-----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, FeLJRercOH686RRwFSatyqtBcD08KuvGxPVVZaQCjJZjjc84+MbLUefTQtCROUmv SgNYod5Bx7RV3IqpP2HSvA== 0001047469-99-011951.txt : 19990330 0001047469-99-011951.hdr.sgml : 19990330 ACCESSION NUMBER: 0001047469-99-011951 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 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: 99575963 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1998 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.) 360 NORTH CRESCENT DRIVE 90210-4867 BEVERLY HILLS, CALIFORNIA (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (310) 888-2500 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 Participating Preferred Stock New York Stock Exchange
------------------------ Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes / / No /X/ On February 26, 1999, the aggregate market value of the Registrant's voting stock held by non-affiliates was $787.9 million. On February 26, 1999, there were 54,943,391 shares of Common Stock outstanding, exclusive of treasury shares. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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................................................... 19 Item 9: Disagreements on Accounting and Financial Disclosure.......................................... 19 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............................... 21 Signatures.................................................................................... 24
PART I ITEM 1. BUSINESS UNOVA, Inc. (the "Company" or "UNOVA") operates in two business segments: Industrial Automation Systems ("IAS") and Automated Data Systems ("ADS"). For the year ended December 31,1998, IAS generated revenues and operating profits of $833.3 million and $76.9 million, respectively, and ADS produced revenues and operating profits of $829.4 million and $55.4 million, respectively. The Company became an independent public company upon the distribution of its common stock to the shareholders of Western Atlas Inc. ("WAI") on October 31, 1997. See Note K to the consolidated and combined financial statements for financial information by industry 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. GENERAL The Company is an industrial technologies company providing global customers with solutions for improving their efficiency and productivity. The Industrial Automation Systems business segment includes integrated manufacturing systems, metal-cutting and composite production systems, body welding and assembly systems, precision grinding and abrasive operations and stand-alone machine tools, primarily serving the worldwide automotive, off-road vehicle, diesel engine and aerospace manufacturing industries. The Automated Data Systems business segment comprises automated data collection, network and mobile computing products and services, principally serving the industrial market. Customers include global distribution and transportation companies, food and beverage operations, manufacturing industries, health care providers and government agencies. PRODUCTS AND SERVICES INDUSTRIAL AUTOMATION SYSTEMS. The Company is a major designer, producer and integrator of manufacturing technologies, primarily for the global automotive, off-road vehicle and diesel engine industries, but it also operates in the aerospace, electronics, durable goods and the general job shop markets. Products include integrated manufacturing systems for the production of powertrain components such as engines, transmissions and connecting rods, and chassis components such as steering knuckles, rear axle housings and brake calipers; body welding and assembly systems; test and automation equipment for integration into production lines; precision grinding and abrasives; multi-axis manufacturing systems; profiling systems for composite materials; stand-alone vertical and horizontal metal-cutting machining centers; the redesign, remanufacturing and retooling of installed equipment; and design/ engineering services. During the fourth quarter of 1998, UNOVA acquired the machine tool business of Cincinnati Milacron for approximately $180.0 million in cash, subject to post-closing adjustments. 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. During the third quarter of 1998, UNOVA acquired R & B Machine Tool Company, a specialty machine and retooling company. The Company's IAS segment includes the following divisions: Lamb Technicon Machining Systems, Cincinnati Machine, Lamb Technicon Body & Assembly Systems, Lamb Assembly & Test Systems, 1 ITEM 1. BUSINESS (CONTINUED) Modern Prototype, Lamb UK, Honsberg Lamb, Landis Gardner, Landis Lund, R & B Machine Tool Company, Citco and Cranfield Precision. The IAS segment's major offices and production facilities are located in Illinois, Kentucky, Michigan, Ohio and Pennsylvania and internationally in Canada, the United Kingdom and Germany. INTEGRATED MANUFACTURING SYSTEMS. Manufacturing solutions are being designed and integrated by the Company for auto and diesel customers, primarily for powertrain components. Product lines include computer numeric control (CNC) machines for low-volume applications, modular, flexible systems for medium-volume production and transfer lines for high-volume production. Integrated manufacturing systems, which include the operations of Cincinnati Machine subsequent to the acquisition, accounted for 29%, 27% and 39% of the Company's consolidated and combined revenues in fiscal 1998, 1997 and 1996, respectively. Virtual design, prototyping and simultaneous engineering techniques are used to optimize solutions for complex automotive manufacturing projects. By working closely with customers, especially during their product design and engineering phase, the Company is able to develop machining processes that reduce capital requirements, lower lifecycle costs, eliminate costly shop floor programming and improve productivity by reducing downtime during operations. 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. BODY AND 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, UNOVA 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 customers long before their programs move into the capital investment stage. Body and Assembly Systems accounted for 8%, 14% and 12% of the Company's consolidated and combined revenues in fiscal 1998, 1997 and 1996, respectively. PRECISION GRINDING AND ABRASIVES. The Company is an innovator of cylindrical grinding products and processes that improve accuracy and reliability in critical engine parts. These processes ultimately result in lower emissions, better fuel economies and reduced maintenance for car owners. Combined with the centerless grinding activities from Cincinnati Machine, the Company has moved into a leading position as a provider of advanced grinding applications in non-automotive markets. Precision Grinding and Abrasives accounted for 13%, 15% and 17% of the Company's consolidated and combined revenues in fiscal 1998, 1997 and 1996, respectively. Superabrasive grinding wheels, electronic controls, high-precision, maintenance-free hydrostatic bearings and state-of-the-art, value-engineered double disc 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. 2 ITEM 1. BUSINESS (CONTINUED) CINCINNATI MACHINE. The addition of the Cincinnati Machine operations (acquired from Cincinnati Milacron) directly complements UNOVA's existing product range and brings an established global distribution network in non-automotive markets. The new division provides advanced systems such as multi-axis and composite manufacturing systems for the aerospace industry; production systems, including horizontal machining centers and flexible manufacturing cells, for the general metalworking industry; and standard CNC machines such as vertical machining and horizontal turning centers for job shops. TECHNOLOGIES/TRENDS. UNOVA 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 modular, multi-spindle machining centers are reducing cycle time, and flexible fixturing systems are under development to cut costs of high-volume machining. Advances in grinding technologies are beginning to allow UNOVA to move into other markets, where the Company's machines can be applied to finish non-metallic materials with extreme accuracy. AUTOMATED DATA SYSTEMS. The Company's automated data collection ("ADC") and mobile computing systems business comprise the Intermec, Norand and UBI activities. Intermec was acquired in 1991; Norand and UBI were acquired early in 1997. In 1997, these three companies were consolidated into one organization called Intermec Technologies Corporation, serving the global bar code, data collection and mobile computing market, which has grown approximately 12% to 15% annually over the past five years. This organization is divided into three global product divisions: Local Area Systems, Norand Mobile Systems and Identification Systems. ADS, which included only Intermec's results until the 1997 acquisitions of Norand and UBI, accounted for 50%, 44% and 32% of the Company's consolidated and combined revenues in 1998, 1997 and 1996, respectively. In 1998, the Company acquired the radio frequency identification ("RFID") business unit of Amtech Corporation known as the Amtech Systems Group ("Amtech Systems"), which became a division of Intermec Technologies Corporation. 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's common stock which was applied towards the purchase price of Amtech Systems. According to industry statistics, the U.S. RFID market grew over 20% in 1998 to $655 million. This combination of companies and capabilities establishes the Company as a leading participant in the growing ADC marketplace. Together, they offer a broad range of products which are used to gather, organize, process, transmit and exchange information between various field-based or in-premise locations and central computers or information retrieval systems. By facilitating sales order processes, and tracking parts, work-in-process, finished products and people through manufacturing, distribution and other commercial operations, industrial users are able to control inventory and to improve the productivity, quality and responsiveness of their operations, from supply chain management and enterprise resource planning ("ERP") to field sales and service. Major offices and manufacturing facilities are located in the states of Iowa, Ohio and Washington; and internationally in the United Kingdom, the Netherlands, Sweden, France and Australia. LOCAL AREA SYSTEMS. The Company has demonstrated market leadership in the wireless Local Area Network (LAN) industry by being 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), giving customers the ability to choose the most efficient radio technology for their facilities to solve data rate, transmission speed and 3 ITEM 1. BUSINESS (CONTINUED) range issues in order to create a reliable communications environment. To ensure compatibility with customer host systems, all major industry standard networks are supported. The Company has developed an extensive line of hand-held computers and stationary 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. The Company's "open systems" product design philosophy is to deliver maximum flexibility for customers with diverse application requirements. NORAND MOBILE SYSTEMS. As a leader in ruggedized mobile computing systems, especially with its PEN*KEY-Registered Trademark- terminals, the Company provides comprehensive data communications, wide-area networks, application software, hand-held and truck-mounted PC-based products with peripherals and printer solutions. These allow instant information exchange between companies' field and central organizations, automating sales, distribution, electronic billing, dispatching, routing and updating of customer information in real time. Mobile computing refers to rugged PC-based devices for route accounting, meter reading, field services and sales management, rather than general personal or desktop computing applications. 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. IDENTIFICATION SYSTEMS. Intermec's Identification Systems products, which include wands, imagers, charge-couple devices (CCD), badge and laser scanners, as well as 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 which ensures sharp fonts and precise graphics, even on extremely small labels such as those used by the electronics industry. The Company also supports its customers with a broad range of label and tag solutions as well as other supplies for its printer product range. AMTECH SYSTEMS. Intermec's newest division, acquired in June 1998, is a leading supplier of RFID solutions for intelligent transportation systems. Amtech designs, manufactures, markets, 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. Amtech formed a strategic business unit to develop the next generation of low-cost RFID products for the transportation, security, manufacturing and logistics markets. The division plans to offer its new technology for integration with and to complement existing automatic identification and data capture solutions such as bar code, mobile computing and other enterprise-wide information systems. TECHNOLOGIES/TRENDS. The Company is consistently broadening the application of ADC and mobile computing by developing or integrating new technologies into its product range. Recent examples include the Company's smart, vehicle-based docking solution for pen-based computers as well as 2-D bar codes, smart cards and RFID. Tags or labels based on RFID technology can be updated during their use, making them an integral part of an electronic information network. 4 ITEM 1. BUSINESS (CONTINUED) 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. Both of the Company's business segments offer single products as well as integrated solutions to their customers. Future growth in these businesses is expected to result from expansion of the Company's existing operations and its customer base, and through acquisitions. In seeking acquisitions, the Company will concentrate on technologies, products and services that enhance customer productivity and efficiency, and those that can be characterized as growth drivers. In its IAS business segment, the Company plans to continue to develop 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 ADC/mobile computing 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, where the use of data collection technology is less developed. To capitalize on these emerging markets, the Company is expanding its international marketing, distribution and support network, and is engaged in an ongoing program to locate Company-owned resources in key markets worldwide. The Company continues to explore ways to increase its presence in market segments where it presently holds a smaller market share, such as the application of lower-volume flexible manufacturing systems and CNC machines. In some areas the Company also has developed high-precision manufacturing technologies that should allow it to establish a presence in growth markets such as microelectronics with its new generation of ultra-high-precision wafer grinders. In recent years, cost-cutting needs and quality requirements in the automotive industry have affected 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 either to withdraw from the market or to reduce their role to that of second or third tier suppliers. The Company's strategy has been to establish an 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 INDUSTRIAL AUTOMATION SYSTEMS. The Company participates in the automotive manufacturing 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 by 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. Customers for the Company's integrated manufacturing systems products are the major auto and diesel manufacturers and their Tier One suppliers. Although the passenger car and light truck industries continue to represent this division's largest market, business from diesel engine manufacturers has grown in recent years. The Company believes that its future growth in this business segment will be dependent on its ability to broaden the scope of products and services that it markets to its current customer base, which allows 5 ITEM 1. BUSINESS (CONTINUED) the Company to expand into other industrial manufacturing markets. This strategy was further supported by the acquisition of Cincinnati Machine, which is already participating in markets such as the aerospace and general metalworking industries as well as the broad job shop market. Cincinnati Machine also brings flexible CNC machine technology to the other IAS divisions, allowing them to market these products and systems to the automotive supplies industry, while products developed by the auto-related divisions can be sold through Cincinnati Machine's global distribution network to other, non-automotive markets. A substantial part of the IAS segment's total revenues 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 Industrial Automation Systems sales. The 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. Recent major customers include U.S.-based Cummins, DaimlerChrysler, Ford, General Motors, Navistar and Detroit Diesel; and Western Europe-based BMW/Rover, Fiat, Mercedes Benz, Jaguar, Peugeot, Renault, Volkswagen, and the European subsidiaries of the large U.S. manufacturers, as well as Tata (Telco) in India. The Company has also won major systems contracts for the "transplant" manufacturing facilities of foreign auto makers, including both European and Japanese, and also serves the automotive components manufacturing market. AUTOMATED DATA SYSTEMS. Because automated data systems represents technologies that can be utilized by a company of any size, and small systems can be installed at very low cost, the market is extensive. Worldwide sales of automated data systems equipment reached over $5 billion in 1998, 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 and ERP solutions. Worldwide coverage with a dedicated sales organization is therefore a major advantage. Through its application of technologies in the manufacturing, warehouse-distribution, transportation, health care, government and other non-retail markets, the Company maintains a strong position in the global non-retail ADC/mobile computing market. The Company sells and services its products through multiple sales and distribution channels: a direct field sales force which concentrates on large, complex systems sales; value added resellers that offer applications-specific solutions; and alliances with major systems integrators. 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 approximately 60% of its sales through indirect sales channels, no individual value-added distributor or reseller is material to overall Company results. The Company also maintains contact with customers and prospective users by having established 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 6 ITEM 1. BUSINESS (CONTINUED) 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-progress, finished goods inventory and other functions throughout the manufacturing process. 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. 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. 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. INDUSTRIAL AUTOMATION SYSTEMS. While product quality is a key determinate in the competition to win market share, pricing is also a major criterion in the global market. Integrated Manufacturing Systems' 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 competition. The North American and European market for high-volume production systems for engines and transmissions is divided among approximately ten 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, Progressive Industries (PICO) and Valiant in North America; Thyssen, FFT and Kuka in Germany and Comau in Italy. 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. Cincinnati Machine 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 Fadal (Thyssen) and Haas (both North America) in the market for stand-alone machines. AUTOMATED DATA SYSTEMS. 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 measured by revenues. The other two major participants are Symbol and Telxon. The Company also faces strong competition for single product lines from specialized suppliers. 7 ITEM 1. BUSINESS (CONTINUED) The Company competes on the basis of its open modular systems approach, network and communications expertise, applications software, level of sales and support services, and product functionality, performance, ruggedness and overall quality. 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, Teklogix, Symbol, and Telxon. On the printer side, the Company faces competition from Zebra/Eltron, Datamax and many others, depending on the geographic area. RESEARCH AND DEVELOPMENT Companywide expenditures on research and development activities amounted to $71.5 million, $53.1 million and $29.7 million, substantially all of which was sponsored by the Company, in the years ended December 31, 1998, 1997 and 1996, 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 been of value in the growth of the Company's business and may continue to be of value in the future. However, the Company's business 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. The Company has approximately 40 patent licenses under which it paid out or received income in the year ended December 31, 1998. During 1998, the aggregate amount of license fees paid by the Company was approximately $6.2 million, and the aggregate amount of license fees received was approximately $7.8 million. SEASONALITY; BACKLOG Sales backlog was $831 million, $395 million and $595 million at December 31, 1998, 1997 and 1996, 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 segment. 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, 1998, the Company had approximately 10,361 full-time employees, of which approximately 6,477 are engaged in the IAS segment, approximately 3,761 in the ADS business and approximately 123 in corporate and shared services. ENVIRONMENTAL AND REGULATORY MATTERS During 1998, 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. 8 ITEM 1. BUSINESS (CONTINUED) 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. 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 are in material compliance with the regulations in force in 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 ITEM 2. PROPERTIES UNOVA's corporate headquarters building at 360 North Crescent Drive, Beverly Hills, California was sold in December 1998. The Company is currently leasing office space in the Beverly Hills building but plans to move the corporate headquarters to a leased facility at 21900 Burbank Boulevard, Woodland Hills, California in 1999. Its principal plants and offices have an aggregate floor area of approximately 8,238,239 square feet, of which 7,209,484 square feet (88%) are located in the United States, and 1,028,755 square feet (12%) 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 ------------ Industrial Automation Systems....................................................................... 7,042,646 Automated Data Systems.............................................................................. 863,043 ------------ 7,905,689 ------------ ------------
Approximately 6,635,492 square feet (81%) 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:
STATE SQUARE FEET - ---------------------------------------------------------------------------------------------------- ------------ Ohio................................................................................................ 3,507,496 Michigan............................................................................................ 1,620,075 Pennsylvania........................................................................................ 495,662 California.......................................................................................... 332,550 Illinois............................................................................................ 306,158 Washington.......................................................................................... 312,000 Iowa................................................................................................ 259,820 Kentucky............................................................................................ 152,483 Other states........................................................................................ 223,240 ------------ 7,209,484 ------------ ------------
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 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, 1998. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PAGE --------- Quarterly Financial Information (unaudited) F-26
11 ITEM 6. SELECTED FINANCIAL DATA UNOVA, INC.
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- (MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA AND RATIOS) OPERATING RESULTS: Sales and Service Revenues................... $ 1,662.7 $ 1,426.2 $ 1,164.7 $ 942.9 $ 971.1 --------- --------- --------- --------- --------- Operating Costs and Expenses Cost of sales.............................. 1,110.8 981.4 841.8 669.3 689.9 Selling, general and administrative (1).... 383.7 535.9 218.7 194.1 199.9 Depreciation and amortization.............. 57.0 40.6 27.0 26.1 28.7 --------- --------- --------- --------- --------- Total.................................... 1,551.5 1,557.9 1,087.5 889.5 918.5 --------- --------- --------- --------- --------- Other Income, Net............................ 31.5 --------- Earnings (Loss) before Interest and Taxes.... 142.7 (131.7) 77.2 53.4 52.6 Interest Expense, net (2).................... (25.7) (16.7) (7.1) (9.3) (15.7) Taxes on Income.............................. (47.3) (23.0) (28.1) (17.9) (15.3) --------- --------- --------- --------- --------- Net Earnings (Loss).......................... $ 69.7 $ (171.4) $ 42.0 $ 26.2 $ 21.6 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Basic Net Earnings (Loss) per Share.......... $ 1.28 $ (3.17) $ 0.78 $ 0.49 $ 0.40 Diluted Net Earnings (Loss) per Share........ $ 1.27 $ (3.17) $ 0.78 $ 0.49 $ 0.40 Shares used for Basic Earnings (Loss) per Share (3).................................. 54,620 54,056 53,892 53,892 53,892 Shares used for Diluted Earnings (Loss) per Share (3).................................. 54,703 54,056 53,892 53,892 53,892 FINANCIAL POSITION (at end of year): Total Assets................................. $ 1,979.2 $ 1,356.4 $ 1,073.8 $ 919.0 $ 860.8 Notes Payable and Current Portion of Long-term Obligations...................... $ 237.3 $ 86.6 $ 27.5 $ 22.2 $ 41.7 Long-term Obligations........................ $ 366.5 $ 216.9 $ 14.5 $ 14.1 $ 9.0 Allocated Portion of Western Atlas Debt...... $ 109.6 $ 112.4 $ 112.8 Working Capital.............................. $ 392.2 $ 277.8 $ 266.0 $ 194.7 $ 115.2 Current Ratio................................ 1.5 1.6 1.6 1.6 1.3 Total Debt as a Percentage of Total Capitalization............................. 46% 34% 21% 23% 27%
- ------------------------ (1) General and Administrative Costs include allocated charges from Western Atlas of $13.5 million, $22.2 million, $19.9 million and $27.6 million for the years ended December 31, 1997, 1996, 1995 and 1994, 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. (2) Interest expense includes allocated charges from Western Atlas of $12.0 million, $8.3 million, $8.4 million and $12.1 million for the years ended December 31, 1997, 1996, 1995 and 1994, respectively. (3) 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 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Sales and service revenues and segment operating profit for the years ended December 31, 1998, 1997 (excluding the $211.5 million charges for acquired in-process research and development) and 1996, were as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- (MILLIONS OF DOLLARS) SALES AND SERVICE REVENUES Industrial Automation Systems................................ $ 833.3 $ 789.8 $ 797.4 Automated Data Systems....................................... 829.4 636.4 367.3 --------- --------- --------- Total Sales and Service Revenues............................. $ 1,662.7 $ 1,426.2 $ 1,164.7 --------- --------- --------- --------- --------- --------- SEGMENT OPERATING PROFIT Industrial Automation Systems................................ $ 76.9 $ 94.6 $ 69.5 Automated Data Systems....................................... 55.4 9.1 30.1 --------- --------- --------- Total Segment Operating Profit............................... $ 132.3 $ 103.7 $ 99.6 --------- --------- --------- --------- --------- ---------
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. IAS revenues increased $43.5 million, or 6% while related operating profit decreased $17.7 million, or 19% for the year ended December 31, 1998 compared with the corresponding prior period. The increase in IAS revenues is primarily attributable to the acquisitions of Cincinnati Machine and R&B Machine Tool, which are discussed below. Startup issues on a new product line at Lamb Honsberg in Germany impacted operating profit in 1998. In addition, the IAS segment began several new projects in 1998 that are not expected to materially affect sales and profits until next year. Delays caused by unexpected customer changes were encountered in the engineering phase of these new projects. Conversely, during the first half of 1997, the integrated manufacturing systems operations experienced a higher level of sales and profits from contracts in the final delivery and installation phase. IAS backlog increased from $332.0 million at December 31, 1997 to $705.5 million at December 31, 1998. ADS segment sales increased $193.0 million or 30% and operating profit increased $46.3 or 509% for the year ended December 31, 1998 compared with the corresponding prior period. The sales and operating profit increases are due primarily to new licensing revenues, internal growth and the contribution of a full year of operations and the realization of improved profitability from the integration of the Norand and UBI acquisitions, offset by information system problems that negatively impacted the results of the third and fourth quarter. These problems, which were caused by the larger volume of business that resulted from the integration, did not allow the ADS segment to fully realize the benefits of its integration activities in 1998. A new information system, designed to resolve these problems, will become operational during 1999. In October 1998, UNOVA acquired the machine tool business of Cincinnati Milacron for approximately $180.0 million in cash, subject to post-closing adjustments. 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 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) industrial component, aerospace, job shop, fluid power and automotive industries. Cincinnati Machine has become part of the Company's Industrial Automation Systems ("IAS") segment. The acquisition cost has been allocated on a preliminary basis to the net assets acquired based on their relative fair values. The acquisition was funded using the Company's committed credit facility and was accounted for under the purchase method of accounting. 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. 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 ("SG&A") 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. YEAR ENDED DECEMBER 31, 1997 COMPARED TO 1996 Total sales and service revenues increased $261.5 million, or 22% for the year ended December 31, 1997 compared with the corresponding prior period. Total segment operating profit, excluding the $211.5 million charges for acquired in-process research and development, increased $4.1 million, or 4% for the year ended December 31, 1997 compared to the corresponding prior period. IAS revenues decreased $7.6 million, or 1% and related operating profit increased $25.1 million, or 36% for the year ended December 31, 1997 compared with the corresponding prior period. The decrease in IAS revenues is primarily attributable to the sale of the Material Handling Systems ("MHS") division in November 1996, which offsets an increase in integrated manufacturing systems revenues. IAS experiences lower profit margins in the early stages of long-term contracts until the development risks have been mitigated. During 1997 the integrated manufacturing systems operations experienced a higher level of revenues and profits from contracts in the final delivery and installation phase. These projects contributed to an increase in operating margins for IAS from 8.7% in 1996 to 12.0% in 1997. Accordingly, IAS backlog declined from $545.0 million at December 31, 1996 to $332.0 million at December 31, 1997. 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Also contributing to the increased operating profit are nonrecurring costs recorded in 1996 associated with the MHS sale and the reorganization of the Company's IAS European operations and domestic grinding businesses. ADS revenues increased by $269.1 million, or 73% due to the acquisitions of Norand Corporation ("Norand") and United Barcode Industries ("UBI"). However, ADS operating profit declined by $21.0 million, or 70% due primarily to the process of integrating the newly acquired companies with Intermec and the costs of a long-term contract related to wireless RFID technology purchased from IBM Corporation. The Company acquired Norand on March 3, 1997, and UBI on April 4, 1997. Norand designs, manufactures and markets mobile computing systems and wireless data communications networks using radio frequency technology. UBI is a European-based automated data collection company headquartered in Sweden. These companies were integrated into Intermec Technologies Corporation. Both transactions were funded by WAI 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 in-process research and development activities; $154.1 million assigned to goodwill (amortized over 25 years); and $29.0 million assigned to other intangibles (amortized over periods ranging from 4 to 18 years). During the second quarter of 1997, the Company expensed the amounts assigned to acquired in-process research and development in accordance with Financial Accounting Standards Board Interpretation No. 4. The Company acquired the remaining 51% of Honsberg, a German machine tool maker, in the second quarter of 1997. The original 49% of Honsberg was acquired during 1995. The Company acquired 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. Also, in November 1997, the Company acquired 13% of the common stock of Amtech Corporation, which was applied toward the purchase price of Amtech's RFID business in 1998. SG&A expense as a percentage of sales and service revenues increased to 22.7% for the year ended December 31, 1997, compared to 18.8% in 1996. This increase is primarily due to a higher percentage of the Company's 1997 sales coming from the ADS segment, where SG&A rates are historically higher than those experienced in the IAS segment. ADS sales as a percentage of total Company sales increased to 44.6% in 1997 from 31.5% in 1996. Net interest expense was $16.7 million and $7.1 million for the years ended December 31, 1997 and 1996, respectively. The increase is primarily due to an increase in the level of Western Atlas allocated debt from $109.6 million at December 31, 1996 to $230.0 million at October 31, 1997 (when the Company paid this amount to WAI as an intercompany dividend). The increase in allocated debt is primarily attributable to the 1997 acquisitions of Norand and UBI. FOREIGN CURRENCY TRANSACTIONS The Company is subject to the effects of international currency fluctuations due to the global nature of its operations. Currency fluctuations did not have a significant impact on operations during fiscal years 1998, 1997 and 1996. 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. The Company hedges transactions from time to time, but the amount and volume of such transactions are not material. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For fiscal year 1998, the Company derived approximately 36% of its revenues and approximately 26% of its operating profits (exclusive of corporate overhead) from non-U.S. operations. At December 31, 1998, identifiable assets attributable to foreign operations comprised 22% 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 $13.7 million at December 31, 1997 to $17.7 million at December 31, 1998. Total debt increased from $303.6 million at December 31, 1997 to $603.8 million at December 31, 1998 due to the acquisitions of Cincinnati Machine, R&B Machine and Amtech Systems and the normal capital expenditure and working capital needs of the operations. In March 1998, the Company sold $200.0 million principal amount of senior unsecured debt. The sale 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 entered into by the Company to hedge the interest rates on the debt, 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 has two unsecured committed credit facilities with a group of 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 on the London Inter Bank Offered Rate, certificates of deposit or other rates that are mutually acceptable to the banks and the Company. At February 12, 1999, $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 $89.3 million was available to the Company at February 12, 1999. 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 the worst case scenario of a system failure or other business disruption. The operating segments of the Company formed internal review teams to address the Year 2000 issue. The teams are monitored on an ongoing basis by executive management. As a result of this review, the Company has identified its significant information technology and non-information technology systems that will require modification to ensure Year 2000 compliance. Internal and external resources are being used to make the required modifications and test Year 2000 compliance. Although there can be no assurance that the Company will identify and correct every Year 2000 problem, the Company believes that it has in place a comprehensive program to identify and correct any such problems. The Company plans to complete the internal modification and testing process prior to December 31, 1999. UNOVA is also actively working with its significant suppliers and customers to assess their Year 2000 compliance efforts and the Company's exposure to them. 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 supplier or other third party will not occur. 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company has 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 and customer satisfaction 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 transition 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. In addition, the Company has begun internal discussions concerning contingency planning to address potential problem areas with internal systems and third parties. If deemed necessary, these contingency plans will be developed prior to December 31, 1999. The Company estimates that the total incremental cost of these Year 2000 compliance activities will be approximately $7.0 million. Of these costs, it is estimated that approximately $1.5 million are expense items and the remaining $5.5 million are capitalizable. As of December 31, 1998, the Company has incurred approximately $3.3 million of Year 2000 costs of which about $500 thousand was expensed and approximately $2.8 million was capitalized. These costs and the date on which the Company plans to complete the Year 2000 modification are based on management's best estimates, which were derived utilizing numerous assumptions of future events. However, there can be no guarantee that these estimates will be achieved and actual results could differ from those plans. Based on currently available information, management does not believe that Year 2000 issues will have a material adverse impact on the Company's financial condition or results of operations. However, the Year 2000 problem has many aspects and potential consequences, some of which are not reasonably foreseeable, and there can be no assurance that unforeseen consequences will not arise. 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 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is effective for fiscal years beginning after June 15, 1999. The Company is currently evaluating the impact of adopting this statement. 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 and information that 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 operations being acquired. 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 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Company. Such factors include, but are not limited to, the following which are beyond the Company's control: 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 put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 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. 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, 1998. Fair values have been determined based on quoted market prices. The information presented below should be read in conjunction with Note C to the Consolidated and Combined Financial Statements.
DEBT 1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE - ---------------------- ---------- --------- --------- ---------- --------- ----------- ---------- ----------- (THOUSANDS OF DOLLARS) Fixed Rate $ 200,000 $ 200,000 $ 196,871 Average Interest Rate 6.94% Variable Rate $ 237,276 $ 1,266 $ 181 $ 150,005 $ 15,035 $ 403,763 $ 403,763 Average Interest Rate 5.36% 7.03% 7.24% 5.37% 5.52%
The Company from time to time enters into foreign currency exchange contracts to hedge certain foreign currency transactions and commitments and to reduce its exposure from investments in certain foreign operations. These contracts were not significant at December 31, 1998. The Company does not enter into any foreign currency contracts for trading purposes. A hypothetical 10% change in the relevant currency rates at December 31, 1998 would not have a material impact on the Company's results of operations or cash flows. 18 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 Years Ended December 31, 1998, 1997 and 1996 Consolidated Balance Sheets F-4 December 31, 1998 and 1997 Consolidated and Combined Statements of Cash Flows F-5 Years Ended December 31, 1998, 1997 and 1996 Consolidated and Combined Statements of Changes in Shareholders' Investment F-6 Years Ended December 31, 1998, 1997 and 1996 Notes to Consolidated and Combined Financial Statements F-7 Quarterly Financial Information (unaudited) F-26
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See the information relating to directors of the Company under "Item One. Election of Directors" in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 7, 1999 (the "1999 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 February 13, 1999 and their business experience during the prior five years:
POSITION WITH THE COMPANY AND PRINCIPAL BUSINESS AFFILIATIONS DURING NAME AGE PAST FIVE YEARS - ------------------------- --- -------------------------------------------------------------------------- Alton J. Brann 57 Chairman of the Board and Chief Executive Officer since October 31, 1997; for prior business experience see the description of Directors in "Item One. Election of Directors" in the 1999 Proxy Statement. Charles A. Cusumano 52 Vice President, Finance since October 31, 1997. Prior thereto, Vice President, Finance, of Western Atlas since October 1996. Vice President and Controller of Western Atlas from March 1994 to September 1996. Michael E. Keane 43 Senior Vice President and Chief Financial Officer since October 31, 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.
19 Michael Ohanian 67 Senior Vice President and Group Executive, Automated Data Systems since October 31, 1997. Prior thereto, Senior Vice President of Western Atlas since July 1997, Vice President of Western Atlas from May 1996 to July 1997 and President of Intermec since May 1995. Independent consultant from September 1994 to May 1995 and Vice President, Strategic and Government Programs, of Intermec from April 1988 to September 1994. Norman L. Roberts 64 Senior Vice President and General Counsel since October 31, 1997. Prior thereto, Senior Vice President and General Counsel of Western Atlas since March 1994. Clayton A. Williams 65 Senior Vice President and Group Executive, Industrial Automation Systems since October 31, 1997. Prior thereto, Senior Vice President of Western Atlas since May 1996, and Group Executive of Western Atlas' Manufacturing Systems Group since December 1995. Vice President of Western Atlas from December 1995 to May 1996. Vice President of Litton from June 1992 to December 1995 and President of its Applied Technology division from January 1990 to December 1995.
ITEM 11. EXECUTIVE COMPENSATION See the information relating to executive compensation under the captions "Summary Compensation Table," "Stock Option Information," "Employment and Change in Control Arrangements" and "Retirement Benefits" of the Company's 1999 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 1999 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 1999 Proxy Statement, which is incorporated herein by reference. 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE ----- (a)(1) Financial Statements See Part II (a)(2) Financial Statement Schedules * (a)(3) Executive Compensation Plans and Arrangements 20 (b) Reports on Form 8-K In a report filed on Form 8-K dated October 2, 1998, the Company reported the acquisition of the Machine Tool Group of Cincinnati Milacron Inc. In a report filed on Form 8-K dated December 24, 1998, the Company reported the sale of its executive offices. (c) Index to Exhibits E-1
* 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. 21 UNOVA, INC. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
REPORT WITH WHICH DESCRIPTION EXHIBIT NO. EXHIBIT WAS FILED - ---------------------------------------------------------------------------- ------------- ---------------------- Employee Benefits Agreement dated October 31, 1997, between Western Atlas 10.3 September 30, 1997 Inc. and UNOVA, Inc. Form 10-Q Change of Control Employment Agreements with Alton J. Brann, Michael E. 10.5 September 30, 1997 Keane, Norman L. Roberts and certain other officers of the Company, dated as Form 10-Q of October 31, 1997. Employment Agreement between Intermec Corporation and Michael Ohanian, dated 10.6 Form 10 May 18, 1995, as amended. Amendment No. 1 to Employment Agreement between Intermec Corporation and 10.7 December 31, 1997 Form Michael Ohanian, dated February 28, 1997. 10-K Amendment No. 2 to Employment Agreement between Intermec Technologies 10.8 December 31, 1997 Form Corporation and Michael Ohanian, dated February 28, 1998. 10-K Amendment No. 3 to Employment Agreement between Intermec Corporation and 10.9 December 31, 1998 Form Michael Ohanian, dated May 20, 1998. 10-K Amendment No. 4 to Employment Agreement between Intermec Corporation and 10.10 December 31, 1998 Form Michael Ohanian, dated February 28, 1999. 10-K UNOVA, Inc. Restoration Plan. 10.12 Form 10 UNOVA, Inc. Supplemental Executive Retirement Plan. 10.13 Form 10 Amendment No. 1 Amendment No. 1 to UNOVA, Inc. Supplemental Executive Retirement Plan, dated 10.14 September 30, 1998 September 23, 1998. Form 10-Q Amendment No. 2 to UNOVA, Inc. Supplemental Executive Retirement Plan, dated 10.15 December 31, 1998 Form March 11, 1999. 10-K Supplemental Executive Retirement Agreement between UNOVA, Inc. and Alton J. 10.16 Form 10 Amendment No. Brann dated October 1997. 1 Amendment No. 1 to Supplemental Executive Retirement Agreement between 10.17 September 30, 1998 UNOVA, Inc. and Alton J. Brann, dated September 23, 1998 Form 10-Q Amendment No. 2 to Supplemental Executive Retirement Agreement between 10.18 December 31, 1998 Form UNOVA, Inc. and Alton J. Brann, dated March 11, 1999. 10-K Employment Agreement between UNOVA, Inc. and Clayton A. Williams, dated 10.19 Form 10 Amendment No. August 1997. 1 Amendment No. 1 to Employment Agreement between UNOVA, Inc. and Clayton A. 10.20 December 31, 1997 Form Williams, dated March 24, 1998. 10-K Amendment No. 2 to Employment Agreement between UNOVA, Inc. and Clayton A. 10.21 December 31, 1998 Form Williams, dated May 18, 1998. 10-K UNOVA, Inc. 1997 Stock Incentive Plan. 10.22 September 30, 1997 Form 10-Q UNOVA, Inc. Executive Severance Plan. 10.23 September 30, 1997 Form 10-Q Form of Promissory Notes in favor of the Company given by certain 10.24 September 30, 1997
22
REPORT WITH WHICH DESCRIPTION EXHIBIT NO. EXHIBIT WAS FILED - ---------------------------------------------------------------------------- ------------- ---------------------- officers and key employees. Form 10-Q Board resolution dated September 24, 1997 establishing the UNOVA, Inc. 10.25 September 30, 1997 Incentive Loan Program. Form 10-Q UNOVA, Inc. Management Incentive Compensation Plan. 10.26 December 31, 1997 Form 10-K UNOVA, Inc. Executive Survivor Benefit Plan. 10.27 December 31, 1997 Form 10-K UNOVA, Inc. 1999 Stock Incentive Plan. 10.28 1999 Proxy Statement UNOVA, Inc. Management Incentive Compensation Plan. 10.29 1999 Proxy Statement UNOVA, Inc. Executive Medical Benefit Plan. 10.30 December 31, 1998 Form 10-K
23 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 11, 1999 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 11, 1999 Paul Bancroft, III /s/ ALTON J. BRANN Director, Chairman of the - ------------------------------ Board and Chief March 11, 1999 Alton J. Brann Executive Officer /s/ JOSEPH T. CASEY - ------------------------------ Director March 11, 1999 Joseph T. Casey /s/ WILLIAM C. EDWARDS - ------------------------------ Director March 11, 1999 William C. Edwards /s/ STEPHEN E. FRANK - ------------------------------ Director March 11, 1999 Stephen E. Frank /s/ CLAIRE W. GARGALLI - ------------------------------ Director March 11, 1999 Claire W. Gargalli /s/ ORION L. HOCH - ------------------------------ Director March 11, 1999 Orion L. Hoch /s/ STEVEN B. SAMPLE - ------------------------------ Director March 11, 1999 Steven B. Sample /s/ WILLIAM D. WALSH - ------------------------------ Director March 11, 1999 William D. Walsh /s/ CHARLES A. CUSUMANO Vice President, Finance - ------------------------------ (Chief Accounting March 11, 1999 Charles A. Cusumano Officer)
24 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 12, 1999 F-1 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders UNOVA, Inc. Beverly Hills, California We have audited the accompanying consolidated and combined balance sheets of UNOVA, Inc. and subsidiaries (as described in Note A) as of December 31, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Los Angeles, California February 12, 1999 F-2 UNOVA, INC. CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ---------------------------------- 1998 1997 1996 ---------- ---------- ---------- Sales and Service Revenues............................. $1,662,663 $1,426,247 $1,164,682 ---------- ---------- ---------- Costs and Expenses Cost of sales........................................ 1,110,799 981,380 841,820 Selling, general and administrative.................. 383,663 324,405 218,672 Depreciation and amortization........................ 57,043 40,672 27,043 Acquired in-process research and development charges............................................ 211,500 Interest, net........................................ 25,715 16,689 7,111 ---------- ---------- ---------- Total Costs and Expenses........................... 1,577,220 1,574,646 1,094,646 ---------- ---------- ---------- Other Income, Net...................................... 31,523 ---------- Earnings (Loss) before Taxes on Income................. 116,966 (148,399) 70,036 Taxes on Income........................................ (47,253) (22,968) (28,014) ---------- ---------- ---------- Net Earnings (Loss).................................... $ 69,713 $ (171,367) $ 42,022 ---------- ---------- ---------- ---------- ---------- ---------- Basic Earnings (Loss) per Share........................ $ 1.28 $ (3.17) $ .78 ---------- ---------- ---------- ---------- ---------- ---------- Diluted Earnings (Loss) per Share...................... $ 1.27 $ (3.17) $ .78 ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated and combined financial statements. F-3 UNOVA, INC. CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS)
DECEMBER 31, ---------------------- 1998 1997 ---------- ---------- ASSETS Current Assets Cash and cash equivalents........................................ $ 17,708 $ 13,685 Accounts receivable, net of allowance for doubtful accounts of $24,021 (1998) and $19,719 (1997).............................. 662,885 448,079 Inventories, net of progress billings............................ 336,005 150,537 Deferred tax assets.............................................. 141,773 106,694 Other current assets............................................. 21,129 30,072 ---------- ---------- Total Current Assets......................................... 1,179,500 749,067 Property, Plant and Equipment, Net................................. 286,171 157,680 Goodwill and Other Intangibles, Net of Accumulated Amortization of $70,244 (1998) and $54,266 (1997)................................ 400,164 366,098 Other Assets....................................................... 113,381 83,513 ---------- ---------- Total Assets....................................................... $1,979,216 $1,356,358 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities Accounts payable and accrued expenses............................ $ 456,812 $ 311,759 Payroll and related expenses..................................... 93,199 72,909 Notes payable and current portion of long-term obligations....... 237,276 86,645 ---------- ---------- Total Current Liabilities.................................... 787,287 471,313 ---------- ---------- Long-term Obligations.............................................. 366,487 216,938 ---------- ---------- Deferred Tax Liabilities........................................... 42,154 22,918 ---------- ---------- Other Long-term Liabilities........................................ 81,863 55,700 ---------- ---------- Commitments and Contingencies...................................... Shareholders' Investment Preferred stock; 50,000,000 shares authorized.................... Common stock; shares outstanding: 54,942,655 (1998) and 54,510,193 (1997)........................ 549 545 Additional paid-in capital....................................... 645,054 603,743 Retained earnings (deficit)...................................... 61,672 (8,041) Accumulated other comprehensive income: Cumulative currency translation adjustment..................... (5,850) (6,758) ---------- ---------- Total Shareholders' Investment............................... 701,425 589,489 ---------- ---------- Total Liabilities and Shareholders' Investment..................... $1,979,216 $1,356,358 ---------- ---------- ---------- ----------
See accompanying notes to consolidated and combined financial statements. F-4 UNOVA, INC. CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- Cash and Cash Equivalents at Beginning of Year............ $ 13,685 $ 149,467 $ 103,501 --------- --------- --------- Cash Flows from Operating Activities: Net earnings (loss)..................................... 69,713 (171,367) 42,022 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....................... 57,043 40,672 27,043 Gain on sale of property plant and equipment, net... (35,043) Deferred taxes...................................... (437) 2,162 (9,803) Change in accounts receivable....................... (109,096) 39,752 (142,159) Change in inventories............................... (67,223) (9,167) 21,986 Change in other current assets...................... 13,889 (12,540) (804) Change in accounts payable and accrued expenses..... 69,922 (53,830) 73,701 Change in payroll and related expenses.............. 13,493 6,238 (2,382) Change in prepaid pension costs, net................ (14,620) (11,217) (6,983) Other operating activities.......................... 6,823 (1,247) 6,537 --------- --------- --------- Net cash provided by operating activities........... 4,464 40,956 9,158 --------- --------- --------- Cash Flows from Investing Activities: Acquisition of businesses net of cash acquired.......... (287,350) (400,754) Capital expenditures.................................... (83,776) (30,310) (22,541) Proceeds from sale of property, plant and equipment..... 71,118 7,198 Investment in unconsolidated companies.................. (8,500) Investment in radio frequency identification technology............................................ (8,200) Proceeds from sale of businesses and investments........ 4,671 31,100 Other investing activities.............................. (9,162) (81) 1,049 --------- --------- --------- Net cash (used in) provided by investing activities........................................ (304,499) (440,647) 9,608 --------- --------- --------- Cash Flows from Financing Activities: Proceeds from borrowings................................ 754,780 276,698 11,551 Repayment of borrowings................................. (457,271) (95,607) (7,243) Dividend paid to Western Atlas Inc...................... (230,000) Net transactions with Western Atlas Inc................. 190,338 25,747 Change in due to Western Atlas Inc...................... 120,426 (2,855) Other financing activities.............................. 6,549 2,054 --------- --------- --------- Net cash provided by financing activities........... 304,058 263,909 27,200 --------- --------- --------- Resulting in Increase (Decrease) in Cash and Cash Equivalents............................................. 4,023 (135,782) 45,966 --------- --------- --------- Cash and Cash Equivalents at End of Year.................. $ 17,708 $ 13,685 $ 149,467 --------- --------- --------- --------- --------- ---------
See accompanying notes to consolidated and combined financial statements. F-5 UNOVA, INC. CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT (THOUSANDS OF DOLLARS)
ADDITIONAL RETAINED ACCUMULATED OTHER NET INVESTMENT COMMON PAID-IN EARNINGS COMPREHENSIVE BY WESTERN TOTAL STOCK CAPITAL (DEFICIT) INCOME ATLAS --------- ------------- ----------- ----------- ----------------- --------------- BALANCE, JANUARY 1, 1996.............. $ 502,659 $ 502,659 --------- Comprehensive Income: Net earnings........................ 42,022 42,022 Currency translation adjustment..... 4,080 4,080 --------- Comprehensive Income.............. 46,102 --------- Net transactions with Western Atlas Inc................................. 25,747 25,747 --------- --------------- BALANCE, DECEMBER 31, 1996............ 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 Other................................. 6,506 4 6,502 --------- ----- ----------- ----------- ------- --------------- BALANCE, DECEMBER 31, 1998............ $ 701,425 $ 549 $ 645,054 $ 61,672 $ (5,850) $ -- --------- ----- ----------- ----------- ------- --------------- --------- ----- ----------- ----------- ------- ---------------
See accompanying notes to consolidated and combined financial statements. F-6 UNOVA, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS NOTE A: SIGNIFICANT ACCOUNTING POLICIES GENERAL INFORMATION. UNOVA, Inc. ("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 Automated Data Systems business segment comprises automated data collection ("ADC") and mobile computing 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 Industrial Automation Systems business segment includes integrated manufacturing systems, body welding and assembly systems, precision grinding and abrasives operations, and machining systems and stand-alone machine tools primarily serving the worldwide automotive, off-road vehicle, diesel engine and aerospace manufacturing industries. PRINCIPLES OF CONSOLIDATION AND COMBINATION. The consolidated and combined financial statements include those of the Company, its 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 now comprise the Company. They include, at their historical amounts, the assets, liabilities, revenues and expenses directly related and those allocated to the businesses that now comprise the Company's operations. 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 such 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 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 reporting 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 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 $71.5 million, $53.1 million and $29.7 million, in the years ended December 31, 1998, 1997, and 1996, 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 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. See further discussion in Note G. 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 trade receivables. 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 trade 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 1998. In 1997, one automotive customer represented 13% of revenues, while in 1996 another automotive customer represented 15% 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 shareholders' investment. Currency transaction gains and losses are included in the consolidated and combined statements of operations and were not material for any periods presented herein. FINANCIAL INSTRUMENTS. The Company from time to time enters into foreign currency exchange contracts to hedge certain foreign currency transactions and commitments and to reduce its exposure from F-8 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) investments in certain foreign operations. The amount and volume of such transactions are not material. The Company does not enter into any foreign currency contracts for trading purposes. 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 four to 18 years. IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL. The Company assesses the recoverability of long-lived assets and goodwill at the end of each fiscal year or as circumstances indicate that the carrying amount of an asset may not be fully recoverable. Factors considered in evaluating recoverability include management's plans for the operations to which the asset relates and the historical earnings and projected undiscounted cash flows of such operations. 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 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is effective for fiscal years beginning after June 15, 1999. The Company is currently evaluating the impact of adopting this statement. RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform to the current year presentation. F-9 NOTE B: BUSINESS ACQUISITIONS, INVESTMENTS, AND DISPOSITIONS ACQUISITIONS AND INVESTMENTS In October 1998, UNOVA acquired the machine tool business of Cincinnati Milacron for approximately $180.0 million in cash, subject to post-closing adjustments. 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. Cincinnati Machine has become part of the Company's Industrial Automation Systems ("IAS") segment. The acquisition cost has been allocated to the net assets acquired based on the relative fair values. The acquisition was funded using the Company's committed credit facility and was accounted for under the purchase method of accounting. 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 and combined financial statements. The allocation of the acquisition costs of Cincinnati Machine, R&B Machine and Amtech Systems is preliminary and subject to revision upon receipt of pending information, such as final assessment of certain legal and environmental exposures and the completion of certain appraisals. Any such revisions are not expected to have a material impact on the Company's consolidated and combined 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 subsidiary. 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 original 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 F-10 NOTE B: BUSINESS ACQUISITIONS, INVESTMENTS, AND DISPOSITIONS (CONTINUED) in 1997 to expense acquired in-process research and development in accordance with FIN 4 and the 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 assets and liabilities of Cincinnati Machine, R&B Machine and Amtech Systems while 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 -------- -------- -------- --------
PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The pro forma information for the year ended December 31, 1998 in the following paragraph gives effect to the acquisition of Cincinnati Machine as if it had occurred on January 1, 1998. The pro forma information for the year ended December 31, 1997 gives effect to the acquisitions of Cincinnati Machine and Norand as if they had occurred on January 1, 1997. The financial information has been prepared from the historical financial statements of the Company, Cincinnati Machine and Norand after giving effect to certain pro forma adjustments, including depreciation on the fair market value of the acquired property, plant, and equipment and interest expense associated with the increase in debt. Unaudited pro forma sales and service revenues, net earnings and earnings per diluted share for the year ended December 31, 1998 are $2,009.1 million, $68.2 million and $1.25, respectively, reflecting the Cincinnati Machine acquisition as if it had occurred on January 1, 1998. Unaudited pro forma sales and service revenues, net earnings and earnings per diluted share for the year ended December 31, 1997 are $1,921.0 million, $27.4 million and $0.51, respectively, reflecting the Cincinnati Machine and Norand acquisitions as if they had occurred on January 1, 1997. The unaudited pro forma financial information is not necessarily indicative of what the results of operations would have been if the combination had occurred on the above-mentioned dates. Additionally, such information may not be predictive of future results of operations. DISPOSITIONS The Company sold its Material Handling Systems operations in November of 1996. The activities of the division were not considered a core business of the Company. F-11 NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST Cash and cash equivalents amounted to $17.7 million and $13.7 million at December 31, 1998 and December 31, 1997, respectively, and consisted mainly of time deposits and commercial paper. Notes payable and long-term obligations consist of the following:
DECEMBER 31, -------------------- 1998 1997 --------- --------- (THOUSANDS OF DOLLARS) Borrowings under revolving credit facility, with average interest at 5.4% (1998) and 6.0% (1997), due 2002................................................ $ 200,000 $ 200,000 Debentures, with interest at 6.875%, due 2005......... 100,000 Debentures, with interest at 7.00%, due 2008.......... 100,000 Notes payable, with average interest at 5.3% (1998) and 5.1% (1997), due 1999........................... 186,024 86,411 Industrial revenue bonds, with average interest at 5.5% (1998) and 5.6% (1997), due through 2005....... 13,500 13,500 Other, with average interest at 6.9% (1998) and 6.2% (1997), due through 2002............................ 4,239 3,672 --------- --------- 603,763 303,583 Less notes payable and current portion of long-term obligations......................................... (237,276) (86,645) --------- --------- Long-term obligations................................. $ 366,487 $ 216,938 --------- --------- --------- ---------
At December 31, 1998 the Company classified $150.0 million of borrowings under the revolving credit facility as long-term, as the Company intends to refinance such obligations on a long-term basis. At December 31, 1997 the Company classified $200.0 million of short-term debt as long-term to reflect the debt offering that occurred in March 1998, which is described below. Notes payable and long-term obligations at December 31, 1998 mature as follows:
YEAR ENDING DECEMBER 31, (THOUSANDS OF DOLLARS) - ---------------------------------------------------------------------- ---------------------- 1999.................................................................. $ 237,276 2000.................................................................. 1,266 2001.................................................................. 181 2002.................................................................. 150,005 2003.................................................................. -- Thereafter............................................................ 215,035 ---------- $ 603,763 ---------- ----------
The Company has an unsecured committed credit facility with a group of banks from which it may borrow up to $400.0 million. Under this credit facility, which expires in September 2002, the Company may borrow at the prime rate or at rates based on the London Inter Bank Offered Rate, certificates of deposit or other rates that are mutually acceptable to the banks and the Company. At February 12, 1999, $200.0 million of the credit facility was available for the Company's general use. F-12 NOTE C: CASH AND CASH EQUIVALENTS, DEBT AND INTEREST (CONTINUED) In January 1999, the Company entered into a new unsecured committed credit facility with a group of banks from which it may borrow up to $100.0 million. Under this credit facility, which expires in January 2000, the Company may borrow at the prime rate or at rates based on the London Inter Bank Offered Rate, certificates of deposit or other rates that are mutually acceptable to the banks and the Company. At February 12, 1999, $100.0 million of the credit facility was available for the Company's general use. In addition, the Company maintains other uncommitted credit facilities and lines of credit of which $89.3 million was available to the Company at February 12, 1999. 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 March 1998, the Company sold $200.0 million principal amount of senior unsecured debt. The sale 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 entered into by the Company to hedge the interest rates on the debt, 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 $366.5 million of long term obligations had an estimated fair market value of $363.4 million as of December 31, 1998, 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 $228.8 million at December 31, 1998. These agreements primarily relate to the guarantee of performance on contracts. Net interest expense is composed of the following:
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- (THOUSANDS OF DOLLARS) Interest expense..................................... $ 28,182 $ 20,234 $ 11,533 Interest income...................................... (2,467) (3,545) (4,422) --------- --------- --------- Net interest expense................................. $ 25,715 $ 16,689 $ 7,111 --------- --------- --------- --------- --------- ---------
The Company made interest payments to non-related parties of $25.3 million, $6.6 million, and $2.6 million in the years ended December 31, 1998, 1997 and 1996, respectively. Capitalized interest costs in each of the periods presented were not material. Interest expense of $12.0 million and $8.3 million on the allocated portion of WAI's corporate debt for the years ended December 31, 1997 and 1996, respectively, has been included in the Company's consolidated and combined statements of operations at WAI's estimated blended historical rate of interest on long-term borrowings of 7.5%. F-13 NOTE D: ACCOUNTS RECEIVABLE AND INVENTORIES Accounts receivable consists of the following:
DECEMBER 31, -------------------- 1998 1997 --------- --------- (THOUSANDS OF DOLLARS) Trade receivables, net............................................ $ 365,232 $ 202,890 Receivables related to long-term contracts Amounts billed.................................................. 125,920 116,865 Unbilled costs and accrued profit on progress completed and retentions.................................................... 171,733 128,324 --------- --------- Accounts receivable, net.......................................... $ 662,885 $ 448,079 --------- --------- --------- ---------
The unbilled costs and retentions at December 31, 1998 are expected to be entirely billed and collected during 1999. Inventories consist of the following:
DECEMBER 31, -------------------- 1998 1997 --------- --------- (THOUSANDS OF DOLLARS) Raw materials and work in process................................. $ 232,010 $ 94,845 Finished goods.................................................... 82,434 38,074 Inventoried costs related to long-term contracts.................. 56,823 29,656 Less progress billings............................................ (35,262) (12,038) --------- --------- Inventories, net of progress billings............................. $ 336,005 $ 150,537 --------- --------- --------- ---------
F-14 NOTE E: PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
DECEMBER 31, -------------------- 1998 1997 --------- --------- (THOUSANDS OF DOLLARS) Property, plant and equipment, at cost Land..................................................... $ 27,313 $ 23,418 Buildings and improvements............................... 120,142 102,462 Machinery and equipment.................................. 316,932 213,582 Less accumulated depreciation.............................. (178,216) (181,782) --------- --------- Net property, plant and equipment.......................... $ 286,171 $ 157,680 --------- --------- --------- ---------
Depreciation expense was $40.9 million, $27.4 million and $20.7 million for the years ended December 31, 1998, 1997 and 1996, 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, 1998, minimum rental commitments under noncancellable operating leases were:
YEAR ENDING DECEMBER 31, OPERATING LEASES - ------------------------------------------------------------------------------------------ --------------------- (THOUSANDS OF DOLLARS) 1999...................................................................................... $17,517 2000...................................................................................... 12,904 2001...................................................................................... 7,793 2002...................................................................................... 5,191 2003...................................................................................... 3,781 Thereafter................................................................................ 15,468 -------- $62,654 -------- --------
Rental expense for operating leases, including amounts for short-term leases with nominal, if any, future rental commitments, was $20.5 million, $17.9 million and $10.4 million, for the years ended December 31, 1998, 1997 and 1996, respectively. In 1998, proceeds totaling approximately $71.1 million were received on the sale of the Company's corporate headquarters building and three operations facilities. F-15 NOTE F: SHAREHOLDERS' INVESTMENT CAPITAL STOCK At December 31, 1998, 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 On September 24, 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 year ended December 31, 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 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 balance of the number of shares outstanding for post-Distribution Date periods and the outstanding shares of WAI common stock at June 30, 1997 for periods prior to the Distribution Date, while diluted earnings per share is computed by adding the 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:
YEAR ENDED YEAR ENDED DECEMBER 31, 1998 DECEMBER 31, 1997 ------------------- ------------------- Weighted average common shares -- Basic 54,620,208 54,056,243 Dilutive effect of stock options 82,859 -- ------------------- ------------------- Weighted shares--Diluted 54,703,067 54,056,243 ------------------- ------------------- ------------------- -------------------
The Company used 53,891,534 shares, the outstanding shares of WAI common stock at June 30, 1997, to calculate both basic and diluted earnings per share in the year ended December 31, 1996. At December 31, 1998, Company employees and directors held options to purchase 3,937,750 shares 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-16 NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED) STOCK OPTIONS The UNOVA, Inc. 1997 Stock Incentive Plan (the "1997 Plan") provides 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 1997 Plan, 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 1997 Plan options usually vest in equal increments over five years. The Company also has a Director Stock Option and Fee Plan (the "Director Plan") which 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 plan. Such options become fully exercisable on the first anniversary of their grant. Under the 1997 Plan and Director Plan, there were 582,700 options exercisable and 2,045,250 options available for grant as of December 31, 1998. No options were exercisable as of December 31, 1997. The following table summarizes the activity of the Company's stock option plans:
WEIGHTED-AVERAGE EXERCISE PRICE NUMBER 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 ---------- ----------
Outstanding stock option data as of December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------ -------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE RANGE OF REMAINING EXERCISE EXERCISE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE - ---------------- ----------- ----------------- ----------- ----------- ------------- $14.56 to $17.56 1,620,500 9.81 $ 16.62 103,000 $ 17.48 18.81 to 22.00 2,334,250 8.88 19.02 479,700 18.88
The weighted-average fair value of stock options granted during 1998 and 1997 were $7.10 per option 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 1998 and 1997, respectively; risk-free interest rates of 4.63% and 5.80%, expected life of five years for both years; and expected volatility of 39.6%, determined from historical UNOVA stock price fluctuations, and 36.0%, 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. F-17 NOTE F: SHAREHOLDERS' INVESTMENT (CONTINUED) EMPLOYEE STOCK PURCHASE PLAN Effective January 1, 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. Under the terms of the plan, which is intended to qualify under Section 423 of the Internal Revenue Code, employees can choose to have up to 8% of their annual earnings (up to a maximum amount of $21,250 per calendar year) withheld to purchase the Company's common stock. 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. The Company sold 433,506 shares under the Plan in 1998, with approximately 30% of eligible employees participating. The weighted-average fair value of purchase rights granted in 1998 was $5.14 per share. The fair value of the stock purchase rights were determined using the same method and parameters for stock option grants described above, except for the use of an expected life equal to the applicable offering period. 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, 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 and diluted earnings per share for 1998 would have been $64.6 million and $1.18, respectively. In 1997 the Company's pro forma net loss and diluted loss per share would have been $173.6 million and $3.21, respectively. F-18 NOTE G: TAXES ON INCOME Earnings (loss) before taxes on income by geographic area are as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- (THOUSANDS OF DOLLARS) United States.......................................... $ 90,976 $(113,075) $ 47,470 Other nations.......................................... 25,990 (35,324) 22,566 --------- --------- --------- $ 116,966 $(148,399) $ 70,036 --------- --------- --------- --------- --------- ---------
Taxes on income consist of the following provisions (benefits):
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- (THOUSANDS OF DOLLARS) Currently Payable: U.S. taxes.............................................. $ 20,416 $ 13,821 $ 31,619 International taxes..................................... 12,451 10,124 6,446 --------- --------- --------- 32,867 23,945 38,065 --------- --------- --------- Deferred: U.S. taxes.............................................. 13,689 242 (9,685) International taxes..................................... 697 (1,219) (366) --------- --------- --------- 14,386 (977) (10,051) --------- --------- --------- $ 47,253 $ 22,968 $ 28,014 --------- --------- --------- --------- --------- ---------
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, 1998 DECEMBER 31, 1997 -------------------- -------------------- ASSET LIABILITY ASSET LIABILITY --------- --------- --------- --------- (THOUSANDS OF DOLLARS) Accrued liabilities....................... $ 56,863 $ 49,194 Receivables and inventories............... 18,872 14,431 Retiree medical benefits.................. 10,176 6,255 Intangibles............................... 12,963 9,025 Tax credit carryforwards.................. 6,395 4,887 Deferred income........................... 2,718 10,195 Net operating loss carryforwards.......... 41,511 13,572 Pensions.................................. $ 23,588 $ 14,251 Accelerated depreciation.................. 18,566 6,123 Other items............................... 1,220 3,571 2,544 --------- --------- --------- --------- Total before valuation allowance.......... 150,718 42,154 111,130 22,918 Valuation allowance....................... (8,945) (4,436) --------- --------- --------- --------- $ 141,773 $ 42,154 $ 106,694 $ 22,918 --------- --------- --------- --------- --------- --------- --------- ---------
The Company has available at December 31, 1998, a net operating tax loss carryforward in the United States of approximately $69.4 million. Approximately $7.7 million, $13.9 million, $4.2 million and F-19 NOTE G: TAXES ON INCOME (CONTINUED) $43.6 million of the net operating tax loss carryforwards will expire in 2010, 2011, 2017 and 2018, respectively. The Company also has general business credit and other tax credits of approximately $6.4 million to offset future tax liability in the United States through 2018. The Company has foreign net operating tax loss carryforwards of $17.9 million and $31.4 million in Germany and the U.K. respectively. Valuation allowances of $8.9 million and $4.4 million as of December 31, 1998 and 1997, respectively, were established for deferred income tax benefits related to the German loss carryforwards that may not be realized. Included in the valuation allowance is $4.4 million that relates 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. With the exception of the German tax loss carryforward, the Company believes it will utilize all other U.S. and foreign carryforward benefits. The following is a reconciliation of income taxes at the U.S. statutory rate to the provision for income taxes:
YEAR ENDED DECEMBER 31, ------------------------------- 1998 1997 1996 --------- --------- --------- (THOUSANDS OF DOLLARS) Tax at U.S. statutory rate........................... $ 40,938 $ (51,940) $ 24,513 Nondeductible acquired in-process research and development........................................ 71,050 State income taxes net of federal benefit............ 3,055 1,625 1,382 Amortization of nondeductible goodwill............... 4,272 4,431 1,916 Foreign operating losses with no tax benefit provided........................................... 4,556 Tax credits and FSC benefit.......................... (3,276) (1,250) Foreign earnings taxed at other than U.S. statutory rate............................................... (316) (223) 60 Other items.......................................... (1,976) (725) 143 --------- --------- --------- $ 47,253 $ 22,968 $ 28,014 --------- --------- --------- --------- --------- ---------
The Company made net tax payments of $4.5 million, $44.4 million and $26.1 million in the years ended December 31, 1998, 1997 and 1996, respectively. The Company has provided for federal income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries. F-20 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. 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. Certain of the Company's non-U.S. subsidiaries also have a retirement plan for employees. The pension liabilities and their related costs are computed in accordance with the laws of the individual nations and appropriate actuarial practices. 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 at December 31, 1998 and 1997.
DECEMBER 31, -------------------- 1998 1997 --------- --------- (THOUSANDS OF DOLLARS) CHANGE IN BENEFIT OBLIGATIONS Benefit obligation at beginning of year.................... $ 151,649 $ 139,026 Service cost............................................... 6,140 5,988 Interest cost.............................................. 10,982 10,075 Plan participants' contributions........................... 431 922 Actuarial loss............................................. 22,149 5,770 Benefits paid.............................................. (10,019) (10,132) Other...................................................... 510 --------- --------- Benefit obligation at end of year.......................... 181,842 151,649 --------- --------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year............. 345,347 267,956 Actual return on plan assets............................... (11,858) 88,571 Plan participants' contributions........................... 431 922 Benefits paid.............................................. (9,554) (9,739) Spin-off adjustment........................................ (8,125) (2,363) --------- --------- Fair value of plan assets at end of year................... 316,241 345,347 --------- --------- Funded status.............................................. 134,399 193,698 Unrecognized net actuarial gain............................ (76,901) (148,576) Unrecognized prior service cost............................ 4,201 3,526 Unrecognized transition asset.............................. (9,381) (12,769) --------- --------- Prepaid pension cost....................................... $ 52,318 $ 35,879 --------- --------- --------- ---------
F-21 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, 1998 and 1997, these liabilities amounted to $17.1 million and $16.2 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 1/4% for fiscal years 1998 and 1997. The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation was 7% and 7 1/2% at December 31, 1998 and 1997, respectively. The rate of increase in future compensation levels was 4 1/2% and 5% at December 31, 1998 and 1997, respectively. 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 for the years ended December 31, 1998, 1997 and 1996, is as follows:
YEAR ENDED DECEMBER 31, ------------------------------- COMPONENTS OF NET PERIODIC PENSION INCOME 1998 1997 1996 - -------------------------------------------------------- --------- --------- --------- (THOUSANDS OF DOLLARS) Service cost............................................ $ 6,140 $ 5,988 $ 6,507 Interest cost........................................... 10,982 10,075 10,107 Expected return on plan assets.......................... (24,203) (20,784) (18,518) Amortization of prior service cost...................... 461 406 404 Recognized net actuarial gain........................... (5,641) (3,043) (1,765) Amortization of transition asset........................ (2,477) (2,477) (2,477) --------- --------- --------- (14,738) (9,835) (5,742) Defined contribution plans.............................. 4,500 4,160 2,983 --------- --------- --------- Net periodic pension income............................. $ (10,238) $ (5,675) $ (2,759) --------- --------- --------- --------- --------- ---------
NON-U.S. PENSION PLANS For the principal non-U.S. pension plans located in the United Kingdom, the weighted-average discount rate used was approximately 6% at December 31, 1998. The rate of increase in future compensation used was approximately 3 1/2%, and the rate of return on assets was 6 1/2% at December 31, 1998. 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, 1998 was $107.2 million compared with net assets available for benefits of $111.6 million. F-22 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 at December 31, 1998 and 1997.
DECEMBER 31, -------------------- CHANGE IN POSTRETIREMENT BENEFIT OBLIGATIONS 1998 1997 - -------------------------------------------------------------- --------- --------- (THOUSANDS OF DOLLARS) Benefit obligation at beginning of year....................... $ 27,789 $ 18,664 Service cost.................................................. 292 586 Interest cost................................................. 2,037 1,688 Acquisitions.................................................. 11,423 Actuarial loss................................................ 104 7,959 Benefits paid................................................. (1,237) (1,108) --------- --------- Benefits obligation at end of year............................ 40,408 27,789 --------- --------- Funded status................................................. (40,408) (27,789) Unrecognized net actuarial loss............................... 8,198 8,828 Unrecognized transition obligation............................ 2,316 Other......................................................... (2,187) (603) --------- --------- Accrued postretirement benefit obligation..................... $ (32,081) $ (19,564) --------- --------- --------- ---------
The following table sets forth the status of the Company's net periodic postretirement benefit cost for the years ended December 31, 1998, 1997 and 1996.
YEAR ENDED DECEMBER 31, ------------------------------- COMPONENTS OF NET PERIODIC POSTRETIREMENT BENEFIT COST 1998 1997 1996 - -------------------------------------------------------------- --------- --------- --------- (THOUSANDS OF DOLLARS) Service cost.................................................. $ 620 $ 586 $ 212 Interest cost................................................. 2,037 1,688 1,576 --------- --------- --------- Net periodic postretirement benefit cost...................... $ 2,657 $ 2,274 $ 1,788 --------- --------- --------- --------- --------- ---------
Actuarial assumptions used to measure the accumulated benefit obligation include a discount rate of 7% and 7 1/2% at December 31, 1998 and 1997. The assumed health care cost trend rate for fiscal year 1998 was 12% and is projected to decrease over 18 years to 6%, 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 accrued postretirement benefit obligation results in an increase of approximately $1.9 million, while a one-percentage point decrease results in a decrease of $1.7 million. F-23 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 $1.9 million and $2.1 million at December 31, 1998 and 1997, respectively. In 1999, the Company intends to move its executive offices to a leased facility that is owned by the UNOVA Master Trust, a vehicle which holds the assets of the Company's major U.S. pension plans ("UNOVA Master Trust"). The Company is currently awaiting Department of Labor approval of the transaction under provisions of the Employment Retirement Income Security Act of 1974 governing transactions between pension plans and related parties before it executes a long-term lease with the UNOVA Master Trust, which is expected to be consummated on terms equivalent to an arm's-length transaction. 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 and $22.2 million, for the years ended December 31, 1997 and 1996, respectively. Included in interest expense are allocated charges from WAI of $12.0 million and $8.3 million, for the years ended December 31, 1997 and 1996, respectively. F-24 NOTE K: BUSINESS SEGMENT REPORTING The Company manages and reports its operations in two business segments: the Automated Data Systems segment and the Industrial Automation Systems segment. Material Handling Systems was sold during the fourth quarter of 1996. Figures for this division were reported as part of the Industrial Automation Systems segment. 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 and other corporate assets. Activities are primarily product sales oriented. Export sales are not material. All material intercompany transactions have been excluded. OPERATIONS BY BUSINESS SEGMENT (MILLIONS OF DOLLARS)
INDUSTRIAL AUTOMATED CORPORATE YEAR ENDED AUTOMATION DATA AND OTHER DECEMBER 31, SYSTEMS SYSTEMS AMOUNTS TOTAL ------------ ---------- --------- --------- ------ Sales.................................................. 1998 $ 833 $ 830 $1,663 1997 790 636 1,426 1996 798 367 1,165 Operating profit (loss)................................ 1998 77 55 $ 11(B) 143(B) 1997 95 (202)(A) (25) (132)(A) 1996 70 30 (23) 77 Capital expenditures................................... 1998 38 46 84 1997 14 16 30 1996 14 9 23 Depreciation and amortization expense.................. 1998 19 38 57 1997 15 25 1 41 1996 15 11 1 27 Total assets at year end............................... 1998 1,128 775 76 1,979 1997 650 642 64 1,356 1996 620 277 177 1,074
(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 YEAR ENDED UNITED AND OTHER DECEMBER 31, STATES EUROPE OTHER AMOUNTS TOTAL ----------------- --------- ----------- ----------- ------------- --------- Sales......................................... 1998 $ 1,064 $ 442 $ 157 $ 1,663 1997 989 363 74 1,426 1996 950 193 22 1,165 Operating profit (loss)....................... 1998 98 28 6 $ 11 143 1997 (78) (35) 6 (25) (132) 1996 78 22 (23) 77 Total assets at year end...................... 1998 1,470 388 45 76 1,979 1997 1,015 261 16 64 1,356 1996 751 136 10 177 1,074
F-25 UNOVA, INC. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
BASIC EARNINGS DILUTED COMMON STOCK GROSS NET PER EARNINGS SALES PRICE SALES PROFIT EARNINGS SHARE PER SHARE HIGH/LOW (1) ------ ------ -------- -------- --------- ---------------- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 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(2) 0.72 0.72 $18 1/4 12 3/8 YEAR ENDED DECEMBER 31, 1997 First Quarter..................................... $323.1 $ 88.9 $ 11.6 $ 0.21 $ 0.21 Second Quarter.................................... 409.3 122.7 (189.1)(3) (3.51) (3.51) Third Quarter..................................... 361.8 116.4 11.7 0.22 0.22 Fourth Quarter.................................... 332.0 99.9 (5.6)(4) (0.10) (0.10) $19 1/4 14 1/8
As of January 31, 1999 there were approximately 20,246 holders of record of the Company's common stock. (1) The common stock began trading on the New York Stock Exchange under the symbol "UNA" on October 22, 1997 on a "when issued" basis, and "regular way" on November 3, 1997. Prior to October 31, 1997, the Company was a wholly owned subsidiary of Western Atlas Inc. (2) In December 1998, the Company recognized a gain of $35.5 million on the sale of its corporate headquarters building. (3) In June 1997, the Company expensed $203.3 million of in-process research and development activities in connection with the acquisitions of Norand and UBI. (4) In December 1997, the Company expensed $4.9 million (net of tax) of in-process research and development activities in connection with the acquisition of RFID technology. F-26 UNOVA, INC. INDEX TO EXHIBITS
EXHIBIT NO. 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.* 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, 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 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. 4.6 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. 4.7 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. 4.8 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. 4.9 $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.*
E-1
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. 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 Change of Control Employment Agreements with Alton J. Brann, Michael E. Keane, Norman L. Roberts and certain other officers of the Company, dated as of October 31, 1997, 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 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. 10.7 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. 10.8 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. 10.9 Amendment No. 3 to Employment Agreement betweeen Intermec Technologies Corporation and Michael Ohanian, dated May 20, 1998.* 10.10 Amendment No. 4 to Employment Agreement between Intermec Technologies Corporation and Michael Ohanian, dated February 28, 1999.* 10.11 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. 10.12 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. 10.13 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.
E-2
INDEX TO EXHIBITS (CONTINUED) 10.14 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. 10.15 Amendment No. 2 to UNOVA, Inc. Supplemental Executive Retirement Plan, dated March 11, 1999.* 10.16 Supplemental Executive Retirement Agreement between UNOVA, Inc. and Alton J. Brann, dated October 1997, 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. 10.17 Amendment No. 1 to Supplemental Executive 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. 10.18 Amendment No. 2 to Supplemental Executive Retirement Agreement between UNOVA, Inc. and Alton J. Brann, dated March 11, 1999.* 10.19 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. 10.20 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. 10.21 Amendment No. 2 to Employment Agreement between UNOVA, Inc. and Clayton A. Williams, dated May 18, 1998.* 10.22 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. 10.23 UNOVA, Inc. Executive Severance Plan, filed as Exhibit 10.13 to the Company's September 30, 1997 Quarterly Report on Form 10-Q, and incorporated herein by reference. 10.24 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. 10.25 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. 10.26 UNOVA, Inc. Management Incentive Compensation Plan, filed as Exhibit 10.16 to the Company's 1997 Annual Report on Form 10-K, and incorporated herein by reference. 10.27 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. 10.28 UNOVA, Inc. 1999 Stock Incentive Plan, filed as Annex A to the Company's 1999 Proxy Statement, and incorporated herein by reference. 10.29 UNOVA, Inc. Management Incentive Compensation Plan, filed as Annex B to the Company's 1999 Proxy Statement, and incorporated herein by reference.
E-3
INDEX TO EXHIBITS (CONTINUED) 10.30 UNOVA, Inc. Executive Medical Benefit Plan.* 21 Subsidiaries of the Registrant included herein on page E-5. 23 Independent Auditors' Consent included herein on page E-6. 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-3.2 2 EXHIBIT 3.2 EXHIBIT 3.2 BY-LAWS OF UNOVA, INC. ARTICLE I OFFICES AND RECORDS SECTION 1.1. DELAWARE OFFICE. The principal office of the Corporation in the State of Delaware shall be located in the City of Wilmington, County of New Castle, and the name and address of its registered agent is Corporation Service Company, 1013 Centre Road, Wilmington, Delaware. SECTION 1.2. OTHER OFFICES. The Corporation may have such other offices, either within or without the State of Delaware, as the Board of Directors may designate or as the business of the Corporation may from time to time require. SECTION 1.3. BOOKS AND RECORDS. The books and records of the Corporation may be kept outside the State of Delaware at such place or places as may from time to time be designated by the Board of Directors. ARTICLE II STOCKHOLDERS SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders of the Corporation shall be held on such date commencing in the year 1999 and at such place and time as may be fixed by resolution of the Board of Directors. SECTION 2.2. SPECIAL MEETING. Subject to the rights of the holders of any series of stock having a preference over the Common Stock of the Corporation as to dividends or upon liquidation ("Preferred Stock") with respect to such series of Preferred Stock, special meetings of the stockholders may be called only by the Chairman of the Board or by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies (the "Whole Board"). SECTION 2.3. PLACE OF MEETING. The Board of Directors or the Chairman of the Board, as the case may be, may designate the place of meeting for any annual meeting or for any special meeting of the stockholders called by the Board of Directors or the Chairman of the Board. If no designation is so made, the place of meeting shall be the principal office of the Corporation. SECTION 2.4. NOTICE OF MEETING. Written or printed notice, stating the place, day, and hour of the meeting and the purpose or purposes for which the meeting is called, shall be delivered by the Corporation not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally or by mail, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his, her, or its address as it appears on the stock transfer books of the Corporation. Such further notice shall be given as may be required by law. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Meetings may be held without notice if all stockholders entitled to vote are present, or if notice is waived by those not present in accordance with Section 7.4 of these By-Laws. Any previously scheduled meeting of the stockholders may be postponed, and (unless the Certificate of Incorporation otherwise provides) any special meeting of the stockholders may be canceled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. SECTION 2.5. QUORUM AND ADJOURNMENT. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the outstanding shares of the Corporation entitled to vote generally in the election of directors (the "Voting Stock"), represented in person or by proxy, shall constitute a quorum at a meeting of stockholders, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum of such class or series for the transaction of such business. The Chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is such a quorum. No notice of the time and place of adjourned meetings need be given except as required by law. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 2.6. PROXIES. At all meetings of stockholders, a stockholder may vote by proxy executed in writing (or in such other manner prescribed by the General Corporation Law of the State of Delaware) by the stockholder, or by his duly authorized attorney in fact. SECTION 2.7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS. A. ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors, or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-Law, who is entitled to vote at the meeting, and who complies with the notice procedures set forth in this By-Law. 2 (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph A.(1) of this By-Law, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph A.(2) of this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. B. SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this By-Law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a 3 person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by paragraph A.(2) of this By-Law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. C. GENERAL. (1) Only such persons who are nominated in accordance with the procedures set forth in this By-Law shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-Law. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this By-Law and, if any proposed nomination or business is not in compliance with this By-Law, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this By-Law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to affect any rights (a) of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) of the holders of any series of Preferred Stock to elect directors under specified circumstances. SECTION 2.8. PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE. Election of directors at all meetings of the stockholders at which directors are to be elected shall be by ballot, and, subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, a plurality of the votes cast thereat shall elect directors. Except as otherwise provided by law, the Certificate of Incorporation, or these By-Laws, in all matters other than the election of directors, the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders. SECTION 2.9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the Chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict 4 impartiality and according to the best of his or her ability. The inspector(s) shall have the duties prescribed by law. The Chairman or the Secretary of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting. SECTION 2.10. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Subject to the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. ARTICLE III BOARD OF DIRECTORS SECTION 3.1. GENERAL POWERS. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders. SECTION 3.2. NUMBER, TENURE, AND QUALIFICATIONS. Subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, the number of directors shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Whole Board. The directors, other than those who may be elected by the holders of any series of Preferred Stock under specified circumstances, shall be divided, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as is reasonably possible, with the term of office of the first class to expire at the 1999 annual meeting of stockholders, the term of office of the second class to expire at the 2000 annual meeting of stockholders and the term of office of the third class to expire at the 2001 annual meeting of stockholders, with each director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, commencing with the 1999 annual meeting, (i) directors elected to succeed those directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each director to hold office until his or her successor shall have been duly elected and qualified, and (ii) if authorized by a resolution of the Board of Directors, directors may be elected to fill any vacancy on the Board of Directors, regardless of how such vacancy shall have been created. SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held immediately after the annual meeting of stockholders without other notice than this By-Law. Regular meetings of the directors may be held without notice at such place and times as shall be determined from time to time by the Board of Directors. SECTION 3.4. SPECIAL MEETINGS. 5 Special meetings of the Board of Directors shall be called at the request of the Chairman of the Board, the President, or a majority of the Board of Directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix the place and time of the meetings. SECTION 3.5. NOTICE. Notice of any special meeting of directors shall be given to each director at his or her business or residence in writing by hand delivery, first-class or overnight mail or courier service, telegram or facsimile transmission, electronic mail, or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If by telegram, overnight mail, or courier service, such notice shall be deemed adequately delivered when the telegram is delivered to the telegraph corporation or the notice is delivered to the overnight mail or courier service corporation at least twenty-four (24) hours before such meeting. If by facsimile transmission or electronic mail, such notice shall be deemed adequately delivered when the notice is transmitted at least twelve (12) hours before such meeting. If by telephone or by hand delivery, the notice shall be given at least twelve (12) hours prior to the time set for the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting, except for amendments to these By-Laws, as provided under Section 8.1. A meeting may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in accordance with Section 7.4 of these By-Laws. SECTION 3.6. ACTION BY CONSENT OF BOARD OF DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 3.7. CONFERENCE TELEPHONE MEETINGS. Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. SECTION 3.8. QUORUM. Subject to Section 3.9, a whole number of directors equal to at least a majority of the Whole Board shall constitute a quorum for the transaction of business, but if at any meeting of the Board of Directors there shall be less than a quorum present, a majority of the directors present may adjourn the meeting from time to time without further notice. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. The directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum. SECTION 3.9. VACANCIES. 6 Subject to applicable law and the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, and unless the Board of Directors otherwise determines, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until any such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Whole Board shall shorten the term of any incumbent director. SECTION 3.10. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors may, by resolution adopted by a majority of the Whole Board, designate an Executive Committee to exercise, subject to applicable provisions of law, all the powers of the Board in the management of the business and affairs of the Corporation when the Board is not in session, including without limitation the power to declare dividends, to authorize the issuance of the Corporation's capital stock and to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of the State of Delaware, and may, by resolution similarly adopted, designate one or more other committees. The Executive Committee and each such other committee shall consist of two or more directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, other than the Executive Committee (the powers of which are expressly provided for herein), may to the extent permitted by law exercise such powers and shall have such responsibilities as shall be specified in the designating resolution. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Each committee shall keep written minutes of its proceedings and shall report such proceedings to the Board when required. A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Section 3.5 of these By-Laws. The Board shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided, however, that no such committee shall have or may exercise any authority of the Board. SECTION 3.11. REMOVAL. Subject to the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80 percent of the voting power of all of the then outstanding shares of Voting Stock, voting together as a single class. SECTION 3.12. RECORDS. The Board of Directors shall cause to be kept a record containing the minutes of the proceedings of the meetings of the Board and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Corporation. 7 SECTION 3.13. ADVISORY DIRECTORS. The Board of Directors may elect one or more advisory directors who shall have such powers and shall perform such duties as the directors shall assign to them. Advisory directors shall, upon election, serve until the next annual meeting of stockholders. Advisory directors shall receive notices of all meetings of the Board of Directors in the same manner and at the same time as the directors. They shall attend said meetings referred to in said notices in an advisory capacity, but will not cast a vote or be counted to determine a quorum. Any advisory directors may be removed either with or without cause, by a majority of the directors at the time in office, at any regular or special meeting of the Board of Directors. Nothing herein contained shall be construed to preclude any advisory director from serving the Corporation in any other capacity as an officer, agent, or otherwise. ARTICLE IV OFFICERS SECTION 4.1. OFFICERS. The officers of the Corporation shall consist of a Chairman of the Board, a Chief Executive Officer, a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of Directors, a President, a Vice Chairman of the Board, one or more Chief Operating Officers, one or more Vice Presidents (one or more of whom may be designated Executive or Senior Vice President), one or more Assistant Secretaries, and one or more Assistant Treasurers. Except as may otherwise be provided in the resolution of the Board of Directors choosing him or her, no officer other than the Chairman or Vice Chairman of the Board, if any, need be a director. Except as may be limited by law, any number of offices may be held by the same person, as the directors may determine. Unless otherwise provided for in the resolution choosing him or her, each officer shall be chosen for a term that shall continue until the meeting of the Board of Directors following the next annual meeting of stockholders and until his or her successor shall have been chosen and qualified. All officers of the Corporation shall have such authority and perform such duties as shall be prescribed in the By-Laws or in the resolutions of the Board of Directors designating and choosing such officers and shall have such additional authority and duties as are incident to their office except to the extent that such resolutions may be inconsistent therewith. Any officer may be removed, with or without cause, by the Board of Directors. Any vacancy in any office may be filled by the Board of Directors. SECTION 4.2. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. The Chief Executive Officer may appoint key executives to the position of staff vice president. Such staff vice presidents shall not be corporate officers and shall exercise such powers and perform such duties as are assigned to them by the Chief Executive Officer or the President, if any, or by any other officer of the Corporation designated for such purpose by the Chief Executive Officer or President, if any. 8 ARTICLE V CAPITAL STOCK SECTION 5.1. SHARES. The shares of the capital stock of the Corporation shall be represented by certificates or shall be uncertificated. Each registered holder of shares of capital stock, upon request to the Corporation, shall be provided with a stock certificate, representing the number of shares owned by such holder. Absent specific request for such a certificate by the registered owner or transferee thereof, all shares shall be uncertificated upon the original issuance thereof by the Corporation or upon the surrender for transfer of the certificate representing such shares to the Corporation or its transfer agent. SECTION 5.2. CERTIFICATES FOR SHARES OF STOCK. The certificates for shares of stock of the Corporation shall be in such form, not inconsistent with the Certificate of Incorporation, as shall be approved by the Board of Directors. All certificates shall be signed, countersigned, and registered in such manner as the Board of Directors may by resolution prescribe, which resolution may permit any of all of the signatures on such certificates to be in facsimile. In case any officer, transfer agent, or registrar who shall have signed or whose facsimile signature has been placed upon any such certificate or certificates shall cease to be such officer, transfer agent, or registrar of the Corporation, whether because of death, resignation, or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates had not ceased to be such officer, transfer agent, or registrar of the Corporation. All certificates for shares of stock shall be consecutively numbered as the same are issued. The name of the person owning the shares represented thereby with the number of such shares and the date of issue thereof shall be entered on the books of the corporation. Except as hereinafter provided, all certificates surrendered to the Corporation for transfer shall be canceled and no new certificates or uncertificated shares shall be issued until former certificates for the same number of shares have been surrendered and canceled. SECTION 5.3. LOST, STOLEN, OR DESTROYED CERTIFICATES. No certificate for shares of stock in the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed, or stolen, except on production of such evidence of such loss, destruction, or theft and on delivery to the Corporation of a bond of indemnity in such amount, upon such terms, and secured by such surety, as the Board of Directors or the Secretary of the Corporation may in its, his, or her discretion require. SECTION 5.4. TRANSFER OF SHARES. Upon surrender to the Corporation or to the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation, or authority to transfer, the Corporation shall issue or cause to be issued uncertificated shares or, if requested by the appropriate person, a new certificate to the person entitled thereto, cancel the surrendered certificate, and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares, such uncertificated shares shall be canceled 9 and issuance of new equivalent uncertificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation. SECTION 5.5. REGULATIONS. The Board of Directors shall have power and authority to make such rules and regulations as it may deem expedient concerning the issue, transfer, and registration of uncertificated shares or certificates for shares of stock of the Corporation. SECTION 5.6. STATEMENTS RELATING TO UNCERTIFICATED SECURITIES. Within two business days after an issuance, transfer, pledge, or release from a pledge of uncertificated shares has been registered, the Corporation shall send to the registered owner thereof and, if shares are or were subject to a registered pledge, to the registered pledgee, a written notice, signed in such manner as the Board of Directors may prescribe stating (a) that the Corporation shall furnish to such person(s) upon request and without charge a full statement of the designation, relative rights, preferences and limitations of the shares of each class of the Corporation's stock authorized to be issued and the designation, relative rights, preferences and limitations of each series of preferred stock so far as the same has been fixed and the authority of the Board of Directors to designate and fix the relative rights, preferences and limitations of other series; (b) the number of shares and a description of the issue of which such shares are a part including the class of shares, and the designation of the series, if any, which have been issued, transferred, pledged or released from a pledge, as the case may be; (c) the name, address, and taxpayer identification number, if any, of the person or persons to which such shares have been issued or transferred, and, in the case of registration of a pledge or a release from a pledge, of the registered owner and the registered pledgee whose interest is being granted or released, (d) any liens or restrictions of the Corporation, and any adverse claims (i) which are embodied in a restraining order, injunction, or other legal process served upon the Corporation at a time and in a manner which afforded it a reasonable opportunity to act on it in accordance with applicable law, (ii) of which the Corporation has received written notification from the registered owner or the registered pledgee at a time and in a manner which afforded it a reasonable opportunity to act on it in accordance with applicable law, (iii) to which the registration of transfer to the present registred owner was subject and so noted in a statement sent to such person under this paragraph including restrictions on transfer not imposed by the Corporation, and (iv) of which the Corporation is charged with notice from a controlling instrument which the Corporation has elected to require as assurance that a necessary endorsement or instruction is genuine and effective, to which the shares are subject or a statement that there are no such liens, restrictions, or adverse claims; and (e) the date the issuance, transfer, pledge, or release from a pledge, as the case may be, was registered. The Corporation shall maintain a printed copy of the most recent statement sent to a person with respect to uncertificated shares pursuant to this paragraph. Within two business days after a transfer of uncertificated shares has been registered, the Corporation shall send to the former registered owner and the former registered pledgee, if any, a written notice stating (a) the number of shares and a description of the issue of which such shares are a part, including the class of shares, and the designation of the series, if any, which have been transferred; (b) the name, address and taxpayer identification number, if any, of the former registered owner and of the former registered pledgee, if any; and (c) the date the transfer was registered. The Corporation shall send to each registered holder and registered pledgee of uncertificated shares, no less frequently than annually, and at any time upon the written request of any such person, a dated written notice stating (a) if such notice is to the registered owner, the number of shares and a description of the issue of which such shares are a part, including the class of shares, and the designation of the series, if any, registered in the name of such registered owner 10 on the date of the statement; (b) the name, address, and taxpayer identification number, if any, of the registered owner; (c) the name, address and taxpayer identification number, if any, of any registered pledgee and the number of shares subject to the pledge; and (d) any liens or restrictions of the Corporation and any adverse claims (i) which are embodied in a restraining order, injunction, or other legal process served upon the Corporation at a time and in a manner which afforded it a reasonable opportunity to act on it in accordance with applicable law, (ii) of which the Corporation has received written notification from the registered owner or the registered pledgee at a time and in a manner which afforded it a reasonable opportunity to act on it in accordance with applicable law, (iii) to which the registration of transfer to the present registered owner was subject and so noted in a statement sent to such person under this paragraph, including restrictions on transfer not imposed by the Corporation, and (iv) of which the Corporation is charged with notice from a controlling instrument which the Corporation has elected to require as assurance that a necessary endorsement or instruction is genuine and effective, to which the shares are subject or a statement that there are no such liens, restrictions or adverse claims. Each notice sent pursuant to this Section 5.6 shall bear a legend substantially as follows: This statement is merely a record of the rights of the addressee as of the time of its issuance. Delivery of the statement, of itself, confers no rights upon the recipient. This statement is neither a negotiable instrument nor a security. ARTICLE VI INDEMNIFICATION; ADVANCE OF EXPENSES SECTION 6.1. RIGHT TO INDEMNIFICATION. A. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding") by reason of the fact that he or she or a person of whom he or she is the legal representative is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the Corporation, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of his or her heirs, executors, and administrators; PROVIDED, HOWEVER, that except as provided in Section 6.2.B. of this Article VI, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors. B. Each person referred to in Section 6.1.A. of this Article VI shall be paid by the Corporation the expenses incurred in connection with any proceeding in advance of its final disposition, such advances to be paid by the Corporation within 20 days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time; PROVIDED, HOWEVER, that if the General Corporation Law of the State of Delaware requires, 11 the advancement of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) prior to the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article VI or otherwise. C. The right to indemnification conferred in this Article VI and the right to be paid by the Corporation the expenses incurred in connection with any such proceeding in advance of its final disposition conferred in this Article VI each shall be a contract right. SECTION 6.2. PROCEDURE TO OBTAIN INDEMNIFICATION. A. To obtain indemnification under this Article VI, a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification pursuant to the first sentence of this Section 6.2.A., a determination, if required by applicable law, with respect to the claimant's entitlement thereto shall be made as follows: (1) if requested by the claimant, by Independent Counsel (as hereinafter defined) or (2) if no request is made by the claimant for a determination by Independent Counsel, (a) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined) or (b) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, or (c) if a quorum of Disinterested Directors so directs, by the stockholders of the Corporation. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the claimant, the Independent Counsel shall be selected by the Board of Directors unless there shall have occurred within six years prior to the date of the commencement of the action, suit, or proceeding for which indemnification is claimed a "Change of Control" as defined in the Corporation's 1997 Stock Incentive Plan, in which case the Independent Counsel shall be selected by the claimant unless the claimant shall request that such selection be made by the Board of Directors. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination. B. If a claim under Section 6.1 of this Article VI is not paid in full by the Corporation within 30 days after a written claim pursuant to Section 6.2.A. of this Article VI has been received by the Corporation or, in the case of a claim pursuant to Section 6.1.B., within the 20-day period provided therein, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standard of conduct which makes it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount of the claims, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, Independent Counsel, or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, Independent Counsel, or stockholders) that the claimant has not 12 met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. C. If a determination shall have been made pursuant to Section 6.2.A. of this Article VI that the claimant is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to Section 6.2.B. of this Article VI. D. The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to Section 6.2.B. of this Article VI that the procedures and presumptions of this Article VI are not valid, binding, and enforceable and shall stipulate in such proceeding that the Corporation is bound by all the provisions of this Article VI. SECTION 6.3. NO DIMINUTION OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Laws, agreement, vote of stockholders or Disinterested Directors, or otherwise. No repeal or modification of this Article VI shall in any way diminish or adversely affect the rights of any director, officer, employee, or agent of the Corporation hereunder in respect of any occurrence of matter arising prior to any such repeal or modification. SECTION 6.4. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the Corporation or any person serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under the General Corporation Law of the State of Delaware. To the extent that the Corporation maintains any policy or policies providing such insurance, each such director or officer, and each such agent or employee to which rights to indemnification have been granted as provided in Section 6.5 of this Article VI, shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such director, officer, employee, or agent. SECTION 6.5. DISCRETIONARY INDEMNIFICATION. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the Corporation and the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VI with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. SECTION 6.6. ENFORCEABILITY. If any provision or provisions of this Article VI shall be held to be invalid, illegal, or unenforceable for any reason whatsoever: (a) the validity, legality, and enforceability of the remaining provisions of this Article VI (including, without limitation, each portion of any section of this Article VI containing any such provision held to be invalid, illegal, or unenforceable, that is not itself held to be invalid, illegal, or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article VI (including, without limitation, each such portion of any section of this Article VI containing any such provision held to be invalid, illegal, or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal, or unenforceable. 13 SECTION 6.7. CERTAIN DEFINITIONS. For purposes of this Article VI: (a) "Disinterested Director" means a director of the Corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant. (b) "Independent Counsel" means a law firm that is nationally recognized for its experience in matters of Delaware corporation law and shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or the claimant in an action to determine the claimant's rights under this Article VI. SECTION 6.8. NOTICES. Any notice, request, or other communication required or permitted to be given to the Corporation under this Article VI shall be in writing and either delivered in person or sent by telecopy, telex, telegram, electronic mail, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Corporation. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation shall begin on the first day of January and end on the thirty-first day of December of each year. SECTION 7.2. DIVIDENDS. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the Certificate of Incorporation. SECTION 7.3. SEAL. The corporate seal shall have inscribed thereon the words "Corporate Seal," the year of incorporation and around the margin thereof the words "UNOVA, Inc. -Delaware." SECTION 7.4. WAIVER OF NOTICE. Whenever any notice is required to be given to any stockholder or director of the Corporation under the provisions of the General Corporation Law of the State of Delaware or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any waiver of notice of such meeting. 14 SECTION 7.5. AUDITS. The accounts, books, and records of the Corporation shall be audited upon the conclusion of each fiscal year by an independent certified public accountant selected by the Board of Directors, and it shall be the duty of the Board of Directors to cause such audit to be done annually. SECTION 7.6. RESIGNATIONS. Any director of any officer, whether elected or appointed, may resign at any time by giving written notice of such resignation to the Chairman of the Board, the President, if any, or the Secretary, and such resignation shall be deemed to be effective as of the close of business on the date said notice is received by the Chairman of the Board, the President, if any, or the Secretary, or at such later time as is specified therein. No formal action shall be required of the Board of Directors or the stockholders to make any such resignation effective. SECTION 7.7. PROXIES. Unless otherwise provided by resolution adopted by the Board of Directors, the Chairman of the Board, the President, if any, or any Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper in the premises. ARTICLE VIII AMENDMENTS SECTION 8.1. AMENDMENTS. These By-Laws may be altered, amended, or repealed at any meeting of the Board of Directors or of the stockholders, provided notice of the proposed change was given in the notice of the meeting and, in the case of a meeting of the Board of Directors, in a notice given not less than two days prior to the meeting; provided, however, that, in the case of amendments by stockholders, notwithstanding any other provisions of these By-Laws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by law, the Certificate of Incorporation or these By-Laws, the affirmative vote of the holders of at least 80 percent of the voting power of all the then outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend, or repeal any provision of these By-Laws. 15 EX-4.9 3 EX-4.9 EXHIBIT 4.9 $100,000,000 CREDIT AGREEMENT dated as of January 13, 1999 among UNOVA, Inc. The Banks Listed Herein and Morgan Guaranty Trust Company of New York, as Agent _______________________________________________________ J.P. Morgan Securities Inc., Arranger TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.02. Accounting Terms and Determinations . . . . . . . . . . . . . 16 SECTION 1.03. Types of Borrowings . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend . . . . . . . . . . . . . . . . . . . . . 17 SECTION 2.02. Notice of Committed Borrowings. . . . . . . . . . . . . . . . 17 SECTION 2.03. Money Market Borrowings . . . . . . . . . . . . . . . . . . . 17 SECTION 2.04. Notice to Banks; Funding of Loans . . . . . . . . . . . . . . 22 SECTION 2.05. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 2.06. Maturity of Loans . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 2.07. Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 2.08. Facility Fee. . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 2.09. Optional Termination or Reduction of Commitments. . . . . . . 27 SECTION 2.10. Scheduled Termination or Reduction of Commitments . . . . . . 27 SECTION 2.11. Optional Prepayments. . . . . . . . . . . . . . . . . . . . . 27 SECTION 2.12. General Provisions as to Payments . . . . . . . . . . . . . . 28 SECTION 2.13. Funding Losses. . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 2.14. Computation of Interest and Fees. . . . . . . . . . . . . . . 29 SECTION 2.15. Regulation D Compensation . . . . . . . . . . . . . . . . . . 29 ARTICLE III CONDITIONS SECTION 3.01. Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 3.02. Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 31 2 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power . . . . . . . . . . . . . . . . 31 SECTION 4.02. Corporate and Governmental Authorization; No Contravention. . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 4.03. Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 4.04. Financial Information . . . . . . . . . . . . . . . . . . . . 32 SECTION 4.05. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 4.06. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . 33 SECTION 4.07. Environmental Matters . . . . . . . . . . . . . . . . . . . . 33 SECTION 4.08. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 4.09. Material Subsidiaries . . . . . . . . . . . . . . . . . . . . 34 SECTION 4.10. Not an Investment Company . . . . . . . . . . . . . . . . . . 34 SECTION 4.11. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 4.12. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 4.13. Year 2000 Compliance. . . . . . . . . . . . . . . . . . . . . 35 ARTICLE V COVENANTS SECTION 5.01. Information . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 5.02. Maintenance of Property; Insurance. . . . . . . . . . . . . . 37 SECTION 5.03. Conduct of Business and Maintenance of Existence. . . . . . . 37 SECTION 5.04. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . 38 SECTION 5.05. Leverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 5.06. Maintenance of Certain Operations . . . . . . . . . . . . . . 38 SECTION 5.07. Limitation on Subsidiary Debt.. . . . . . . . . . . . . . . . 38 SECTION 5.08. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 5.09. Consolidations, Mergers and Sales of Assets . . . . . . . . . 39 ARTICLE VI DEFAULTS SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 6.02. Notice of Default . . . . . . . . . . . . . . . . . . . . . . 42 3 ARTICLE VII THE AGENT SECTION 7.01. Appointment and Authorization.. . . . . . . . . . . . . . . . 42 SECTION 7.02. Agent and Affiliates. . . . . . . . . . . . . . . . . . . . . 42 SECTION 7.03. Action by Agent . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 7.04. Consultation with Experts . . . . . . . . . . . . . . . . . . 42 SECTION 7.05. Liability of Agent. . . . . . . . . . . . . . . . . . . . . . 42 SECTION 7.06. Indemnification . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 7.07. Credit Decision . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 7.08. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 7.09. Agent's Fees. . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. . . 44 SECTION 8.02. Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 8.03. Increased Cost and Reduced Return . . . . . . . . . . . . . . 45 SECTION 8.04. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans . . 48 SECTION 8.06. Substitution of Bank. . . . . . . . . . . . . . . . . . . . . 49 ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 9.02. No Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 9.03. Expenses; Indemnification . . . . . . . . . . . . . . . . . . 50 SECTION 9.04. Sharing of Set-Offs . . . . . . . . . . . . . . . . . . . . . 50 SECTION 9.05. Amendments and Waivers. . . . . . . . . . . . . . . . . . . . 51 SECTION 9.06. Successors and Assigns. . . . . . . . . . . . . . . . . . . . 51 SECTION 9.07. Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 9.08. Governing Law; Submission to Jurisdiction . . . . . . . . . . 52 SECTION 9.09. Counterparts; Integration . . . . . . . . . . . . . . . . . . 52 SECTION 9.10. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . 52 4 Schedule I - Pricing Schedule Exhibit A - Note Exhibit B - Money Market Quote Request Exhibit C - Invitation for Money Market Quotes Exhibit D - Money Market Quote Exhibit E - Opinion of Counsel for the Borrower Exhibit F - Opinion of Special Counsel for the Agent Exhibit G - Assignment and Assumption Agreement
CREDIT AGREEMENT AGREEMENT dated as of January 13, 1999 among UNOVA, INC., the BANKS party hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. W I T N E S S E T H: The parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "Absolute Rate Auction" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03. "Adjusted CD Rate" has the meaning set forth in Section 2.07(b). "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank. "Affiliate" means any Person (other than a Subsidiary) directly or indirectly controlling or controlled by or under direct or indirect common control with the Borrower. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent" means Morgan Guaranty Trust Company of New York in its capacity as agent for the Banks under the Financing Documents, and its successors in such capacity. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "Assessment Rate" has the meaning set forth in Section 2.07(b). "Assignee" has the meaning set forth in Section 9.06(c). "Bank" means each financial institution listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means a Committed Loan made or to be made by a Bank as a Base Rate Loan in accordance with the applicable Notice of Committed Borrowing or pursuant to Article VIII. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Borrower" means UNOVA, Inc., a Delaware corporation, and its successors. "Borrower's 1997 Form 10-K" means the Borrower's annual report on Form 10-K for the fiscal year ended December 31, 1997, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. "Borrower's Latest Form 10-Q" means the Borrower's quarterly report on Form 10-Q for the quarter ended September 30, 1998, as filed with the Securities Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. "Borrowing" has the meaning set forth in Section 1.03. "Capital Lease" means a lease that would be capitalized on a balance sheet of the lessee prepared in accordance with generally accepted accounting principles. "CD Base Rate" has the meaning set forth in Section 2.07(b). "CD Loan" means a Committed Loan made or to be made by a Bank as a CD Loan in accordance with the applicable Notice of Committed Borrowing. 2 "CD Margin" has the meaning set forth in Section 2.07(b). "CD Reference Banks" means Citibank, N.A., Deutsche Bank AG New York Branch and Morgan Guaranty Trust Company of New York, or such other bank or banks as the Borrower and the Agent may from time to time mutually designate. "Change of Control" means any of the following: (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 Borrower (the "Outstanding Borrower Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Borrower entitled to vote generally in the election of directors (the "Outstanding Borrower Voting Securities"); excluding, however, the following acquisitions of Outstanding Borrower Common Stock and Outstanding Borrower Voting Securities: (i) any acquisition by the Borrower, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Borrower or any corporation controlled by the Borrower, or (iii) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or (b) Individuals who, as of the Effective Date, constitute the Board of Directors of the Borrower (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 the Effective Date whose election, or nomination for election by the Borrower'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 Borrower of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Borrower (a "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 3 Business Combination pursuant to which (i) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Borrower Common Stock and Outstanding Borrower Voting Securities immediately prior to such Business Combination will beneficially own, directly or indirectly, more than 60 percent of, respectively, the then 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 Borrower or all or substantially all of the Borrower'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 Borrower Common Stock and Outstanding Borrower Voting Securities, as the case may be, (ii) no Person (other than any employee benefit plan (or related trust) sponsored or maintained by the Borrower or any corporation controlled by the Borrower 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 Borrower 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 shareholders of the Borrower of a complete liquidation or dissolution of the Borrower. "Commitment" means (i) with respect to each Bank listed on the signature pages hereof, the amount set forth opposite the name of such Bank on the signature pages of this Agreement and (ii) with respect to each Assignee which becomes a Bank pursuant to Section 9.06(c), the amount of the Commitment thereby assumed by it, in each case as such amount may be changed from time to time pursuant to Sections 2.09 and 9.06(c). "Committed Loan" means a loan made or to be made by a Bank pursuant to Section 2.01. "Consolidated Current Liabilities" means at any date the consolidated current liabilities of the Borrower and its Consolidated Subsidiaries determined as of such date. 4 "Consolidated Debt" means, at any date, the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus, to the extent deducted in the determination of such Consolidated Net Income, (i) interest expense for such period, (ii) the provision for income taxes for such period, (iii) depreciation and amortization expense for such period and (iv) non-cash write-offs of in-process research and development costs during such period in connection with acquisitions; PROVIDED that the aggregate amount of such write-offs subsequent to the date of this Agreement added pursuant to this clause (iv) during the term of this Agreement shall not exceed $250,000,000. "Consolidated Net Assets" means at any date Consolidated Total Assets less Consolidated Current Liabilities, all determined as of such date. "Consolidated Net Income" means, for any period, the net income of the Borrower and its Consolidated Subsidiaries for such period, determined on a consolidated basis. "Consolidated Net Worth" means at any date the shareholders' investment in the Borrower and its Consolidated Subsidiaries determined on a consolidated basis of such date. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "Consolidated Total Assets" means at any date the total assets of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "D&P" means Duff & Phelps Credit Rating Co., and its successors. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable and deferred employee compensation obligations arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all unpaid reimbursement obligations of such Person in respect of letters of credit or similar instruments but only to the extent that either 5 (x) the issuer has honored a drawing thereunder or (y) payment of such obligation is otherwise due under the terms thereof, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vii) all Debt of others Guaranteed by such Person. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent; PROVIDED that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Domestic Loans" means CD Loans or Base Rate Loans or both. "Domestic Reserve Percentage" has the meaning set forth in Section 2.07(b). "Effective Date" means the date the Commitments become effective in accordance with Section 3.01. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the 6 effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. "Equity Security" means any capital stock or other equity security, or any warrant or other right to purchase such an equity security. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Agent. "Euro-Dollar Loan" means a Committed Loan made or to be made by a Bank as a Euro-Dollar Loan in accordance with the applicable Notice of Committed Borrowing. "Euro-Dollar Margin" has the meaning set forth in Section 2.07(c). "Euro-Dollar Reference Banks" means the principal London offices of Citibank, N.A., Deutsche Bank AG and Morgan Guaranty Trust Company of New York, or such other bank or banks as the Borrower and the Agent may from time to time mutually designate. "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal 7 Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). "Event of Default" has the meaning set forth in Section 6.01. "Federal Funds Rate" means, for any day (the "accrual date"), the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on the accrual date, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, PROVIDED that (i) if the accrual date is not a Domestic Business Day, the Federal Funds Rate for the accrual date shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for the accrual date shall be the average rate quoted to Morgan Guaranty Trust Company of New York on the accrual date (or next preceding Domestic Business Day) on such transactions as determined by the Agent. "Financing Documents" means this Agreement and the Notes. "Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing. "Foreign Debt" means Debt incurred by a Subsidiary organized under the laws of a jurisdiction outside the United States (or incurred through a branch or office outside the United States of a Subsidiary organized under the laws of a jurisdiction within the United States) which Debt is incurred with a view to obtaining financial or tax benefits associated with the foreign operations of such Subsidiary (including without limitation currency hedging). "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of 8 assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part), PROVIDED that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Substances" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. "Indemnitee" has the meaning set forth in Section 9.03(b). "Interest Period" means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing; PROVIDED that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date; (2) with respect to each CD Borrowing, the period commencing on the date of such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower may elect in the applicable Notice of Borrowing; PROVIDED that: (a) any Interest Period (other than an Interest Period determined pursuant to clause (b) below) which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and 9 (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date; (3) with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; PROVIDED that: (a) any Interest Period (other than an Interest Period determined pursuant to clause (b) below) which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date; (4) with respect to each Money Market LIBOR Borrowing, the period commencing on the date of such Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; PROVIDED that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date; (5) with respect to each Money Market Absolute Rate Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than 7 days) as the Borrower may elect in accordance with Section 2.03; PROVIDED that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and 10 (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Leverage Ratio" means, at any date, the ratio of Consolidated Debt at such date to Consolidated EBITDA for the period of four consecutive fiscal quarters most recently ended on or prior to such date; PROVIDED that if there shall have been an acquisition or disposition of operations during such period, Consolidated EBITDA shall be calculated on a pro forma basis giving effect thereto as if such acquisition or disposition had occurred on the first day of such period. "LIBOR Auction" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "London Interbank Offered Rate" has the meaning set forth in Section 2.07(c). "Material Adverse Effect" means (i) any material adverse effect on the business, financial position, results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole or (ii) any material adverse effect on any of the rights and remedies of the Agent and the Banks under this Agreement and the Notes. "Material Debt" means Debt (other than the Notes) of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal amount exceeding $25,000,000. "Material Financial Obligations" means a principal amount of Debt and/or payment or collateralization obligations in respect of Derivatives Obligations of 11 the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate $25,000,000. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000. "Material Subsidiary" means any Subsidiary, including its Subsidiaries, which meets any of the following conditions: (1) the Borrower's and its other Subsidiaries' investments in and advances to such Subsidiary exceed 5 percent of the total assets of the Borrower and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or (2) the Borrower's and its other Subsidiaries' proportionate share of the total assets (after intercompany eliminations) of such Subsidiary exceeds 5 percent of the total assets of the Borrower and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or (3) the Borrower's and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of such Subsidiary exceeds 5 percent of such income of the Borrower and its Subsidiaries consolidated for the most recently completed fiscal year. Computational note: For purposes of making the prescribed income test the following guidance should be applied: 1. When a loss has been incurred by either the Borrower and its Subsidiaries consolidated or the tested Subsidiary, but not both, the equity in the income or loss of the tested Subsidiary should be excluded from the income of the Borrower and its Subsidiaries consolidated for purposes of the computation. 2. If income of the Borrower and its Subsidiaries consolidated for the most recent fiscal year is at least 5 percent lower than the average of the income for the last five fiscal years, such average income should be substituted for purposes of the computation. Any loss years should be omitted for purposes of computing average income. "Money Market Absolute Rate" has the meaning set forth in Section 2.03(d). 12 "Money Market Absolute Rate Loan" means a loan made or to be made by a Bank pursuant to an Absolute Rate Auction. "Money Market Lending Office" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Agent; PROVIDED that any Bank may from time to time by notice to the Borrower and the Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Money Market LIBOR Loan" means a loan made or to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)). "Money Market Loan" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "Money Market Margin" has the meaning set forth in Section 2.03(d). "Money Market Quote" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03. "Moody's" means Moody's Investors Service, Inc., and its successors. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions in an amount exceeding $1,000,000 per annum or has within the preceding five plan years made such contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section 2.03(f)). "Parent" means, with respect to any Bank, any Person controlling such Bank. 13 "Participant" has the meaning set forth in Section 9.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Pricing Schedule" means the Schedule attached hereto identified as such. "Prime Rate" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "Rating Agencies" means D&P, Moody's and S&P. "Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "Refunding Borrowing" means a Committed Borrowing which, after application of the proceeds thereof, results in no net increase in the outstanding principal amount of Committed Loans made by any Bank. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Banks" means at any time Banks having at least 60% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least 60% of the aggregate unpaid principal amount of the Loans. "Revolving Credit Period" means the period from and including the Effective Date to but not including the Termination Date. 14 "S&P" means Standard & Poor's Ratings Services, and its successors. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower (or, if such term is used with reference to another Person, by such other Person). "Termination Date" means January 12, 2000 (or if such date is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day). "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "United States" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. "Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; PROVIDED that, if the Borrower notifies the Agent that the Borrower wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Borrower that the Required Banks wish to amend Article V for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting 15 principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks. SECTION 1.03. Types of Borrowings. The term "Borrowing" denotes the aggregation of Loans of one or more Banks made or to be made to the Borrower pursuant to Article II on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (E.G., a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article II under which participation therein is determined (I.E., a "Committed Borrowing" is a Borrowing under Section 2.01 in which all Banks participate in proportion to their Commitments, while a "Money Market Borrowing" is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith). ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend. Subject to the terms and conditions set forth in this Agreement, each Bank severally agrees to make loans to the Borrower from time to time during the Revolving Credit Period in an aggregate principal amount at any time outstanding not to exceed the amount of such Bank's Commitment. Each Borrowing under this Section 2.01 shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in an aggregate amount equal to the amount available in accordance with Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, repay, or to the extent permitted by Section 2.11, prepay loans and reborrow under this Section at any time during the Revolving Credit Period. SECTION 2.02. Notice of Committed Borrowings. The Borrower shall give the Agent notice (a "Notice of Committed Borrowing") not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, 16 (b) the aggregate amount of such Borrowing, (c) whether the Loans comprising such Borrowing are to be CD Loans, Base Rate Loans or Euro-Dollar Loans, and (d) in the case of a Committed Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.03. Money Market Borrowings. (a) THE MONEY MARKET OPTION. In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks during the Revolving Credit Period to make offers to make Money Market Loans to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) MONEY MARKET QUOTE REQUEST. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received no later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro- Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $10,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. 17 The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Agent may agree) of any other Money Market Quote Request. (c) INVITATION FOR MONEY MARKET QUOTES. Promptly upon receipt of a Money Market Quote Request, the Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) SUBMISSION AND CONTENTS OF MONEY MARKET QUOTES. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); PROVIDED that Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) 1:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:15 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction. Subject to Articles III and VI, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. 18 (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language (other than the limitation set forth in clause (ii)(B)(z) above); (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). 19 (e) NOTICE TO BORROWER. The Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) ACCEPTANCE AND NOTICE BY BORROWER. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; PROVIDED that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Borrowing must be $10,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and 20 (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) ALLOCATION BY AGENT. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.04. NOTICE TO BANKS; FUNDING OF LOANS. (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. Unless the Agent determines that any applicable condition specified in Article III has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower at the Agent's aforesaid address. (c) If any Bank makes a new Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection (b), or remitted by the Borrower to the Agent as provided in Section 2.12, as the case may be. (d) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.04 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a 21 corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and, if such Bank shall fail to do so within one Domestic Business Day, the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. SECTION 2.05. NOTES. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.01(b), the Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it, and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; PROVIDED that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower under any Financing Document. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.06. MATURITY OF LOANS. Each Loan included in any Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing. 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 Base 22 Rate 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. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such Interest Period; PROVIDED that if any CD Loan shall, as a result of clause (2)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such CD Loan shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD 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 higher of (i) the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such Loan and (ii) the rate applicable to Base Rate Loans for such day. "CD Margin" means a rate per annum determined in accordance with the Pricing Schedule. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: [ CDBR]* ACDR = [ ---------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate ---------- * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1% The "CD Base Rate" applicable to any Interest Period is the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of 23 recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "Domestic Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "Assessment Rate" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. Section 327.4(a) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. "Euro-Dollar Margin" means a rate per annum determined in accordance with the Pricing Schedule. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the 24 principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Loan and (ii) the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than three months as the Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market 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 Base Rate for such day. (f) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the 25 participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (g) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. SECTION 2.08. FACILITY FEE. The Borrower shall pay to the Agent for the account of the Banks ratably in proportion to their Commitments a facility fee at the Facility Fee Rate determined daily in accordance with the Pricing Schedule. Such facility fee shall accrue (i) from and including the Effective Date to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including the Termination Date or earlier date of termination to but excluding the date the Loans shall be repaid in their entirety, on the daily aggregate outstanding principal amount of the Loans. Accrued fees under this Section shall be payable quarterly in arrears on the last Euro-Dollar Business Day of each March, June, September and December, and upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). SECTION 2.09. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The Borrower may, upon at least three Domestic Business Days' notice to the Agent (which shall promptly notify the Banks), (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple thereof, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans. SECTION 2.10. SCHEDULED TERMINATION OF COMMITMENTS. The Commitments shall terminate on the Termination Date and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.11. OPTIONAL PREPAYMENTS. (a) The Borrower may (i) upon at least one Domestic Business Day's notice to the Agent, prepay any Base Rate Borrowing (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)), (ii) upon at least three Domestic Business Days' notice to the Agent, subject to Section 2.13, prepay any CD Borrowing and (iii) upon at least three Euro-Dollar Business Days' notice to the Agent, subject to 26 Section 2.13, prepay any Euro-Dollar Borrowing, in whole at any time, or from time to time in part in amounts aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Borrowing. (b) Except as provided in Section 2.11(a), the Borrower may not prepay all or any portion of the principal amount of any Money Market Loan prior to the maturity thereof. (c) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.12. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the 27 Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.13. FUNDING LOSSES. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan (pursuant to Article II, VI or VIII or otherwise) on any day other than the last day of the Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.07(d), or if the Borrower fails to borrow or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a) or 2.11(c), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow or prepay, PROVIDED that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, setting forth the basis of calculation thereof, which certificate shall be conclusive in the absence of manifest error. SECTION 2.14. COMPUTATION OF INTEREST AND FEES. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and facility fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.15. REGULATION D COMPENSATION. For so long as any Bank maintains reserves against "Eurocurrency liabilities" (or any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of such Bank to United States residents), and as a result the cost to such Bank (or its Euro-Dollar Lending Office) of making or maintaining its Euro-Dollar Loans is increased, then such Bank may require the Borrower to pay, contemporaneously (or at such other time or times as the Borrower and such Bank may mutually agree) with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one MINUS the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower and the Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place 28 indicated in such notice with respect to each Interest Period commencing at least three Euro-Dollar Business Days after the giving of such notice and (y) shall furnish to the Borrower at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans (or at such other time or times as the Borrower and such Bank may mutually agree) an officer's certificate setting forth the amount to which such Bank is then entitled under this Section (which shall be consistent with such Bank's good faith estimate of the level at which the related reserves are maintained by it). Each such certificate shall be accompanied by such information as the Borrower may reasonably request as to the computation set forth therein. ARTICLE III CONDITIONS SECTION 3.01. EFFECTIVENESS. The Commitments shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) receipt by the Agent of 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, receipt by the Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (b) receipt by the Agent for the account of each Bank of a duly executed Note dated on or before the Effective Date complying with the provisions of Section 2.05; (c) receipt by the Agent of an opinion of the principal legal officer of the Borrower, substantially in the form of Exhibit E hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) receipt by the Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit F hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (e) receipt by the Agent of evidence satisfactory to it of the payment of fees as heretofore mutually agreed; and 29 (f) 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 Financing Documents, and any other matters relevant hereto, all in form and substance satisfactory to the Agent; PROVIDED that the Commitments shall not become effective unless all of the foregoing conditions are satisfied not later than January 31, 1999. The Agent shall promptly notify the Borrower and each Bank of the Effective Date, and such notice shall be conclusive and binding on all parties hereto. SECTION 3.02. BORROWINGS. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be; (b) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments; (c) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; and (d) the fact that the representations and warranties of the Borrower contained in the Financing Documents (except (x) in the case of a Refunding Borrowing and (y) in the case of any other Borrowing, solely if on the date of such Borrowing, the Borrower's senior unsecured long-term debt is rated, without third-party credit enhancement, A- or higher by S&P and A3 or higher by Moody's, the representations and warranties set forth in Section 4.04(c) as to any matter which has theretofore been disclosed in writing by the Borrower to the Banks) shall be true on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c) and (d) of this Section. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: 30 SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Borrower of the Financing Documents are within its corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of its certificate of incorporation or by-laws or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and binding agreement of the Borrower and the Notes, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower, in each case enforceable against the Borrower in accordance with its terms. SECTION 4.04. FINANCIAL INFORMATION. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 1997 and the related consolidated statements of operations and cash flows for the fiscal year then ended, reported on by Deloitte & Touche LLP and set forth in the Borrower's 1997 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of September 30, 1998 and the related unaudited consolidated statements of operations and cash flows for the nine months then ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such nine month period (subject to normal year-end adjustments). 31 (c) Since September 30, 1998 there has been no material adverse change in the business, financial position, results of operations or prospects of the Borrower. SECTION 4.05. LITIGATION. (a) There is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which could reasonably be expected to materially and adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries taken as a whole. (b) There is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which in any manner questions the validity or enforceability of any Financing Document. SECTION 4.06. COMPLIANCE WITH ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.07. ENVIRONMENTAL MATTERS. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or 32 reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, and based upon conditions of which the Borrower has knowledge and upon its estimates of the costs of compliance with and/or remediation mandated by Environmental Laws, the Borrower has reasonably concluded that Environmental Laws are unlikely to have a material adverse effect on the business, financial condition, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.08. TAXES. All United States federal income tax returns and all other material tax returns which are required to be filed by or in respect of the Borrower or any Subsidiary have been filed by the Borrower or a Subsidiary thereof, and all taxes due pursuant to such returns or pursuant to any assessment received in respect thereof have been paid. SECTION 4.09. MATERIAL SUBSIDIARIES. Each of the Borrower's Material Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.10. NOT AN INVESTMENT COMPANY. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.11. USE OF PROCEEDS. The proceeds of the loans under this Agreement will be used by the Borrower for general corporate purposes, including acquisitions and stock repurchases. None of such proceeds will be used in violation of Regulation T, U or X of the Board of Governors of the Federal Reserve System. SECTION 4.12. FULL DISCLOSURE. All information heretofore furnished by the Borrower to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to the Agent or any Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing any and all facts which materially and adversely affect or may affect (to the extent the Borrower can now reasonably foresee), the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability of the 33 Borrower to perform its obligations under this Agreement or any other Financing Document. 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. ARTICLE V COVENANTS The Borrower agrees that, from and after the Effective Date for so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01. INFORMATION. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated financial statements in the form then required to be filed with the Securities and Exchange Commission on Form 10-K or its then equivalent, all reported on by independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated 34 balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated financial statements in the form then required to be filed with the Securities and Exchange Commission on Form 10-Q or its then equivalent, all certified (subject to normal year-end audit adjustments) by the chief financial officer or the chief accounting officer of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.05 to 5.07, inclusive, on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements; (e) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission; (h) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Material Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Material Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer 35 Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer, any Material Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Material Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Material Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Material Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Material Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; (i) forthwith, notice of any change of which the Borrower becomes aware in the rating by any Rating Agency of the Borrower's long-term debt; and (j) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Agent, at the request of any Bank, may reasonably request. SECTION 5.02. MAINTENANCE OF PROPERTY; INSURANCE. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will, and will cause each of its Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Banks, upon request from the Agent, information presented in reasonable detail as to the insurance so carried. SECTION 5.03. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Borrower will continue, and will cause each Material Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries, and will preserve, renew and keep in full force and effect, and 36 will cause each Material Subsidiary to preserve, renew and keep in full force and effect their respective existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; PROVIDED that nothing in this Section 5.03 shall prohibit (i) the merger of a Subsidiary into the Borrower or the merger or consolidation of a Subsidiary with or into another Person if the corporation surviving such consolidation or merger is a Subsidiary and if, in each case, after giving effect thereto, no Default shall have occurred and be continuing or (ii) the termination of the existence of any Subsidiary if the Borrower in good faith determines that such termination is in the best interest of the Borrower and is not materially disadvantageous to the Banks. SECTION 5.04. COMPLIANCE WITH LAWS. The Borrower will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. SECTION 5.05. LEVERAGE RATIO. The Leverage Ratio will at no time exceed 3.5 to 1.0. SECTION 5.06. MAINTENANCE OF CERTAIN OPERATIONS. The Borrower will at all times maintain direct or indirect ownership of 80% of the Equity Securities of Intermec Technologies Corporation and UNOVA Industrial Automation Systems, Inc. SECTION 5.07. LIMITATION ON SUBSIDIARY DEBT. The aggregate outstanding principal amount of Debt of the Subsidiaries of the Borrower (exclusive of (i) Debt owing to the Borrower or another Subsidiary and (ii) Foreign Debt) shall at no time exceed 15% of Consolidated Net Assets. SECTION 5.08. NEGATIVE PLEDGE. The Borrower will not, and will not permit any Consolidated Subsidiary to, create, assume or suffer to exist any Lien securing Debt or Derivatives Obligations on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement in an aggregate principal amount not exceeding $20,000,000; (b) any Lien existing on the assets of any Person at the time such Person becomes a Consolidated Subsidiary; 37 (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the purchase price or cost of construction of such asset, PROVIDED that such Lien attaches to such asset within 270 days after the acquisition or completion of construction and commencement of full operations thereof; (d) any Lien on any asset of any Person existing at the time such Person is acquired by, merged into or consolidated with the Borrower or a Consolidated Subsidiary; (e) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Consolidated Subsidiary and not created in contemplation of such acquisition; (f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, PROVIDED that such Debt is not increased and is not secured by any additional assets; (g) Liens on cash and cash equivalents securing Derivatives Obligations, provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $20,000,000; and (h) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal or face amount at any time outstanding not exceeding 10% of Consolidated Net Worth. SECTION 5.09. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. The Borrower will not (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of the assets of the Borrower and its Subsidiaries, taken as a whole, to any other Person; PROVIDED that the Borrower may merge with another Person if the Borrower is the surviving corporation and, after giving effect thereto, no Default exists. ARTICLE VI DEFAULTS SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following events ("Events of Default") shall have occurred and be continuing: 38 (a) the Borrower (i) shall fail to pay when due any principal of any Loan or (ii) shall fail to pay any interest on any Loan, any fees or any other amount payable hereunder within five days after the due date thereof; (b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.05 through 5.09, inclusive; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in any Financing Document (other than those covered by clause (a) or (b) above) for 30 days after notice thereof has been given to the Borrower by the Agent at the request of any Bank; (d) any representation, warranty, certification or statement made (or deemed made) by the Borrower in any Financing Document or in any certificate, financial statement or other document delivered pursuant to any Financing Document shall prove to have been incorrect in any material respect when made (or deemed made) or delivered; (e) the Borrower or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations when due or within any applicable grace period; (f) any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables (with the giving of appropriate notice if required) the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding 39 shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $25,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer, any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $10,000,000; (j) a judgment or order for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any Material Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or (k) a Change of Control shall occur; then, and in every such event, the Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 50% in aggregate principal amount of the Loans, by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; PROVIDED that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Agent or any Bank, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. 40 SECTION 6.02. NOTICE OF DEFAULT. The Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE VII THE AGENT SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Financing Documents as are delegated to the Agent by the terms thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. AGENT AND AFFILIATES. Morgan Guaranty Trust Company of New York shall have the same rights and powers under the Financing Documents as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan Guaranty Trust Company of New York and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if it were not the Agent hereunder. SECTION 7.03. ACTION BY AGENT. The obligations of the Agent hereunder are only those expressly set forth in the Financing Documents. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article VI. SECTION 7.04. CONSULTATION WITH EXPERTS. The Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. LIABILITY OF AGENT. Neither the Agent nor any of its affiliates nor any of the directors, officers, agents or employees of the foregoing shall be liable for any action taken or not taken by it or them in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its or their own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of the directors, officers, agents or employees of the foregoing shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance 41 or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article III, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of the Financing Documents or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties. Without limiting the generality of the foregoing, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom and is intended to create or reflect only an administrative relationship between independent contracting parties. SECTION 7.06. INDEMNIFICATION. Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with the Financing Documents or any action taken or omitted by such indemnitees thereunder. SECTION 7.07. CREDIT DECISION. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. SUCCESSOR AGENT. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent, subject to the approval of the Borrower. If no successor Agent shall have been so appointed by the Required Banks, with the approval of the Borrower, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a Bank, if any Bank is willing to accept such appointment, and in any event shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having 42 a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. AGENT'S FEES. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Agent. ARTICLE VIII CHANGE IN CIRCUMSTANCES SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing: (a) the Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) in the case of a Committed Borrowing, Banks having 50% or more of the aggregate amount of the Commitments advise the Agent that the Adjusted CD Rate or the London Interbank Offered Rate, as the case may be, as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the Borrower notifies the Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. 43 SECTION 8.02. ILLEGALITY. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent pursuant to this Section 8.02, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall immediately prepay in full the then outstanding principal amount of each such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan. SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If on or after (x) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (i) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any 44 such requirement with respect to which such Bank is entitled to compensation during the relevant Interest Period under Section 2.15), special deposit, insurance assessment (excluding, with respect to any CD Loan, any such requirement reflected in an applicable Assessment Rate) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or is Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency (including any determination by any such authority, central bank or comparable agency that, for purposes of capital adequacy requirements, the Commitments hereunder do not constitute commitments with an original maturity of one year or less), has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction; PROVIDED that the Borrower shall not be liable for any such amounts attributable to a period more than three months prior to the date of notice by such Bank to the Borrower of its intention to seek compensation under this subsection (b). (c) Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or 45 reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section, setting forth the additional amount or amounts to be paid to it hereunder and the basis of calculation thereof, shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 8.04. TAXES. (a) Any and all payments by the Borrower to or for the account of any Bank or the Agent hereunder or under any Note shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges and withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each Bank and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise or similar taxes imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made hereunder or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Bank and the Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes and Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with 46 respect thereto. This indemnification shall be made within 15 days from the date such Bank or the Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Taxes" as defined in Section 8.04(a). (e) For any period with respect to which a Bank has failed to provide the Borrower with the form required pursuant to Section 8.04(d), if any (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(a) with respect to Taxes imposed by the United States; PROVIDED, HOWEVER, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank, is not otherwise disadvantageous to such Bank. SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE LOANS. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its CD Loans or Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall 47 apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as CD Loans or Euro-Dollar Loans, as the case may be, shall be made instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks), and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid, all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. SECTION 8.06. SUBSTITUTION OF BANK. If (i) the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04, the Borrower shall have the right, with the assistance of the Agent, to seek a mutually satisfactory substitute bank or banks (which may be one or more of the Banks) to purchase the Note and assume the Commitment of such Bank. ARTICLE IX MISCELLANEOUS SECTION 9.01. NOTICES. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agent, at its address or facsimile or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or facsimile or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or facsimile or telex number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section; PROVIDED that notices to the Agent under Article II or Article VIII shall not be effective until received. 48 SECTION 9.02. NO WAIVERS. No failure or delay by the Agent or any Bank in exercising any right, power or privilege under any Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies therein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i) all out-of-pocket expenses of the Agent, including fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of the Financing Documents, any waiver or consent thereunder or any amendment thereof or any Default or alleged Default thereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by the Agent or any Bank, including fees and disbursements of outside counsel (or, in lieu thereof, the allocated cost of in-house counsel), in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify the Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of the Financing Documents, or any actual or proposed use of proceeds of Loans hereunder; PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct. SECTION 9.04. SHARING OF SET-OFFS. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; PROVIDED that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of 49 indebtedness of the Borrower other than its indebtedness under the Notes. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower, in the amount of such participation. SECTION 9.05. AMENDMENTS AND WAIVERS. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); PROVIDED that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of, accrued interest on or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for any scheduled termination of any Commitment or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of the Financing Documents. SECTION 9.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or in any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; PROVIDED that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii) or (iii) of Section 9.05 without the 50 consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Section 2.15 and Article VIII with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part (equivalent to a Commitment of not less than $5,000,000) of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit G hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower and the Agent (which consents shall not be unreasonably withheld); PROVIDED that if an Assignee is another Bank immediately prior to such assignment or is an affiliate of such transferor Bank, no such consent shall be required; and PROVIDED FURTHER that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by 51 reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances. SECTION 9.07. COLLATERAL. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to the Financing Documents or the transactions contemplated thereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.09. COUNTERPARTS; INTEGRATION. This Agreement 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 Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. 52 IN WITNESS WHEREOF, the parties hereto have caused this Agreement 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: Treasurer 360 North Crescent Drive Beverly Hills, California 90210 Telex number: Telecopy number: (310) 888-2927 53 COMMITMENTS $20,000,000 ABN AMRO BANK N.V. By: /s/ John A. Miller -------------------------------- Title: Group Vice President By: /s/ Judith M. Bresnen -------------------------------- Title: Vice President $20,000,000 CITICORP USA, INC. By: /s/ Walter L. Larson -------------------------------- Title: Attorney-in-Fact $20,000,000 DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ Hans-Joseph Thiele -------------------------------- Title: Director By: /s/ Stephan A. Wiedemann -------------------------------- Title: Director 54 $8,000,000 CREDIT SUISSE FIRST BOSTON By: /s/ Thomas G. Muoio -------------------------------- Title: Vice President By: /s/ William S. Lutkins -------------------------------- Title: Vice President $8,000,000 DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ A. Richard Morris -------------------------------- Title: First Vice president By: /s/ B. Craig Erickson -------------------------------- Title: Vice President $8,000,000 MELLON BANK, N.A. By: /s/ L. C. Ivey -------------------------------- Title: Vice President 55 $8,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Robert Bottamendi -------------------------------- Title: Vice President $8,000,000 THE FIRST NATIONAL BANK OF CHICAGO By: /s/ Mark A. Isley -------------------------------- Title: First Vice President - ----------------- Total Commitments $100,000,000 ================= MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: /s/ Robert Bottamedi -------------------------------- Title: Vice president 60 Wall Street New York, New York 10260-0060 Attention: Telex number: 177615 56 PRICING SCHEDULE The "Euro-Dollar Margin", "CD 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 .285% .37% .41% .65% .75% .85% - ------------------------------------------------------------------------------- CD Margin .41% .495% .535% .775% .875% .975% - ------------------------------------------------------------------------------- Facility Fee Rate .065% .08% .09% .10% .125% .15% - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
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, (i) 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, (i) 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, (i) the Borrower's long-term debt is rated BBB/Baa2 or higher by at least two Rating Agencies and (ii) none of Level I Status, Level II Status or Level III Status exists at such date. "Level V Status" exists at any date if, at such date, (i) 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 at such date. "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. "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 credit ratings to be utilized for purposes of determining a Status 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, 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 long-term 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. 2 EXHIBIT A NOTE New York, New York January 13, 1999 For value received, UNOVA Inc., a Delaware corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. Each Loan made by the Bank, the type and maturity thereof, and all repayments of the principal thereof, shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; PROVIDED that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under any other Financing Document. This note is one of the Notes referred to in the Credit Agreement dated as of January 13, 1999 among the Borrower, the banks parties thereto and Morgan Guaranty Trust Company of New York, as Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. UNOVA, INC. By: ------------------------------------- Name: Title: Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL
- -------------------------------------------------------------------------------- Amount of Amount of Type of Principal Maturity Notation Date Loan Loan Repaid Date Made By - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 EXHIBIT B FORM OF MONEY MARKET QUOTE REQUEST [Date] To: Morgan Guaranty Trust Company of New York From: UNOVA, Inc. (the "Borrower") Re: Credit Agreement (as amended from time to time, the "Credit Agreement") dated as of January 13, 1999 among the Borrower, the Banks parties thereto and Morgan Guaranty Trust Company of New York, as Agent We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________
Principal Amount* Interest Period* ----------------- ---------------- $
Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] - -------------------------- * Amount must be $10,000,000 or a larger multiple of $1,000,000. * Not less than one month (LIBOR Auction) or not less than 7 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. Terms used herein have the meanings assigned to them in the Credit Agreement. UNOVA, INC. By: ------------------------------------- Title: 2 EXHIBIT C FORM OF INVITATION FOR MONEY MARKET QUOTES To: [Name of Bank] Re: Invitation for Money Market Quotes to UNOVA, Inc. (the "Borrower") Pursuant to Section 2.03 of the Credit Agreement (as amended from time to time, the "Credit Agreement") dated as of January 13, 1999 among the Borrower, the Banks parties thereto and the undersigned, as Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________
Principal Amount Interest Period ---------------- --------------- $
Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.](New York City time) on [date]. Terms used herein have the meanings assigned to them in the Credit Agreement. MORGAN GUARANTY TRUST COMPANY OF NEW YORK By --------------------------------- Authorized Officer EXHIBIT D FORM OF MONEY MARKET QUOTE MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent 60 Wall Street New York, New York 10260-0060 Attention: Re: Money Market Quote to UNOVA, Inc. (the "Borrower") In response to your invitation on behalf of the Borrower dated _____________, 19__, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: _____________________________ 3. Date of Borrowing: ____________________* 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates:
Principal Interest Money Market Amount** Period*** [Margin****] [Absolute Rate*****] - --------- --------- ------------ -------------------- $ $
[Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** __________ * As specified in the related Invitation. (notes continued on following page) We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Credit Agreement (as amended from time to time, the "Credit Agreement") dated as of January 13, 1999 among the Borrower, the Banks parties thereto and yourselves, as Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Terms used herein have the meanings assigned to them in the Credit Agreement. Very truly yours, [NAME OF BANK] Dated:_______________ By:__________________________ Authorized Officer __________ ** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. *** Not less than one month or not less than 7 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). 2 EXHIBIT E OPINION OF COUNSEL FOR THE BORROWER __, 1999 To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260-0060 Dear Sirs: I am Senior Vice President and General Counsel of UNOVA, Inc. (the "Borrower") and have acted in that capacity in connection with the Credit Agreement (the "Credit Agreement") dated as of January 13, 1999 among the Borrower, the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Credit Agreement are used herein as therein defined. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 2. The execution, delivery and performance by the Borrower of the Financing Documents are within its corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the Borrower's Certificate of Incorporation or by-laws or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. 3. The Credit Agreement constitutes a valid and binding agreement of the Borrower and the Notes constitute valid and binding obligations of the Borrower. 4. There is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which could reasonably be expected to materially and adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, taken as a whole. (b) There is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which in any manner questions the validity or enforceability of any Financing Document. 5. Each of the Borrower's Material Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. I am a member of the Bar of the State of California, and the foregoing opinion is limited to the laws of the State of California, the General Corporation Law of the State of Delaware and the Federal laws of the United States of America. Inasmuch as the Credit Agreement and the Notes are governed by the law of the State of New York, I have assumed for purposes of the foregoing opinion that such law is the same as the law of the State of California. Very truly yours, 2 EXHIBIT F OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENT ------------------ __, 1999 To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260-0060 Dear Sirs: We have participated in the preparation of the Credit Agreement (the "Credit Agreement") dated as of January 13, 1999 among UNOVA, Inc., a Delaware corporation (the "Borrower"), the banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"), and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that: 1. The execution, delivery and performance by the Borrower of the Financing Documents are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action. 2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 3. The documents delivered to the Agent by the Borrower pursuant to Section 3.01 of the Credit Agreement are substantially responsive to the requirements of said Section. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent. Very truly yours, 2 EXHIBIT G ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor") and [ASSIGNEE] (the "Assignee"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Credit Agreement dated as of January 13, 1999 among the Borrower, the Assignor and the other Banks party thereto, as Banks, and the Agent (as amended from time to time, the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Committed Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. ASSIGNMENT. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement and the other Financing Documents to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor and the Assignee [and the Borrower and the Agent](*) and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement and the other Financing Documents with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. PAYMENTS. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them. It is understood that facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof in respect of the Assigned Amount are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement or any other Financing Document which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. CONSENT OF THE BORROWER AND THE AGENT. This Agreement is conditioned upon the consent of the Borrower and the Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agent is evidence of this consent.] [SECTION 5. NOTE. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.](*) SECTION 6. NON-RELIANCE ON ASSIGNOR. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of any Financing Document. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue __________________ * Delete if consent is not required. * Delete if the Assignee is already a Bank, since it already has a Note. 2 to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 7. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 8. COUNTERPARTS. This Agreement 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. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By: ---------------------------------------------- Title: [ASSIGNEE] By: ---------------------------------------------- Title: [The undersigned consent to the foregoing assignment. UNOVA, INC. By: ---------------------------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK 3 By: ---------------------------------------------- Title: ] 4 EX-10.9 4 EXHIBIT 10.9 EXHIBIT 10.9 AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT This Amendment No. 3, effective the 20th day of May 1998, is made to that certain Employment Agreement between Intermec Technologies Corporation and Michael Ohanian dated the 18th day of May 1995 as amended ("the Agreement"). WHEREAS, Intermec Technologies Corporation is a wholly owned subsidiary of UNOVA, Inc.; and WHEREAS, Michael Ohanian also serves as a Senior Vice President of UNOVA, Inc. and WHEREAS, the Compensation Committee of the Board of Directors of UNOVA, Inc., has approved including Michael Ohanian in the UNOVA Supplemental Executive Retirement Plan (hereinafter called "SERP"), under specified terms and conditions. NOW THEREFORE, by mutual agreement of the parties, the Agreement is hereby further amended as follows: 1. TERM OF AGREEMENT: Michael Ohanian hereby agrees to retire from employment with Intermec Technologies Corporation and as an officer of UNOVA, Inc. on February 28, 1999. 2. RETIREMENT: Upon retirement on February 28, 1999 Michael Ohanian will receive the retirement benefits as provided in the UNOVA, Inc. SERP. For purposes of determining UNOVA, Inc. SERP benefits, Michael Ohanian will be considered to be vested with 15 years of service on February 28, 1999, assuming that during the period between May 20, 1998 and February 28, 1999, he continues to serve as an officer of UNOVA, Inc. and of Intermec Technologies Corporation. 3. OTHER TERMS AND CONDITIONS: Except as modified herein all other terms and conditions of the Agreement as amended by Amendments No. 1 and 2 shall remain in full force and effect as originally written. IN WITNESS WHEREOF, the parties hereto have signed and delivered this Amendment No. 3 as of the date first written above. INTERMEC TECHNOLOGIES EXECUTIVE CORPORATION By: /S/ VIRGINIA S. YOUNG By: /S/ MICHAEL OHANIAN --------------------- ------------------- Virginia S. Young Michael Ohanian Vice President and Secretary EX-10.10 5 EXHIBIT 10.10 EXHIBIT 10.10 AMENDMENT NO. 4 To EMPLOYMENT AGREEMENT This Amendment No. 4, effective the 28th day of February, 1999, is made to that certain Employment Agreement between Intermec Technologies Corporation and Michael Ohanian, dated the 18th day of May, 1995 as amended (the "Agreement"). WHEREAS, the parties to the Agreement wish to extend the Employment Period described in the Agreement from February 28, 1999 to December 31, 1999. NOW THEREFORE, by mutual agreement of the parties, the Agreement is hereby amended as follows: 1. TERM OF AGREEMENT: Michael Ohanian hereby agrees to retire from Employment with Intermec Technologies Corporation and as an officer of UNOVA, Inc. on December 31, 1999, or at such earlier date as requested by Michael Ohanian or the Chief Executive Officer of UNOVA, Inc. upon at least sixty days notice delivered by either of them to the other. 2. COMPENSATION: The base annual salary set forth in numbered Paragraph 3, BASE PAY, shall be increased from $325,000 to $350,000 for the period of March 1, 1999 through the end of the Term of Agreement described in Paragraph 1 of this Amendment No. 4. 3. EXECUTIVE FLEX BENEFIT: Numbered Paragraph 6, EXECUTIVE FLEX BENEFIT, is amended to read as follows: "The Executive will receive an Executive Flex Benefit of $10,000 for calendar year 1999, irrespective of whether he is employed for the full calendar year." 4. RETIREMENT/SERP: Upon retirement as described in Paragraph 1 of this Amendment No. 4, Michael Ohanian will receive the retirement benefits provided in the UNOVA, Inc. Supplemental Employee Retirement Plan ("SERP"). For purposes of determining such benefits, Michael Ohanian will be considered to be vested with 15 years of service on the retirement date. The parties agree that the extension of the Employment Period described in Paragraph 1 of this Amendment No. 4 will not have the effect of increasing such vesting beyond 15 years. 5. OTHER TERMS AND CONDITIONS: Except as modified herein all other terms and conditions of the Agreement as amended by Amendments No. 1, 2, and 3 shall remain in full force and effect as originally written. IN WITNESS WHEREOF, the parties hereto have signed and delivered this Amendment No. 4 as of the date first written above. INTERMEC TECHNOLOGIES EXECUTIVE CORPORATION By: ___________________________ By: __________________________ Virginia S. Young Michael Ohanian Vice President and Secretary EX-10.15 6 EXHIBIT 10.15 EXHIBIT 10.15 AMENDMENT NO. 2 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 (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. 2 to the Plan is hereby adopted by the Company with the following effect: 1. Section 2.7 of the Plan is hereby amended so that such Section 2.7 shall read in its entirety as follows: SECTION 2.7 "Bonus" or "Bonuses" shall mean the full amount of the bonus or similar cash incentive determined and awarded by the Committee (or any other body or individual having authority to award such Bonus) to a Participant 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 Participant in equal monthly installments during the fiscal year or portion thereof with respect to which the Bonus was awarded (except, for a Retired Participant receiving a Retirement Benefit as of the Distribution Date, Bonus or Bonuses shall mean gross cash payments of Bonuses), 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 Participant, shall be treated as 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 a Participant 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 Participant 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 Participant 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. Except as specifically provided in this Amendment No. 2, each and every provision of the Plan is hereby ratified, approved, and confirmed. 3. This Amendment No. 2 shall be deemed effective for all purposes on and as of the date hereof, except that this Amendment No. 2 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. 2 shall be governed by the laws of Delaware except to the extent preempted by ERISA. 5. Capitalized terms used in this Amendment No. 2 and not defined herein shall have the meaning assigned to such terms in the Plan. IN WITNESS WHEREOF, the Company has caused this Amendment No. 2 to be executed by its duly authorized officers this 11th day of March, 1999. UNOVA, INC. WITNESS: ______________________ By: _____________________________ Michael E. Keane WITNESS: ______________________ By: _____________________________ Charles A. Cusumano EX-10.18 7 EXHIBIT 10.18 EXHIBIT 10.18 AMENDMENT NO. 2 TO SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT This Amendment No. 2 to Supplemental Executive Retirement Agreement (this "Amendment"), made and entered into as of this 11th day of March, 1999, 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 (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 2.6 of the Retirement Agreement is hereby further amended so that said Section 2.6 shall read in its entirety as follows: 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). 2. Except as specifically amended hereby, each and every term of the Retirement Agreement is hereby ratified, approved, and confirmed. 3. This Amendment shall be deemed effective for all purposes on and as of the date hereof. 4. 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: ----------------------- Title: ----------------------- ----------------------------- Alton J. Brann EX-10.21 8 EXHIBIT 10.21 EXHIBIT 10.21 AMENDMENT NO. 2 TO EMPLOYEMENT AGREEMENT THIS AMENDMENT NO. 2, EFFECTIVE THE 18TH DAY OF MAY, 1998, IS MADE TO THAT CERTAIN EMPLOYMENT AGREEMENT BETWEEN UNOVA, INC. ("UNOVA") AND CLAYTON A. WILLIAMS (HEREINAFTER CALLED "EXECUTIVE"), DATED AUGUST 1997 (HEREINAFTER CALLED "THE AGREEMENT"), AS PREVIOUSLY AMENDED ON MARCH 24, 1998. WHEREAS, the Compensation Committee of the Board of Directors of UNOVA has approved including Executive in the UNOVA, Inc. Supplemental Employee Retirement Plan (hereinafter call "SERP"), under specified terms and conditions. NOW THEREFORE, by mutual agreement of the parties, the Agreement is hereby further amended as follows: 1. Paragraph 1.1 EMPLOYMENT, of the Agreement is further amended to extend the term of employment from February to December 31, 1999. Upon reaching that date, Executive shall retire as an employee and officer of UNOVA and its subsidiaries or affiliates. 2. Upon retirement Executive shall be entitled to receive retirement benefits under the UNOVA, Inc. SERP offset by company-provided pension benefits payable from Litton Industries, Inc., (Qualified, Part I, Restoration and SERP). However, there will be no offset for company- provided pension benefits that would have been available during Executive's non-participation periods under the UNOVA, Inc. and Western Atlas Inc. retirement plans. Executive shall on December 31, 1999 be considered as vested under the UNOVA, Inc. SERP with 20 years of service. 3. Except as hereby amended, the remaining terms and conditions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above. UNOVA, Inc. EXECUTIVE By: /S/ VIRGINIA S. YOUNG By: /S/ CLAYTON A. WILLIAMS --------------------- ----------------------- Virginia S. Young Clayton A. Williams Vice President and Secretary EX-10.30 9 EXHIBIT 10.30 EXHIBIT 10.30 - ---------------------------------------------------------------------------- EXECUTIVE MEDICAL BENEFITS Covered Payment will be made for 100% of the Covered Expenses incurred Services and by a Covered Person while covered under this Plan. Supplies Covered Expenses are the actual cost to you for services and supplies given for Medical Care. 4 "Medical Care" means the diagnosis, care, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body due to defect, illness, or accidental injury or care during and following pregnancy including treatment of any condition caused by the pregnancy. Medical Care includes prescription drugs, dental and vision care. The Covered Expense must be an allowable tax deductible item as defined under Section 213(d) of the Internal Revenue Code of 1954 and as may be amended from time to time. Payment will be made if the Covered Expenses are more than the benefits payable under both of the following: - The Base Plan whether or not the person is covered under the Base Plan. - Benefits paid for Medical Care under any Workers Compensation Act or similar law. "Base Plan" means the Unova, Inc. Welfare Benefit Plan (Contract No. 186522) or any other medical, surgical or hospital plan; Health Maintenance Organization or prescription drug, dental or vision plan(s) which the Employer (or any designated subsidiary of the Employer) contributes to or otherwise sponsors. Benefits are payable for pregnancy on the same basis as sickness under this Plan. Pregnancy benefits are payable for at least: - 48 hours of inpatient care for the mother and newborn child following a normal vaginal delivery. - 96 hours of inpatient care for the mother and newborn child following a cesarean section. The hospital or other provider is not required to get authorization from the Company for the time periods stated above. Hearing aid services, including full cost of hearing aids and exams to prescribe and fit them. Medical Expense Benefits will be determined on the same basis for the following routine exams as benefits due to a sickness. 1. Cancer screening; Such services will include pap smears which are ordered or provided by a doctor of medicine (M.D.) in accordance with generally accepted medical standards. 2. A mammographic exam for a Covered Person who: resides in Delaware; or is principally employed in Delaware, as follows: A periodic exam in accordance with the following schedule; or as declared appropriate by the Delaware State Board of Health. a. A base line mammogram for a Covered Person who is at least age 35. b. One mammogram every two Calendar Years for a Covered Person who is age 40 to 49, inclusive; provided such mammogram occurs no sooner than two Calendar Years after the Covered Person's base line exam as per a above. c. One mammogram per Calendar Year for a Covered Person who is 50 years of age or older. 5 Upon the recommendation of a Covered Person's physician, any mammogram received by a Covered Person who has been determined by that physician to be at risk for breast cancer. 3. A prostate antigen test for a Covered Person age 50 or older who is: (i) a resident of Delaware; or (ii) principally employed in Delaware. provided the test is ordered by a doctor of medicine (M.D.) in accordance with generally accepted medical standards. 4. Services and supplies received for the routine care of a newborn Dependent child while such child is confined as an inpatient in a Hospital 5. Routine health examinations Any Copayments, Deductibles and any percentage penalties for not obtaining services from a Network Provider under the other Employer sponsored group plan are not payable under this Plan. MAXIMUM BENEFIT There is a Unlimited Maximum Benefit per family for the Executive Medical Benefits. The Unlimited Maximum Benefit is shown in the Schedule of Benefits. It applies to you and all of your Dependents each Calendar Year. NOT COVERED Expenses for the following are not covered under Executive Medical Benefits: - Injury or Sickness caused by war or international armed conflict, except in the case of an innocent bystander taking no active part in the war or international armed conflict. - Services of a person who is a member of your immediate family (your spouse, child, brother, sister, parent or grandparent; your spouse's child, brother, sister, parent or grandparent). - Services of a person who resides in your home. - Expenses not directly involved with Medical Care (as defined in Section 213(d) of the Internal Revenue Code). - Any service or supply that is not allowable as a tax deduction under the Internal Revenue Code. - injury which happens during work at any job for pay or profit. - Expenses incurred before you or your Dependent becomes covered. - Expenses for long term care. - Cosmetic or reconstructive surgery or treatment. (This is surgery or treatment primarily to change appearance.) It does not matter whether or not it is for psychological or emotional reasons. However, the following will be covered if it is for: - Reconstructive surgery in connection with surgical treatment of injury or Sickness. - Correction of deformities caused by Sickness. 6 - Correction of damage caused by accidental injury sustained by you or a Dependent while the injured person is covered. - Correction of birth defects which are outside the normal range of human variation. - Custodial Care. This is care made up of services and supplies that meets one of the following conditions: - Care furnished mainly to train or assist in personal hygiene or other activities of daily living, rather than to provide medical treatment. - Care that can safely and adequately be provided by persons who do not have the technical skills of a covered health care professional. - Care that meets one of these conditions is custodial care regardless of any of the following: - Who recommends, provides or directs the care. - Where the care is provided - Whether or not the patient or another caregiver can be or is being trained to care for himself or herself. - Education, training and bed and board while confined in an institution which is mainly a school or other institution for training, a place of rest, a place for the aged or a nursing home. - Expenses and associated expenses incurred for services and supplies for Experimental, Investigational or Unproven Services, except for services which are otherwise Experimental, Investigational, or Unproven that are deemed to be, in the Company's judgment, covered transplant services. The fact that an Experimental, Investigational or Unproven Service, is the only available treatment for a particular condition will not result in coverage if the procedure is considered to be Experimental, Investigational or Unproven for the treatment of that particular condition. - Services and supplies which the Covered Person is not legally required to pay. - Services or supplies which are not Medically Necessary, including any confinement or treatment given in connection with a service or supply which is not Medically Necessary. - Treatment for infertility, including but not limited to in-vitro fertilization (IVF), gamete intrafallopian tube transfers (GIFT), and artificial insemination. 7 EX-21 10 EX-21 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 11 EXHIBIT 23 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, and 333-39007 of UNOVA, Inc. each filed on Form S-8, of our report dated February 12, 1999, appearing in this Annual Report on Form 10-K of UNOVA, Inc. for the year ended December 31, 1998. DELOITTE & TOUCHE LLP Los Angeles, California March 26, 1999 E-6 EX-27 12 EX-27
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 17,708 0 662,885 0 336,005 1,179,500 464,387 178,216 1,979,216 787,287 603,763 0 0 549 700,876 1,979,216 1,662,663 1,662,663 1,110,799 1,110,799 440,706 0 28,182 116,966 47,253 69,713 0 0 0 69,713 1.28 1.27
-----END PRIVACY-ENHANCED MESSAGE-----