred to in Section 9.1(b) shall be settled by arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association ("AAA") or the Employment Arbitration Rules of the Judicial Arbitration and Mediation Services/Endispute ("JAMS"), subject to the further provisions of this Section 9.3. Hereinafter the term "Rules" means and refers to the aforesaid AAA Rules or the JAMS Rules, as the case may be. Judgment upon the award rendered by the arbitrator may be rendered in any court having jurisdiction. The Rules are modified or supplemented as follows: (a). There shall be one arbitrator, unless the parties agree to more than one arbitrator; (b). The arbitrator shall be a retired judge or attorney with professional experience and expertise in designing or administering corporate retirement benefits and plans, and resident in the Southern California area, unless the parties agree otherwise; (c). The arbitration shall be conducted within Los Angeles County, California, unless the parties agree otherwise; (d). The party desiring to initiate the arbitration shall advise the other party in writing of such desire; (e). Within 10 days of receipt of a notice pursuant to subparagraph (d) above the party receiving the notice shall designate either the AAA or JAMS as the arbitration agency, but in the event such party fails to designate within such period the initiating party shall have the right to designate the AAA or JAMS. 15 16 (f). All claims arising under this Agreement known or which should be known to the party initiating the arbitration shall be included in the issues presented to the AAA or JAMS, as the case may be, for arbitration and any which are not included shall be effectively waived; (g). The expedited procedures of the AAA or JAMS, as the case may be, shall be applied in any case where no disclosed claim or counterclaim exceeds the amount then established by the AAA or JAMS for use of expedited procedures, exclusive of interest and arbitration costs; (h). The decision of the arbitrator shall be rendered within 60 days after the close of hearings; (i). The Company and the Claimant shall furnish to the other, 30 days prior to the first hearing, a list and identification of all witnesses, and copies of all exhibits intended to be submitted by that party. Ten days prior to the first hearing, each party shall have the right to supplement their intended list of witnesses and provide additional exhibits. Only such witnesses and such exhibits identified by one party or the other may be offered in the arbitration hearings; and (j). Any documents, affidavits or other evidence requested by the arbitrator must be submitted within ten days after conclusion of the arbitration hearings, unless the arbitrator grants additional time; ARTICLE X -- MISCELLANEOUS Section 10.1 Employment Rights. Nothing contained in this Agreement shall be construed as a contract of employment between the Company and the Executive, or as a right to continued employment with the Company, or as a limitation of the right of the Company to discharge Executive, with or without cause. Section 10.2 Rights of the Committee. To the extent permitted by law, the Company shall indemnify the Committee (including any officers and employees of the Company appointed to act on behalf of the Committee) and hold such individuals harmless from and against any damages, losses, costs, and expenses incurred (including, without limitation, expenses of investigation and the fees and expenses of counsel) in the course of administering this Agreement. The Company shall bear all expenses of the Committee incurred in the course of administering this Agreement. Section 10.3 Assignment. The benefits payable under this Agreement may not be assigned or alienated. Section 10.4 Applicable Law. This Agreement shall be governed by the laws of the state of California and applicable United States Federal law. Section 10.5 Entire Agreement. This writing is the final expression of this Agreement and a complete and exclusive statement of its terms, except that to the extent that this Agreement refers to the Trust, the terms of the Trust Agreement, as of the date immediately preceding a Change of Control, shall be deemed to be incorporated herein. Section 10.6 Terms. Except as required otherwise by the context, capitalized terms that are used in this Agreement shall have the meaning assigned to them in Article II or 16 17 elsewhere in this Agreement. Feminine or neuter pronouns shall be substituted for those of the masculine form and the plural shall be substituted for the singular, in any place or places herein where the context may require such substitution or substitutions. The title and headings of the Sections of this Agreement are for convenience only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. Section 10.7 Waiver. Any waiver of or failure to enforce any provision of this Agreement in any instance shall not be deemed a waiver of such provision as to any other or subsequent instance. In Witness Whereof, intending to be legally bound, the parties hereto have executed this Agreement or caused this Agreement to be executed on their respective behalfs on and as of the day and year first appearing in this Agreement. UNOVA, INC. By: /s/ Virginia S. Young -------------------------------------- Virginia S. Young Vice President and Secretary EXECUTIVE /s/ Larry D. Brady ----------------------------------------- Larry D. Brady 17 EX-10.31 12 MATERIAL CONTRACTS 1 EXHIBIT 10.31 [UNOVA LOGO] UNOVA, INC. EXECUTIVE SEVERANCE PLAN (AS AMENDED NOVEMBER 18, 1999) The Board of Directors of UNOVA, Inc. (the "Company") recognizes that, as is the case with many publicly held companies, there exists the possibility of a Change of Control of the Company. This possibility and the uncertainty it creates may result in the loss or distraction of employees of the Company and its Subsidiaries to the detriment of the Company and its shareholders. The Board considers the avoidance of such loss and distraction to be essential to protecting and enhancing the best interests of the Company and its shareholders. The Board also believes that when a Change of Control is perceived as imminent, or is occurring, the Board should be able to receive and rely on disinterested service from its executives and other key employees regarding the best interests of the Company and its shareholders without concern that such employees might be distracted or concerned by the personal uncertainties and risks created by the perception of an imminent or occurring Change of Control. In addition, the Board believes that it is consistent with the Company's employment practices and policies and in the best interests of the Company and its shareholders to treat fairly its employees whose employment terminates in connection with or following a Change of Control. Accordingly, the Board has determined that appropriate steps should be taken to assure the Company of the continued employment, attention and dedication to duty of its executives and other key employees and to seek to ensure the availability of their continued service, notwithstanding the possibility, threat or occurrence of a Change of Control. Therefore, in order to fulfill the above purposes, the following plan has been developed and is hereby adopted. ARTICLE I. ESTABLISHMENT OF PLAN As of the Effective Date, the Company hereby establishes a severance compensation plan known as the UNOVA, Inc. Executive Severance Plan as set forth in this document. ARTICLE II. DEFINITIONS As used herein the following words and phrases shall have the following respective meanings unless the context clearly indicates otherwise: 2 (a) Annual Bonus. The annual cash bonus that a Participant may earn pursuant to the terms of any short-term incentive compensation plan or arrangement, whether or not set forth in a written document, of UNOVA, Inc., or by any of its Subsidiaries pursuant to which annual cash bonuses or cash incentive awards may be made, as such plans or arrangements may be in effect from time to time. (b) Annual Bonus Award. The highest amount a Participant received or was awarded as an Annual Bonus in any of the three 12-month periods (including service with Western Atlas) prior to a termination of employment entitling the Participant to a Separation Benefit. (c) Annual Compensation. The sum of a Participant's Annual Salary and Annual Bonus. (d) Annual Salary. The Participant's regular annual base salary immediately prior to his or her termination of employment, including compensation converted to other benefits under a flexible pay arrangement maintained by the Company or deferred pursuant to a written plan or agreement with the Company, but excluding special allowances, premium pay, compensation paid or payable under any Company long-term or short-term incentive plan or any similar payment. (e) Board. The Board of Directors of UNOVA, Inc. (f) Cause. With respect to any Participant: (i) the willful and continued failure of the Participant to perform substantially the Participant's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Participant by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Participant has not substantially performed the Participant's duties, or (ii) the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this definition, no act or failure to act on the part of the Participant shall be considered "willful" unless it is done, or omitted to be done, by the Participant in bad faith or without reasonable belief that the Participant's action or omission was in the best interests of the Company. Any act or failure to act based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or an executive officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Participant in good faith and in the best interests of the Company. (g) Change of Control. The occurrence of any of the following events: (i) An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30 percent or more of either (x) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"); excluding, however, the following acquisitions of Outstanding Company Common Stock or (y) the combined voting power of the then outstanding voting securities of the -2- 3 Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); excluding, however, the following acquisitions of Outstanding Company Common Stock and Outstanding Company Voting Securities: (A) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition by any Person pursuant to a transaction which complies with clauses (A), (B) and (C) of paragraph (iii) below; or (ii) Individuals who, as of the effective date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual who becomes a member of the Board subsequent to such effective date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or (iii) The approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company ("Business Combination") or if consummation of such Business Combination is subject, at the time of such approval by shareholders, to the consent of any government or governmental agency, obtaining of such consent (either explicitly or implicitly, by consummation); excluding, however, such a Business Combination pursuant to which (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination will beneficially own, directly or indirectly, more than 60 percent of, respectively, the outstanding shares of common stock and the combined voting power of the outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or such corporation resulting from such Business Combination) will beneficially own, directly or indirectly, 30 percent or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed with respect to the Company prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination will have been members of the -3- 4 Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (h) Code. The Internal Revenue Code of 1986, as amended from time to time. (i) Committee. The Compensation Committee of the Board. (j) Company. UNOVA, Inc. and any successor thereto. (k) Date of the Change of Control. The date on which a Change of Control occurs. (l) Date of Termination. The date on which a Participant ceases to be an Employee. (m) Disability. A termination of a Participant's employment for Disability shall have occurred if the termination occurs because illness or injury has prevented the Participant from performing his or her duties (as they existed immediately prior to the illness or injury) on a full time basis for 180 consecutive days. (n) Effective Date. The date specified in the resolutions of the Board adopting this Plan. (o) Employee. Any full-time, regular-benefit, non-bargaining employee of an Employer. (p) Employer. The Company or a Subsidiary which has adopted the Plan pursuant to Article V hereof. (q) ERISA. The Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder. (r) Good Reason. With respect to any Participant, (i) the assignment to the Participant of any duties inconsistent in any respect with the Participant's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities immediately before the Change of Control, or any other action by the Company which results in a significant diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Participant; (ii) any material reduction in the Participant's Annual Salary, opportunity to earn Annual Bonuses, or other compensation or employee benefits, other than as a result of an isolated and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Participant; (iii) the Company's requiring the Participant to relocate his or her principal place of employment to a location which is more than 35 miles from his or her previous principal place of employment ; (iv) any purported termination of the Plan otherwise than as expressly permitted by the Plan; or (v) -4- 5 any failure by the Company to comply with and satisfy Article IV of the Plan. For purposes of the Plan, any good faith determination of "Good Reason" made by the Participant shall be conclusive. (s) Multiple. With respect to any Participant, the number set forth opposite the Participant's name under the heading "Benefit Level" on Schedule 1 hereto. (t) Participant. An Employee designated as such pursuant to Section 3.1. (u) Plan. The UNOVA, Inc. Executive Severance Plan. (v) Retirement. A termination by Retirement shall have occurred where a Participant's termination is due to his or her late, normal or early retirement under a pension plan sponsored by the Company or any of its affiliates, as defined in such plan. (w) Separation Benefits. The benefits described in Section 4.2 that are provided to qualifying Participants under the Plan. (x) Separation Period. The period beginning on a Participant's Date of Termination and ending upon the termination of a number of years equal to the Multiple for such Participant. (y) Subsidiary. Any corporation in which the Company, directly or indirectly, holds a majority of the voting power of such corporation's outstanding shares of capital stock. (z) Target Annual Bonus. The Maximum Potential Award that the Participant would have received for the year in which his or her Date of Termination occurs, if the performance goals applicable to such Participant under any UNOVA, Inc. incentive compensation plan (or any successor plan) had been achieved to the extent necessary to enable the Participant to receive 100% of his or her Maximum Potential Award for that year. (aa) Western Atlas Inc. Means Western Atlas Inc., a Delaware corporation which was the parent corporation of UNOVA, Inc., prior to the spin-off of UNOVA, Inc. in accordance with Section 355 of the Internal Revenue Code. ARTICLE III. ELIGIBILITY 3.1 Participation. Each of the individuals named on Schedule 1 hereto shall be a Participant in the Plan. Prior to a Change of Control, Schedule 1 may be amended from time to time by the Board or the Compensation Committee of the Board to add or delete individuals as Participants in this Plan. 3.2 Duration of Participation. A Participant shall only cease to be a Participant in the Plan as a result of an amendment or termination of the Plan complying with Article VII of the Plan, or when prior to a Change of Control the Board removes a Participant from participation in this Plan, or when he or she ceases to be an Employee of any Employer, unless, at the time he or she ceases to be an Employee, such Participant is entitled to -5- 6 payment of a Separation Benefit as provided in the Plan or there has been an event or occurrence constituting Good Reason that would enable the Participant to terminate his or her employment and receive a Separation Benefit. A Participant entitled to payment of a Separation Benefit or any other amounts under the Plan shall remain a Participant in the Plan until the full amount of the Separation Benefit and any other amounts payable under the Plan have been paid to the Participant. ARTICLE IV. SEPARATION BENEFITS 4.1 Terminations of Employment Which Give Rise to Separation Benefits Under This Plan. A Participant shall be entitled to Separation Benefits as set forth in Section 4.2 below if, at any time before the number of years (and months, if any) equal to the Multiple has elapsed following the Date of the Change of Control, the Participant's Employment is terminated (i) by the Company for any reason other than Cause, death, Disability or Retirement or (ii) by the Participant within 90 days after the occurrence of Good Reason. 4.2 Separation Benefits. (a) If a Participant's employment is terminated in circumstances entitling him or her to a Separation Benefit as provided in Section 4.1, the Participant's Employer shall pay such Participant, within ten days of the Date of Termination, a cash lump sum as set forth in subsection (b) below and the continued benefits set forth in subsection (c) below. For purposes of determining the benefits set forth in subsections (b) and (c), if the termination of the Participant's employment is for Good Reason based upon a reduction of the Participant's Annual Salary, opportunity to earn Annual Bonuses, or other compensation or employee benefits, such reduction shall be ignored. (b) The cash lump sum referred to in Section 4.2(a) is the aggregate of the following amounts: (i) the sum of (1) the Participant's Annual Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Target Annual Bonus and (y) a fraction, the numerator of which is the number of days in the such year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by the Participant (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid and in full satisfaction of the rights of the Participant thereto; (ii) an amount equal to the product of (1) the Participant's Multiple times (2) the sum of (x) the Participant's Annual Salary and (y) the higher of the Participant's Target Annual Bonus or Annual Bonus Award; and (iii) any unpaid installments of any Annual Bonus previously awarded to the Participant. (c) The continued benefits referred to above are as follows: -6- 7 (i) during the Separation Period, the Participant and his or her family shall be provided with medical, dental and life insurance benefits as if the Participant's employment had not been terminated; provided, however, that if the Participant becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer-provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Participant for retiree medical, dental and life insurance benefits under the Company's plans, practices, programs and policies, the Participant shall be considered to have remained employed during the Separation Period and to have retired on the last day of such period; and (ii) the Company shall, at its sole expense as incurred, provide the Participant with outplacement services the scope and provider of which shall be selected by the Participant in his or her sole discretion (but at a cost to the Company of not more than $30,000) or, at the Participant's option, the use of office space, office supplies and equipment and secretarial services for a period not to exceed one year. To the extent any benefits described in this Section 4.2(c) cannot be provided pursuant to the appropriate plan or program maintained for Employees, the Employer shall provide such benefits outside such plan or program at no additional cost (including without limitation tax cost) to the Participant. 4.3 Other Benefits Payable. The cash lump sum and continuing benefits described in Section 4.2 above shall be payable in addition to, and not in lieu of, all other accrued or vested or earned but deferred compensation, rights, options or other benefits which may be owed to a Participant upon or following termination, including but not limited to accrued vacation or sick pay, amounts or benefits payable under any bonus or other compensation plans, stock option plan, stock ownership plan, stock purchase plan, life insurance plan, health plan, disability plan or similar or successor plan, but excluding any severance pay or pay in lieu of notice required to be paid to such Participant under applicable law or under any other severance plan or policy of the Company or any Subsidiary. Without limiting the generality of the foregoing, nothing in the Plan shall be deemed to override or deprive any Participant of the full benefit of any provision in any stock incentive plan, supplemental retirement plan, or other benefit plan which provides for acceleration of benefits upon a change of control of the Company, whether or not the term "Change of Control" has a definition identical to that set forth in Article II of this Plan. 4.4 Certain Reduction of Payments by the Company. (a) For purposes of this Section 4.4, (i) a Payment shall mean any payment or distribution in the nature of compensation to or for the benefit of a Participant, whether paid or payable pursuant to this Plan or otherwise; (ii) Separation Payment shall mean a Payment paid or payable pursuant to this Plan (disregarding this Section); (iii) Net After Tax Receipt shall mean the Present Value of a Payment net of all taxes imposed on a Participant with respect thereto under Sections 1 and 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), determined by applying the highest marginal rate under Section 1 of the Code and any applicable state income tax law which is expected to apply to the Participant's taxable income for the year(s) when the Payments are received; (iv) -7- 8 "Present Value" shall mean such value determined in accordance with Section 280G(d) (4) of the Code; and (v) "Reduced Amount" shall mean the greatest aggregate amount of Separation Payments which (a) is less than the sum of all Separation Payments and (b) results in aggregate Net After Tax Receipts which are equal to or greater than the Net After Tax Receipts which would result if the Participant were paid the sum of all Separation Payments. (b) Anything in this Plan to the contrary notwithstanding, in the event Deloitte & Touche LLP or such other certified public accounting firm designated by the Participant (the "Accounting Firm") shall determine that receipt of all Payments would subject the Participant to tax under Section 4999 of the Code, it shall determine whether some amount of Separation Payments would meet the definition of a "Reduced Amount." If the Accounting Firm determines that there is a Reduced Amount, the aggregate Separation Payments shall be reduced to such Reduced Amount. All fees payable to the Accounting Firm shall be paid solely by the Company. (c) If Accounting Firm determines that aggregate Separation Payments should be reduced to the Reduced Amount, the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof, and the Participant may then elect, in his or her sole discretion, which and how much of the Separation Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Separation Payments equals the Reduced Amount), and shall advise the Company in writing of his or her election within ten days of his or her receipt of notice. If no such election is made by the Participant within such ten-day period, the Company may elect which of such Separation Payments shall be eliminated or reduced (as long as after such election the Present Value of the aggregate Separation Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. All determinations made by Accounting Firm under this Section shall be binding upon the Company and the Participant and shall be made within 60 days of a termination of employment of the Participant. As promptly as practicable following such determination, the Company shall pay to or distribute for the benefit of the Participant such Separation Payments as are then due to the Participant under this Plan and shall promptly pay to or distribute for the benefit of the Participant in the future such Separation Payments as become due to the Participant under this Plan. (d) While it is the intention of the Company to reduce the amounts payable or distributable to the Participants hereunder only if the aggregate Net After Tax Receipts to a Participant would thereby be increased, as a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of a Participant pursuant to this Plan which should not have been so paid or distributed ("Overpayment") or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of a Participant pursuant to this Plan could have been so paid or distributed ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against either the Company or the Participant which Accounting Firm believes has a high probability of success determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of a Participant shall be treated for all -8- 9 purposes as a loan to the Participant which the Participant shall repay to the Company together with interest at the applicable federal rate provided for in Section 7872(f) (2) of the Code; provided however, that no such loan shall be deemed to have been made and no amount shall be payable by a Participant to the Company if and to the extent such deemed loan and payment would not either reduce the amount on which the Participant is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant together with interest at the applicable federal rate provided for in Section 7872(f) (2) of the Code. 4.5 Payment Obligations Absolute. Subject to Section 4.4, the obligations of the Company and the Employers to pay the Separation Benefits described in Section 4.2 shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company or any of its Subsidiaries may have against any Participant. In no event shall a Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to a Participant under any of the provisions of this Plan, nor shall the amount of any payment hereunder be reduced by any compensation earned by a Participant as a result of employment by another employer, except as specifically provided in Section 4.2(c) (i). ARTICLE V. PARTICIPATING EMPLOYERS This Plan may be adopted by any Subsidiary of the Company. Upon such adoption, the Subsidiary shall become an Employer hereunder and the provisions of the Plan shall be fully applicable to the Employees of that Subsidiary who are Participants pursuant to Section 3.1. ARTICLE VI. SUCCESSOR TO THE COMPANY This Plan shall bind any successor of the Company, its assets or its businesses (whether direct or indirect, by purchase, merger, consolidation or otherwise), in the same manner and to the same extent that the Company would be obligated under this Plan if no succession had taken place. In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Plan, the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company's obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. The term "Company," as used in this Plan, shall mean the Company as herein before defined and any successor or assignee to the business or assets which by reason hereof becomes bound by this Plan. ARTICLE VII. DURATION, AMENDMENT, AND TERMINATION -9- 10 7.1 Duration. If a Change of Control has not occurred, this Plan shall remain in effect until terminated as provided in Sections 7.2 and 7.3. If a Change of Control occurs while this Plan is in effect, this Plan shall continue in full force and effect and shall not terminate or expire until after all Participants who become entitled to any payments hereunder shall have received such payments in full and all adjustments required to be made pursuant to Sections 4.2 and 4.3 have been made. 7.2 Amendment or Termination. The Board may amend or terminate this Plan at any time; provided, that this Plan may not be terminated or amended in any manner that could adversely affect the rights of any Participant (i) after a Change of Control has occurred, (ii) at the request of a third party who has taken steps reasonably calculated to effect a Change of Control, or (iii) otherwise in connection with or in anticipation of a Change of Control. 7.3 Procedure for Extension, Amendment or Termination. Any extension, amendment or termination of this Plan by the Board in accordance with the foregoing shall be made by action of the Board in accordance with the Company's Certificate of Incorporation and by-laws and applicable law, and shall be evidenced by a written instrument signed by a duly authorized officer of the Company, certifying that the Board has taken such action. ARTICLE VIII. MISCELLANEOUS 8.1 Indemnification. If a Participant institutes any legal action in seeking to obtain or enforce, or is required to defend in any legal action the validity or enforceability of, any right or benefit provided by this Plan, the Company or the Employer will pay for all actual legal fees and expenses incurred (as incurred) by such Participant, if such Participant prevails in such legal action, regardless of whether such action is between the Company or the Employer and the Participant or between either of them and any third party. 8.2 Employment Status. This Plan does not constitute a contract of employment or impose on the Participant or the Participant's Employer any obligation for the Participant to remain an Employee or change the status of the Participant's employment or the policies of the Company and its affiliates regarding termination of employment. 8.3 Named Fiduciary, Administration. UNOVA, Inc. is the named fiduciary of the Plan, with full authority to control and manage the operation and administration of the Plan, acting through the Compensation Committee of its Board. 8.4 Claim Procedure. If an Employee or former Employee makes a written request alleging a right to receive benefits under this Plan or alleging a right to receive an adjustment in benefits being paid under the Plan, the Company shall treat it as a claim for benefit. All claims for benefit under the Plan shall be sent to the Human Resources Department of the Company and must be received within 30 days after the Date of Termination. If the Company determines that any individual who has claimed a right to receive benefits, or different benefits, under the Plan is not entitled to receive all or any part of the benefits claimed, it will inform the claimant in writing of its determination and the reasons therefor in terms calculated to be understood by the claimant. The notice will be -10- 11 sent within 90 days of the claim unless the Company determines additional time, not exceeding 90 days, is needed. The notice shall make specific reference to the pertinent Plan provisions on which the denial is based, and describe any additional material or information as necessary. Such notice shall, in addition, inform the claimant what procedure the claimant should follow to take advantage of the review procedures set forth below in the event the claimant desires to contest the denial of the claim. The claimant may within 90 days thereafter submit in writing to the Company a notice that the claimant contests the denial of his or her claim by the Company and desires a further review. The Company shall within 60 days thereafter review the claim and authorize the claimant to appear personally and review pertinent documents and submit issues and comments relating to the claim to the persons responsible for making the determination on behalf of the Company. The Company will render its final decision with specific reasons therefor in writing and will transmit it to the claimant within 60 days of the written request for review, unless the Company determines additional time, not exceeding 60 days, is needed, and so notifies the Participant. If the Company fails to respond to a claim filed in accordance with the foregoing within 60 days or any such extended period, the Company shall be deemed to have denied the claim. 8.5 Unfunded Plan Status. This Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, within the meaning of Section 401 of ERISA. All payments pursuant to the Plan shall be made from the general funds of the Company and no special or separate fund shall be established or other segregation of assets made to assure payment. No Participant or other person shall have under any circumstances any interest in any particular property or assets of the Company as a result of participating in the Plan. Notwithstanding the foregoing, the Company may (but shall not be obligated to) create one or more grantor trusts, the assets of which are subject to the claims of the Company's creditors, to assist it in accumulating funds to pay its obligations under the Plan. 8.6 Validity and Severability. The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.7 Governing Law. The validity, interpretation, construction and performance of the Plan shall in all respects be governed by the laws of California, without reference to principles of conflict of law, except to the extent pre-empted by federal law. * * * -11- 12 CS/E/UNOVA Executive Severance Plan.doc Corp Secy's Office (Rev. 2/29/00) -12- 13 SCHEDULE 1 - -------------------------------------------------------------------------------- NAME OF PARTICIPANT BENEFIT LEVEL (MULTIPLE) - -------------------------------------------------------------------------------- <> <> - -------------------------------------------------------------------------------- CS/E/UNOVA Exec Severance Plan Corp Secy's Office (Rev. 2/29/00) EX-10.37 13 MATERIAL CONTRACTS 1 EXHIBIT 10.37 LOGO HERE GEM Plan Summary Plan Description Group Executive Medical January 1999 2 GENERAL AMERICAN LIFE INSURANCE COMPANY ST. LOUIS, MISSOURI 63101 CERTIFICATE OF GROUP INSURANCE This Certificate contains a description of the Benefits Your Employer provides for Covered Persons under the Group Policy identified below. The Benefits described are subject to all of the terms and conditions of the Plan. The Group Policy under which this Certificate is issued may at any time be amended or ended in accordance with its terms without the consent of the employee or any other person who claims rights or Benefits under the Group Policy. This certifies that General American Life Insurance Company has issued a Group Insurance Policy numbered MCP-6901 to: UNOVA, INC. Policyholder This Certificate describes the Benefits in effect under the Plan as of January 1, 1999. The coverage afforded by the Group Policy is not in place of nor does it affect any requirements for coverage by Worker's Compensation Insurance nor does it pay in addition to Worker's Compensation. GENERAL AMERICAN LIFE INSURANCE COMPANY President 3 COMPLAINT NOTICE If You have a question about Your Policy or if You need assistance with a problem, You should first contact Your plan representative. After Your plan representative's contact with Us, should You feel You are not being treated fairly with respect to a claim, You may contact the California Department of Insurance. To contact the Department, write or call: Department of Insurance Consumer Service Division 300 S. Spring Street Los Angeles, California 90013 213-897-8921 4 TABLE OF CONTENTS
SECTION PAGE Introduction ......................................................................................1 Eligibility .......................................................................................2 When Coverage Begins ..............................................................................4 When Coverage Ends ................................................................................6 Continuation of Coverage in the Event of a Labor Dispute ..........................................7 Special California Continuation for Surviving Spouses, Divorced or Legally Separated Spouses ......8 Special California Continuation of Medical or Health Coverage for Employees Age 60 and Over and Their Spouses ...............................................................................9 Medicare .........................................................................................10 Plan Replacement .................................................................................11 Health Care Benefits .............................................................................12 Medical Conversion Privilege .....................................................................15 Coordination of Benefits .........................................................................16 Claims and Other General Provisions ..............................................................18 General Definitions ..............................................................................20 ERISA Information ................................................................................28
i 5 INTRODUCTION Your Employer has chosen the Benefits described in this Booklet/Certificate for many reasons. The most important of these are to protect its most valuable assets -- its healthy and productive employees -- and to provide You (and Your family) with significant financial protection against the physical, emotional and economic strain Illness or Injury can bring. Please read this document carefully to familiarize Yourself with the Benefits it describes and the procedures for filing claims. If You have any questions about Your coverage, please contact the plan representative. When used in the Plan, unless otherwise stated, the terms are as defined in: 1. the General Definitions section, or 2. the specific benefits sections. 1 6 ELIGIBILITY ELIGIBLE EMPLOYEES Employees who are classified by the Employer as a) an active Key Executive employee, b) a retired Key Executive employee, or c) a consultant who has been designated as a participant by the Employer, or their wholly-owned subsidiaries, and who is compensated for his/her services by or is under agreement with the Employer or their wholly-owned subsidiaries. ELIGIBLE DEPENDENTS To be eligible for Dependent Coverage under the Plan, Your dependent(s) must be eligible. Your Eligible Dependents are: 1. Your lawful spouse; 2. Your unmarried dependent Child: a. less than age 19; and b. age 19 to 23 if a full-time student in an accredited school and dependent on You for main support and care; 3. Your Child with a mental or physical handicap who is over the age limit, if a) the Child becomes and remains Disabled while covered under the Plan, or b) was covered under the Prior Plan that this Plan replaces and, in either case, all of the following conditions are met: a. the Child has not been married; b. cannot hold a self-supporting job due to the handicap; and C. depends on You for main support and care. First proof of incapacity must be given to Us (at Your expense) within 31 days of the Child's limiting birthday. After two years following the attainment of the limiting age, subsequent proof may be requested annually. "Child" means: Your natural Child; Your stepchild; an adopted Child; a Child who has been Placed For Adoption with You; a Child for whom You have been appointed legal guardian; a Child who is recognized under a qualified medical child support order as having a right to enrollment under the Plan (hereafter "QMCSO-child"); or a Foster Child. With respect to an adopted or placed Child, dependent coverage will include necessary care and treatment of medical conditions existing prior to the date of placement. In all cases the Child must depend upon You for his/her main support and care. However, when a court recognizes a Child as a QMCSO-child, the Child will be considered Your Eligible Dependent regardless of whether the Child is living with You or receiving his/her main support and care from You. No person may be covered as a dependent of more than one employee. An employee may not be covered as a dependent. 2 7 ELIGIBILITY - CONTINUED COVERAGE FOR NEWBORNS - WELL BABY CARE A newborn Child will become covered from moment of birth provided You enroll the newborn Child for coverage within 31 days from the date of birth. Such newborn Child will be eligible for the following Covered Expenses. (a) Hospital room and board (or nursery) charges; (b) routine Doctor visits while Hospital confined; and (c) circumcision while Hospital confined. This coverage will end on the earlier of: 1. the date the newborn Child is discharged or 2. the date the newborn Child is 7 days old. COVERAGE FOR NEWBORNS - SICK BABY CARE A newborn Child is eligible from the moment of birth for Covered Expenses due directly to: 1. Injury; 2. premature birth; or 3. a condition which exists at birth. If You do not have Dependent Coverage in force, this coverage (including any Extended Benefits) will end 31 days after the date Your Child is born. If You Enroll the Child within this 31 day period. 3 8 WHEN COVERAGE BEGINS FOR ELIGIBLE EMPLOYEES: Your coverage will be made effective on: 1. Your Eligibility Date if You Enroll on or before that date; or 2. the date You Enroll if You do so within 31 days after Your Eligibility Date. If You do not Enroll within 31 days after You are eligible, please refer to the provision on Late Enrollees within this section. FOR ELIGIBLE DEPENDENTS: Dependent Coverage cannot become effective prior to the date Your coverage is effective. Dependent Coverage will be effective with respect to each Eligible Dependent You then have on: 1. the date You are eligible for coverage if You Enroll Your dependents within 31 days; or 2. the date Your dependents are eligible if You Enroll them within 31 days. If You do not Enroll Your dependents for coverage within 31 days after they are eligible for coverage, please refer to the provision on Late Enrollees below. LATE ENROLLEES If You do not Enroll within 31 days after You are eligible for Health Care coverage, You may be a Late Enrollee. If: 1. You do not enroll Your dependents within 31 days after You are eligible for such coverage or Your dependent was not enrolled within 31 days after he/she became eligible; or 2. You wish to restore Dependent Health Care coverage which ended because You did not make required Contributions, Your dependent may be considered a Late Enrollee. (Please refer to the General Definitions section.) - Late Enrollee may Enroll only during the open enrollment period. - Late Enrollee's coverage will be made effective on the first day of the calendar month following the open enrollment period. OTHER ENROLLMENT PERIODS You or Your Eligible Dependent may only request enrollment under the Health Care coverage 1. during the initial enrollment period or subsequent open enrollment periods; 2. during the Special Enrollment Periods; 3. during any state prescribed enrollment periods. 4 9 WHEN COVERAGE BEGINS - CONTINUED You or an Eligible Dependent may Enroll for coverage during Special Enrollment Periods without being considered a Late Enrollee under the following circumstances: The Special Enrollment Periods exist under the following circumstances: 1. Loss of Other Coverage. If You or an Eligible Dependent a. was/were covered under another group health plan (including COBRA continuation) or under no share-of-cost Medi-Cal coverage or had other medical insurance coverage at the time enrollment was declined; and b. stated, in writing, that coverage under another health plan or under a no share-of-cost Medi-Cal coverage was the reason for declining enrollment and were provided with a notice of this requirement and the consequences of such a requirement; and the Employer can provide Us with a written statement confirming these facts and c. have/has lost or will lose coverage under the other plan as a result of loss of eligibility (due to such reasons as termination of employment, change of employment status, death of a spouse, divorce, legal separation) or cessation of the employer's contributions to such coverage (even if the other plan is continued) or loss of no share-of-cost Medi-Cal coverage or have exhausted COBRA continuation coverage, You or an Eligible Dependent may Enroll within 31 days after loss of coverage. Coverage will be effective on the first day of the month following enrollment. 2. Acquisition of Dependents. If You did not Enroll when first eligible and acquire a dependent through marriage, birth, adoption or Placement For Adoption, You and the newly acquired dependent(s) may Enroll within 31 days of the date of marriage, birth, adoption or Placement For Adoption. In the case of the birth, adoption or placement of a Child, Your spouse may also be enrolled as Your dependent if otherwise eligible for coverage. Coverage will be effective on the date of birth, adoption or Placement For Adoption. In the case of marriage, coverage will be made effective on the first day of the month following enrollment. 3. During any state prescribed enrollment period. 5 10 WHEN COVERAGE ENDS FOR EMPLOYEES: Your coverage will end on the date of the first of these events: 1. The end of the month in which You stop Active Work on a Full-Time Basis in an Eligible Class, except that: a. if You stop Active Work due to Injury, Illness or Qualified Leave of Absence for personal Injury or Illness, Your Employer will continue Your Health coverage subject to payment of Contributions. Such coverage will continue only while You are unable to return to work because of the Injury, Illness or Qualified Leave of Absence. This coverage continuance will be on a basis precluding individual selection; b. if You stop Active Work to take a qualified military leave of absence (pursuant to the Uniformed Services Employment and Reemployment Rights Act of 1994), You may elect to continue Your Health coverage subject to payment of premium. Such coverage will continue only while You are unable to return to work because of the qualified military leave of absence. Such continuance will be on a basis precluding individual selection; c. if You stop Active Work to take a Qualified Leave of Absence (pursuant to the Family and Medical Leave Act of 1993 or other applicable state's leave law, if any such law applies to Your Employer), for reasons other than personal Illness or Injury, Your Employer will continue coverage subject to payment of Contributions. Such coverage will continue only while You are unable to return to work because of the Qualified Leave of Absence. Such continuance will be on a basis precluding individual selection; d. Upon retirement from UNOVA, Inc., coverage for the retired executive and their dependents will continue until the executive attains age 72. If the retired executive dies before attainment of age 72, the surviving dependents will be covered until the retired executive would have attained age 72. 2. As to any one coverage or class, the date the Plan is amended or changed to exclude that coverage or class. 3. Your Employer ceases to be an Associated Company of the Policyholder. 4. Your Employer ceases to be a member of the trust to which We issued the Policy. 5. The Plan ends. FOR DEPENDENTS: A dependent's coverage will end on the earlier of: 1. the date Your coverage ends; or 2. the end of the month in which the dependent ceases to be eligible as defined by the Plan. Please read the Special California Continuation of Medical or Health Coverage provisions to determine if Your coverage may extend beyond the time allowed above. 6 11 CONTINUANCE OF COVERAGE IN THE EVENT OF A LABOR DISPUTE Your and Your dependent's coverage under the Group Policy will continue and Your employment will be considered to continue after the day it would otherwise end under the Group Policy because You ceased work as a result of a labor dispute, subject to the following conditions: 1. You are a member of a collective bargaining unit which participates in the cessation of work resulting from the labor dispute. 2. Your union agrees to collect and remit to Us the required monthly premium, and Your union agrees that it will: a. keep required monthly premium collection records in connection with this continuance of coverage; b. furnish Us with needed information to administer this continuance of coverage when We require that information; and C. permit Us, at any reasonable time, to inspect the union records which relate to this continuance of coverage. 3. You must remit the required monthly premium to Your union on the date You stopped work. The union, if it agrees, will remit to Us all such monthly premium payments. Your required monthly payment will be at the premium rate applicable to Your and Your dependent's Benefit Class as We required on the date You stopped work. We will not discontinue Your coverage if any of Your required premium which was unpaid on the date You stopped work and was due prior to the date You stopped work, if paid prior to the date the next premium is due under the terms of the Plan. You must remit to Your union subsequent required monthly premium payments not later then 20 days after the due date for the premium for that month. The grace period for payment of premiums will not apply to premiums due to Us for any coverage continued under this provision. Premiums must be paid to Us by Your union within 31 days after the due date. 4. In addition to Our right under the Plan to change premium rates, We have the right to increase the rate charged to You for Your and your dependent's coverage on the date You stopped work. We may increase this premium rate by up to twenty percent (20%), or a higher percent if approved by the Insurance Commissioner of the state of California. An increase in premium rates will automatically increase Your required monthly premium. 5. Neither We nor the Policyholder has the right to terminate the Plan with respect to coverage being continued under this provision. 6. Your continuance of coverage provided by this provision will terminate on the earliest of the following: a. the last day of the period for which (a) You paid the required premium, or (b) Your union last remitted to Us the required monthly premium for Your coverage; b. the premium due date on which the number of employees continuing coverage under this provision is less than 75% of the number of employees who are entitled to continue their coverage; c. the day You take full-time employment with another employer; d. the end of the continuous six-month period beginning on the day You stopped work as a result of the labor dispute; e. the end of the labor dispute which resulted in the cessation of work; f. as to any one Eligible Dependent, the date he/she no longer qualifies as an Eligible Dependent as defined in the Plan. 7 12 SPECIAL CALIFORNIA CONTINUATION FOR SURVIVING SPOUSES, DIVORCED OR LEGALLY SEPARATED SPOUSES If Your spouse and any dependent Child(ren) lose coverage under Your Health Care coverage due to Your death, dissolution of marriage or legal separation or if Your entitlement to Medicare causes loss of Dependent Coverage, Your spouse may elect to continue the coverage under California's benefit instead of Federal Continuation Coverage (COBRA) under certain circumstances. The continued coverage applies to Medical Care, and any Dental Care, Vision Care and Prescription Drug coverage You may have under this Plan. The Plan Administrator must be notified within 15 days of Your spouse's eligibility due to divorce or legal separation and supplied with the spouse's mailing address. The spouse will be notified within 15 days and provided with election forms. If the Plan Administrator is not notified within the time provided, the right to such coverage will be terminated. In case of Your death, Your Employer will notify the Plan Administrator. Coverage will not be terminated for up to 31 days after notice and forms are provided. If the premium for continued coverage is not paid within 31 days after notice is provided, coverage will be deemed terminated in accordance with the "When Coverage Ends" provision. Continuation of coverage for the Covered Person will terminate on the date: 1. the Covered Person ceases to reside in the State of California; 2. the Covered Person marries or remarries', 3. the Covered Person becomes eligible for a comparable state, federal or private group medical or health plan", or 4. the Covered Person becomes eligible for medical care coverage under another employer's group plan, even though such plan may be less substantial. The ineligibility of a dependent Child will not invalidate the continuation provision for any other family member. The continued coverage of all dependents , will end on the earliest of: 1. 90 days from when coverage would have ended under the "When Coverage Ends" provision; 2. the date the spouse ceases to reside in the State of California; 3. the date the spouse remarries; 4. the date the spouse becomes eligible for any comparable state, federal or private group medical plans; 5. the date the spouse becomes eligible for medical coverage under another's employer's group plan, even though such plan may be less substantial; 6. the date the Medical Care coverage under the Plan is terminated; 7. the date the Employer through which coverage was obtained ceases to participate in the Medical Care coverage; or 8. the date the premium is not paid within the time allowed. 8 13 SPECIAL CALIFORNIA CONTINUATION OF MEDICAL OR HEALTH COVERAGE FOR EMPLOYEES AGE 60 AND OVER AND THEIR SPOUSES If You are age 60 years or older, You and Your covered spouse may elect to continue coverage beyond the expiration of Your Federal Continuation Coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) under certain circumstances. This extended continuation applies if You have been employed for at least 5 years prior to termination of employment and You or Your spouse is not entitled to Medicare when Your COBRA coverage expires. Continuation follows the same terms and conditions in force under Your COBRA election. If You meet the qualifications above, You must make an election for this special continuation at least 30 days prior to the date Your COBRA coverage is scheduled to terminate. The election is separate from Your COBRA election; however, You must elect COBRA in order for the special continuation election to be valid. You may terminate this coverage at any time. A former spouse of an employer may also elect to continue coverage beyond the expiration of COBRA by making an election in this same manner. Continued coverage, effective after COBRA coverage expires, will automatically terminate whenever any of the following occurs: 1. Failure to pay the premium when due under the Plan; 2. The employer ceases to provide a group health plan to its employees; 3. Becoming covered under another group health plan; 4. Becoming entitled to Medicare; 5. Attainment of the age of 65; or 6. For Your spouse or former spouse only, five years from the date COBRA coverage ends. 9 14 MEDICARE This section applies to a Covered Person who is eligible for Medicare coverage. It provides rules for determining the order of benefit payments between coverage under this Plan and those of Medicare. The intent of this section is to conform the Plan to the requirements of the federal Medicare Secondary Payer law. Accordingly, the section and its stated rules will be adjusted, if We deem necessary, so that the Plan's liability for Benefit payment is neither greater nor less than those required under the law. 1. If, pursuant to the rules: a. this Plan is determined to be secondary to Medicare, it will pay secondary to and coordinate its Benefits with Medicare; b. this Plan is determined to be primary to Medicare, it will pay Benefits without regard to Medicare benefits. 2. The order of benefit payments rules are outlined below. a. Rules applicable to a person covered under the Plan by virtue of that person's "Current Employment Status" with an Employer or as a dependent of such person:
BASIS OF MEDICARE ELIGIBILITY: THIS PLAN WILL: - Old-Age (attaining age 65)* Be primary. - Disability (other than ESRD) Be primary. - End Stage Renal Disease (ESRD) Be primary for the first 30 months of ESRD Medicare coverage; be secondary thereafter. - Old-Age or Disability, preceding or beginning concurrently with ESRD Continue to be primary until the end of the first 30 months of ESRD Medicare coverage; be secondary thereafter.
*If a Covered Person elects to have Medicare as primary coverage, such person's Health Care coverage under this Plan will terminate. If the employee's Health Care coverage terminates in accordance with this provision, coverage on the employee's covered dependents will cease on the same date. b. Rules applicable to a person covered under the Plan as a Retired Employee, a dependent of such employee, or on any basis other than those stated in 2.a. above:
BASIS OF MEDICARE ELIGIBILITY: THIS PLAN WILL: - Old-Age (attaining age 65) Be secondary. - Disability (other than ESRD) Be secondary. - End Stage Renal Disease (ESRD) Be primary for the first 30 months of ESRD Medicare coverage; be secondary thereafter. - Old-Age or Disability, preceding ESRD Continue to be secondary.
For purposes of this section, "Current Employment Status": a person is considered to have Current Employment Status with an Employer if the person is an employee, is the Employer (including self-employed person), or is associated with the Employer in a business relationship. REMEMBER: The Medicare section outlined above applies from the date a Covered Person is first ELIGIBLE for Medicare (either part A or part B), whether or not the Covered Person is enrolled and is receiving Medicare benefits. 10 15 PLAN REPLACEMENT If Medical Care coverage under this Plan replaces a group medical plan (the "Prior Plan") within 60 days after a) the date the Prior Plan ended, or b) the date the coverage under a plan for an entire employer unit ended, the following will apply: 1. If You and Your dependents were covered under the "Prior Plan" on the date such plan ended, You and Your dependents will be covered under this Plan, if You and Your dependents meet the Eligibility requirements for coverage under the terms of this Plan. 2. All former employees entitled to "California Special Continuation for Employees Age 60 and Over and Their Spouses" will be eligible under this Plan. 3. If You or Your dependent is totally disabled (as defined by the Prior Plan) and entitled to an extension of benefits under the Prior Plan, this Plan will not provide coverage for any Expenses Incurred due to any conditions causing the disability. a. Any Benefit payable under this Plan will not be lower than the benefit that would have been provided under the Prior Plan. b. Any Benefit payable will be reduced by the amount of benefits payable under the Prior Plan's extension of benefits provision. 4. Your or Your dependent's coverage will continue until the earlier of: a. the date coverage would terminate in accordance with this Plan's Termination of Coverage provision; or b. for a person Disabled on the date the Prior Plan ended, the end of the extension of benefits period of the Prior Plan. If the Prior Plan was not required to provide an extension of benefits, coverage will end not less than 12 months from the date the person became Disabled. 11 16 HEALTH CARE BENEFITS The Calendar Year Maximum Benefit for all Covered Expenses is $100,000 per Family Unit. COVERED EXPENSES The Plan Will Pay Benefits for Covered Expenses Incurred for medical, dental and vision care expenses as defined under the Internal Revenue Code (Section 213(d) as amended and Internal Revenue Service Income Tax Regulation 1.213-1 as amended) except as specifically listed under the Exclusion in this Benefit. Covered Expenses include services for the diagnosis, care, and treatment of a physical or mental defect, Illness or Injury and for the prevention of disease. Covered services include but are not limited to: 1. Acupuncture. 2. Anesthesia and the professional charge for its administration. 3. Hearing tests, hearing aids and their fittings and batteries. 4. Infertility treatment including reversal of an elective sterilization procedure. 5. Inpatient Hospital charges including residential alcohol treatment centers, residential drug addiction treatment centers, psychiatric residential treatment centers, Hospice facilities. 6. Laboratory and x-ray charges by a Hospital, Doctor's office, laboratory or imaging center and the professional interpretation fee. 7. Medical equipment including: a. wheelchairs, hospital beds and the attachments thereto; b. oxygen and equipment to administer oxygen, breathing aids; c. needles and syringes to administer insulin, allergens and prescription drugs; d. dialysis equipment, supplies, upkeep and training on the use of such equipment; e. ostomy bags and supplies; f. glucometers, dextrometers, destrostix; g. infusion pumps; h. nerve stimulators. 8. Nursing services provided by a registered nurse (R.N.), licensed practical nurse (L.P.N.), or licensed vocational nurse (L.V.N.), in or out of a Hospital, pertaining to the actual care of an Illness or Injury. 9. Orthopedic and prosthetic devices including: a. artificial limbs, eyes and teeth and the replacement thereof; b. casts, splints and crutches; c. supports and orthotics; d. post-mastectomy breast prostheses and holding bras. 10. Outpatient Hospital charges including outpatient treatment centers, non-residential treatment centers for alcoholism and/or substance abuse, community mental health centers, ambulatory surgical centers, Birthing Centers. 11. Physiotherapy services by a physiotherapist. 12. Pre-natal and post natal care. 13. Complications of Pregnancy. 14. Prescription drugs including: a. birth control pills; b. insulin. 15. Preventive care including: a. newborn care; b. child health supervision services; c. immunizations and vaccines; d. screening tests for cancer; e. annual routine physicals. 12 17 HEALTH CARE BENEFITS - CONTINUED 16. Preventive and restorative dental treatment including orthodontia and dentures and their replacement. 17. Professional charges of a Physician, chiropractor, podiatrist, Dentist, Christian Science practitioner, psychologist, speech/language therapist, speech pathologist, audiologist, optometrist, ophthalmologist, nurse practitioner, licensed midwife, operating within the scope of their respective licenses. 18. Professional counseling for a mental health condition by a state licensed counselor. 19. Psychoanalysis, psychotherapy, psychological testing and group therapy. 20. Skilled Nursing Facilities if confined for medical care. 21. Special schools and tutoring for a Child with a learning disability upon the recommendation of a Physician. 22. Special schools for a mental impaired or physically Disabled person if its main purpose is teaching to alleviate the disability, for example: a. teaches Braille to a visually impaired person; b. teaches lip reading to a hearing impaired person; c. gives remedial language training to correct a condition caused by a birth defect. 23. Specialized equipment for the physically Disabled including: a. modifications to Your home to accommodate the Disabled person (prior Company approval required); b. modifications to a car to enable a Disabled person to drive it; c. Braille books and magazines for the visually impaired; d. support dogs or other animals trained to assist the Disabled person; e. special telephone equipment for the hearing impaired; f. special equipment to adapt television for the hearing impaired. 24. Surgery including sterilization, spontaneous abortion, an abortion necessary to prevent the death of the mother, elective abortion, improvement of a deformity related to a congenital abnormality, Injury or disfiguring disease. 25. Transportation for medical care defined as: a. professional ambulance to and from a Hospital; b. train or commercial airline to a Hospital for specialized care; and c. emergency transportation to a Hospital by helicopter. 26. Vision care including: a. routine eye examinations; b. surgery, eyeglasses and contact lenses to improve vision; c. eye exercises. EXCLUSIONS The Policyholder has chosen to provide many Benefits. There are some things, however, that will not be covered as health expenses. Excluded items include but are not limited to: 1. Expenses solely for cosmetic reasons including face lifts, hair transplants, liposuction. 2. Items ordinarily used for personal, living or family purposes, even if recommended by a Doctor, including: a. household help; b. a vacation; c. smoking cessation program; d. weight loss program; e. health club; f. maternity clothes; g. nursing services for a normal healthy baby; h. over-the-counter drugs and medicines. 13 18 HEALTH CARE BENEFITS - CONTINUED 3. Care or supplies for which: a. no charge is made; b. You or Your dependent would not have to pay if You did not have this coverage. 4. Any care or supplies received prior to the Effective Date or after the Termination Date of the Covered Person's coverage (unless coverage is continued according to some Plan provision). 5. Injury or Illness arising out of employment, whether or not You or Your dependent is covered by Worker's Compensation or similar laws. 6. Any service or treatment covered under another plan of Your Employer. 7. Any charge for a service not listed as a Covered Expense. 14 19 MEDICAL CONVERSION PRIVILEGE If Your coverage with the Plan ends due to: 1. any reason except failure to pay the required premium; or 2. the Plan ending and not being replaced within 60 days by similar coverage, You may purchase personal coverage ("Conversion Coverage") for Yourself and each of Your covered dependents, provided: 1. You (and Your dependents) were covered by this Plan (and under any group plan providing similar Benefits which it replaces) for at least three months prior to the date Your employment ends; and 2. You (and Your dependents) are not eligible for Medicare, You have 31 days from the date Your coverage ends to submit a written application and the first premium for Conversion Coverage. You are solely responsible for contacting Us to obtain this coverage. Premium will be based on the type of coverage and the sex, age and state of residence of the person purchasing the coverage. Coverages will become effective on the date group coverage ends. If purchase of Conversion Coverage will result in over-insurance according to Our standards, We reserve the right to deny such coverage. Pregnancy Benefits are included in a conversion policy if they were provided under the group Plan which the Conversion Policy replaces. This privilege is also available to a) covered dependents if You die; or b) to a dependent Child who reaches the limiting age; or c) to Your ex-spouse on the date a valid decree of divorce is issued (including any Children whose coverage also ends at the same time), if exercised within 31 days of the date coverage ends. THE CONVERSION COVERAGE WILL MEET THE MINIMUM REQUIREMENTS OF THE STATE IN WHICH IT IS ISSUED. THE BENEFITS PROVIDED BY THE CONVERSION POLICY WILL NOT DUPLICATE THE BENEFITS PROVIDED UNDER THIS PLAN. If Your or Your dependents' coverage with the Plan has been continued according to federally mandated standards, You or they may still be able to exercise this conversion right. The full term of the available Federal Continuation Coverage (COBRA) must have been exhausted to receive this Conversion Privilege. 15 20 COORDINATION OF BENEFITS If this is not Your only plan coverage, the Benefits payable under this Plan, and any other group plan for the Allowable Expenses Incurred during any Benefit Determination Period will be coordinated so that the combined Benefits paid or provided by all plans will not exceed 100% of such Allowable Expenses. You must inform Us if You have other coverage (for example, through Your spouse's employer); and give Your consent to the release of information so that We may use this provision. You should first file Your claim with the primary plan (as determined below). When the claim is paid, send a copy of the charges and a copy of the Explanation of Benefits Statement from the first plan to the secondary plan (as determined below). This will accelerate the processing of Your claim. One of Your Plans will be determined to be primary (using the rules below). The primary plan pays its full benefits first. The plan paying second takes the benefits of the primary plan into account when it determines its benefits. A plan is primary when: 1. the plan does not have a COB provision; 2. the plan designates itself as an "excess" or "always secondary" plan; or 3. if both plans have a COB provision, under the rules it is determined to be primary. When both plans have a COB provision, the order in which the plans provide benefits is determined using the first of the following rules which applies: 1. Employee/dependent. The plan which covers the person as an active employee is primary. If You or Your dependent is also covered by Medicare, the plan covering the person as an active employee is primary, the plan covering the person as a dependent of an active employee is secondary, and then Medicare. 2. Dependent children. a. If the parents are not separated or divorced, the plan which covers the parent whose birthday (month and day) falls earlier in the calendar year is primary. If both parents have the same birthday (month and day), the plan which covered the parent longer is primary. If the other plan does not have the "birthday rule", the rule in the other plan will determine the primary plan. b. If the parents are separated or divorced, the plan which covers the natural parent with custody is primary; followed by the plan which covers the step-parent who has married the natural parent with custody; and finally, the plan which covers the natural parent without custody. However, if the court decrees one of the parents responsible for health care expenses, the plan which covers that parent is primary. If the decree names the parent other than the natural parent with custody, We must be notified and have actual knowledge of those terms. Any Benefits paid prior to actual knowledge will not be affected. The plan of the other parent and the plan of the spouse of the parent with custody will be secondary and third, respectively. If joint custody is granted by the court, the rules pertaining to parents who are not separated or divorced apply. 3. Active/inactive employee. The plan covering the employee who is neither laid off or retired is primary. If the other plan does not have this rule, this rule is ignored. 16 21 COORDINATION OF BENEFITS - CONTINUED 4. Continuation coverage. Continuation coverage provided under either federal or state law is secondary. If the other plan does not have this rule, this rule is ignored. 5. Length of coverage. If the primary plan cannot be determined using any of the rules above, the plan which has covered the person for the longest period of time will be considered primary. If this Plan is determined to be secondary, We will reduce Benefits payable so that the total benefits provided by all plans during a claim determination period are not more than the total Allowable Expenses for the Covered Person. The actual Benefit amounts available are determined by each plan's benefit provisions. Benefits payable under this Plan will never exceed the amount which would have been paid if there were no other plans involved. If Benefit payments under this Plan are reduced by COB, only the reduced amounts will be charged against Your Plan maximums. If during Coordination of Benefits, payments are made in error, the plans will have the right to adjust payments among themselves. Such payments satisfy Our liability. If We overpay a claim, We will have the right to recover such overpayments from any person for, to whom, or with respect to whom such payments were made, any other insurance company, or any other organization. DEFINITIONS An "Allowable Expense" is the Reasonable and Customary cost for any necessary medical or dental service which is covered (at least in part) by one of the plans. If a health plan provides services (rather than cash payments) a dollar value will be assigned in order to use this provision. When the primary plan penalizes You for not complying with plan provisions, such as failing to pre-certify, the amount of the reduction is not considered an Allowable Expense. A "Benefit Determination Period" means from January 1 of one year to December 31 of the same year. A "plan" as used in this provision, is any of the following which provides health benefits or services: 1. a group, blanket or franchise plan on an insured basis; 2. other plans which cover people as a group; 3. a self-insured or non-insured plan or other plan which is arranged through an employer, trustee or union; 4. a pre-payment plan which provides medical or dental service; 5. government plans, except Medicaid; 6. group auto insurance, but only to the extent medical benefits are payable under group auto insurance; 7. no-fault auto insurance on an individual basis, except where not allowed by the state in which this Plan is issued; 8. single or family subscribed plans issued under a group or blanket type plan; but the definition of plan shall not include: 1. hospital indemnity type plans; 2. school accident-type coverage; 3. traditional auto insurance. 17 22 CLAIMS AND OTHER GENERAL PROVISIONS NOTICE AND PROOF OF CLAIM You must give Us a written notice of claim for a medical or health claim (including vision and dental claims, if any), within 12 months after a Covered Expense is incurred. Within 15 days after We receive the notice of claim, We will send claim forms (if required) to You for giving proof of claim. If You do not receive these forms, You will satisfy the proof of claim requirement by giving Us a written statement of the nature and extent of the loss within the time limit provided below. You must give positive proof of claim to Us or Our authorized claim office for a medical or health claim (including vision and dental claims, if any) within 15 months after a Covered Expense is Incurred. You must give Us proper written notice and proof of loss before We will be liable for any loss. If You send Us proof as soon as reasonably possible, We will not reduce or deny claims merely because You cannot reasonably give notice and proof in writing within the time required. However, such proof must be furnished within one year from the time proof is otherwise required except in the absence of legal capacity. We may, as required by law, accept claims submitted by a third-party custodial parent or a provider (with the custodial parent's approval) for Covered Expenses Incurred by a covered dependent Child who is also eligible for a state medical assistance program (i.e., Medicaid). PAYMENT OF CLAIMS 1. With the receipt of a claim for medical transportation services, any Benefits due will be paid directly to the provider if the provider has not received payment for those services from any other source. Except as provided below, all other Benefits, other than for loss of life, due and not validly assigned will be paid to You as soon as practical, but no later than 30 working days after We receive Due Proof. Due Proof is all information necessary to determine Our liability for the claim and to determine if services are Medically Necessary. If We have not paid or denied a claim containing Due Proof within the time allotted, The Plan Will Pay interest at the rate of 10% per annum beginning the day after the allotted time period. 2. The Plan may, to the extent required by law, pay Benefits for claims incurred by a covered dependent Child directly to a custodial parent, a state agency or a provider. 3. Benefit payments pursuant to a qualified medical child support order (QMCSO) in reimbursement for expenses paid by a QMCSO-child or his/her legal representative (custodial parent or legal guardian) will be made to the QMCSO child or his/her legal representative. 4. If You use a Participating Provider, The Plan Will Pay Benefits, if any, to the provider of service. 5. The Plan may pay Benefits to the person or institution who gave You care. 6. Any payments We make under the above, except under 1. will discharge Our liability to the extent of Our payment. We are not responsible for how the Benefits We pay are used. LEGAL ACTIONS You may not sue Us for Benefits under this Plan: 1. before 60 days following the date You send Us proof of claim; 2. after 3 years following the end of the period required for giving proof of claim. 18 23 CLAIMS AND OTHER GENERAL PROVISIONS - CONTINUED ASSIGNMENT OF BENEFITS You may assign Medical or Health Care Benefits directly to the Doctor, Hospital or an appropriate state agency. You can either sign the necessary forms given to You by the provider of services or sign the designated assignment on Your claim form. Otherwise, Benefits will be paid according to the Payment of Claims provision. If You use a Participating Provider, The Plan Will Pay Benefits, if any, to the provider of service. We will not be responsible for the validity of any assignment. Nor will We be liable for any action, payment or other settlement made before We receive such assignment. To the extent permitted by law, neither the Benefits nor payments under this Plan will be subject to the claim of creditors or to any legal process. PHYSICAL EXAMINATIONS We may have a Doctor of Our choice examine You, at Our expense, as often as is reasonably necessary while Your claim is pending. We may also have an autopsy performed, at Our expense, except if prohibited by law. INCONTESTABILITY AND MISSTATEMENT We cannot contest the Group Policy after it has been in force for two years unless premiums are not paid. We cannot contest Your or Your dependent's insurability after the Policy has been in force for two years during Your or Your dependent's lifetime unless required Contributions are not paid. However, no provision of this Policy shall make the coverage of an ineligible person valid. Any statement about Your health or age made in writing and signed by You may be used to contest Your coverage. If You misstate Your age, The Plan Will only Pay Benefits based on Your correct age. The Plan will a) adjust premium, b) validate, or c) void coverage as necessary. REFUND TO US FOR OVERPAYMENT OF BENEFITS If You or Your dependent recovers money for medical, Hospital, dental, prescription drug or vision Expenses Incurred due to an Illness or Injury for which a Benefit has been paid under the Plan, We will have the right to a refund from You or Your dependent. The amount refunded to Us will be the lesser of: 1. the amount You or Your dependent recovers; 2. the amount of Benefits We have paid. You or Your dependent (or a parent or legal guardian, if required) will help Us do whatever else may be reasonably needed to obtain this refund. 19 24 GENERAL DEFINITIONS When these terms are used in the Plan, they will have the following meanings unless otherwise noted: 1. ACTIVE WORK / ACTIVELY AT WORK: means You work for Your Employer at his/her place of business (or such other places as required by Your Employer) in accordance with his/her established employment practices. 2. ASSOCIATED COMPANY: means those under common control through stock ownership, contract or otherwise with Your Employer as named in this Plan. 3. AVERAGE SEMIPRIVATE ROOM CHARGE: means a) the standard charge by the Hospital for semiprivate room and board accommodations, or the average of such charges where the Hospital has more than one level of such charges, or b) 80% of the Hospital's lowest charge for single bed room and board accommodations when the Hospital does not provide any semiprivate accommodations. 4. BENEFIT(s): means the amount The Plan Will Pay for Covered Expenses after You or Your covered dependents have met the Deductible, if any. 5. BIRTHING CENTER: means a licensed place with the primary purpose of providing a place for live births operating within the scope of its license. 6. CLOSE RELATIVE: means You, Your spouse, and Your or Your spouse's brother, sister, parent, or Child. 7. COMMUNITY RESIDENTIAL TREATMENT SERVICES: are community-based mental health programs designed and staffed to deliver a range of treatment and rehabilitative services which provide an appropriate and cost-effective alternative to institutional care. Program elements range from crisis residential to socialization services and are focused upon helping clients achieve emotional stability and develop skills necessary to move toward independent living. 8. COMPLICATIONS OF PREGNANCY: means a disease, disorder or condition which is diagnosed as distinct from normal pregnancy but adversely affected by or caused by pregnancy. This includes'. a. inter-abdominal surgery, including caesarean section; b. pernicious vomiting (hyperemesis gravidarum); c. toxemia with convulsions (eclampsia); d. extra-uterine pregnancy (ectopic); e. postpartum hemorrhage; f. rupture or prolapse of the uterus; g. spontaneous termination of pregnancy during a period of gestation in which a viable birth is not possible; h. similar medical and surgical conditions of comparable severity. Complications of Pregnancy will not include: a. elective abortion; b. false labor; c. occasional spotting; d. Physician prescribed rest; e. morning sickness; f. similar conditions associated with the management of a difficult pregnancy. Services and supplies rendered at the termination of pregnancy will not be considered treatment of Complications of Pregnancy. 20 25 GENERAL DEFINITIONS - CONTINUED 9. CONTRIBUTIONS: mean the amount You are required to pay for the coverage provided under the Plan. 10. COVERED EXPENSE: means a listed Covered Expense under a Benefit description which will be paid under the Plan if it is: a. prescribed by a Doctor for the therapeutic treatment of Injury, Illness or pregnancy; b. Medically Necessary; c. not more than what We determine as Reasonable and Customary; and d. not excluded under any exceptions of the Plan. If You use a Participating Provider, Covered Expense means the agreed upon rate set between Us and such provider for services which meet all of the above standards. 11. COVERED PERSON: means an Enrolled person meeting the eligibility requirements of the Plan. 12. CREDITABLE COVERAGE: means any of the following coverages a Covered Person had prior to enrollment under the Plan: a. a group health plan; b. health insurance coverage, individual and group, including coverage through a Health Maintenance Organization (HIVIO); c. Medicare; d. Medicaid; or any other publicly sponsored program, provided in California or elsewhere, of medical care; e. military health care; f. a medical care program of the Indian Health Service or of a tribal organization; g. a state health risk pool; h. a health plan offered under the Federal Employee Health Benefits Program; i. a public health plan established or maintained by a political subdivision of a state to provide insurance coverage; j. a health benefit plan established by the Peace Corps Act. The term includes continuation and conversion coverage, but does not include: a. coverages designated to supplement other private or governmental plans such as supplements to Medicare or liability insurance; b. accident only plans; c. credit plans; d. coverage for onsite medical clinics; e. disability income plans; f. long term care insurance; g. dental plans; h. vision plans; i. insurance arising out of a workers' compensation or similar law; j. automobile medical payment insurance; or k. no fault insurance. 21 26 GENERAL DEFINITIONS - CONTINUED 13. CUSTODIAL CARE: means services, provided by a licensed, skilled nurse or a non-skilled person, for: a. a person with a chronic medical condition; or b. a convalescent person. This care basically provides assistance to a person in daily living; it does not require technical skills or qualifications. This care is not reasonably expected to improve the underlying medical condition of a person even though it may relieve symptoms or pain. Custodial Care includes, but is not limited to: a. help in grooming, bathing, dressing, walking; b. help in getting in and out of bed; c. help in housekeeping, preparing meals, and eating; d. giving or helping to use or apply medications, creams and ointments; e. administering medical gasses after a therapy program has been set up; f. changing dressings, diapers and protective sheets; g. periodic turning and positioning in bed; h. routine care of casts, braces and other like devices; i. routine care of colostomy and ileostomy bags; j. routine tracheostomy care; k. routine care of catheters and other like equipment; and l. supervising exercise programs that do not need the skills of a therapist. Care that does require the technical skills of a licensed medical professional, who is acting within the scope of his/her license, is not considered to be Custodial Care. 14. DISABLED: means that due to Illness or Injury You cannot perform work for pay or profit or Your covered dependent cannot perform normal activities of a person of the same sex and age who is in good health; except as provided elsewhere in the Plan. 15. DOCTOR: means a medical practitioner licensed to perform surgery and administer drugs acting in the scope of that license. It will also include any other licensed practitioner of the healing arts required to be recognized by law, when that person is acting within the scope of his/her license and is performing a service for which Benefits are provided under the Plan. 16. EMERGENCY CARE: means covered services rendered after the sudden onset of a medical condition manifested by acute symptoms of sufficient severity, including severe pain, such that the absence of immediate medical attention could reasonably be expected to result in: a. placing the patient's health in serious jeopardy; b. serious impairment of bodily functions; or c. serious dysfunction of any bodily organ or part. 17. EMPLOYER: means the entity to which the Plan is issued and includes any affiliated entities or subsidiaries or Associated Companies shown in the Eligible Class or Classes section of the Group Policy. 22 27 GENERAL DEFINITIONS - CONTINUED 18. ENROLL: means completion of all forms required for coverage under the Plan and agreement to make any required Contribution. 19. ENROLLMENT DATE: means the first day of coverage or, if there is a Waiting Period, the first day of the Waiting Period. 20. EXPENSE INCURRED: means each expense is considered to be incurred on the date the care, service or supply is received. 21. EXPERIMENTAL, INVESTIGATIONAL OR UNPROVEN: means care and treatment for which We determine that one or more of the following is true: a. The service or supply is under study or in a clinical trial to evaluate its toxicity, safety or efficacy for a particular diagnosis or set of indicators. Clinical trials include but are not limited to phase 1, 11 and III clinical trials. b. The prevailing opinion within the appropriate specialty of the United States medical profession is that the service or supply needs further evaluation for the particular diagnosis or set of indications before it is used outside clinical trials or other research settings. We determine if this item b. is true based on: i. published reports in authoritative medical literature; and ii. regulations, reports, publications and evaluations issued by government agencies such as the Agency for Health Care Policy and Research, the National Institutes of Health, the federal Food and Drug Administration (FDA), the Health Care Financing Administration (HCFA), or any other appropriate technological assessment body. C. In the case of a drug, a device or other supply that is subject to FDA approval: i. it does not have FDA approval; or ii. it has FDA approval only under its Treatment Investigational New Drug regulation or a similar regulation; or iii. it has FDA approval, but it is being used for an indication or at a dosage that is not an Accepted Off- Label Use. An "Accepted Off-Label Use" is a use that is: a) included and favorably recognized for treatment of the indication in one or more of the following medical compendia: The American Medical Association Drug Evaluations, the American Hospital Formulary Service Drug Information, and The United States Pharmacopoeia Information; or b) established based on supportive clinical evidence in peer-reviewed medical publications. d. The providers institutional review board acknowledges that the use of the service or supply is Experimental, Investigational, or Unproven and subject to that board's approval. e. Research protocols indicate that the service or supply is Experimental, Investigational, or Unproven. This item e. applies for protocols used by the Covered Person's provider as well as for protocols used by other providers studying substantially the same service or supply.] 22. FAMILY UNIT: means You and all of Your dependents who are covered under the Plan. 23. FOSTER CHILD: means a Child for whom You have assumed a legal obligation when all the following are met: a. You are raising the Child as Your own and have assumed full parental responsibility for the Child; b. the Child lives in Your home and depends on You for primary support; C. You may legally claim the Child as a federal income tax deduction. 23 28 GENERAL DEFINITIONS - CONTINUED A Foster Child is not a Child: a. temporarily living in Your home; b. placed with You in Your home by a social service agency which retains control of the Child; or c. whose natural parent may exercise or share parental responsibility and control. 24. GROUP POLICY: means the Policy contract as shown and numbered on the cover Page of this Certificate. 25. HEALTH BENEFIT PLAN: means any group or individual policy or contract that provides medical, Hospital and surgical Benefits. It does not mean coverage under the following types of insurance: a. accident only; b. credit; c. disability income; d. Medicare services pursuant to contracts with the U.S. government; e. Medicare supplement; f. long-term care; g. dental; h. vision; i. supplemental liability; j. Workers' Compensation or similar law; k. automobile medical payment, or; l. no-fault liability or equivalent self-insurance. 26. HIRED: means the first day You are scheduled to work for Your Employer. 27. HOSPICE: means an agency that provides counseling and incidental medical services and may provide room and board to a terminally ill person and meets all of the following tests: a. it has obtained any required governmental Certificate of Need approval; b. it provides service for a period of 24 hours per day on every day of the week; c. it is operated under the direct supervision of a duly qualified Doctor; d. it has a nurse coordinator who is a registered graduate nurse with four years of full-time clinical experience, at least two of which involved caring for terminally ill patients; e. it has a social service coordinator who is licensed in the jurisdiction in which it is located; f. it is an agency that has as its primary purpose the provision of Hospice services; g. it has a full-time administrator; h. it maintains written records of services provided; i. its employees are bonded, and it provides malpractice and malplacement insurance; j. it is established and operated in accordance with the applicable laws in the jurisdiction in which it is located and, where licensing is required, has been licensed and approved by the regulatory authority having responsibility for licensing under the law. 28. HOSPITAL: means a place which meets all of the standards below: a. has permanent and full-time care for bed patients; b. has a Doctor in regular attendance; c. has an R.N. on duty or call 24 hours a day; 24 29 GENERAL DEFINITIONS - CONTINUED d. is mainly engaged in giving medical care and services for Injuries or Illness but not including: i. rest homes; ii. nursing homes; iii. convalescent homes; iv. homes for the aged; e. has surgical facilities except that this standard does not apply to such place operated mainly for treatment of the chronically ill; f. is operated lawfully in its area. "Hospital" also means such place which is mainly engaged in treating alcoholism, drug addiction or abuse if it meets the standards below: a. has permanent and full-time care for at least 15 bed patients; b. has a Doctor in regular attendance; c. provides 24 hour per day care by R.N.s; d. has a full-time psychiatrist or psychologist on the staff. Hospital also means and will include an "Ambulatory Surgical Center" which meets all of the standards below: a. is a licensed public or private place; b. has an organized medical staff of Doctors; c. has permanent facilities that are equipped and operated mainly for doing surgery and giving skilled nursing care; d. has R.N. services when a patient is in the facility; and e. does not provide services or beds for patients to stay overnight. A "Psychiatric Health Facility" is an acute 24-hour, nonhospital facility which serves as an alternative to acute Hospital psychiatric services. As such, it provides short term psychiatric, psychological and nursing services to patients with major acute mental illness. 29. ILLNESS: means sickness, a covered bodily or mental infirmity or pregnancy. 30. INJURY: means a covered accidental bodily Injury. 31. INPATIENT HOSPITAL CONFINEMENT: means a confinement in a Hospital as a bedpatient for which room and board charges are made by the Hospital to the Covered Person. 32. LATE ENROLLEE: means an Eligible Employee or Dependent who requests Enrollment in the Employer's Health Benefit Plan other than during the initial enrollment period, during an open enrollment period or during the Special Enrollment Periods provided under the terms of the Plan, unless any of the following apply: a. The person is employed by an Employer who offers multiple Health Benefit Plans and the person elects a different Health Benefit Plan during an open enrollment period. b. A court has ordered coverage to be provided for a spouse or minor Child and a request for enrollment is made within 31 days after issuance of the court order. 33. L.P.N.: means a licensed practical nurse acting in the scope of his/her license. 34. L.V.N.: means a licensed vocational nurse acting in the scope of his/her license. 25 30 GENERAL DEFINITIONS - CONTINUED 35. MANAGED CARE: means the determination of availability of coverage through the use of clinical standards to determine the Medical Necessity of an admission or treatment, and the level and type of treatment, and Appropriate setting for treatment, with required authorization on a prospective, concurrent or retrospective basis, sometimes involving case management. 36. MEDICALLY NECESSARY: means that We determine that the care and treatment given meets all of the following conditions: a. it is Appropriate care and consistent with the diagnosis and symptoms. "Appropriate" means the type, level and length of service and setting are needed to provide safe and adequate care and treatment and are provided by the Appropriate provider acting within the scope of his/her license; b. it is generally accepted medical practice and meets professionally recognized standards; c. it is not deemed to be Experimental, Investigational or Unproven as defined herein; d. it is not furnished in connection with medical or other research; e. it is specifically allowed by the licensing statutes which apply to the provider who renders the service; and f. it is at least as medically effective as any standard care and treatment. We will use Our programs, or one established by Our authorized representative to determine whether care is needed and Appropriate. The program may include but is not limited to: a. Pre-Admission Review; b. Concurrent Review; Continued stay review; c. Retrospective review; and d. Pre-Surgery Review and Second Surgical Opinion review. 37. Medicare: means the plan of benefits provided by Title XVIII of the U.S. Social Security Act of 1965 as amended from time to time. 38. PARTICIPATING PROVIDER: means a Doctor or a Hospital that agrees with Us to provide Medically Necessary care and treatment at set rates. 39. PHYSICIAN: means a person licensed to practice medicine. 40. PLACED FOR ADOPTION: means the assumption and retention of a legal obligation for the total or partial support of a child in anticipation of the adoption of such child. The child's placement with You is considered terminated upon the termination of such legal obligation. 41. Plan: means the Benefits described in this Certificate as provided by the Group Policy including all endorsements and amendments. 42. QUALIFIED LEAVE OF ABSENCE: means leave of absence period approved by the Employer pursuant to the Family and Medical Leave Act of 1993 or other applicable state's leave law that applies to the Employer. With Our prior approval, the term also includes the Employer's approved leave of absence period taken to substantially perform political, public or civic functions. 43. R.N.: means a licensed registered nurse acting in the scope of his/her license. 26 31 GENERAL DEFINITIONS - CONTINUED 44. REGULAR EMPLOYEE: means You work Your full number of hours for Your full rate of pay as required by Your Employer. The amount of required work time per week may never be less than 20 hours. 45. SKILLED NURSING FACILITY: means a place other than a Hospital that: a. can provide permanent full-time care for 10 or more resident patients; b. has a Doctor available at all times; c. has an R.N. or Doctor on full-time duty in charge of patient care; d. has one or more R.N.s, L.P.N.s or L.V.N.s on duty at all times; e. keeps a daily medical record for each patient; f. is not mainly a rest home or a home for Custodial Care of the aged; g. is not mainly engaged in treatment of drug addicts or alcoholics; h. is operating lawfully as a nursing home. 46. THE PLAN WILL PAY: means that when You send Us proof of claim, We will determine the Benefits payable and make payment, if any, according to the Payment of Claims provision. 47. WE, US AND OUR: means General American Life Insurance Company. 48. YOU AND YOUR: means an employee covered under the Plan. 27 32 YOUR RIGHTS UNDER ERISA As a participant in the Plan, You are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all plan participants shall be entitled to: Examine, without charge, at the Plan Administrator's office and upon written request at other specified locations, such as work establishments, all plan documents, including insurance contracts and copies of all documents filed by the plan with the U.S. Department of Labor, such as detailed annual reports and plan descriptions. Obtain copies of all plan documents and other Plan information upon written request to the Plan Administrator. The administrator may make a reasonable charge for the copies. Receive a summary of the Plan's annual financial report. The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report. In addition to creating rights for plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate Your Plan, called "Fiduciaries" of the plan, have a duty to do so prudently and in the interest of You and other plan participants and beneficiaries. No one, including Your Employer, or any other person, may fire You or otherwise discriminate against You in any way to prevent You from obtaining a welfare benefit or exercising Your rights under ERISA. If Your claim is denied in whole or in part, You must receive a written explanation of the reason for the denial. You have the right to have the Plan review and reconsider Your claim. Under ERISA, there are steps You can take to enforce the above rights. For instance, if You request materials from the Plan and do not receive them within 30 days, You may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay You up to $110 a day until You receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If You have a claim for Benefits which is denied or ignored, in whole or in part, You may file suit in a state or federal court. If it should happen that plan Fiduciaries misuse the Plan's money, or if You are discriminated against for asserting Your rights, You may seek assistance from the U.S. Department of Labor, or You may file suit in a federal court. The court will decide who should pay court costs and legal fees. If You are successful, the court may order the person You have sued to pay these costs and fees. If You lose, the court may order You to pay these costs and fees for example, if it finds Your claim is frivolous. If You have any questions about Your Plan, You should contact the Plan Administrator. If You have any questions about this statement or about Your rights under ERISA, You should contact the nearest office of the Pension and Welfare Benefits Administration, U. S. Department of Labor, listed in Your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U. S. Department of Labor, 200 Constitution Avenue N. W., Washington, D. C. 20210. 28 33 YOUR RIGHTS UNDER ERISA - CONTINUED SUPPLEMENTAL ERISA INFORMATION PLAN NAME: UNOVA, Inc. Employees' Welfare Benefits Plan PLAN SPONSOR: UNOVA, Inc. Employees' Welfare Benefits Plan 21900 Burbank Blvd. Woodland Hills, CA 91367-7418 EMPLOYER IDENTIFICATION: 95-4647021 PN: 506 TYPE OF PLAN: Welfare Benefit Plan providing Health Care Benefits for employees and dependents. TYPE OF ADMINISTRATION: The Benefits for Health Care coverage for employees and dependents are guaranteed under a group insurance policy issued by General American Life Insurance Company, 13045 Tesson Ferry Road, St. Louis, MO 63128. PLAN ADMINISTRATOR: Director of Benefits and Risk Management LINOVA, Inc. 21900 Burbank Blvd. Woodland Hills, CA 91367-7418 AGENT FOR LEGAL SERVICES: UNOVA, Inc. 21900 Burbank Blvd. Woodland Hills, CA 91367-7418 Service of legal process may also be made on the Trustee. PLAN YEAR ENDS: December 31 CONTRIBUTIONS: Your Employer pays all costs of the Plan. 29 34 YOUR RIGHTS UNDER ERISA - CONTINUED TERMINATION OR AMENDMENT OF PLAN The Plan Sponsor intends that this Plan will continue indefinitely, but reserves the right to amend, modify, revoke or terminate the Plan, in whole or in part, at any time. CLAIM DENIAL In the event a claim is denied You will be notified in writing within 90 days after We receive the claim (unless special circumstances require a longer time). You will be advised of the following: 1. the reason for denial; 2. specific reference to the Plan provisions on which the denial was based; 3. any additional material or information needed for further review of the claim; 4. an explanation of the Plan's review procedure. If Your claim is denied, You may appeal the denial by making a written request for review to Us within 60 days of the time You received the notice of denial. In connection with review, You have the right to 1) see the Plan and other papers affecting the claim, 2) argue against the denial in writing, 3) have a representative act on Your behalf in the appeal. The decision on the review shall be in writing, and shall be made within 60 days of the day We receive the request for review. It shall include specific reasons for the denial, written in a manner understandable to You and contain specific reference to the pertinent Plan provisions on which the decision was based. INSURER'S DISCRETIONARY AUTHORITY General American Life Insurance Company, being the claims administrator for the Health Care Benefits shall have the discretionary authority to determine eligibility for insurance Benefits, construe the terms of the insurance plan and resolve any disputes which may arise with regard to the rights of any persons under the terms of the insurance plan, including, but not limited to, eligibility for participation and claims for Benefits. 30 35 YOUR RIGHTS UNDER ERISA - CONTINUED FEDERAL CONTINUATION COVERAGE (also known as COBRA) In some circumstances, federal law requires that persons who lose group health plan coverage be given the chance to continue that coverage for a period of time. RIGHT TO COBRA CONTINUATION COVERAGE 1. You have a right to choose COBRA continuation coverage if You lose group health plan coverage because of: a. a reduction in Your hours of employment; or b. the voluntary or involuntary termination of Your employment (for any reason except Your gross misconduct). 2. Your spouse has the right to choose COBRA continuation coverage if he/she loses group health plan coverage for any of the following reasons: a. Your death; b. the termination of Your employment (except as a result of Your gross misconduct) or Your reduction in hours; c. Your divorce or legal separation; d. Your becoming entitled to Medicare. 3. Your dependent Child has the right to continuation coverage if he/she loses his/her group health plan coverage due to one of the four reasons described in 2. above or if he/she ceases to be an Eligible Dependent under the terms of the Plan's Health Care coverage. A dependent child born to or placed for adoption with You during Your COBRA continuation coverage period has the right to COBRA continuation coverage if You notify the plan administrator of the child's birth or placement for adoption within the time frame as prescribed by law. LENGTH OF COBRA CONTINUATION COVERAGE 1. Generally a. If, as a result of termination of Your employment or reduction in Your hours, You, Your spouse and/or Your dependents lose the Plan's Health Care coverage, those who do lose coverage may elect continuation coverage for up TO 18 MONTHS after the date Your employment terminates or hours reduce. b. If Your spouse or dependents lose the Plan's Health Care coverage due to any of the other events described in 2. or 3. above (other than Your employment termination or hours reduction), they may elect continuation coverage for up to 36 MONTHS from the date they experience such event. c. If Your spouse or dependents become entitled to continuation coverage because of termination of Your employment or reduction in Your hours and Your spouse or dependent then experiences another of the events which would entitle such person to continued coverage, he/she may extend the 18 month continuation period to 36 MONTHS from the date of the event that first made him/her eligible for continuation coverage. 31 36 YOUR RIGHTS UNDER ERISA - CONTINUED 2. Extensions of COBRA Continuation Coverage a. Disability Extension If You, Your spouse or Your dependents lose coverage because of termination of Your employment or reduction of hours and any of You are determined under Title 11 or XVI of the Social Security Act to have been Disabled at any time during the first 60 days of COBRA continuation coverage, then the Disabled person and such person's family members who are entitled to COBRA continuation coverage may extend the continuation coverage period for 11 ADDITIONAL MONTHS, provided: A notice of a Social Security determination is given to the plan administrator before the end of the initial 18month period and within 60 days after the date of such determination. An Employer may require payments of up to 150 percent of the applicable group rate for the cost of coverage for these 11 additional months. b. Employee's Medicare Entitlement Prior to COBRA Event If You become entitled to Medicare within 18 months prior to Your employment termination (or work hours reduction), Your spouse and dependents who are entitled to COBRA continuation coverage will become eligible for a continuation period of not shorter than 36 months from the date You become entitled to Medicare. This continuation period is measured from the time You are entitled to Medicare. The maximum continuation period for Your spouse or dependents will not exceed 36 months. However, unless You are entitled to an extended continuation period as described in 2.a. above, You yourself will only be eligible for a continuation period of up to 18 months from the date of Your employment termination (or work hours reduction). 3. If, after the occurrence of any event described in Right to COBRA Continuation Coverage above, You, Your spouse and/or Your dependents are allowed to continue Health Care coverage under the Plan (whether or not premium payment(s) are required) beyond the Plan's Termination of Coverage provision for any reason other than to comply with the federal law (i.e., state laws mandating continuation coverage, or the Plan's special provisions), such continuation period(s) will be used to reduce the maximum length of COBRA continuation coverage period otherwise available to such person under this section. NOTIFICATION REQUIREMENTS 1. If Your spouse or dependent becomes eligible for continuation coverage due to divorce, legal separation or the end of dependency status, the Plan Administrator must be notified within 60 days after Your spouse or dependent becomes eligible. That person will distribute necessary forms and explain this continuation in more detail. If the Plan Administrator is not notified within 60 days of the event that makes Your spouse or dependent eligible for continuation coverage, Your spouse or dependent will lose the right to such coverage. In order for a child born to or placed for adoption with You during Your COBRA continuation coverage to have the right to COBRA continuation coverage, You must notify the plan administrator of the child's birth or placement for adoption within the time frame as prescribed by law. 32 37 YOUR RIGHTS UNDER ERISA - CONTINUED 2. In order for a Disabled person and such person's family members continuing under the 18-month continuation coverage to be entitled to an extended continuation period of 11 additional months, such person must meet the notice requirements and all other conditions described under Extensions of Continuation Coverage in 2.a. above. A person continuing under the 11 -month extended continuation coverage must notify the Plan Administrator within 30 days if the Social Security Administration determines that the disability ceases to exist. TERMINATION OF COBRA CONTINUATION COVERAGE Your Employer may require You, Your spouse and Your dependents to pay for the cost of the continuation coverage. If these amounts are not paid within the time allowed, the continuation coverage will end. Four other reasons that this continuation coverage may terminate before the full maximum continuation period runs out are: 1. the continued person first becomes, after the date of COBRA continuation coverage election, entitled to Medicare benefits; 2. the Employer stops providing any group health plan benefits program for employees; 3. the continued person first becomes, after the date of COBRA continuation coverage election, covered under another group health plan, and any preexisting conditions exclusions or limitations of that plan do not apply to or are satisfied by such person; 4. with respect to any person continuing under the 11-month extended continuation coverage (as described under Extensions of Continuation Coverage in 2.a. above), when the Social Security Administration determines that the disability ceases to exist (the termination becomes effective as of the first day of the month which is at least 31 days after the Social Security determination). CONVERSION PRIVILEGE Persons who have exhausted their maximum continuation coverage period will be eligible for the Conversion Privilege described in the group health plan. GENERAL INFORMATION This Federal Continuation Coverage section does not amend or change the Plan's Termination of Coverage provision. It simply provides a continuation of coverage right Your Employer is required to offer by law. If We, the Policyholder or Your Employer terminates this Plan before or during a continuation period, continuation coverage, if any, will not be under this Plan and may not be through Us. 33 EX-10.40 14 MATERIAL CONTRACTS 1 EXHIBIT 10.40 Robert G. O'Malley 6211 East Huntress Drive Paradise Valley, AZ 85253 Dear Bob: The purpose of this letter is to outline our offer being made to you for the position of President of Intermec Technologies Corporation, and Group Executive of the Automatic Data Systems Group. It is also anticipated that you will be elected to the position of Senior Vice President of UNOVA, Inc., reporting to the President and Chief Operating Officer of UNOVA. This Offer of Employment is comprised of the following elements: SALARY: Your annual base salary will be $400,000.00, payable every two weeks at Intermec. Annual salaries of all Corporate Officers are reviewed each year on July 1st. HIRING BONUS: As a fixed sum Hiring Bonus you will receive the sum of $400,000.00 less any bonus you receive from your current employer for your service in 1999. This bonus shall be payable within thirty (30) days after your start date at UNOVA, Inc. If for any reason you leave the employment of UNOVA within one year after your start date, you will pay back to the Company a prorated portion of this Bonus based on the number of months of service remaining at the time of your leaving. Prior to the Company making this payment, you will provide the Company data which shows the amount, if any, of the bonus you have received or will receive from your current employer for service in 1999. Starting with calendar year 2000 and thereafter all bonus payments shall be in accordance with the UNOVA Management Incentive Compensation Plan. UNOVA COMMON STOCK OPTIONS: In accordance with the UNOVA 1999 Stock Incentive Plan you shall receive 200,000 Common Stock Options, awarded at market price as such price is determined on the start date of your UNOVA employment. RETIREMENT: You shall be eligible to participate in the UNOVA Financial Security and Savings Program (FSSP) and the UNOVA Supplemental Executive Retirement Plan (SERP). Copies of these Plan documents are enclosed as Enclosure 1. CHANGE OF CONTROL AGREEMENT: You shall be covered by a Change of Control Agreement between you and UNOVA in the form set forth in Enclosure 2. STANDARD BENEFIT PROGRAMS: You are eligible for the standard benefit plans applicable to officers and employees of Intermec Technologies Corporation. These are described in the document entitled "Benefits-At-A-Glance" which is attached as Enclosure 3. You will also be entitled to participate in the "Intermec Executive Flex 2 Benefits Program" in the annual amount of $10,000.00 . This amount is designed to provide you reimbursement for certain miscellaneous expenses including financial planning, supplemental life insurance, personal computing equipment and peripherals, and cellular phones. SPECIAL CORPORATE OFFICER BENEFITS: You shall also be eligible to receive the following additional benefits: 1. Company Paid Executive Life Insurance equal to four times your base salary. 2. Use of a Company Car. 3. Participation in the Company Incentive Loan Program that permits Company loans to you of amounts up to your annual base salary at an interest rate of 4% (with imputed income to you of the difference between the "federal rate" and 4%). 4. Participation in the UNOVA Foundation matching gifts program for donations you choose to make to colleges and universities up to a maximum of $25,000.00 per year. RELOCATION ASSISTANCE: You shall be eligible to receive relocation assistance in accordance with the Standard Relocation Assistance Provisions of Intermec Technologies Corporation, a copy of which is enclosed as Enclosure 4. In addition, you shall be paid a fixed sum of $25,000.00 to cover all expenses not specifically reimbursed by the Standard Relocation Assistance Provisions or otherwise in this Offer. Please be advised that is our understanding that all amounts which you receive for Relocation Assistance may be considered as taxable income by the Internal Revenue Service. Such sums are the personal responsibility of each employee. ADDITIONAL COMPANY POLICIES: Except as specifically modified by this letter, this Offer of Employment is subject to all other standard Company Policies and Procedures in effect as to the date hereof. Copies are available for your review. MUTUAL AGREEMENT TO ARBITRATE CLAIMS: Any dispute which may arise from or concerning this Offer of Employment or your employment with the Company shall be resolved in accordance with the UNOVA Mutual Agreement to Arbitrate Claims, which is attached as Enclosure 5. 3 EMPLOYMENT AT WILL: We both must understand that the employment contemplated by this Offer is at the will of either of us. Your employment is not for a specified term and may be terminated at the will of either you or the Company. Bob, if this Offer of Employment is satisfactory, please return a signed copy of this letter to me within the next thirty (30) days from the date of this letter. If you have any questions regarding any of the above, please feel free to call me at your convenience. Sincerely, /s/ Alton J. Brann - ------------------ Alton J. Brann Enclosures: As stated. - -------------------------------------------------------------------------------- ACKNOWLEDGMENT I hereby accept the above Offer of Employment. /s/ Robert G. O'Malley 5/26/99 ----------------------- -------------------- Robert G. O'Malley Date EX-21 15 EXHIBIT 21 1 EXHIBIT 21 UNOVA, INC. SUBSIDIARIES OF THE REGISTRANT
JURISDICTION PERCENTAGE OF OF NAME OF SUBSIDIARY INCORPORATION OWNERSHIP ------------------ ------------- ---------- Intermec Technologies Corporation........................... Washington 100 UNOVA Industrial Automation Systems, Inc.................... Delaware 100
The Registrant has additional operating subsidiaries which, considered in the aggregate as a single subsidiary, do not constitute a significant subsidiary. All above-listed subsidiaries have been consolidated in the Registrant's financial statements. E-5 EX-23 16 EXHIBIT 23 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Amendment No. 1 to registration statement No. 333-42839 of UNOVA, Inc. on Form S-3 and registration statements Nos. 333-39003, 333-39005, 333-39007 and 333-79557 of UNOVA, Inc. each filed on Form S-8, of our report dated February 11, 2000, appearing in this Annual Report on Form 10-K of UNOVA, Inc. for the year ended December 31, 1999. /s/ DELOITTE & TOUCHE LLP Los Angeles, California March 27, 2000 E-6 EX-27 17 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 25,239 0 596,885 0 310,175 1,110,342 472,229 201,330 1,903,539 662,499 429,388 0 0 556 730,744 1,903,539 2,108,749 2,108,749 1,500,974 1,500,974 520,447 0 38,867 49,313 19,725 29,588 0 0 0 29,588 .54 .54
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