-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, iv2n+dcRRdkLrtV/wKM+gJvY3AgoHdV7zjyESW6DDNLDRuGhmMcZD3SD8ltk2Pnj +SD4mu3J/ppRVr2Ln/vElg== 0000050485-94-000005.txt : 19940331 0000050485-94-000005.hdr.sgml : 19940331 ACCESSION NUMBER: 0000050485-94-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INGERSOLL RAND CO CENTRAL INDEX KEY: 0000050485 STANDARD INDUSTRIAL CLASSIFICATION: 3560 IRS NUMBER: 135156640 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-00985 FILM NUMBER: 94518906 BUSINESS ADDRESS: STREET 1: 200 CHESTNUT RIDGE RD CITY: WOODCLIFF LAKE STATE: NJ ZIP: 07675 BUSINESS PHONE: 2015730123 MAIL ADDRESS: STREET 1: 200 CHESTNUT RIDGE ROAD CITY: WOODCLIFF LAKE STATE: NJ ZIP: 07675 10-K 1 FORM 10-K FOR FISCAL YEAR-ENDED DECEMBER 31, 1993 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-985 INGERSOLL-RAND COMPANY (Exact name of registrant as specified in its charter) New Jersey 13-5156640 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Woodcliff Lake, New Jersey 07675 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201)573-0123 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Series A Preference New York, London and Stock Purchase Rights Amsterdam Stock Exchanges Common Stock, $2 par value New York, London and Amsterdam Stock Exchanges 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 [ ] 1 The aggregate market value of common stock held by nonaffiliates on March 10, 1994 was $4,063,998,940 based on the closing price of such stock on the New York Stock Exchange. The number of shares of common stock outstanding as of March 10, 1994 was 105,447,690. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareowners for fiscal year ended December 31, 1993. With the exception of those portions which are incorporated by reference into Parts I, II and IV of this Form 10-K Annual Report, the 1993 Annual Report to Shareowners is not to be deemed filed as part of this report. Proxy Statement for Annual Meeting of Shareholders to be held on April 28, 1994. See Part III of this Form 10-K Annual Report for portions incorporated by reference. (A definitive proxy statement has been filed with the Commission since the close of the fiscal year). PART I Item 1. BUSINESS Ingersoll-Rand Company (the company) was organized in 1905 under the laws of the State of New Jersey as a consolidation of Ingersoll-Sergeant Drill Company and the Rand Drill Company, whose businesses were established in the early 1870's. Over the years the company has supplemented its original business, which consisted primarily of the manufacture and sale of rock drilling equipment, with additional products which have been developed internally or obtained through acquisition. On December 31, 1986, the company and Dresser Industries, Inc. (Dresser) formed Dresser-Rand Company (Dresser-Rand), a partnership comprising the worldwide reciprocating compressor and turbomachinery businesses of the two companies. Dresser-Rand, originally a 50/50 partnership, commenced operations on January 1, 1987. Effective October 1, 1992, Dresser increased its ownership interest in the partnership to 51 percent from 50 percent. The company's ownership interest is now 49 percent. Dresser-Rand manufactures products such as gas turbines, gas compressors, power recovery systems, reciprocating gas engines and steam turbines, which were previously manufactured by the company. 2 Effective October 1, 1992, the company and Dresser formed Ingersoll-Dresser Pump Company (IDP), a partnership which is owned 51 percent by the company and 49 percent by Dresser. This joint venture includes the majority of the worldwide pump operations of the two companies, and its results have been included in the consolidated financial statements of the company since the formation date. The following acquisitions have been accounted for as purchases and, accordingly, each purchase price was allocated to the acquired assets and assumed liabilities based on their estimated fair values. The results of operations since the dates of acquisition are included in the consolidated financial statements. o Effective February 1, 1990, the company completed the acquisition of The Aro Corporation (Aro) and its subsidiaries for $131.5 million in cash, from Todd Shipyards Corporation. Aro is a manufacturer of air-powered tools, valves, pumps and related equipment. o On October 31, 1990, the company acquired ABG Verwaltungs GmbH and related entities (ABG) for $35.4 million in cash. ABG is a manufacturer of paving equipment and other road machinery. During 1990, the company also acquired several smaller operations for approximately $27.7 million in cash. o In early 1992, the company acquired Industrias del Rodamiento, S.A. (IRSA) for $14.0 million in cash and $1.8 million in notes. IRSA manufactures and markets an extensive line of bearings, as well as wheel kits and automotive accessories. o In August 1993, the company acquired the Kunsebeck, Germany, needle and cylindrical bearing business of FAG Kugelfischer Georg Schafer AG of Schweinfurt, Germany, for $42.5 million in cash, subject to final contract negotiations. Dispositions that the company has made in recent years are as follows: o The company sold on January 18, 1991, Schlage Electronics, a business unit of the company's Schlage Lock Company. The sales price was in excess of the carrying value of the investment in Schlage Electronics. o The company sold the assets of several small business units in 1993, as well as substantially all of the assets of its coal- mining machinery and aerospace bearings businesses for $55.5 million in cash. 3 Products The company manufactures and sells primarily nonelectrical machinery and equipment. Principal products include the following: Abrasive blasting and recovery Industrial pumps systems Lubrication equipment Air compressors Material handling equipment Air dryers Mining machinery Air logic controls Monitoring drills Air motors Needle roller bearings Air tools Pavement-milling machines Architectural hardware trim Paving equipment Asphalt compactors Pellet mills Automated-parts finishing Pneumatic cylinders systems Pneumatic valves Automated production systems Portable compressors Automotive components Portable generators Ball bearings Portable light towers Construction equipment Pulp-processing machinery Dewatering presses Road-building machinery Diaphragm pumps Rock drills Door closers Roller bearings Door hardware Roller mills Door locks Rotary drills Emergency exit devices Rough-terrain forklifts Engineered pumps Separation equipment Engine-starting systems Soil compactors Extrusion systems Spray-coating systems Fluid-handling equipment Waterjet-cutting systems Food-processing equipment Water well drills Foundation drills Winches Hoists These products are sold primarily under the company's name and also under other names including Torrington, Fafnir, Klemm, Schlage, CPM, LCN Closers, Von Duprin, Aro, ABG, Ingersoll-Dresser Pumps, Pacific, Worthington, Jeumont-Schneider Pumps and Pleuger. During the past three years, the division of the company's sales between capital goods and expendables has been in the approximate ratio of 56 percent and 44 percent, respectively. The company generally defines as expendables those products which are not capitalized by the ultimate user. Examples of such products are parts sold for replacement purposes, power tools and needle bearings. The seasonal business of the company is insignificant. 4 Additional information on the company's business and financial information about industry segments is presented in Footnote 16 of the Annual Report to Shareowners for 1993, incorporated by reference in this Form 10-K Annual Report. Distribution The company's products are distributed by a number of methods which the company believes are appropriate to the type of product. Sales are made domestically through branch sales offices and through distributorships and dealers across the United States. International sales are made through approximately 60 subsidiary sales and service companies with a supporting chain of distributors in over 100 countries. Working Capital The working capital requirements of the company vary with respect to the many products and industries in which it is involved. In general, the requirements of its Engineered Equipment Segment, which manufactures machinery for specialized customer needs, involve a relatively long lead time and, at times, more significant company investment with respect to the particular product or order. Historically, these orders are generally covered by progress payments, which reduce the company's investment in the amount of inventory maintained by this segment. The products manufactured by the company's Standard Machinery and Bearings, Locks and Tools segments are more in the nature of standard equipment. Consequently, a wider variety must usually be more readily available to meet rapid delivery requirements. Such working capital requirements are not, however, in the opinion of management, materially different from those experienced by the company's major competitors. Customers No material part of the company's business is dependent upon a single customer or very few customers, the loss of any one of which would have a material adverse effect on the company's operations. Competitive Conditions The company's products are sold in highly competitive markets throughout the world against products produced by both foreign and domestic corporations. The principal methods of competition in these markets relate to price, quality and service. The company believes that it is one of the leading manufacturers in the world of a broad line of air compression systems, anti-friction bearings, construction equipment, air tools and pumps (through the IDP joint venture). In addition, it believes it is also an important factor in domestic markets for locks and other door hardware products. 5 International Operations Sales to customers outside the United States, including domestic sales for export, accounted for approximately 40 percent of the consolidated net sales in 1993. Information as to operating income by geographic area is set forth in Footnote 16 of the Annual Report to Shareowners for 1993, incorporated by reference in this Form 10-K Annual Report. Sales outside of the United States are made in more than 100 countries; therefore, the attendant risks of manufacturing or selling in a particular country, such as nationalization and establishment of common markets, would not have a significant effect on the company's international operations. Raw Materials The company manufactures many of the components included in its products. The principal raw materials required for the manufacture of the company's products are purchased from numerous suppliers, and the company believes that available sources of supply will generally be sufficient for its needs for the foreseeable future. Backlog The company's approximate backlog of orders at December 31, 1993, believed by it to be firm, was $134 million for the Standard Machinery Segment, $393 million for the Engineered Equipment Segment and $395 million for the Bearings, Locks and Tools Segment as compared to $131 million, $428 million and $373 million, respectively, at December 31, 1992. These backlog figures are based on orders received. While the major portion of the company's products are built in advance of order and either shipped or assembled from stock, orders for specialized machinery or specific customer application are submitted with extensive lead time and are often subject to revision, deferral, cancellation or termination. The company estimates that approximately 90 percent of the backlog will be shipped during the next twelve months. Research, Engineering and Development The company maintains extensive research, engineering and development facilities for experimenting, testing and developing high quality products. The company employs approximately 1,500 professional employees for its research, engineering and development activities. The company spent $150 million in 1993, $138 million in 1992 and $124 million in 1991 on research, engineering and development. 6 Patents and Licenses The company owns numerous patents and patent applications and is licensed under others. While it considers that in the aggregate its patents and licenses are valuable, it does not believe that its business is materially dependent on its patents or licenses or any group of them. In the company's opinion, engineering and production skills, and experience are more responsible for its market position than patents or licenses. Environmental Matters The company's facilities are subject to environmental regulation by federal, state and local authorities. It is the company's policy to comply with all environmental regulatory requirements and the company is in substantial compliance with those laws and regulations. While there is some degree of uncertainty associated with the compliance costs resulting from new regulatory initiatives such as the 1990 Amendments to the Clean Air Act, which have not as yet been fully implemented, the ongoing cost of compliance has not had, nor is it expected to have, a material adverse effect upon the company's capital expenditures or financial position. Federal Superfund and similar state laws impose joint and several responsibility for cleaning up designated hazardous sites not only on the owner and operator but also on any person who contributed hazardous waste to the site. As of December 31, 1993, the company has been identified as a potentially responsible party ("PRP") in connection with 29 federal and state superfund sites. At all these sites there are other PRPs and to date there is no indication the company will be liable for more than its pro rata share of remediation costs at any site. While some of these sites are still under investigation, in the aggregate, the company's anticipated pro rata share of responsibility at these sites is not deemed to be material. Additional lawsuits and claims involving environmental matters are likely to arise from time to time. In addition, the company continues to investigate and remediate environmental contamination from past operations at its facilities. Based upon the company's experience to date with environmental claims and litigation and with site investigation and remediation, its expenditures for environmental purposes have not been and are not expected to be material or to have a material adverse effect on the company's capital expenditures, earnings or competitive position. (See also Financial Review and Management Analysis in the Annual Report to Shareowners for 1993 included as Exhibit 13 to this report.) 7 Employees There are approximately 35,100 employees of the company throughout the world, of whom approximately 22,800 work in the United States and 12,300 in foreign countries. Approximately 18 percent of the company's production and maintenance employees, who work in 9 plants in the United States, are represented by 7 unions. The company believes relations with its employees are satisfactory. Item 2. PROPERTIES The company's executive offices are located at Woodcliff Lake, New Jersey. Manufacturing and assembly operations are conducted in 48 plants in the United States; 6 plants in Canada; 26 plants in Europe; 5 plants in the Far East; 5 plants in Latin America; 2 plants in Asia and 1 plant in Africa. The company also maintains various warehouses, offices and repair centers in the United States, Canada and abroad. Substantially all plant facilities are owned by the company and the remainder are under long-term lease. The company believes that its plant and equipment have been well maintained and are generally in good condition. The company has several closed facilities that it is actively marketing with the intent of selling them at their net realizable value. The operating segments for which the facilities are primarily used are as described below. Facilities that produce products in several operating segments are classified by the products which they primarily manufacture. Facilities under long-term lease are included below and are not significant to each operating segment's total number of plants or square footage. Standard Machinery This segment's products include machinery regularly used in general manufacturing and in industries such as mining and construction. Products range from blasthole drills used in mining and construction to small air compressors found worldwide in auto service stations. The segment is aligned into two operating groups: Air Compressor Group and Construction and Mining Group. The segment's manufacturing locations are as follows: Approximate Number of Plants Square Footage Domestic 7 1,884,000 International 11 1,889,000 Total 18 3,773,000 8 Engineered Equipment The products manufactured by this segment are predominantly designed for specific customer applications. The segment's diverse product line includes pumps, liquid/solid separation and densification machinery. The segment is organized into two operating groups: Pump Group and Process Systems Group. The segment's manufacturing facilities are as follows: Approximate Number of Plants Square Footage Domestic 12 2,473,000 International 19 2,457,000 Total 31 4,930,000 Bearings, Locks and Tools This segment primarily serves the automotive, capital goods, energy and construction industries. Products in this segment include bearings for specialized and industrial application, locks and door hardware for residential and commercial buildings, air tools for industrial use, air winches, hoists and engine starting systems, and automated production systems for transportation equipment manufacturers. There are three operating groups in this segment: Bearings and Components Group, Production Equipment Group and Door Hardware Group. The segment's manufacturing facilities are as follows: Approximate Number of Plants Square Footage Domestic 29 6,358,000 International 15 1,607,000 Total 44 7,965,000 Item 3. LEGAL PROCEEDINGS In the normal course of business, the company is involved in a variety of lawsuits, claims and legal proceedings, including proceedings for the cleanup of 29 waste sites under Superfund and similar state laws. In the opinion of the company pending legal matters, including those discussed below, are not expected to have a material adverse effect on its operations or financial condition. 9 By letter received on May 8, 1991, the Connecticut Department of Environmental Protection ("CTDEP") assessed a civil penalty in the amount of $207,500 on The Torrington Company, a wholly-owned subsidiary of the company ("Torrington"), for alleged effluent violations of a state wastewater discharge permit issued to Torrington's Newington facility. This penalty amount was calculated by CTDEP based on a stipulated judgment dated September 29, 1988, which provides for civil penalties to be assessed against Torrington for effluent violations of its discharge permit. This Stipulated Judgment was entered in an action entitled Stanley J. Pac, Commissioner of Environmental Protection v. Fafnir Bearing Division, The Torrington Company, in the Superior Court for the Judicial District of Hartford/New Britain at Hartford. Pursuant to a settlement agreement with CTDEP in February 1994, the penalty assessment was reduced to $130,475 and was paid by Torrington. By letter dated June 18, 1992, Torrington was notified by the Office of the Attorney General of the state of Connecticut of a $675,000 penalty assessed against several of its plants located in Connecticut for alleged violations of state wastewater discharge regulations. On February 28, 1994, a Stipulated Judgment was entered in an action entitled Timothy R. E. Keeney, Commissioner of Environmental Protection v. The Torrington Company, in the Superior Court for the Judicial District of Hartford/New Britain at Hartford, pursuant to which the penalty assessment was reduced to $271,525 and paid by Torrington. Torrington is required under the Stipulated Judgment to perform certain investigative and testing activities to identify potential sources of contaminants at the involved plants. The Stipulated Judgment also includes stipulated penalties for any future violations of effluent limitations contained in discharge permits held by the involved plants. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the company's security holders during the last quarter of its fiscal year ended December 31, 1993. 10 The following information is included in accordance with the provision of Part III, Item 10. Date of Service as Principal Occupation and an Executive Other Information Name and Age Officer for Past Five Years James E. Perrella(58) 5/4/77 Chairman of the Board, President and Chief Executive Officer, Director (President and Director, September 1992 - October 1993; Executive Vice President, 1982 - 1992) Thomas E. Bennett(64) 8/7/74 Executive Vice President (Executive Vice President and President of IDP, October 1992 - March 1994; Executive Vice President and President of the Bearings and Components Group, 1989 - October 1992; Vice President and President of the Bearings and Components Group, 1981 - 1989) William G. Mulligan(63) 5/2/73 Executive Vice President J. Frank Travis(58) 2/7/90 Executive Vice President (Vice President and President of the Bearings and Components Group, February 1992 - December 1993; President of the Air Compressor Group, 1989 - February 1992) Thomas F. McBride(58) 9/5/79 Senior Vice President and Chief Financial Officer (Senior Vice President and Comptroller, February 1992 - May 1993; Vice President and Comptroller, 1981 - 1992) William J. Armstrong(52) 8/3/83 Vice President and Treasurer Paul L. Bergren(44) 12/2/92 Vice President and President of the Air Compressor Group (Vice President and General Manager - Centrifugal Compressor Division, 1989 - 1992) Frederick W. Hadfield(57) 8/1/79 Vice President and President of IDP (Vice President, 1979 - March 1994) 11 Date of Service as Principal Occupation and an Executive Other Information Name and Age Officer for Past Five Years Daniel E. Kletter(55) 2/7/90 Vice President and President of the Construction and Mining Group (Vice President and General Manager - Portable Compressor Division, 1981 - 1989) David W. Lasier(61) 3/2/88 Vice President and President of Door Hardware Group Patricia Nachtigal(47) 11/2/88 Vice President and General Counsel (Secretary and Managing Attorney, 1988 - 1991) James R. O'Dell(55) 12/3/88 Vice President Larry H. Pitsch(53) 2/7/90 Vice President and President of the Process Systems Group (President of Industrial Process Machinery Group, 1985 - 1989) Gerald E. Swimmer(49) 5/1/82 Vice President R. Barry Uber(48) 2/7/90 Vice President and President of the Production Equipment Group (Vice President and General Manager - Power Tool Division, 1985 - 1989) Ronald G. Heller(47) 2/6/91 Secretary and Assistant General Counsel (Assistant General Counsel, 1988 - 1991) No family relationship exists between any of the above-listed executive officers of the company. All officers are elected to hold office for one year or until their successors are elected and qualify. 12 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information regarding the principal market for the company's common stock and related stockholder matters are as follows: Quarterly share prices and dividends for the common stock are shown in the following tabulation. The common shares are listed on the New York Stock Exchange and also on the London and Amsterdam exchanges. Common Stock High Low Dividend 1993 First quarter $36 1/4 $28 3/4 $.175 Second quarter 35 3/8 29 1/2 .175 Third quarter 39 3/4 31 .175 Fourth quarter 39 7/8 35 .175 High Low Dividend 1992 First quarter $33 3/16 $26 1/4 $.165 Second quarter 32 1/4 25 3/8 .175 Third quarter 30 1/4 25 .175 Fourth quarter 34 1/4 26 3/8 .175 The Bank of New York (Church Street Station, P.O. Box 11258, New York, NY 10286-1258,(800)524-4458) is the transfer agent, registrar and dividend reinvestment agent. There are no significant restrictions on the payment of dividends. The approximate number of record holders of common stock as of March 10, 1994 was 16,000. 13 Item 6. SELECTED FINANCIAL DATA Selected financial data for the five years ended December 31, 1993, is as follows (in thousands except per share amounts): December 31 1993 1992 1991 1990 1989 Net sales $4,021,071 $3,783,787 $3,586,220 $3,737,847 $3,447,407 Net earnings (loss) 142,524 (234,406) 150,589 185,343 210,751 Total assets 3,375,332 3,387,552 2,979,560 2,982,507 2,594,591 Long-term debt 314,136 355,598 375,846 265,163 279,916 Shareowners' equity 1,349,825 1,293,375 1,633,056 1,556,424 1,376,865 Earnings (loss) per common share $1.36 $(2.25) $1.45 $1.78 $1.98 Dividends per common share 0.70 0.69 0.66 0.63 0.58
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations is included as Financial Review and Management Analysis in Exhibit 13 - the Annual Report to Shareowners for 1993 and is incorporated by reference in this Form 10-K Annual Report. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements and supplementary financial information included in the accompanying Annual Report to Shareowners for 1993 are incorporated by reference in this Form 10-K Annual Report: (a) The consolidated financial statements and the report thereon of Price Waterhouse dated February 1, 1994, are included as Exhibit 13 - the Annual Report to Shareowners (excluding the Financial Review and Management Analysis) for 1993. 14 (b) The unaudited quarterly financial data for the two-year period ended December 31, 1993, is as follows (in thousands except per share amounts): Earnings Net (loss) per Net Cost of Operating earnings common 1993 sales goods sold income (loss) share First quarter $ 952,105 $ 728,042 $ 45,150 $ 3,628 $ .04 Second quarter 1,006,773 752,816 69,344 35,937 .34 Third quarter 973,524 736,244 64,505 35,186 .33 Fourth quarter 1,088,669 799,588 112,515 67,773 .65 Year 1993 $4,021,071 $3,016,690 $291,514 $ 142,524 $ 1.36 1992 First quarter $ 861,242 $ 666,132 $ 40,422 $(329,438) $(3.16) Second quarter 926,932 708,874 62,049 32,638 .31 Third quarter 904,015 695,563 40,097 29,970 .29 Fourth quarter 1,091,598 811,292 32,671 32,424 .31 Year 1992 $3,783,787 $2,881,861 $175,239 $(234,406) $(2.25)
o During the fourth quarter of 1993, the company retroactively changed its method of accounting for postemployment benefits. The effect of this change on the company amounted to $21.0 million (net of tax) and resulted in the restatement of the company's net earnings for the first quarter from $24.6 million ($0.24 per share) to $3.6 million ($0.04 per share). o During the second quarter of 1993, the company recorded a $5.0 million ($0.03 per share) restructure of operations charge, related to the sale of substantially all of the underground coal-mining machinery assets (see Note 4 to the Consolidated Financial Statements). o The reductions in LIFO inventory quantities increased net earnings per share by $0.02, $0.05, $0.01 and $0.02 in the second and fourth quarters of 1993 and 1992, respectively. 15 o During the fourth quarter of 1992, the company retroactively changed its method of accounting for postretirement benefits other than pensions and deferred income taxes. The effect of these changes for the periods prior to January 1, 1992, amounted to $350.0 million (net of tax), and resulted in the restatement of the company's net earnings for the first quarter from $26.4 million ($0.25 per share) to a net loss of $329.4 million ($3.16 per share). These changes also resulted in the restatement of the company's net earnings for the second and third quarters of the year from $38.6 million ($0.37 per share) and $35.9 million ($0.35 per share) to $32.6 million ($0.31 per share) and $30.0 million ($0.29 per share), respectively. o The fourth quarter of 1992 included the results of the Ingersoll-Dresser Pump Company formed on October 1, 1992 (see Note 2 to the Consolidated Financial Statements). o In the third quarter of 1992, the company recorded a $10.0 million ($0.06 per share) restructure of operations charge relating to its aerospace bearings business (see Note 4 to the Consolidated Financial Statements). o The fourth quarter of 1992 included a $70.0 million restructuring charge relating to the Ingersoll-Dresser Pump Company. The company's portion of the restructure of operations charge for IDP was $35.0 million pretax and $25.7 million ($0.25 per share) after-tax. Item 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 16 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is (i) incorporated by reference in this Form 10-K Annual Report from pages 3, 4, 6, and 7 of the company's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 28, 1994, and (ii) included in Part I on pages 11 and 12 of this Form 10-K Annual Report. Item 11. EXECUTIVE COMPENSATION Information on executive compensation is incorporated by reference in this Form 10-K Annual Report from pages 7 through 19 of the company's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 28, 1994. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information on security ownership of directors and nominees, directors and officers as a group and certain beneficial owners is incorporated by reference in this Form 10-K Annual Report on pages 5 and 6 of the company's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 28, 1994. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by Item 13 is incorporated by reference in this Form 10-K Annual Report from page 20 of the company's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 28, 1994. 17 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. and 2. Financial statements and financial statement schedules The financial statements, together with the report thereon of Price Waterhouse dated February 1, 1994, included as Exhibit 13 (excluding Financial Review and Management Analysis) and the unaudited quarterly financial data included in Part II Item 8(b) are incorporated by reference in this Form 10-K Annual Report. The financial statement schedules listed in the accompanying index on page 19 should be read in conjunction with the financial statements in such Annual Report to Shareowners for 1993. Separate financial statements for all 50 percent or less owned companies, accounted for by the equity method have been omitted because no individual entity constitutes a significant subsidiary. 3. Exhibits The exhibits listed on the accompanying index to exhibits on pages 26 and 27 are filed as part of this Form 10-K Annual Report. (b) Reports on Form 8-K None. 18 INGERSOLL-RAND COMPANY INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (Item 14 (a) 1 and 2) Form 10-K Consolidated Financial Statements: Report of independent accountants . . . . . . . . . . * Consolidated balance sheet at December 31, 1993 and 1992 . . . . . . . . . . . . * For the years ended December 31, 1993, 1992 and 1991: Consolidated statement of income . . . . . . . . . * Consolidated statement of shareowners' equity . . . . . . . . . . . . . . . . . . . . . * Consolidated statement of cash flows . . . . . . . * Notes to consolidated financial statements . . . . . * Selected unaudited quarterly financial data . . . . . . 15 Financial Statement Schedules: Report of independent accountants on financial statement schedules . . . . . . . . . . . 20 Consolidated schedules for the years ended December 31, 1993, 1992 and 1991: Schedule V -- Property, Plant and Equipment . . . . 21 Schedule VI -- Accumulated Depreciation and Amortization of Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . 22 Schedule VIII -- Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . 23 Schedule IX -- Short-Term Borrowings . . . . . . . 24 Schedule X -- Supplementary Income Statement Information . . . . . . . . . . . . . . . . . . . 25 * See Exhibit 13 - Ingersoll-Rand Company Annual Report to Shareowners for 1993. Financial statement schedules not included in this Form 10-K Annual Report have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Financial statements of the company's 50 percent or less owned companies, are omitted because individually they do not meet the significant subsidiary test of Rule 3-09 of Regulation S-X. 19 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Ingersoll-Rand Company: Our audits of the consolidated financial statements referred to in our report dated February 1, 1994 included as part of Exhibit 13 - the Annual Report to Shareowners for 1993 of Ingersoll-Rand Company, (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /S/ Price Waterhouse PRICE WATERHOUSE Hackensack, New Jersey February 1, 1994 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (No. 33-53696) and Form S-8 (Post-Effective Amendment No. 4 to No. 2-64708, No. 2-67834, No. 2-98258 and No. 33-35229) of Ingersoll-Rand Company of our report dated February 1, 1994 included as part of Exhibit 13 - the Annual Report to Shareowners for 1993, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on this page. /S/ Price Waterhouse PRICE WATERHOUSE Hackensack, New Jersey March 30, 1994 20 SCHEDULE V INGERSOLL-RAND COMPANY PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 (Amounts in thousands) Balance at Balance beginning Additions Retirements at end Classification of year at cost or sales Other (*) of year Year ended December 31, 1993 Land $ 43,813 $ 2,697 $ 684 $ (375) $ 45,451 Buildings 448,086 40,682 11,645 (826) 476,297 Machinery, tools and equipment 1,030,443 139,827 142,787 1,728 1,029,211 Furniture and fixtures 93,016 12,849 10,921 748 95,692 Vehicles 19,559 2,288 2,440 (630) 18,777 $1,634,917 $198,343 $168,477 $ 645 $1,665,428 Year ended December 31, 1992 Land $ 33,256 $ 2,770 $ 327 $ 8,114 $ 43,813 Buildings 391,585 24,854 8,036 39,683 448,086 Machinery, tools and equipment 873,057 150,454 109,997 116,929 1,030,443 Furniture and fixtures 89,629 8,055 8,444 3,776 93,016 Vehicles 17,909 2,643 2,005 1,012 19,559 $1,405,436 $188,776 $128,809 $169,514 $1,634,917 Year ended December 31, 1991 Land $ 34,537 $ 74 $ 1,211 $ (144) $ 33,256 Buildings 383,183 21,022 10,782 (1,838) 391,585 Machinery, tools and equipment 826,950 145,277 93,315 (5,855) 873,057 Furniture and fixtures 86,488 15,552 11,456 (955) 89,629 Vehicles 17,477 2,913 2,326 (155) 17,909 $1,348,635 $184,838 $119,090 $ (8,947) $1,405,436 The classification "Machinery, tools and equipment" includes the activity and balances of the company's rental fleet. (*) "Other" items represent foreign currency translation and acquisitions. In 1992, amounts contributed by Dresser Industries, Inc. to Ingersoll-Dresser Pump Company, were also included.
21 INGERSOLL-RAND COMPANY SCHEDULE VI ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 (Amounts in thousands) Additions Balance at charged to Balance beginning costs and Retirements at end Classification of year expenses or sales Other (*) of year Year ended December 31, 1993 Buildings $176,879 $ 19,730 $ 7,193 $ (3,598) $185,818 Machinery, tools and equipment 539,752 96,343 99,739 (7,481) 528,875 Furniture and fixtures 58,663 15,071 9,602 (1,767) 62,365 Vehicles 12,519 2,082 979 (396) 13,226 $787,813 $133,226 $117,513 $(13,242) $790,284 Year ended December 31, 1992 Buildings $143,402 $ 15,957 $ 4,763 $ 22,283 $176,879 Machinery, tools and equipment 417,655 99,011 70,848 93,934 539,752 Furniture and fixtures 50,935 12,895 7,855 2,688 58,663 Vehicles 10,337 3,202 1,552 532 12,519 $622,329 $131,065 $ 85,018 $119,437 $787,813 Year ended December 31, 1991 Buildings $136,269 $ 14,170 $ 6,608 $ (429) $143,402 Machinery, tools and equipment 390,207 87,736 56,748 (3,540) 417,655 Furniture and fixtures 47,765 14,474 10,968 (336) 50,935 Vehicles 8,472 3,782 1,844 (73) 10,337 $582,713 $120,162 $ 76,168 $ (4,378) $622,329 Depreciation on buildings is provided principally on a straight-line basis over estimated useful lives of 10 to 40 years. Depreciation for all other fixed assets is calculated on an accelerated basis (principally, the sum-of-the-years digits method) over estimated useful lives; machinery, tools and equipment - 6 to 12 years; furniture and fixtures - 5 to 10 years; vehicles - 3 to 7 years. The classification "Machinery, tools and equipment" includes the activity and balances of the company's rental fleet. (*) "Other" represents foreign currency translation. In 1992, amounts contributed by Dresser Industries, Inc. to Ingersoll-Dresser Pump Company, were also included.
22 SCHEDULE VIII INGERSOLL-RAND COMPANY VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 (Amounts in thousands) Additions charged to Balance at costs and Balance beginning expenses Deductions at end Description of year (*) (**) of year 1993 Doubtful accounts $23,057 $10,218 $11,186 $22,089 1992 Doubtful accounts $18,772 $12,590 $ 8,305 $23,057 1991 Doubtful accounts $17,045 $ 9,157 $ 7,430 $18,772 (*) "Additions" include foreign currency translation and in 1992 amounts contributed by Dresser Industries, Inc. to Ingersoll-Dresser Pump. (**) "Deductions" include accounts and advances written off, less recoveries. 23 SCHEDULE IX INGERSOLL-RAND COMPANY SHORT-TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 (Dollar amounts in thousands) Weighted Maximum Average Weighted Category of average amount amount average aggregate Balance at interest outstanding outstanding interest rate short-term end of rate at during the during the during the borrowings period end of period period period period 1993 Bank loans $124,977 7.89% $184,103 $159,108 7.77% Commercial paper -- -- -- -- -- Current maturities of long-term debt 81,962 8.55% 88,319 38,459 8.19% 1992(*) Bank loans $184,106 9.64% $223,580 $166,495 10.39% Commercial paper -- -- -- -- -- Current maturities of long-term debt 17,231 7.73% 17,231 11,210 7.47% 1991 Bank loans $109,941 11.33% $212,075 $173,697 11.80% Commercial paper -- -- 124,000 56,861 6.63% Current maturities of long-term debt 8,380 7.05% 21,200 8,775 7.32% The average short-term borrowings and interest rates were based on the sum of the month-end borrowings and interest rates divided by the number of months outstanding. Maturities of commercial paper at issuance can range up to 180 days. Bank loans represent obligations payable to various banks and financial institutions and are obtained on an as needed basis at various terms. (*) The company had $64,000,000 of short-term debt and equivalent amounts of short-term investments at December 31, 1992 for which the company had a right of offset. Accordingly, the debt and investments have been eliminated from the December 31, 1992 balance sheet and this schedule.
24 SCHEDULE X INGERSOLL-RAND COMPANY SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 (Amounts in thousands) Item Charged to costs and expenses 1993 1992 1991 Maintenance and repairs . . . . $78,794 $73,216 $72,771 Amortization of intangible assets . . . . . . . . . . . $ 5,852 $ 5,597 $ 6,675 Taxes, other than payroll and income taxes . . . . . . . . $24,875 $28,545 $28,823 Royalties and advertising costs were less than one percent of sales. 25 INGERSOLL-RAND COMPANY INDEX TO EXHIBITS (Item 14(a)) Description Page 3 (i) Amendment to Restated Certificate of Incorporation of Ingersoll-Rand Company filed May 28, 1992. 30-32 3 (ii) Restated Certificate of Incorporation of Ingersoll-Rand Company as amended through May 28, 1992. 33-60 3 (iii) By-Laws of Ingersoll-Rand Company, as amended through October 1, 1993. 61-77 4 (iii) Ingersoll-Rand Company is a party to several long-term debt instruments under which in each case the total amount of securities authorized does not exceed 10% of the total assets of Ingersoll-Rand Company and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, Ingersoll-Rand Company agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request. -- 10 (iii) The following exhibits constitute management contracts or compensatory plans or arrangements required by Item 601 of Regulation S-K. -- 10 (iii) (a) Management Incentive Unit Plan of Ingersoll- Rand Company. Amendment to the Management Incentive Unit Plan, effective January 1, 1982. Amendment to the Management Incentive Unit Plan, effective January 1, 1987. Amendment to the Management Incentive Unit Plan, effective June 3, 1987. 78-92 10 (iii) (b) Description of Compensation Plan for Retired Directors of Ingersoll-Rand Company. 93 10 (iii) (c) Form of Contingent Compensation Agreements with Executive Vice Presidents and Group Presidents of Ingersoll-Rand Company. 94-99 10 (iii) (d) Description of Bonus Arrangements for Chairman, President and Staff Officers. 100 10 (iii) (e) Form of Change of Control Arrangements with Chairman and Chief Executive Officer. 101-113 10 (iii) (f) Form of Change of Control Arrangements with selected executive officers. 114-126 26 INGERSOLL-RAND COMPANY INDEX TO EXHIBITS (Item 14(a)) (Continued) Description Page 10 (iii) (g) Executive Supplementary Retirement Plan for selected senior executives. 127-132 10 (iii) (h) Incentive Stock Plan of 1985 of Ingersoll- Rand Company. 133-151 10 (iii) (i) Forms of insurance and related letter agreements with certain executive officers. 152-160 10 (iii) (j) Incentive Stock Plan of 1990 of Ingersoll- Rand Company. 161-182 10 (iii) (k) Restated Supplemental Pension Plan effective January 1, 1992. 183-188 10 (iii) (l) Supplemental Stock and Savings Investment Plan effective as of January 1, 1989. 189-198 10 (iii) (m) Supplemental Retirement Account Plan effective as of January 1, 1989. 199-206 11 (i) Computation of Primary Earnings Per Share. 207-208 11 (ii) Computation of Fully Diluted Earnings Per Share. 209-210 12 Computations of Ratios of Earnings to Fixed Charges. 211 13 Ingersoll-Rand Company Annual Report to Shareowners for 1993. (Not deemed to be filed as part of this report except to the extent incorporated by reference). 212-275 21 List of Subsidiaries of Ingersoll-Rand Company. 276-278 27 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. INGERSOLL-RAND COMPANY (Registrant) By /S/ Thomas F. McBride Thomas F. McBride Senior Vice President and Chief Financial Officer Date March 30, 1994 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. Signature Title Date Chairman, President, Chief Executive Officer and Director (Principal /S/ James E. Perrella Executive Officer) March 30, 1994 (James E. Perrella) Senior Vice President Chief Financial Officer (Principal Financial /S/ Thomas F. McBride Officer) March 30, 1994 (Thomas F. McBride) Controller - Accounting and Reporting (Principal Accounting /S/ Richard A. Spohn Officer) March 30, 1994 (Richard A. Spohn) /S/ Donald J. Bainton Director March 30, 1994 (Donald J. Bainton) /S/ Theodore H. Black Director March 30, 1994 (Theodore H. Black) 28 Signature Title Date /S/ Brendan T. Byrne Director March 30, 1994 (Brendan T. Byrne) /S/ Joseph P. Flannery Director March 30, 1994 (Joseph P. Flannery) /S/ William G. Kuhns Director March 30, 1994 (William G. Kuhns) /S/ Alexander H. Massad Director March 30, 1994 (Alexander H. Massad) /S/ John E. Phipps Director March 30, 1994 (John E. Phipps) /S/ Donald E. Procknow Director March 30, 1994 (Donald E. Procknow) /S/ Cedric E. Ritchie Director March 30, 1994 (Cedric E. Ritchie) /S/ Willis A. Strauss Director March 30, 1994 (Willis A. Strauss) 29 EX-3.(I) 2 EXHIBIT 3(I) EXHIBIT 3(i) Page 1 of 3 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF INGERSOLL-RAND COMPANY To: Secretary of State State of New Jersey Pursuant to the provisions of Section 14A:7-15.1(2) of the New Jersey Business Corporation Act, the undersigned corporation, organized under the laws of the State of New Jersey, executes and submits the following certificate for the purpose of amending its Restated Certificate of Incorporation: FIRST: The name of the corporation is Ingersoll-Rand Company (the "Company"). SECOND: On May 6, 1992, the Board of Directors of the Company approved a resolution declaring a share dividend of one additional share of Common Stock, $2 par value per share, of the Company (the "Common Stock") for each outstanding share of the Common Stock, payable June 1, 1992 to shareholders of record of Common Stock as of the close of business on May 19, 1992, and in connection therewith adopted a resolution amending, effective June 1, 1992, the first paragraph of Article Fourth of the Company's Restated Certificate of Incorporation to increase the number of shares of Common Stock which the Company is authorized to issue to 400,000,000. The first paragraph of said Article Fourth, as so amended, shall read as follows: "The aggregate number of shares which the Company shall have authority to issue is 410,000,000, consisting of 10,000,000 shares of Preference Stock, without nominal or par value (hereinafter referred to as "Preference Stock"), and 400,000,000 shares of Common Stock, of the par value of $2 per share (hereinafter referred to as 'Common Stock')." 30 EXHIBIT 3(i) Page 2 of 3 THIRD: The foregoing amendment to the Restated Certificate of Incorporation will not adversely affect the rights or preferences of the holders of outstanding shares of any class or series and will not result in the percentage of authorized shares that remains unissued after the share dividend exceeding the percentage of authorized shares that was unissued before the share dividend. FOURTH: The number of shares of Common Stock subject to the share dividend is 54,029,308 and the number of shares to be issued in connection with the share dividend is 54,029,308. FIFTH: The share dividend and the amendment referred to above shall become effective on June 1, 1992. Dated this 26th day of May 1992 INGERSOLL-RAND COMPANY By /S/ Patricia Nachtigal Vice President 31 EXHIBIT 3(i) Page 3 of 3 I, The Secretary of State of the State of New Jersey, DO HEREBY CERTIFY that the foregoing is a true copy of CERTIFICATE OF Amendment and the endorsements thereon, as the same is taken from and compared with the original filed in my office on the 28th day of May, A.D. 1992 and now remaining on file and of record therein. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my Official Seal at Trenton, this day 28th of May, A.D. 1992 SECRETARY OF STATE /S/ Daniel J. Dalton 32 EX-3.(II) 3 EXHIBIT 3(II) EXHIBIT 3(ii) Page 1 of 28 COMPOSITE 5/28/92 RESTATED CERTIFICATE OF INCORPORATION OF INGERSOLL-RAND COMPANY Pursuant to Section 14A:9-5 of the New Jersey Business Corporation Act INGERSOLL-RAND COMPANY, a corporation organized and existing under the laws of the State of New Jersey (hereinafter called the "Company") restates and integrates its certificate of incorporation to read in full as herein set forth. First. The name of the Company is INGERSOLL-RAND COMPANY. Second. The address of the Company's current registered office is 28 West State Street, Trenton, New Jersey 08608, and the name of its current registered agent is The Corporation Trust Company. Third. The Company may engage in any activity within the purposes for which corporations may be organized under the New Jersey Business Corporation Act. Fourth. The aggregate number of shares which the Company shall have authority to issue is 410,000,000, consisting of 10,000,000 shares of Preference Stock, without nominal or par value (hereinafter referred to as "Preference Stock"), and 400,000,000 shares of Common Stock, of the par value of $2 per share (hereinafter referred to as "Common Stock"). The designations, preferences, voting powers and other special rights, qualifications, limitations and restrictions of the Preference Stock and Common Stock of the Company are as follows: 33 EXHIBIT 3(ii) Page 2 of 28 A. PREFERENCE STOCK: (1) Manner of Issue; Series. The Board of Directors is empowered to cause the Preference Stock to be issued from time to time as shares of one or more series of Preference Stock, and in the resolution or resolutions providing for the issue of shares of each particular series, before issuance, the Board of Directors is expressly authorized to fix: (a) the distinctive designation of such series and the number of shares which shall constitute such series, which number may be increased (except as otherwise provided by the Board of Directors in creating such series) or decreased (but not below the number of shares thereof then outstanding) from time to time by resolution of the Board of Directors; (b) the rate of dividends payable on shares of such series and the date or dates from which dividends shall accumulate; (c) the terms, if any, on which shares of such series may be redeemed, including, without limitation, the redemption price or prices for such series, which may consist of a redemption price or scale of redemption prices applicable only to redemption in connection with a sinking fund (which term as used herein shall include any fund or requirement for the periodic purchase or redemption of shares), and the same or a different redemption price or scale of redemption prices applicable to any other redemption; (d) the terms and amount of any sinking fund provided for the purchase or redemption of shares of such series; (e) the amount or amounts which shall be paid to the holders of shares of such series in case of liquidation, dissolution or winding up of the Company, whether voluntary or involuntary; (f) the terms, if any, upon which the holders of shares of such series may convert shares thereof into stock of any other class or classes or of any one or more series of the same class or of another class or classes; and (g) such other rights, preferences and limitations as may be permitted to be fixed by the Board of Directors of the Company under the laws of the State of New Jersey as in effect at the time of the creation of such series. 34 EXHIBIT 3(ii) Page 3 of 28 All shares of Preference Stock, irrespective of series, shall be of equal rank, and shall be identical in all respects except as to the terms fixed by the Board of Directors as permitted in this Section A. The Board of Directors is authorized to change the designation, rights, preferences and limitations of any series of Preference Stock theretofore established, no shares of which have been issued. The Board of Directors is authorized to amend the Company's certificate of incorporation to set forth the designation, number of shares, rights, preferences and limitations of any series of Preference Stock fixed by the Board of Directors, or to reflect any change therein made by the Board of Directors, as permitted in this Section A. (2) Dividends. The holders of the Preference Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds of the Company legally available for the payment of dividends, cumulative dividends in cash at the annual rate for each particular series theretofore fixed by the Board of Directors as hereinabove provided, and no more, payable in respect of each series on the date or dates which shall be fixed by the Board of Directors with respect to each particular series. If at any time there are two or more series of Preference Stock outstanding, any dividend paid upon shares of Preference Stock in an amount less than all dividends accrued and unpaid on all outstanding shares of Preference Stock shall be paid ratably among all series of Preference Stock in proportion to the full amount of dividends accrued and unpaid on each such series. So long as any of the Preference Stock is outstanding, no dividend whatever shall be paid or declared, nor any distribution be made, on the Common Stock or any other stock of the Company ranking junior to the Preference Stock in the payment of dividends (other than a dividend payable in stock of junior rank as aforesaid), nor shall any shares of Common Stock or any other stock of junior rank as aforesaid be acquired for a consideration by the Company or by any subsidiary except in exchange for shares of stock of junior rank as aforesaid unless (i) full dividends on the Preference Stock for all past dividend periods shall have been paid or shall have been declared and a sufficient sum set apart for the payment thereof, and (ii) all obligations of the Company, if any, with respect to the redemption or purchase of shares of Preference Stock in accordance with the requirements of any sinking fund have been met. Subject to the foregoing provisions, such dividends (payable in cash, stock or otherwise) 35 EXHIBIT 3(ii) Page 4 of 28 as may be determined from time to time by the Board of Directors may be declared and paid on the Common Stock or any other stock of junior rank out of the remaining funds of the Company legally available for the payment of dividends; and the Preference Stock shall not be entitled to participate in any such dividends, whether payable in cash; stock or otherwise. (3) Redemption. If so provided by the Board of Directors pursuant to paragraph (1)(c) of this Section A, the Company, at the option of the Board of Directors, or in accordance with the requirements of any sinking fund for the Preference Stock or any series thereof, may redeem the whole or any part of the Preference Stock at any time outstanding, or the whole or any part of any series thereof, at such time or times and from time to time and at such redemption price or prices as may be fixed by the Board of Directors pursuant to this Section A, together in each case with an amount equal to all unpaid dividends accrued thereon to the date fixed for such redemption, and otherwise upon the terms and conditions fixed by the Board of Directors for any such redemption; provided, however, that no optional redemption of less than all of the Preference Stock shall take place unless (i) full dividends on the Preference Stock for all past dividend periods shall have been paid or declared and a sufficient sum set apart for the payment thereof, and (ii) all obligations of the Company, if any, with respect to the redemption or purchase of shares of Preference Stock in accordance with the requirements of any sinking fund have been met. If at any time there are two or more series of Preference Stock outstanding, any amount expended in purchasing or redeeming shares of Preference Stock pursuant to the provisions of sinking funds therefor which is less than the amount then required to be so expended under all such funds shall be expended ratably among all series of Preference Stock in proportion to the full amount of expenditures of such funds then required in respect of each such series. (4) Liquidation, Dissolution and Winding Up. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of each series of Preference Stock then outstanding shall be entitled to receive out of the assets of the Company, before any distribution or payment shall be made to the holders of the Common Stock or any other stock of Company ranking junior to the Preference Stock with respect to the distribution of assets, the amount determined by the Board of Directors in creating such series, plus in each 36 EXHIBIT 3(ii) Page 5 of 28 case an amount equal to all unpaid dividends accrued thereon to the date fixed for such payment to the holders of the Preference Stock. If upon any such liquidation, dissolution or winding up, two or more series of Preference Stock are outstanding, any distribution to holders of Preference Stock in an aggregate amount less than the total payable with respect to all outstanding Preference Stock shall be made ratably among all series of Preference Stock in proportion to the full amount payable upon such liquidation, dissolution or winding up in respect of each such series. (5) Voting. The holders of the Preference Stock shall have the voting rights set forth below: (a) Except as otherwise expressly provided in the Company's certificate of incorporation, as amended, or as may be required by law, the holders of the Preference Stock shall be entitled at all meetings of stockholders to three votes for each five shares of such stock held by them respectively (a holder of less than five shares being entitled to no vote) and the holders of all series of Preference Stock shall vote together with the holders of the Common Stock as one class. At all elections of directors each holder of Preference Stock shall be entitled to as many votes as shall equal the number of votes which such holder would be entitled to cast, multiplied by the number of directors to be elected, and such holder may cast all such votes for a single director, or may distribute them among the number to be voted for or any two or more of them as such holder may see fit. (b) If and whenever dividends on the Preference Stock shall be in arrears in an amount equivalent to six quarterly dividends or mandatory sinking fund payments shall be in arrears in an amount equal to the aggregate of all such payments required during one year, then, at any ensuing annual meeting of stockholders at which at least a majority of the outstanding shares of Preference Stock are represented, the holders of the Preference Stock of all series thereof then outstanding, voting separately as a class, shall be entitled to elect two directors. Such right of the holders of the Preference Stock shall continue to be exercisable until all dividends in arrears on the Preference Stock shall have been paid in full or declared and a sum sufficient for the payment thereof set apart and all mandatory sinking fund payments in arrears shall have been paid in full, whereupon such right shall cease. During any time that the holders of the Preference Stock are entitled to elect two directors as hereinabove provided, they shall also be entitled to participate with the Common Stock in the election of any other directors. 37 EXHIBIT 3(ii) Page 6 of 28 (c) Notwithstanding any other provision of the Company's certificate of incorporation, as amended, (i) the affirmative approval of the holders of at least two-thirds in interest of the Preference Stock of all series thereof then outstanding present and voting at a meeting, acting as a single class without regard to series, shall be required for any amendment of the certificate of incorporation altering materially and adversely any existing provision of the Preference Stock or for the creation, or an increase in the authorized amount, of any class of stock ranking, as to dividends or assets, prior to the Preference Stock; and (ii) the affirmative approval of the holders of at least a majority in interest of the Preference Stock of all series thereof then outstanding present and voting at a meeting, acting as a single class without regard to series, shall be required for an increase in the authorized amount of the Preference Stock, or for the creation, or an increase in the authorized amount, of any class of stock ranking, as to dividends or assets, on a parity with the Preference Stock; provided, however, that if any amendment of the certificate of incorporation shall affect adversely the rights or preferences of one or more, but not all, of the series of Preference Stock at the time outstanding, or shall unequally adversely affect the rights or preferences of different series of Preference Stock at the time outstanding, the affirmative approval of the holders of at least two-thirds in interest of the shares of each such series so adversely or unequally adversely affected present and voting at a meeting shall be required in lieu of or (if such affirmative approval is required by law) in addition to the affirmative approval of the holders of at least two-thirds in interest of the shares of Preference Stock as a class present and voting at such meeting. (6) Preemptive Rights. No holder of shares of any series of the Preference Stock shall, as such, have any preemptive or preferential rights to subscribe to or purchase shares of any class or series of stock of the Company, now or hereafter authorized, or any securities convertible into, or warrants or other evidences of optional rights to purchase or subscribe to, shares of any class or series of the Company, now or hereafter authorized. 38 EXHIBIT 3(ii) Page 7 of 28 (7) Other Provisions. Subject to the requirements of paragraph (5)(c) of this Section A, but notwithstanding any other of the foregoing provisions of this Section A, the Board of Directors, in the resolution or resolutions providing for the issue of any series of Preference Stock, may determine to the extent that the Board of Directors may be permitted to do so under the laws of the State of New Jersey as in effect at the time of the creation of such series: (a) the voting rights, full or limited, if any, of the shares of such series; and whether or not and under what conditions the shares of such series (alone or together with the shares of one or more other series having similar provisions) shall be entitled to vote separately as a single class, for the election of one or more additional directors of the Company in case of dividend arrearages or other specified events, or upon other matters; (b) whether or not and upon what conditions dividends on shares of such series shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate; (c) whether or not the holders of shares of such series, as such, shall have any preemptive or preferential rights to subscribe to or purchase shares of any class or series of stock of the Company, now or hereafter authorized, or any securities convertible into, or warrants or other evidences of optional rights to purchase or subscribe to, shares of any class or series of the Company, now or hereafter authorized; and (d) whether or not the issuance of additional shares of such series, or of any shares of any other series, shall be subject to restrictions as to issuance, or as to the preferences, rights and qualifications of any such other series. (8) Creation and Terms of Series A Preference Stock. There is hereby created a series of Preference Stock, without par value, of the Company, which shall have the designation and number of shares, and voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof (in addition to those provisions set forth above in this Section A that are applicable to the Preference Stock of all series) as follows: 39 EXHIBIT 3(ii) Page 8 of 28 (a) Designation and Amount. The shares of such series shall be designated "Series A Preference Stock" ("Series A Preference Stock") and the number of shares constituting such series shall be 750,000. Subject to subparagraph (d)(iii) of this paragraph (8), such number may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series A Preference Stock to a number less than that of the shares then outstanding. (b) Dividends and Distributions. (i) Subject to the prior and superior rights of the holders of any shares of any series of Preference Stock ranking prior and superior to the Series A Preference Stock and subject to the provisions for adjustment hereinafter set forth, the holders of shares of Series A Preference Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (A) cash dividends in an amount per share (rounded to the nearest cent) equal to 100 times the aggregate per share amount of all cash dividends declared or paid on the Common Stock, and (B) a preferential cash dividend (a "Preferential Dividend"), if any, on the fifteenth day of January, April, July and October of each year (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preference Stock, in an amount equal to $1.00 per share of Series A Preference Stock less the per share amount of all cash dividends declared on the Series A Preference Stock pursuant to clause (A) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preference Stock. In the event the Company shall, at any time after the issuance of any share or fraction of a share of Series A Preference Stock, make any distribution on the shares of Common Stock, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Company or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than cash dividends subject to clause (A) of the immediately preceding sentence and other than a distribution of shares of Common Stock or other capital stock of the Company and other than a distribution of rights or warrants to acquire any such share, including any debt security convertible into or 40 EXHIBIT 3(ii) Page 9 of 28 exchangeable for any such share, at a price less than the Current Market Price of such share), then and in each such event the Company shall simultaneously pay on each then outstanding share of Series A Preference Stock of the Company a distribution, in like kind, of 100 times (subject to the provisions for adjustment hereinafter set forth) such distribution paid on a share of Common Stock. The dividends and distributions on the Series A Preference Stock to which holders thereof are entitled pursuant to clause (A) of the first sentence of this paragraph and the second sentence of this paragraph are hereinafter referred to as "Participating Dividends", and the multiple of cash and non-cash dividends on the Common Stock applicable to the determination of the Participating Dividends, which shall be 100 initially but shall be adjusted from time to time as hereinafter provided, is hereafter referred to as the "Dividend Multiple." In the event the Company shall at any time after December 22, 1988 declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such event the Dividend Multiple thereafter applicable to the determination of the amount of Participating Dividends which holders of shares of Series A Preference Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (ii) The Company shall declare each Participating Dividend at the same time it declares any cash or non-cash dividend or distribution on the Common Stock in respect of which a Participating Dividend is required to be paid. No cash or non- cash dividend or distribution on the Common Stock in respect of which a Participating Dividend is required shall be paid or set aside for payment on the Common Stock unless a Participating Divided in respect of such dividend or distribution on the Common Stock shall be simultaneously paid or set aside for payment on the Series A Preference Stock. 41 EXHIBIT 3(ii) Page 10 of 28 (iii) Preferential Dividends shall begin to accumulate on outstanding shares of Series A Preference Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of any shares or Series A Preference Stock. Accumulated but unpaid Preferential Dividends shall cumulate but shall not bear interest. Preferential Dividends paid on the shares of Series A Preference Stock in an amount less than the total amount of such dividends at the time accumulated and payable on such shares shall be allocated pro rata on a share-by- share basis among all shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preference Stock entitled to receive payment of a dividend or distribution thereon, which record date shall be no more than 60 days prior to the date fixed for payment thereof. (c) Voting Rights. The holders of shares of Series A Preference Stock shall have the following voting rights: (i) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preference Stock shall entitle the holder thereof to one hundred votes on all matters submitted to a vote of the stockholders of the Company. In the event the Company shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preference Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (ii) Except as otherwise provided herein or by law, the holders of shares of Series A Preference Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Company. 42 EXHIBIT 3(ii) Page 11 of 28 (iii) In the event that a default in preference dividends on any Series A Preference Stock of the Company shall exist, the number of directors constituting the Board of Directors of the Company shall be increased by two, and the holders of Series A Preference Stock shall have the right at the next meeting of stockholders called for the election of directors voting separately as a class with the holders of shares of any other series of Preference Stock entitled to vote thereon (if any) (as used in this subparagraph (c)(iii), "Preference Stock" shall refer to the Series A Preference Stock and such other series (if any) upon which such voting rights have been conferred, but shall not include any other series of Preference Stock (if any) upon which such voting rights have not been conferred) to the exclusion of the holders of Common Stock, to elect two directors of the Company to fill such newly created directorships. Such right shall continue until there are no dividends in arrears upon the Series A Preference Stock. Each director elected by the holders of shares of Preference Stock (herein called a "Preference Director") shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term a default in preference dividends shall cease to exist. Any Preference Director may be removed by, and shall not be removed without cause except by, the vote of the holders of record of the outstanding shares of Preference Stock, voting separately as a class at a meeting of the stockholders, or of the holders of shares of Preference Stock, called for the purpose. So long as a default in any preference dividends on the Preference Stock shall exist (A) any vacancy in the office of a Preference Director may be filled (except as provided in the following clause (B)) by an instrument in writing signed by the remaining Preference Director and filed with the Company and (B) in case of the removal of any Preference Director, the vacancy may be filled by the vote of the holders of the outstanding shares of Preference Stock at the same meeting at which such removal shall be voted. Each director appointed as aforesaid by the remaining Preference Director shall be deemed, for all purposes hereof, to be a Preference Director. Whenever the term of office of the Preference Directors shall end and a default in preference dividends shall no longer exist, the number of directors constituting the Board of Directors shall be reduced by two. For the purposes hereof, a "default in preference dividends" on the Series A Preference Stock shall be deemed to have occurred whenever the amount of accrued dividends upon Series A Preference Stock shall be equivalent to six full quarter-yearly dividends or more and, having so occurred, such 43 EXHIBIT 3(ii) Page 12 of 28 default shall be deemed to exist thereafter until, but only until, all accrued dividends on all shares of Series A Preference Stock then outstanding shall have been paid to the end of the last preceding quarterly dividend period. (iv) Except as otherwise required by law or set forth herein, holders of Series A Preference Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. (d) Certain Restrictions. (i) Whenever Preferential Dividends or Participating Dividends are in arrears or the Company shall be in default in payment thereof, thereafter and until all accumulated and unpaid Preferential Dividends and Participating Dividends, whether or not declared, on shares of Series A Preference Stock outstanding shall have been paid or set aside for payment in full, and in addition to any and all other rights which any holder of shares of Series A Preference Stock may have in such circumstances, the Company shall not (A) declare or pay dividends on, make any other distributions on or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preference Stock; (B) declare or pay dividends or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series A Preference Stock, unless dividends are paid ratably on the Series A Preference Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; 44 EXHIBIT 3(ii) Page 13 of 28 (C) except as permitted by subparagraph (D) of this subparagraph (d)(i), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preference Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series A Preference Stock; or (D) purchase or otherwise acquire for consideration any shares of Series A Preference Stock, or any shares of stock ranking on a parity with the Series A Preference Stock (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (ii) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under subparagraph (i) of this paragraph (d), purchase or otherwise acquire such shares at such time and in such manner. (iii) The Company shall not issue any shares of Series A Preference Stock except upon exercise of Rights issued pursuant to that certain Rights Agreement dated as of December 7, 1988 between the Company and The Bank of New York (the "Rights Agreement"), a copy of which is on file at the principal executive office of the Company and shall be made available to holders of record of Common Stock or Series A Preference Stock without charge upon written request therefor addressed to the Secretary of the Company. Notwithstanding the foregoing sentence, nothing contained in the provisions hereof shall prohibit or restrict the Company from issuing for any purpose any series of Preference Stock with rights and privileges similar to, different from, or greater than those of the Series A Preference Stock. 45 EXHIBIT 3(ii) Page 14 of 28 (e) Reacquired Shares. Any shares of Series A Preference Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. The Company shall cause all such shares upon their retirement and cancellation to become authorized but unissued shares of Preference Stock, without designation as to series, and such shares may be reissued as part of a new series of Preference Stock to be created by resolution or resolutions of the Board of Directors. (f) Liquidation, Dissolution or Winding Up. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, no distribution shall be made (i) to the holders of shares of stock ranking junior to the Series A Preference Stock (upon liquidation, dissolution or winding up) unless the holders of shares of Series A Preference Stock shall have received, subject to adjustment as hereinafter provided, the greater of either (A) $100.00 per share plus an amount equal to accumulated and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (B) the amount equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, or (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preference Stock, unless simultaneously therewith distributions are made ratably on the Series A Preference Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series A Preference Stock are entitled under clause (i)(A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series A Preference Stock shall be entitled upon liquidation, dissolution or winding up of the Company pursuant to clause (i)(B) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount," and the multiple of the amount to be distributed to holders of shares of Common Stock upon the liquidation, dissolution or winding up of the Company applicable pursuant to said clause to the determination of the Participating Liquidation Amount, which shall be 100 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple." In the event the Company shall at any time after December 22, 1988 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of 46 EXHIBIT 3(ii) Page 15 of 28 Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series A Preference Stock shall be entitled after such event shall be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (g) Certain Reclassification and Other Events. (i) In the event that holders of shares of Common Stock receive after December 22, 1988 in respect of their shares of Common Stock any share of capital stock of the Company (other than any share of Common Stock of the Company), whether by way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise ("Transaction"), then in each such event the dividend rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preference Stock shall be adjusted so that after such event the holders of Series A Preference Stock shall be entitled, in respect of each share of Series A Preference Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (A) such additional dividends as equal the Dividend Multiple in effect immediately prior to such transaction multiplied by the additional dividends which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock and (B) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. 47 EXHIBIT 3(ii) Page 16 of 28 (ii) In the event that holders of shares of Common Stock receive after December 22, 1988 in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Current Market Price (as hereinafter defined) of a share of Common Stock on the date of issuance of such right or warrant, then in each such event the dividend rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preference Stock shall each be adjusted so that after such event the Dividend Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Current Market Price of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (iii) In the event that holders of shares of Common Stock receive after December 22, 1988 in respect of their shares of Common Stock any right or warrant to purchase capital stock of the Company (other than shares of Common Stock), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Company (other than Common Stock), at a purchase price per share less than the Current Market Price of such shares of capital stock on the date of issuance of such right or warrant, then in each such event the dividend rights and rights upon liquidation, dissolution or winding up of the Company of the shares of Series A Preference Stock shall each be adjusted so that after such event each holder of a share of Series A Preference Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (A) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise 48 EXHIBIT 3(ii) Page 17 of 28 of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined) and (B) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Current Market Price (as hereinafter defined) of a share of the capital stock subject to a right or warrant distributed to holders of shares of Common Stock as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Current Market Price of a share of such capital stock immediately after the distribution of such right or warrant. (iv) For purposes of this paragraph (g), the "Current Market Price" of a share of capital stock of the Company (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing prices per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date, provided that in the event that such Current Market Price of any such share of capital stock is determined during a period which includes any date that is within 30 Trading Days after the ex-dividend date for (A) a dividend or distribution on stock payable in shares of such stock or securities convertible into shares of such stock or (B) any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then in each such event, the Current Market Price shall be appropriately adjusted by the Board of Directors to reflect the Current Market Price of such stock to take into account ex-dividend trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange, or, if the shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting 49 EXHIBIT 3(ii) Page 18 of 28 system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board of Directors is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Current Market Price thereof as aforesaid, "Current Market Price" shall mean the fair market value thereof per share as determined in good faith by the Board of Directors. In either case referred to in the foregoing sentence, the determination of Current Market Price shall be described in a statement filed with the Secretary of the Company. (h) Consolidation, Merger, etc. In the event that the Company shall enter into any consolidation, merger, combination or other transaction in which shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such event each outstanding share of Series A Preference Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and other property (payable in like kind), as the case may be, for which or into which each share of Common Stock is changed or exchanged multiplied by the higher of the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event. (i) Effective Time of Adjustments. (i) Adjustments to the Series A Preference Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. 50 EXHIBIT 3(ii) Page 19 of 28 (ii) The Company shall give prompt written notice to each holder of a share of Series A Preference Stock of the effect on any such shares of any adjustment to the dividend rights or rights upon liquidation, dissolution or winding up of the Company required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. (j) No Redemption. The shares of Series A Preference Stock shall not be redeemable at the option of the Company or any holder thereof. Notwithstanding the foregoing sentence of this paragraph, the Company may acquire shares of Series A Preference Stock in any other manner permitted by law and the provisions of the certificate of incorporation. (k) Ranking. Unless otherwise provided in the certificate of incorporation or a certificate of amendment of the certificate of incorporation relating to a subsequent series of Preference Stock of the Company, the Series A Preference Stock shall rank junior to all other series of the Company's Preference Stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up and senior to the Common Stock of the certificate of incorporation. (l) Amendment. After the Distribution Date (as defined in the Rights Agreement), the provisions of the certificate of incorporation shall not be amended in any manner which would materially affect the rights, privileges or powers of the Series A Preference Stock without, in addition to any other vote of stockholders required by law, the affirmative vote of the holders of not less than two-thirds of the outstanding shares of Series A Preference Stock, voting together as a single class. (m) Fractional Shares. Series A Preference Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preference Stock. 51 EXHIBIT 3(ii) Page 20 of 28 B. COMMON STOCK: (1) Dividends. Subject to the provisions of Section A of this Article Fourth, the Board of Directors may, in its discretion, out of funds legally available for the payment of dividends and at such times and in such manner as determined by the Board of Directors, declare and pay dividends on the Common Stock. (2) Liquidation, Dissolution and Winding Up. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, after payment in full has been made to the holders of the Preference Stock of the amounts to which they are respectively entitled or sufficient sums have been set apart for the payment thereof, the holders of the Common Stock shall be entitled to receive ratably any and all assets remaining to be paid or distributed, and the holders of the Preference Stock shall not be entitled to share therein. (3) Voting. Except as otherwise expressly provided in the Company's certificate of incorporation, as amended, or as may be required by law, the holders of the Common Stock of the Company shall be entitled at all meetings of stockholders to one vote for each share of such stock held by them respectively and shall vote together with the holders of the Preference Stock as one class. At all elections of directors each holder of Common Stock shall be entitled to as many votes as shall equal the number of votes which such holder would be entitled to cast, multiplied by the number of directors to be elected, and no such holder may cast all such votes for a single director, or may distribute them among the number to be voted for or any two or more of them as such holder may see fit. (4) Preemptive Rights. No holder of shares of Common Stock shall, as such, have any preemptive or preferential rights to subscribe to or purchase any shares of any class or series of stock of the Company, now or hereafter authorized, or any series convertible into, or warrants or other evidences of optional rights to purchase or subscribe to, shares of any class or series of the Company, now or hereafter authorized. 52 EXHIBIT 3(ii) Page 21 of 28 C. QUORUM: A quorum for the election of directors or for the consideration of any question shall consist of a majority of the voting power of the stock issued and outstanding and entitled to vote for the election of directors or upon such question, respectively; except that where a vote of a particular class of stock or of a particular series of a class is required, a quorum shall consist of a majority of the voting power of the stock issued and outstanding of each class or series so entitled to vote separately, and except that if several classes are entitled to vote together as a single class, a quorum shall consist of a majority of the voting power of the stock of all such classes issued and outstanding; provided, however, that any meeting may be adjourned by a majority of the votes properly cast, whether or not a quorum is present. D. VOTING REQUIREMENTS: (1) Majority Voting Requirements. Subject to the provisions of paragraph (2) of this Section D and except as otherwise expressly provided in the Company's certificate of incorporation, as amended, or as may be required by law, the majority voting requirements prescribed in subsections 14A:10- 3(2) and 14A:12-4(4) and in paragraphs 14A:9-2(4)(c) and 14A:10- 11(1)(c) of the New Jersey Business Corporation Act shall apply to the Company. (2) Greater Voting Requirements. The affirmative vote of the holders of four-fifths of the outstanding shares of all classes of stock of the Company entitled to vote, considered for the purposes of this paragraph (2) as one class, shall be required to authorize (i) the merger or consolidation of the Company or a subsidiary of the Company with or into any other corporation, person or other entity, (ii) any sale, lease, exchange or other disposition of all or any material part of the assets of the Company or of any subsidiary of the Company to or with any other corporation, person or other entity or (iii) any issuance or transfer of securities of the Company upon conversion of or in exchange for the securities or assets of any other corporation, person or entity if (as of the date of any action taken by the Board of Directors with respect to such transaction or as of any record date for the determination of stockholders entitled to notice and to vote with respect thereto or immediately prior to 53 EXHIBIT 3(ii) Page 22 of 28 the consummation of such transaction) such other corporation, person or other entity referred to in clause (i), clause (ii) or clause (iii) above is the beneficial owner, directly or indirectly, of more than 10% of any class of capital stock of the Company. For the purposes hereof any corporation, person or other entity shall be deemed to be the beneficial owner of any shares of capital stock of the Company, (x) which it has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, or (y) which are beneficially owned, directly or indirectly (including shares deemed owned through application of clause (x) above) by any other corporation, person or other entity with which it has any agreement, arrangement or understanding with respect to the acquisition, holding, voting or disposition of stock or of any material part of the assets of the Company or of it, or which is its "affiliate" or "associate" as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1970. Any determination made in good faith by the Board of Directors, on the basis of information at the time available to it, as to whether any corporation, person or other entity is the beneficial owner of more than 10% of any class of capital stock of the Company, or is an "affiliate" or "associate", as above defined, shall be conclusive and binding for all purposes of this paragraph (2). The provisions of this paragraph (2) shall not apply to any agreement for the merger of any subsidiary of the Company with the Company or with another subsidiary of the Company where the Company or such other subsidiary shall be the surviving corporation and where the provisions of this paragraph (2) shall not be changed or otherwise affected by or by virtue of the merger. Fifth. The number of directors constituting the current Board of Directors of the Company is ten (10). The names and addresses of the members of said Board are as follows: Theodore H. Black P.O. Box 8738 Woodcliff Lake, N.J. 07675 Brendan T. Byrne 6 Becker Farm Road Roseland, N.J. 07068 Joseph P. Flannery 455 Chase Parkway Waterbury, CT 06708 54 EXHIBIT 3(ii) Page 23 of 28 Clyde H. Folley P.O. Box 8738 Woodcliff Lake, N.J. 07675 William G. Kuhns 100 Interpace Parkway Parsippany, N.J. 07054 Alexander H. Massad 1601 Rio Grande Austin, TX 78701 John E. Phipps P.O. Box 3048 Tallahassee, FL 32315 Donald E. Procknow 18 Saw Mill Road Saddle River, N.J. 07458 Cedric E. Ritchie 44 King Street West Toronto, Ontario M5H 1H1 Willis A. Strauss Two Central Park Plaza 222 South 15th Street Omaha, Nebraska 68102 Sixth. The number of directors of the Company shall be at no time less than eight, and may be increased or thereafter decreased as may be provided from time to time in the by-laws. The Board of Directors shall be divided as equally as may be into three classes, each of which shall consist of such number as the by-laws may from time to time provide, but no class shall consist of less than two members. At the annual election to be held in 1942 the directors of the first class shall be elected for a term of one year, the directors of the second class shall be elected for a term of two years, and the directors of the third class shall be elected for a term of three years. At each annual election thereafter, the successors of the directors of the class whose terms expire in that year shall be elected to hold office for the term of three years, so that the term of office of one class of directors shall expire in each year. If the number of directors is changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as possible. In case of any increase in the number of directors of any class or classes, the additional directors may be elected by the Board of Directors, but any such director so elected shall hold office only until the next succeeding annual meeting of stockholders and until his successor shall have been elected and qualified. No 55 EXHIBIT 3(ii) Page 24 of 28 decrease in the number of directors shall shorten the term of any incumbent director. Directors may be removed without cause only upon the affirmative vote of the holders of at least four-fifths of the shares of capital stock entitled to vote for the election of directors. Directors may be removed for cause upon the affirmative vote of two-thirds of the entire Board. The affirmative vote of the holders of at least four-fifths of the shares of capital stock entitled to vote for the election of directors shall be required for any amendment or deletion of this paragraph of this Article Sixth, unless such amendment or deletion shall have been approved by the unanimous vote of the directors then in office, in which case the majority voting requirements prescribed in paragraph 14A:9-2(4)(c) of the New Jersey Business Corporation Act shall apply thereto. The provisions of this Article Sixth shall have no application to any directors who may be elected by the holders of Preference Stock or any series thereof, voting as a class or series, as the case may be, pursuant to a right to elect directors conferred upon such holders by reason of default in the payment of dividends, failure to discharge sinking fund obligations or otherwise. Any such directors shall be in addition to the directors to be elected pursuant to the paragraph immediately above and shall be elected in the manner, and serve for such term, as may be provided in the certificate of incorporation, as from time to time amended. The Board of Directors, by the affirmative vote of a majority of the entire Board, may appoint from their number an executive committee of which committee a majority shall constitute a quorum; and to such extent as shall be provided in the by-laws and as may be permitted by law, such committee shall have and may exercise all or any of the powers of the Board of Directors. The Board of Directors, by the affirmative vote of a majority of the whole Board, may appoint any other standing committees; and such standing committees shall have and may exercise such powers as may be conferred and authorized by the by-laws or by the Board of Directors and as may be permitted by law. The Board of Directors may appoint, not only other officers of the Company, but also one or more Vice-Presidents, one or more Assistant Treasurers, and one or more Assistant Secretaries; and, to the extent provided in the by-laws, or by the Board of Directors, the persons so appointed, respectively, shall have and 56 EXHIBIT 3(ii) Page 25 of 28 may exercise all the powers of the President and of the Treasurer and of the Secretary respectively. Subject always to the by-laws made by the stockholders, the Board of Directors may make by-laws; but any by-laws made by the Board of Directors may be altered or repealed by the stockholders at any annual meeting or any special meeting, provided notice of such proposed alteration or repeal be included in the notice of the meeting. The Board of Directors shall have the power, by action which may be general or confined to specific instances, to authorize the Company to loan money to, guarantee any obligation of, or otherwise assist, any officer or other employee or agent of the Company or of any subsidiary thereof, whenever in the judgement of the directors such loan, guarantee or assistance may reasonably be expected to benefit the Company; provided that any such loan, guarantee or assistance to an officer or employee who is also a director of the Company shall have been authorized by a majority of the entire Board of Directors. Seventh. Limitation of Liability, Indemnification and Insurance (a) Limitation of Liability. To the fullest extent permitted by the laws of the State of New Jersey, as they exist on the date hereof or may hereafter be amended, directors and officers of the Company shall not be personally liable to the Company or its stockholders for damages for breach of any duty owed to the Company or its stockholders, except that the provisions of this Article Seventh shall not relieve a director or officer from liability for any breach of duty based upon an act or omission (i) in breach of such person's duty of loyalty to the Company or its stockholders, (ii) not in good faith or involving a knowing violation of law or (iii) resulting in receipt by such person of an improper personal benefit. Neither the amendment or repeal of this Article nor the adoption of any provision of this Restated Certificate of Incorporation which is inconsistent with this Article shall eliminate or reduce the protection afforded by this Article to any director or officer of the Company for or with respect to any act or omission of such director or officer occurring prior to such amendment, repeal, or adoption. 57 EXHIBIT 3(ii) Page 26 of 28 (b) Indemnification and Insurance. (1) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, or any appeal therein or any inquiry or investigation which could lead to such action, suit or proceeding ("proceeding"), by reason of his or her being or having been a director or officer of the Company or of any constituent corporation absorbed by the Company in a consolidation or merger, or by reason of his or her being or having been a director, officer, trustee, employee or agent of any other corporation (domestic or foreign) or of any partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise (whether or not for profit), serving as such at the request of the Company or of any such constituent corporation, or the legal representative of any such director, officer, trustee, employee or agent, shall be indemnified and held harmless by the Company to the fullest extent permitted by the New Jersey Business Corporation Act, 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 Company to provide broader indemnification rights than said Act permitted prior to such amendment), from and against any and all reasonable costs, disbursements and attorneys' fees, and any and all amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties incurred or suffered in connection with any such proceeding, and such indemnification shall continue as to a person who has ceased to be a director, officer, trustee, employee or agent and shall inure to the benefit of his or her heirs, executors, administrators and assigns; provided, however, that there shall be no indemnification hereunder with respect to any settlement or other non-adjudicated disposition of any proceeding unless the Company has given its prior consent to such settlement or disposition. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Company the expenses incurred in connection with any proceeding in advance of the final disposition of such proceeding as authorized by the Board of Directors; provided, however, that, if the New Jersey Business Corporation Act so requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer in advance of the final disposition of a proceeding shall be made 58 EXHIBIT 3(ii) Page 27 of 28 only upon receipt by the Company of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced unless it shall ultimately be determined that such director or officer is entitled to be indemnified under this Section or otherwise. The Company may, by action of its Board of Directors, provide for indemnification and advancement of expenses to employees and agents of the Company with the same scope and effect as the foregoing indemnification of directors and officers. (2) Right of Claimant to Bring Suit. If a claim under paragraph (1) of this Section (b) is not paid in full by the Company within thirty days after a written request has been received by the Company, the claimant may at any time thereafter apply to a court for an award of indemnification by the Company for the unpaid amount of the claim and, if successful on the merits or otherwise in connection with any proceeding, or in the defense of any claim, issue or matter therein, the claimant shall be entitled also to be paid by the Company any and all expenses incurred or suffered in connection with such proceeding. It shall be a defense to any such action (other than an action brought to enforce a claim for the advancement of expenses incurred in connection with any proceeding where the required undertaking, if any, has been tendered to the Company) that the claimant has not met the standard of conduct which makes it permissible under the New Jersey Business Corporation Act for the Company to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such proceeding 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 New Jersey Business Corporation Act, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, nor the termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall be a defense to the action or create a presumption that the claimant has not me the applicable standard of conduct. 59 EXHIBIT 3(ii) Page 28 of 28 (3) Non-Exclusivity of Rights. The right to indemnification and advancement of expenses provided by or granted pursuant to this Section (b) shall not exclude or be exclusive of any other rights to which any person may be entitled under a certificate of incorporation, by-law, agreement, vote of stockholders, or otherwise, provided that no indemnification shall be made to or on behalf of any person if a judgement or other final adjudication adverse to such person establishes that such person has not met the applicable standard of conduct required to be met under the New Jersey Business Corporation Act. (4) Insurance. The Company may purchase and maintain insurance on behalf of any director, officer, employee or agent of the Company, another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any expenses incurred in any proceeding and any liabilities asserted against him or her by reason of such person's being or having been a director, officer, employee or agent, whether or not the Company would have the power to indemnify such person against such expenses and liabilities under the provisions of this Section (b) or otherwise. The Company may purchase such insurance from, or such insurance may be reinsured in whole or in part by, an insurer owned or otherwise affiliated with the Company, whether or not such insurer does business with other insureds. IN WITNESS WHEREOF, INGERSOLL-RAND COMPANY has caused this Restated Certificate of Incorporation to be duly executed this 3rd day of May , 1991. INGERSOLL-RAND COMPANY By /S/ Theodore H. Black Theodore H. Black Chairman of the Board 60 EX-3.(III) 4 EXHIBIT 3(III) EXHIBIT 3(iii) Page 1 of 17 BY-LAWS of INGERSOLL-RAND COMPANY As amended through October 1, 1993 61 EXHIBIT 3(iii) Page 2 of 17 BY-LAWS of INGERSOLL-RAND COMPANY ARTICLE I. STOCKHOLDERS' MEETINGS Section 1. Annual Meetings: The annual meeting of the Stockholders of the Company shall be held on the fourth Thursday of April, in each year, or such other date as the Board of Directors may determine, at such hour and at such place within or without the State of New Jersey as may be fixed by the Board of Directors and stated in the notice of the meeting, for the election of Directors of the Company and for the transaction of such other business as may come before it. The Secretary of the Company shall mail, at least twenty (20) days before every such meeting, a notice thereof addressed to each Stockholder of record of the Company at his Post Office address, as it appears on the books of the Company. Section 2. Special Meetings: Special meetings of the Stockholders may be held at the principal office of the Company in the State of New Jersey, or at such other place within or without said State as may from time to time be designated by the Board of Directors and stated in the notice of the meeting, whenever called in writing by the Chairman of the Board, the Vice-Chairman or the President, or by vote of a majority of the Board of Directors, or by demand in writing of the Stockholders of record owning at least two-fifths (2/5) in amount of the outstanding shares of stock of the Company. 62 EXHIBIT 3(iii) Page 3 of 17 The Secretary of the Company shall mail, at least ten (10) days prior to any such meeting, notice of such meeting, indicating briefly the object or objects thereof, addressed to each Stockholder of record at his Post Office address as it appears on the books of the Company. Section 3. Quorum: Unless otherwise provided in the Certificate of Incorporation of this Company or by statute, the presence in person or by proxy of the holders of record of the shares entitled to cast a majority of the votes at any meeting of the Stockholders shall constitute a quorum at such meeting. Whenever the holders of any class or series of shares are entitled to vote separately on a specified item of business, the presence in person or by proxy of the holders of record of the shares of such class or series entitled to cast a majority of the votes thereon shall constitute a quorum for the transaction of such specified item of business. If the holders of the amount of stock necessary to constitute a quorum shall fail to attend in person or by proxy at the time and place fixed by these By-Laws for an annual meeting, or as fixed by notice, as above provided for a special meeting, a majority in interest of the Stockholders present, in person or by proxy, may adjourn from time to time without notice other than announcement at the meeting until the holders of the amount of stock requisite to constitute a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 4. Organization: The Chairman of the Board shall call meetings of the Stockholders to order and shall act as Chairman of such meetings. In the absence of the Chairman of the Board, the Vice-Chairman or the President, or in his absence an Executive Vice President shall preside: and in the absence of any of the foregoing officers, the Stockholders present, or the Board of Directors, may appoint any Stockholder to act as Chairman of any meeting. 63 EXHIBIT 3(iii) Page 4 of 17 The Secretary of the Company shall act as Secretary of all meetings of the Stockholders. In the absence of the Secretary at any meeting of the Stockholders, the presiding officer may appoint any person to act as Secretary of the Meeting. Section 5. Voting: At each meeting of the Stockholders, every Stockholder shall be entitled to vote in person or by proxy appointed by instrument in writing subscribed by such Stockholder or by his duly authorized attorney and delivered to the inspectors at the meeting. The votes for Directors and, upon demand of any Stockholder, the votes upon any question before the meeting shall be by ballot. Section 6. Inspectors: At each annual stated meeting of the Stockholders for the election of Directors, the presiding officer of such meeting shall appoint two persons to act as inspectors, who shall be sworn to perform their duties in accordance with the laws of the State of New Jersey, and who shall return a formal certificate. Section 7. Nominations of Directors: Nominations for the election of Directors may be made by the Board of Directors or by any Stockholder entitled to vote for the election of Directors. Any Stockholder entitled to vote for the election of Directors at a meeting or to express a consent in writing without a meeting may nominate a person or persons for election as a Director only if written notice of such Stockholder's intent to make such nomination is given to the Secretary of the Company, either by personal delivery or by United States mail, postage prepaid, not later than (a) with respect to an election to be held at an annual stated meeting of Stockholders, 90 days in advance of such meeting, (b) with respect to an election to be held at a special meeting of Stockholders for the election of Directors (to the extent such a special meeting is permitted under applicable law and the Company's Certificate of Incorporation), the close of business on the seventh day following the date on which notice of such special meeting is first given to Stockholders, 64 EXHIBIT 3(iii) Page 5 of 17 and (c) in the case of any Stockholder who wishes to nominate a person or persons for election as a Director pursuant to consents in writing by Stockholders without a meeting (to the extent election by such consents is permitted under applicable law and the Company's Certificate of Incorporation), 60 days in advance of the date on which materials soliciting such consents are first mailed to Stockholders or, if no such materials are required to be mailed under applicable law, 60 days in advance of the date on which the first such consent in writing is executed. Each such notice shall set forth the name and address of the Stockholder who intends to make the nomination and of the person or persons to be nominated for election as a Director; a representation that the Stockholder is a holder of record of stock of the Company entitled to vote at such meeting or to express such consent in writing and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or to execute such a consent in writing to elect such person or persons as a Director; a description of all arrangements or understandings between the Stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations for election as a Director are to be made by the Stockholder; such other information regarding each nominee proposed by such Stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission if such nominee had been nominated, or was intended to be nominated, for election as a Director by the Board of Directors; and the consent of each nominee to serve as a Director of the Company if so elected. The Board of Directors may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. 65 EXHIBIT 3(iii) Page 6 of 17 ARTICLE II. BOARD OF DIRECTORS Section 1. Number and Election: The business and the property of the Company shall be managed by a Board of eleven (11) Directors; but the number of Directors may be altered from time to time by the alteration of these By-Laws, provided that, as required by the Restated Certificate of Incorporation, the Board shall never consist of less than eight (8) members. As provided in the Restated Certificate of Incorporation, the Board of Directors shall be divided into three (3) classes, two consisting of (4) Directors each and the remaining consisting of three (3) Directors. At each annual election, the successors to the Directors of the class whose terms shall expire in that year shall be elected to hold office for the term of three (3) years, so that the term of office of one class of Directors shall expire in each year. Every Director shall be a holder of at least one (1) share of the capital stock of the Company. Each Director shall serve for the term for which he shall have been elected and until his successor shall have been duly chosen. No Director, however, shall remain in office after the last day of the month in which he shall attain his 72nd birthday. Notwithstanding the foregoing provisions of this Section 1, if and as long as the Restated Certificate of Incorporation provides for the election of additional Directors by class or classes of stock, such additional Directors shall be elected in the manner and for the term provided in the Restated Certificate of Incorporation. 66 EXHIBIT 3(iii) Page 7 of 17 Section 2. Vacancies: Subject to any requirements of the Certificate of Incorporation with respect to the filling of vacancies among additional Directors elected by a class or classes of stock, if the office of any Director becomes vacant, the remaining Directors may, by a majority vote, elect a successor who shall hold office until the next succeeding annual meeting of the Stockholders and until his successor shall have been elected and qualified. Section 3. Place of Meetings: The Directors may hold their meetings and may have an office and keep the books of the Company (except as otherwise may be provided for by law) in such place or places in the State of New Jersey or outside of the State of New Jersey as the Board from time to time may determine. Section 4. Regular Meetings: Regular meetings of the Board of Directors shall be held at such times and intervals as the Board may from time to time determine. It shall be the duty of the Secretary to send a notice to each of the Directors at his address as it appears on the books of the Company at least two (2) days before the holding of each regular meeting, but a failure of the Secretary to send such notice shall not invalidate any proceedings of the said Board. Section 5. Special Meetings: Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or the Vice-Chairman or the President, or by one-third (1/3) of the Directors for the time being in office. The Secretary shall give notice of each special meeting by mailing the same at least two (2) days before the meeting, or by telegraphing the same at least one (1) day before the meeting to each Director, but such notice may be waived by any Director. At any meeting at which every Director shall be present, even without notice, any business may be transacted. 67 EXHIBIT 3(iii) Page 8 of 17 Section 6. Quorum: Six (6) members of the Board of Directors, but not less than one-third (1/3) of the entire Board, shall constitute a quorum for the transaction of business; but if at any meeting of the Board there be less than a quorum present, those present may adjourn the meeting from time to time. At meetings of the Board of Directors, business shall be transacted in such order as from time to time the Board may determine. Section 7. Director Emeritus: The Board of Directors may appoint a person who has served with distinction and who has retired from the Board upon reaching mandatory retirement as provided herein to the position of Director Emeritus. A Director Emeritus shall be invited to attend all meetings of the Board and shall receive the same compensation as that paid to outside Directors. While serving as a Director Emeritus, he shall not be considered a retired director for pension benefit purposes; however, any pension benefits to which he may be entitled will commence upon his cessation of service as a Director Emeritus. He shall be appointed by the Board for a one-year term and may be reappointed from time to time by action of the Board. While the presence of a Director Emeritus at a Board meeting will not be considered for quorum or voting purposes, nevertheless, his advice and counsel on all matters to come before the Board is invited. ARTICLE III. COMMITTEES The Board of Directors may appoint from their number such standing committees as they deem best and to the extent permitted by statute may invest them with such of their own powers as they may deem advisable, subject to such conditions as they may prescribe. 68 EXHIBIT 3(iii) Page 9 of 17 ARTICLE IV. OFFICERS Section 1. Officers: The executive officers of the Company shall include a Chairman of the Board of Directors, President, Treasurer and Secretary and may also include one or more Vice-Chairmen, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, and such other officers as the Board of Directors shall deem necessary or otherwise appropriate to elect. The Chief Executive Officer may hold the title of Chairman of the Board, or President, or both titles. The Board of Directors may appoint such other officers and advisory boards as they shall deem necessary, who shall have such authority and who shall perform such duties as from time to time may be prescribed by the Board of Directors. Any executive officer elected by the Board of Directors may be removed at any time with or without cause by the affirmative vote of two-thirds (2/3) of the entire Board of Directors. Any other appointed or elected officer, agent, employee or member of an advisory board may be removed at any time with or without cause by affirmative vote of the Directors or by the Committee or superior officer upon whom such power of removal may be conferred. Section 2. Powers and Duties: The Chairman of the Board shall preside at all meetings of the Board of Directors and Stockholders. Subject to designation by the Board of Directors he shall be the Chief Executive Officer of the Company, and he shall have responsibility for the active management of the business of the Company. He may sign and execute contracts and agreements authorized by the Board, delegate other officers to do so and may, from time to time, require from other officers and from employees of the Company opinions, reports or information upon any 69 EXHIBIT 3(iii) Page 10 of 17 matter specified by him or generally upon the interests or affairs of the Company under the supervision of such officers or employees respectively. He may appoint and remove assistant officers and other employees and agents. He may exercise any other powers conferred upon him by the Board of Directors. Other officers shall have all the usual and customary powers and shall perform all the usual and customary duties incident to their respective offices and, in addition thereto and to any duties specifically prescribed by any subsequent provisions of these By-Laws, they shall respectively perform such other general or special duties as may from time to time be assigned to them by the Board of Directors or the Chief Executive Officer. The Board of Directors may appoint an officer to act as Chief Financial Officer of the Company, who shall have responsibility for the financial affairs of the Company. He will be responsible for the preparation of the financial statements of the Company, and such other duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer. The Board of Directors may appoint an officer to act as General Counsel of the Company, who shall have responsibility for the legal affairs of the Company. The Board of Directors may appoint the Comptroller to be the principal accounting and financial control officer of the Company. Securities of other corporations or interests in other entities held by the Company may be voted by the Chairman of the Board or by any other person designated by the Board of Directors or Chief Executive Officer. Section 3. Term: The executive officers elected by the Board of Directors shall hold office for one year or until their successors are elected and qualify. The Chairman, and any Vice-Chairman, shall be elected by the Directors from among their own number. One person may hold more than one office. 70 EXHIBIT 3(iii) Page 11 of 17 ARTICLE V. BILLS, NOTES, AND CHECKS All bills, notes, checks or other negotiable instruments of the Company shall be made in the name of the Company and shall be signed by two executive officers or by any two persons duly authorized by the Board of Directors. No officers or agents of the Company, either singly or together shall have power to make any bill, note or check or other negotiable instrument in the name of the Company to bind the Company thereby, except as in this Article prescribed and provided. No officer or agent of this Company shall have power to endorse in the name, for or in behalf of the Company, any note, bill of exchange, draft, check or other written instrument for the payment of money, save only for purposes of the discount or the collection of the said instrument, unless thereunto duly and specially authorized by the vote of the Directors of this Company entered on the minutes of said Board. ARTICLE VI. CAPITAL STOCK Section 1. Certificates for Shares: The certificates for shares of the capital stock of the Company shall be in such form not inconsistent with the Certificate of Incorporation as shall be prepared or be approved by the Board of Directors. The certificates shall be signed by or bear thereon the facsimile signature of the Chairman, the Vice-Chairman, President, or an Executive Vice President, or a Vice President, and also be signed by or bear thereon the facsimile signature of the Treasurer or an Assistant Treasurer. The certificates shall be consecutively numbered. The name of the person owning the shares represented thereby, with the number of such shares and the date of issue, shall be entered in the Company's books. 71 EXHIBIT 3(iii) Page 12 of 17 Section 2. Transfers: Shares of the capital stock of the Company shall be transferred only on the books of the Company by the holder thereof in person or by his attorney, upon surrender of the certificate or certificates properly endorsed. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the Company. The Board of Directors may appoint Transfer Agents and Stock Registrars and may require all stock certificates to bear the signatures of such a Transfer Agent and of such a Registrar of Transfers, or any of them. The stock transfer books may be closed for such period next preceding any Stockholders' meeting, or the payment of dividends as the Board of Directors may from time to time determine, and during such period no stock shall be transferable. The Board of Directors may also fix in advance a date not more than 60 nor less than 10 days preceding the date of any meeting of Stockholders, nor more than 60 days preceding the date for the payment of any dividend on the Common Stock or any series of Preference Stock, or the date for allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the Stockholders entitled to notice of and to vote at any such meeting, or entitled to receive payment of any such dividend, or any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of capital stock. In such cases only Stockholders of record on the date so fixed shall be entitled to such notice of and vote at such meeting, or to receive payment of such dividend, or allotment of rights, or to exercise such rights, as the case may be, and notwithstanding any transfer of any stock on the books of the Company after any such record date fixed as aforesaid. Section 3. Lost Stock Certificates: In case any stock certificate shall be lost, the Board of Directors may order a new certificate to be issued in its place upon receiving such proof of loss and such security therefor as may be satisfactory to it. 72 EXHIBIT 3(iii) Page 13 of 17 ARTICLE VII. THE CORPORATE SEAL The Corporate Seal of the Company shall consist of a circle formed by the words "Ingersoll-Rand Company" and the letters "N. J." with the words "Corporate Seal" and the figures "1905" in the center. The Seal shall be attested by the signature of the Secretary or the Assistant Secretary or of the Treasurer or the Assistant Treasurer. When authorized by the Board of Directors, the Secretary shall affix the Seal, or cause it to be affixed, to all documents executed on behalf of the Company. The Board of Directors may also specifically or generally authorize other persons to affix the Seal. ARTICLE VIII. REACQUIRED SHARES When shares of the Company are reacquired by the Company by purchase, by redemption or by their conversion into other shares of the Company, such shares shall be treated by the Company as treasury shares, unless and to the extent the Board of Directors determines at any time that any such shares shall be cancelled. 73 EXHIBIT 3(iii) Page 14 of 17 ARTICLE IX. INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS Section 1. Right to Indemnification: Each person who was or is made a party or is threatened to be made a party to or is involved in any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, or any appeal therein or any inquiry or investigation which could lead to such action, suit or proceeding ("proceeding"), by reason of his or her being or having been a Director or officer of the Company or of any constituent corporation absorbed by the Company in a consolidation or merger, or by reason of his or her being or having been a Director, officer, trustee, employee or agent of any other corporation (domestic or foreign) or of any partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise (whether or not for profit), serving as such at the request of the Company or of any such constituent corporation, or the legal representative of any such Director, officer, trustee, employee or agent, shall be indemnified and held harmless by the Company to the fullest extent permitted by the New Jersey Business Corporation Act, 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 Company to provide broader indemnification rights than said Act permitted prior to such amendment), from and against any and all reasonable costs, disbursements and attorneys' fees, and any and all amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties, incurred or suffered in connection with any such proceeding, and such indemnification shall continue as to a person who has ceased to be a Director, officer, trustee, employee or agent and shall inure to the benefit of his or her heirs, executors, administrators and assigns; provided, however, that there shall be no indemnification hereunder with respect to any settlement or other nonadjudicated disposition of any proceeding unless the Company has given its prior consent to such settlement or disposition. The right to indemnification conferred in 74 EXHIBIT 3(iii) Page 15 of 17 this Section 1 shall be a contract right and shall include the right to be paid by the Company the expenses incurred in connection with any proceeding in advance of the final disposition of such proceeding as authorized by the Board of Directors; provided, however, that, if the New Jersey Business Corporation Act so requires, the payment of such expenses incurred by a Director or officer in his or her capacity as a Director or officer in advance of the final disposition of a proceeding shall be made only upon receipt by the Company 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 Section 1 or otherwise. The Company may, by action of its Board of Directors, provide for indemnification and advancement of expenses to employees and agents of the Company with the same scope and effect as the foregoing indemnification of Directors and officers. Section 2. Right of Claimant to Bring Suit: If a claim under Section 1 of this Article IX is not paid in full by the Company within thirty days after a written request has been received by the Company, the claimant may at any time thereafter apply to a court for an award of indemnification by the Company for the unpaid amount of the claim and, if successful on the merits or otherwise in connection with any proceeding, or in the defense of any claim, issue or matter therein, the claimant shall be entitled also to be paid by the Company any and all expenses incurred or suffered in connection with such proceeding. It shall be a defense to any such action (other than an action brought to enforce a claim for the advancement of expenses incurred in connection with any proceeding where the required undertaking, if any, has been tendered to the Company) that the claimant has not met the standard of conduct which makes it permissible under the New Jersey Business Corporation Act for the Company to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such proceeding that indemnification of 75 EXHIBIT 3(iii) Page 16 of 17 the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the New Jersey Business Corporation Act, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, nor the termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 3. Non-Exclusivity of Rights: The right to indemnification and advancement of expenses provided by or granted pursuant to this Article IX shall not exclude or be exclusive of any other rights, including the right to be indemnified against any and all reasonable costs, disbursements and attorneys' fees, and any and all amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties incurred or suffered in proceedings by or in the right of the Company, to which any person may be entitled under a certificate of incorporation, by-law, agreement, vote of stockholders, or otherwise, provided that no indemnification shall be made to or on behalf of any person if a judgment or other final adjudication adverse to such person establishes that such person has not met the applicable standard of conduct required to be met under the New Jersey Business Corporation Act. ARTICLE X. AMENDMENTS The Board of Directors may, by a majority vote of the entire Board, make By-Laws and from time to time alter, amend or repeal any By-Law, but any By-Law made by the Board of Directors may be altered or repealed by the Stockholders at any annual or special meeting. Notice of such proposed alteration, amendment or repeal of any By-Law shall be included in the notice of the meeting of the Directors or Stockholders. 76 EXHIBIT 3(iii) Page 17 of 17 ARTICLE XI. AUDITORS The Board of Directors may appoint a firm of certified public accountants to audit the books and accounts of the Company for the calendar year in which such appointment is made. 77 EX-10.(III)(A) 5 EXHIBIT 10(III)(A) EXHIBIT 10(iii)(a) Page 1 of 15 MANAGEMENT INCENTIVE UNIT PLAN OF INGERSOLL-RAND COMPANY As Amended Effective January 1, 1980 I. Purpose The purpose of this Plan is to provide additional incentive which will enable the Company to attract to and retain in its employment over the years persons of outstanding competence, and to promote the stockholder point of view among key employees of the Company. II. Definitions (a) "Company" means Ingersoll-Rand Company or any company successor thereto by merger, consolidation, or other reorganization which has made provision for adoption of this Plan and the assumption of the Company's obligations thereunder. (b) "Subsidiary" means any corporation more than 50 per cent of whose total combined voting stock of all classes is owned by the Company or by another corporation qualifying as a subsidiary within this definition. (c) "Common Stock" means shares of the common stock of Ingersoll-Rand Company. (d) "Committee" means the committee appointed by the Board of Directors of the Company pursuant to Article III hereof. (e) "Common Stock Equivalents" shall provide the holder with such of the rights and benefits of the actual owner of shares of Common Stock as the Board of Directors may determine, including the right to receive dividends and the right to receive the amount of appreciation in value, if any, on such shares of Common Stock from the date the grant of such Common Stock Equivalents became effective until they become payable to the Participant. (f) "Disability" means such term as defined under the pension, retirement or appropriate benefit plan or plans of the Company or a Subsidiary applicable to the Participant. 78 EXHIBIT 10(iii)(a) Page 2 of 15 (g) "Dividend Equivalents" means a right to receive immediately or on a deferred basis, whether or not subject to forfeiture, an amount not exceeding one-half of the dividends paid or payable on a share of Common Stock subject to a Unit. (h) "Employee" means any person, including an officer of the Company (whether or not he is also a director thereof), who is (1) employed by the Company or a subsidiary on a full-time basis, (2) primarily compensated for such employment by a regular salary or by commissions on sales or both, and (3) in the opinion of the Committee, is one of the key personnel of the Company in a position to contribute materially to its continued growth and development and to its future financial success. The term does not include persons who are retained by the Company as consultants only. (i) "Participant" means an employee who is awarded Management Incentive Units hereunder. (j) "Retirement" means such term as defined under the pension or retirement plan or plans of the Company or a Subsidiary applicable to the Participant, pursuant to which he is or will, upon such retirement, be entitled to receive retirement benefits. (k) "Termination Date" shall mean the date of termination of a Participant's employment with the Company by death, retirement, resignation, discharge or otherwise. (l) "Fair Market Value" of the Common Stock shall be, as applied to any date, the mean between the high and low sales prices, regular way, of a share of Common Stock on such date as reported on the Composite Tape, or, if no such sales were made on such date, on the next preceding date on which there were such sales of Common Stock as reported on the Composite Tape. III. Administration and Eligibility (a) The Board of Directors of the Company shall appoint a Committee consisting of three or more members of the Board, who shall serve at the pleasure of the Board of Directors, to administer, construe and interpret this Plan. No member of the Committee shall be liable for any act done or determination made in good faith. No member of the Committee shall participate in 79 EXHIBIT 10(iii)(a) Page 3 of 15 any determination either to award himself Management Incentive Units or to accelerate benefits to him pursuant to Article XI hereof. (b) The construction and interpretation by the Committee of any provision of this Plan shall be final and conclusive. It shall determine, subject to the provisions of this Plan: (i) The Employees who shall participate in the Plan from time to time; and (ii) The number of Management Incentive Units (sometimes herein called "Units") to be set aside for each Participant. (c) The Committee may, in its discretion, delegate its duties to an officer or employee, or a committee composed of officers or employees of the Company, except that it may not delegate its authority to construe and interpret this Plan, or to make the determinations specified in Items (i) and (ii) of Paragraph (b) of this Article III, or in Articles XI and XII. IV. Establishment of Management Incentive Units The Company shall set up an appropriate record (hereinafter called the "Incentive Ledger") and thereafter from time to time enter therein an account in the name of each Participant, showing the number of Units awarded to him by the Committee, and an amount equivalent to the Fair Market Value of an equal number of shares of Common Stock on the day such Units were awarded him. Such latter amount shall not constitute a credit to the account of a Participant, but is to be used solely in the computation of credits, under certain circumstances, as hereinafter set forth. V. Aggregate Number of Units The aggregate number of Units standing in the Incentive Ledger to the credit of Participants at any one time shall not exceed 600,000, and the aggregate number of Units awarded to any one Participant shall not exceed 10,000, provided, however, that upon termination of employment of any Participant for any cause including Retirement, any Units theretofore awarded to him shall no longer be considered outstanding for the purposes of the limitations of this Article V only. 80 EXHIBIT 10(iii)(a) Page 4 of 15 VI. Payment or Crediting of Amounts Related to Cash Dividends So long as this Plan remains in effect, the Company shall pay to each Participant throughout the term of his employment with the Company or a subsidiary, amounts equal to one-half of the dividends paid in cash from time to time on issued and outstanding shares of Common Stock equal to the number of Units in his account, so that the amount of each such payment will be equivalent to one-half of the cash dividends which the Participant would have received had he been the owner of the number of shares of Common Stock equal to the number of Units in his account, provided, however, that if the Committee in its sole discretion shall at any time so direct as to any Participant, such amounts shall thereafter not be paid to such Participant but shall be credited to his account in the Incentive Ledger. No such payment or credit shall be made with respect to any dividend paid after a Participant's Termination Date or after any date of termination of this Plan, even though the record date is prior thereto. VII. Credits to Accounts of Participants (a) Subject to the provisions of Paragraphs (b) to (g), inclusive, of this Article VII, there shall be credited to each Participant's account in the Incentive Ledger an amount which shall be equal to the excess, if any, of the aggregate Fair Market Value on his Termination Date of that number of shares of Common Stock which is equal to the number of Units then standing to his credit over the aggregate Fair Market Value of such shares on the date or dates the Units were awarded him; provided, however, that after a Unit has been held by a Participant for five years, instead of the foregoing credit provided in this Paragraph (a), there shall be credited to the Participant's account in the Incentive Ledger the same amounts with respect to each Unit theretofore and thereafter paid or credited to the Participant under the provisions of Article VI as of the dates of such payments or credits under Article VI, so long as the Unit continues to be held by the Participant. The provisions of this Paragraph (a) of Article VII shall be applicable to former Participants whose employment terminated before January 1, 1980 and who elected a Selected Value Date pursuant to Paragraph (c) below which had not yet occurred at said date. 81 EXHIBIT 10(iii)(a) Page 5 of 15 (b) Subject to the provisions of Article X, upon termination of a Participant's employment for any reason other than death, Disability or Retirement, no credit under Paragraph (a) of this Article VII shall be made to the Participant's account except and to the extent that the Committee, in its sole discretion, shall so authorize. (c) Upon termination of a Participant's employment by reason of death, Disability or Retirement within five years from the date of grant, he or his Beneficiary or Beneficiaries designated pursuant to Paragraph (b) of Article IX hereof shall have the option, to be exercised in writing filed with the Secretary of the Company on or before his Termination Date (or in the event of his death, within thirty days thereafter), to have his credit under the provisions of this Article VII determined by using the Fair Market Value of the Common Stock as of a Selected Value Date in lieu of his Termination Date; provided, however, that such Fair Market Value may not exceed the highest price at which a sale of the Common Stock was made on the New York Stock Exchange between the date such employee became a Participant and his Termination Date. The Selected Value Date shall be any date within a three-year period immediately following his Termination Date which he or his Beneficiary or Beneficiaries may designate by notice in writing to the Secretary of the Company not less than three days prior to the date so designated. If no such designation is made, then his Selected Value Date shall be the third anniversary of his Termination Date. If such option shall be exercised, no credit shall be made to such Participant's account in the Incentive Ledger under the provisions of this Article VII until the Selected Value Date, except as provided in Paragraphs (e) and (f) of this Article VII. (d) Any Participant whose employment is terminated for any reason other than death, Disability or Retirement within five years from the date of grant shall have an option to choose a Selected Value Date, as provided in Paragraph (c) of this Article VII, only if the Committee, in its sole discretion, shall so authorize. (e) If the Board of Directors of the Company shall terminate this Plan within five years from its effective date, no credit under the provisions of this Article VII shall be made thereafter to the account of any Participant; provided, however, that if the date of such termination occurs after a Participant's 82 EXHIBIT 10(iii)(a) Page 6 of 15 Termination Date and prior to his Selected Value Date, then such Participant shall be entitled to any credit resulting under the provisions of this Article VII from the use of the Fair Market Value of the Common Stock as of the date of termination of this Plan in lieu of such Participant's Selected Value Date. (f) If the Board of Directors of the Company shall terminate this Plan more than five years after its effective date, then each Participant who has not received a credit under the provisions of this Article VII shall be entitled to any credit resulting thereunder from the use of the Fair Market Value of the Common Stock on the date of termination of this Plan in lieu of each such Participant's Termination Date or Selected Value Date, as the case may be, and any credit so resulting shall be entered in the Incentive Ledger to the account of each such Participant as of the date of termination of this Plan, but no other credits shall be made thereafter to the account of any Participant. (g) Anything herein contained to the contrary notwithstanding, the amount which may be credited to the account of a Participant under the provisions of this Article VII shall not exceed the aggregate of all amounts theretofore either paid to such Participant or credited to his account under the provisions of Article VI hereof. VIII. Dividend Equivalents (a) In lieu of the credits provided in Article VII, the Committee may provide that an amount equivalent to not more than one-half of the cash dividend which the Participant would have received had he been the owner of a number of shares of Common Stock equal to the number of Units in his account shall be credited to his account in the Incentive Ledger as Dividend Equivalents. Such determination may be made either at the time of granting of a Unit or at any time thereafter, and if granted after the award of such Unit, such determination may be made retroactive to the date of the award of such Unit upon cancellation of any amounts credited or reflected in the Participant's account under Article VII. Such determination may contain such provisions and be subject to such terms and conditions as the Committee may direct. Dividend Equivalents may be payable or credited either in cash or in Common Stock Equivalents. If credited in Common Stock Equivalents, they shall 83 EXHIBIT 10(iii)(a) Page 7 of 15 be credited at the Fair Market Value of an equal number of shares of Common Stock on the day of such crediting. The Committee may provide that any amounts representing dividends earned by Common Stock Equivalents may be paid either currently or in the future in cash or that they may be represented by further Common Stock Equivalents, or both. In the event that dividends on Common Stock Equivalents are paid in further Common Stock Equivalents, the latter shall be charged against the limit contained in Article V. As used in the Plan the words Unit or Units shall include Dividend Equivalents where appropriate in the context, including, without limitation, references to a Participant's account in the Incentive Ledger. (b) Upon termination of a Participant's employment for any reason other than death, Disability or Retirement, the Participant's interest in amounts theretofore credited to his account under Paragraph (a) of this Article VIII and not theretofore vested under Article X shall be cancelled, except and to the extent that the Committee, in its sole discretion, shall otherwise determine. Upon termination of employment for any reason where benefits have been vested pursuant to Article X, such vested amounts shall be payable as provided in Article IX. If such vested amounts have been credited to the account of the Participant in Common Stock Equivalents, unless the Committee, in its sole discretion, shall otherwise determine, no further amounts with respect to dividends paid on a share of Common Stock shall be credited with respect to such Common Stock Equivalents, regardless of whether the record date for said dividend occurs before or after the Participant's Termination Date, and the Fair Market Value of said Common Stock Equivalents shall be determined at said Termination Date. Amounts payable to the Participant thereafter with respect to said Common Stock Equivalents under Article IX shall not exceed the Fair Market Value as so determined at the Participant's Termination Date. However, the Committee, in its sole discretion, may permit said Common Stock Equivalents to retain any or all their characteristics until fully paid out following termination of employment. 84 EXHIBIT 10(iii)(a) Page 8 of 15 IX. Payment of Benefits (a) Upon termination of a Participant's employment there shall be paid to him, or in the event of his death, to the Beneficiary or Beneficiaries designated under the provisions of Paragraph (b) of this Article IX, the amount then standing to his credit or thereafter credited to him in the Incentive Ledger under the provisions of Article VI and Paragraph (a) of Article XII hereof and the amounts vested under Article X. The amounts so credited shall be payable in quarter-annual installments over a ten-year period. In the case of termination of employment by reason of death, Disability or Retirement, the payment of such amounts shall commence within three months after the Participant's Termination Date. In the event a Participant's employment with the Company shall have terminated for any other reason, the payment of such amounts shall commence upon the occurrence of what would have been the Participant's normal retirement date under the then existing pension plan of the Company or a Subsidiary which had been applicable to him, unless the Committee shall, in its sole discretion, determine to commence payments earlier. The Committee may, in its sole discretion, with the written consent of the Participant, if living, and of each Beneficiary then designated by him or if the Participant be not then living, with the written consent of each of his Beneficiaries, or if none of them shall be then living, with the written consent of the Participant's executors or administrators, pay in one lump sum the amount payable or reduce the period of time and the number of installments during which the payments referred to in this Paragraph (a) of Article IX shall be made. The aforesaid payments shall be made under such terms and conditions as the Committee may direct. (b) Each person upon becoming a Participant shall file with the Secretary of the Company a notice in writing designating one or more Beneficiaries to whom payments otherwise due the Participant shall be made in the event of his death. In case of a failure to designate a Beneficiary, or if all designated Beneficiaries shall die before all payments have been made then any remaining payments shall be made to the Participant's executors or administrators. 85 EXHIBIT 10(iii)(a) Page 9 of 15 X. Vesting (a) If the Committee, in its sole discretion, shall so determine, amounts credited to a Participant's account in the Incentive Ledger under Articles VII and VIII may vest in whole or in part five years from the dates as of which such amounts are credited. In the event that such amounts have been credited in cash, the amount vested shall be the cash credit to the Participant's account. If credited in Common Stock Equivalents, the number of Common Stock Equivalents credited shall be the amount vested. If the Committee, in its sole discretion, shall so determine, amounts earned and credited on said vested Common Stock Equivalents, both before and after the date of their vesting, shall also vest in accordance with such terms and conditions as the Committee may direct. (b) All other amounts credited to the Participant's account in the Incentive Ledger shall vest upon death, Disability or Retirement, subject to the limitations of Article VII, if applicable. XI. Acceleration of Payment of Benefits Anything herein contained to the contrary notwithstanding, at any time after five years from the effective date of this Plan the Committee may in its sole discretion, if it determines that unusual circumstances exist and that it would be in the best interest of a Participant and of the Company, accelerate the payment of benefits to such Participant by paying to him in one sum in cash: (a) The amount, if any, credited to his account in the Incentive Ledger under the provisions of Articles VI, VII and VIII, (b) The amount, if any, credited to his account in the Incentive Ledger under the provisions of Paragraph (a) of Article XII, and (c) Under Article VII if applicable, an amount which shall be equal to the excess of the aggregate Fair Market Value on the date of such Committee action, of that number of shares of Common Stock which is equal to the number of Units then standing to the credit of such Participant over the aggregate Fair Market Value 86 EXHIBIT 10(iii)(a) Page 10 of 15 of such shares on the date or dates the Units were awarded to him; provided, however, that the amount of such payment under this clause (c) may not exceed the aggregate of all amounts theretofore either paid to such Participant or credited to his account under the provisions of Article VI hereof. At the time of making such payment the Units in respect of which such amount was paid shall be cancelled and the Participant shall have no further rights with respect to such Units. XII. Limitation of Rights (a) The Committee may at any time prior to a Participant's Termination Date cancel some or all of the Units standing to his credit in the Incentive Ledger and thereafter the rights of such Participant shall be limited to rights accruing in respect of such number of Units, if any, as shall remain to his credit in the Incentive Ledger; provided, however, that if such action shall be taken later than five years after the effective date of this Plan and within five years from the date of grant, there shall be credited to the account of such Participant in the Incentive Ledger with respect to amounts credited under Article VII, an amount which shall be equal to the excess of the aggregate Fair Market Value on the date of such Committee action, of that number of shares of Common Stock which is equal to the number of Units so cancelled over the aggregate Fair Market Value of such shares on the date or dates the Units so cancelled were awarded to him; and provided further, that the amount of such credit may not exceed the aggregate of all amounts theretofore either paid to such Participant or credited to his account under the provisions of Article VI hereof in respect only of the number of Units so cancelled; and in the event of such action five years after the date of grant, there shall be credited to the account of such Participant in the Incentive Ledger other amounts credited under Articles VII and VIII. (b) Nothing in this Plan contained shall be construed to: (i) Give any employee of the Company or a subsidiary any right to be awarded any Units except in the sole discretion of the Committee; (ii) Give a Participant any rights whatsoever with respect to shares of Common Stock of the Company; 87 EXHIBIT 10(iii)(a) Page 11 of 15 (iii) Limit in any way the right of the Company or a Subsidiary to terminate a Participant's employment at any time; or (iv) Be evidence of any agreement or understanding, express or implied, that the Company or a subsidiary will employ a Participant in any particular position or at any particular rate of remuneration, or for any period of time. XIII. Adjustment in Number of Units In the event of any stock dividend on the Common Stock or any split-up or combination of shares of the Common Stock, appropriate adjustment shall be made by the Committee in the aggregate number of Units which may be awarded under this Plan, in the maximum number of Units which may be awarded to any one Participant, and in the number of Units standing to the credit of each Participant in the Incentive Ledger; provided, however, that the Committee shall not be required to establish any fractional Units. XIV. Non-Alienation of Benefits No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefits. If any Participant or Beneficiary hereunder should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit hereunder, then such right or benefit shall, in the discretion of the Committee, cease and determine, and in such event, the Company may hold or apply the same or any part thereof for the benefit of the Participant or Beneficiary, his or her spouse, children or other dependents, or any of them, in such manner and in such proportion as the Committee may deem proper. XV. Amendment or Termination of Plan (a) The Board of Directors may terminate this Plan at any time. 88 EXHIBIT 10(iii)(a) Page 12 of 15 (b) The Board of Directors may amend this Plan at any time; except that: (i) The aggregate number of Units which may be awarded to all Participants and the aggregate number of Units which may be awarded to any one Participant may not be increased except as provided in Article XIII hereof; and (ii) This Article XV may not be amended. (c) Any amendment or termination of this Plan shall not affect the rights of Participants or Beneficiaries to payments in accordance with Article IX of amounts standing to the credit of Participants in the Incentive Ledger at the time of such amendment or termination. XVI. Effective Date of Plan This Plan shall become effective on such date as the Board of Directors may determine. 89 EXHIBIT 10(iii)(a) Page 13 of 15 AMENDMENT TO THE MANAGEMENT INCENTIVE UNIT PLAN OF INGERSOLL-RAND COMPANY EFFECTIVE JANUARY 1, 1982 Article VI of the Management Incentive Unit Plan of Ingersoll-Rand Company, as amended effective January 1, 1980, is further amended by deleting the last sentence of such Article and substituting the following: "The Committee, in its sole discretion, shall determine whether and to what extent a Participant, following the Participant's Termination Date, shall be paid or credited with amounts equal to all or any part of the dividends paid by the Company in cash, from time to time, on issued and outstanding shares of Common Stock, equal to the number of Common Stock Equivalents in the Participant's account." 90 EXHIBIT 10(iii)(a) Page 14 of 15 AMENDMENT TO THE MANAGEMENT INCENTIVE UNIT PLAN OF INGERSOLL-RAND COMPANY EFFECTIVE MARCH 1, 1987 The Management Incentive Unit Plan of Ingersoll-Rand Company, as amended effective January 1, 1980, and January 1, 1982, is further amended by deleting Article IX in its entirety and substituting the following new Article IX: IX. Payment of Benefits a) Upon termination of a Participant's employment there shall be paid to him, or in the event of his death, to the Beneficiary or Beneficiaries designated under the provisions of Paragraph (b) of this Article IX, the amount then standing to his credit or thereafter credited to him in the Incentive Ledger under the provisions of Article VI and Paragraph (a) of Article XII hereof and the amounts vested under Article X. In the case of termination of employment by reason of death, disability or retirement, the payment of such amounts shall be made in one lump sum to Participants within one year following the Participant's Termination Date. In the event a Participant's employment with the Company shall have terminated for any other reason, the payment of such amounts shall be made on what would have been the Participant's normal retirement date under the then existing pension plan of the Company or a Subsidiary which had been applicable to him, unless the Committee shall, in its sole discretion, determine to commence payments earlier. The Committee may, in its sole discretion, with the written consent of the Participant, if living, or if the Participant be not then living, with the written consent of each of his Beneficiaries, or if none of them shall be then living, with the written consent of the Participant's executors or administrators, pay the amount payable in installments or such other manner as it may determine. (b) Each person upon becoming a Participant shall file with the Secretary of the Company a notice in writing designating one or more Beneficiaries to whom payment otherwise due the Participant shall be made in the event of his death. In case of a failure to designate a Beneficiary, or if all designated Beneficiaries shall have died before said payment has been made then it shall be made to the Participant's executors or administrators. 91 EXHIBIT 10(iii)(a) Page 15 of 15 Amendment of Management Incentive Unit Plan of Ingersoll-Rand Company On June 3, 1987, the Board of Directors of the Company adopted the following resolution: RESOLVED, that the Amendment enacted by the Board of Directors on February 4, 1987, to Article IX of the MIU Plan of Ingersoll-Rand Company be, and hereby is rescinded effective immediately. 92 EX-10.(III)(B) 6 EXHIBIT 10(III)(B) EXHIBIT 10(iii)(b) DESCRIPTION OF COMPENSATION PLAN FOR RETIRED DIRECTORS OF INGERSOLL-RAND COMPANY There is no formal document setting forth this Plan. However, as contained in a resolution of the Board of Directors and as set forth in the Company's 1981 Proxy Statement, the Plan provides that commencing in November, 1980, a director who is not a participant in any of the Company's other retirement plans and who retires as a director at age 72 with five or more years of service, or who is required to resign as a director for health or other specific business reasons after age 65 with ten or more years of service, will receive annually, during his lifetime, a fee equal to the annual retainer in effect as of the date of his retirement or a pro rata amount if his service is less than ten years. 93 EX-10.(III)(C) 7 EXHIBIT 10(III)(C) EXHIBIT 10(iii)(c) Page 1 of 6 TO: EXECUTIVE VICE PRESIDENT SUBJECT: BONUS CONTRACT FOR 1994 The bonus plan applying to you for 1994 is outlined herein. Your bonus potential for 1994 will be divided into two parts. % of salary will be based on Group Operating results and % of salary will be based on the bonus awarded to the Chairman's Office. GROUP OPERATIONS CONTRACT (applies to % of salary) 1. Should your Operations Groups attain worldwide operating income of $ , you will receive a bonus of % of % of your annual salary rate in effect on December 31, 1994. 2. For each $ by which your worldwide operating income exceeds $ up to $ , you will receive % of % of your salary. For each $ over $ , you will receive % of % of your salary. 3. You will receive a bonus for accounts receivable and inventory turnover (sales divided by the five point average of total accounts receivable and inventory) determined in accordance with the following: For attaining your PGP for accounts receivable and inventory turnover of , you will receive % of % of your salary. For each .03 increase in A/R and inventory turnover, you will receive % of % of your salary. 4. You may receive an additional discretionary award of up to % of % of your salary. The award will be based upon your individual achievements and the accomplishments of your Groups. Any award also will be dependent upon the Company's overall performance. 94 EXHIBIT 10(iii)(c) Page 2 of 6 BONUS CONTRACT FOR 1994 - EXECUTIVE VICE PRESIDENT 5. The maximum bonus award on the sum of paragraphs (1) and (2) will be limited to % of % of your salary. The maximum bonus award on paragraph (3) will be limited to % of % of your salary. The maximum bonus award on paragraph (4) will be limited to % of % of your salary. 6. Should the Company achieve or exceed Earnings Per Share of $ , the total bonus percentage earned by you under paragraphs (1)( through (5) will be increased in accordance with the following schedule: BONUS EARNED PAR. 1-5 E.P.S. ACHIEVED INCREASED BY $ 10% $ 15% $ 20% $ 25% CORPORATE CONTRACT (applies to % of salary) 7. You also will receive a bonus based upon the percentage bonus awarded to the Chairman's office which will apply to % of your salary. For example, if the bonus awarded to the Chairman's office is % of salary, your bonus award under this paragraph (7) would be % of % of salary. 8. The maximum bonus award for paragraphs (1) through (7) will be limited to % of your total annual salary rate in effect on December 31, 1994. 9. Acquisitions, divestitures, changes in assignment, changes in accounting procedures or tax law, abnormal deviations to plan in other income and expenses in your financial income statements, and/or corrections in historical data during 1994 may necessitate pro rata adjustments in the above goals and/or actual operating results. Any such changes will be advised to you in a timely manner. 95 EXHIBIT 10(iii)(c) Page 3 of 6 BONUS CONTRACT FOR 1994 - EXECUTIVE VICE PRESIDENT 10. The results will be tabulated by the Corporate Controller's Office and reflected on Operating Income and Accounts Receivable and Inventory Reports. For those divisions having LIFO expense, the impact of LIFO will be included in both the income and inventory portion of the calculation. 11. It is the present intention of the Company to decide the amount of bonus for 1994 in February 1995. If the above objectives are not attained, any bonus award will be made at the sole discretion of the Company. 12. An illustration is attached of the Operations Group Contract bonus calculation assuming you achieve your PGP for Operating Income, exceed your Accounts Receivable and Inventory PGP and receive a discretionary award for your accomplishments under paragraph (4). 13. The Company will be the final arbiter of interpretation of the above arrangements. /S/ J. E. Perrella J. E. Perrella Chairman 96 EXHIBIT 10(iii)(c) Page 4 of 6 TO: GROUP PRESIDENT SUBJECT: BONUS CONTRACT FOR 1994 The bonus plan applying to you for 1994 is outlined below: 1. Should your operating group attain worldwide operating income of $ , you will receive a bonus of % of your annual salary rate in effect on December 31, 1994. 2. For each $ by which your worldwide operating income exceeds $ you will receive % of your salary. 3. You will receive a bonus for accounts receivable and inventory turnover (sales divided by the five point average of total accounts receivable and inventory) determined in accordance with the following: For attaining your PGP for accounts receivable and inventory turnover of ______, you will receive ______% of your salary. For each .03 increase in A/R and inventory turnover, you will receive % of your salary. 4. You may receive an additional discretionary award of up to % of your salary. The award will be based upon your individual achievements and the accomplishments of your Group. Your performance related to reengineering of business processes will be a major factor in determining the amount of bonus awarded under this paragraph. Any award also will be dependent upon the Company's overall performance. 5. The maximum bonus award on the sum of paragraphs (1) and (2) will be limited to % of your salary. The maximum bonus award on paragraph (3) will be % of salary. The maximum bonus award on paragraph (4) will be % of salary. The maximum award on the sum of paragraphs (1) through (4) will be limited to % of salary. 97 EXHIBIT 10(iii)(c) Page 5 of 6 BONUS CONTRACT FOR 1994 - GROUP PRESIDENT 6. Should the Company achieve or exceed Earnings Per Share of $ , the total bonus percentage earned by you under paragraphs (1) through (5) will be increased in accordance with the following schedule: EARNINGS PER SHARE BONUS % EARNED PAR.1-5 ATTAINED INCREASED BY $ 10% $ 15% $ 20% $ 25% 7. The maximum bonus award for paragraphs (1) through (6) will be limited to % of your annual salary rate in effect on December 31, 1994. 8. Acquisitions, divestitures, changes in assignment, changes in accounting procedures or tax law, abnormal deviations to plan in other income and expenses in your financial income statements, and/or corrections in historical data during 1994 may necessitate pro rata adjustments in the above goals and/or actual operating results. Any such changes will be advised as soon as possible. 9. The results will be tabulated by the Corporate Controller's Office and reflected on Operating Income and Accounts Receivable and Inventory Reports. For those divisions having LIFO expense, the impact of LIFO will be included in both the income and inventory portion of the calculation. 10. It is the present intention of the Company to decide the amount of bonus for 1994 in February 1995. If the above objectives are not attained, any bonus award made will be at the sole discretion of the Company. 98 EXHIBIT 10(iii)(c) Page 6 of 6 BONUS CONTRACT FOR 1994 - GROUP PRESIDENT 11. An illustration is attached of the bonus calculation assuming you achieve your PGP for Operating Income, exceed your Accounts Receivable and Inventory PGP and receive a discretionary award for your accomplishments under paragraph (4). 12. The Company will be the final arbiter of interpretation of the above arrangements. /S/ J. E. Perrella J. E. Perrella Chairman 99 EX-10.(III)(D) 8 EXHIBIT 10(III)(D) EXHIBIT 10(iii)(d) Page 1 of 1 DESCRIPTION OF BONUS ARRANGEMENT FOR CHAIRMAN, PRESIDENT AND STAFF OFFICERS OF INGERSOLL-RAND COMPANY There is no formal document setting forth this arrangement. However, as set forth in the Company's 1983 Proxy Statement, subject to the approval of the Board of Directors which approves the amount of each award, the Compensation and Benefits Committee has approved bonus arrangements for the Chairman, President and other Company officers responsible for staff functions. These officers may receive bonuses attributable to 1984 dependent upon the Company's attainment of predetermined earnings per share goals. The amount of such bonus is discretionary and is subject to general guidelines as to maximum percentages. Discretionary bonuses may also be paid in the event that corporate goals are not met. 100 EX-10.(III)(E) 9 EXHIBIT 10(III)(E) EXHIBIT 10(iii)(e) Page 1 of 13 AGREEMENT AGREEMENT made as of July 19, 1983, between INGERSOLL-RAND COMPANY, a New Jersey corporation (the "Company"), and (the "Employee"). Unless otherwise indicated, terms used herein and defined in Schedule A hereto shall have the meanings assigned to them in said Schedule. The Company and the Employee agree as follows: 1. OPERATION OF AGREEMENT. This Agreement shall be effective immediately upon its execution and shall continue thereafter from year to year unless terminated as of any anniversary of the date hereof by either party upon written notice to the other party given at least 60 days, but not more than 90 days, prior to such anniversary date. None of the provisions of this Agreement, however, shall become operative unless and until a Change of Control Event has occurred and, following such a Change of Control Event, this Agreement shall terminate only upon the expiration of the Employment Term (as defined below) or as otherwise expressly provided herein, notwithstanding the first sentence of this paragraph 1. 2. EMPLOYMENT TERM. The term of employment of the Employee pursuant to this Agreement (the "Employment Term") shall begin on the date of any Change of Control Event (the "Effective Date") and shall end on the earlier of the fifth anniversary of the Effective Date or the death or Permanent Disability of the Employee. 3. EMPLOYEE'S POSITION AND RESPONSIBILITIES. The Employee will continue to serve the Company during the Employment Term as the chief executive officer of the Company. 101 EXHIBIT 10(iii)(e) Page 2 of 13 During the Employment Term the Employee shall devote his entire business time and attention exclusively to the business and affairs of the Company and shall use his best efforts to promote the interests of the Company. The participation of the Employee in outside directorships and civic activities not otherwise inconsistent with Company policy shall not be deemed a violation of this paragraph 3. 4. COMPENSATION AND OTHER BENEFITS. The Company and the Employee agree that, upon the occurrence of any Change of Control Event, the Employee shall receive a basic annual salary, bonus and fringe benefits as follows: (a) Basic Annual Salary and Bonus. The Employee's basic annual salary shall be at a rate not less than the annual salary being paid to the Employee immediately prior to the Effective Date, with such increases (but not decreases) as may be contemplated by any salary adjustment programs of the Company in effect immediately prior to the Effective Date and applicable to the Employee and such further increases as shall be determined from time to time by the Board of Directors. In addition, the Employee shall be entitled to receive bonus and other similar management incentive compensation payments on terms and at levels no less favorable than the terms and levels of any bonus or similar management incentive compensation plan or program applicable to the Employee immediately prior to the Effective Date, or, if no such plan or program exists at that time, then in an annual amount not less than the average of the bonus and other similar management incentive compensation payments received by (or owing to) the Employee for the five full fiscal years immediately preceding the Effective Date. (b) Fringe Benefits; Business Expenses. The Employee shall be entitled to participate in any benefit plans and programs, including but not limited to pension (and supplemental pension), profit-sharing, stock option, and insurance plans (including life insurance, medical and disability income insurance and accident and personal liability insurance) which were applicable to him immediately prior to the Effective Date, on terms no less 102 EXHIBIT 10(iii)(e) Page 3 of 13 favorable than those in effect immediately prior to the Effective Date, and at no less than the same benefit levels then in effect (or shall be entitled to their equivalent), and to receive all other fringe benefits (or their equivalent) from time to time in effect for the benefit of any executive, management or administrative group for which the employment position then held by the Employee entitles the Employee to participate. The Company shall provide for the payment of or reimburse the Employee for all travel and other out-of-pocket expenses reasonably incurred by him in the performance of his duties hereunder. (c) Letter of Credit. If so requested by the Employee at any time following the Effective Date and a Significant Transfer, the Company shall obtain promptly, and in any event within 60 days following such request, an irrevocable standby letter of credit (the "Letter of Credit") in favor of the Employee from a commercial bank or trust company in the United States with capital, surplus and undivided profits of at least $50,000,000. Such Letter of Credit shall be in the amount equivalent to the undiscounted amount of all benefits that may become payable to the Employee pursuant to paragraph 5(f), determined on the basis of the Employee's actuarial life expectancy as of the date of the Employee's request, and shall provide that amounts shall be paid to the Employee by such bank or trust company upon certification by the Employee that such amounts are due and payable hereunder and have not been paid by the Company. The Company agrees that it will cause the Letter of Credit to be maintained in full force and effect at all times until the earlier of (i) the fifteenth anniversary of the Effective Date, and (ii) the date on which all payments by the Company that may be required pursuant to paragraph 5(f) have been made. The Employee acknowledges that nothing herein is intended to preclude the Company from contesting the right of the Employee to retain payments received pursuant to the Letter of Credit. In the event of a final, nonappealable determination by a court having jurisdiction that the Employee is not entitled to retain any payment received pursuant to the Letter of Credit, the Employee shall promptly reimburse the Company in an amount equal to such payment and, in the event the Employee fails to so reimburse the Company, an amount equal to such payment may be credited by the Company against payments thereafter made by the Company to the Employee pursuant to paragraph 5(f). 103 EXHIBIT 10(iii)(e) Page 4 of 13 (d) Management Incentive Award Plan. The Company and the Employee further agree that immediately upon the occurrence of any Change of Control Event, all amounts theretofore credited to the Employee under the Company's Management Incentive Award Plan, as amended (the "Incentive Plan"), shall become fully vested and all such amounts thereafter credited shall become fully vested immediately upon such Crediting. 5. PAYMENTS AND BENEFITS UPON TERMINATION. The Employee shall be entitled to the following payments and benefits upon Termination: (a) Salary and Bonus. The Company shall remain liable for, and shall continue to pay (on the respective payment dates that the following otherwise would have been payable except for Termination), for a period of three years following Termination (or, if Termination occurs more than 24 months after the Effective Date, three years less the amount of time that elapsed between the expiration of such 24 month period and the date of Termination): (i) the base annual salary in effect on the date of Termination and an annual amount equal to the average of the bonuses and similar management incentive compensation payments received by (or owing to) the Employee for the five full fiscal years immediately preceding the Effective Date; minus (ii) any amount received pursuant to paragraph 5(f) or the Pension Plans (as defined in paragraph 5(f)) in respect of the period for which a payment is being made pursuant to clause (i). (b) Lump Sum Payment Option. In lieu of the payments pursuant to paragraph 5(a), the Employee may elect by written notice to the Company (given at any time prior to the Effective Date) to receive a lump sum settlement amount, such amount to be paid by the Company on the thirtieth day following Termination, equal to the excess of (i) the discounted value of the base annual salary and bonus or similar management incentive compensation payments the Employee would have received under the provisions of paragraph 5(a) over (ii) the discounted value of any amounts which the Employee is entitled to receive pursuant to paragraph 5(f) or the Pension Plans in respect of the 104 EXHIBIT 10(iii)(e) Page 5 of 13 periods for which payment is made under paragraph 5(b)(i), determined by discounting such amounts at a rate equal to the lesser of the rate (on the date of Termination) at which the Federal Reserve Bank of New York extends short-term adjustment credits to depository institutions in accordance with Section 201.3 of Regulation A under the Federal Reserve Act (or any successor provision) or 10% per annum. (c) Employee Benefit Plans. The Company shall continue, for a period equal to the greater of one year following the date of Termination or the period specified in the applicable employee benefit plan, to cover the Employee under those employee benefit plans (including, but not limited to, pension, life, health and disability coverage, but not including any severance pay plan or program other than that provided pursuant to this Agreement) which were applicable to him on the date of Termination at the same benefit levels then in effect (or shall provide their equivalent). (d) Employee Stock Options and SARs. The Company shall pay to the Employee, in cash on the thirtieth day following the date of Termination, an amount equal to the aggregate market value (measured as of the close of trading on the date of Termination) of 100% of the Employee's then outstanding and unpaid stock awards under the Company's Incentive Stock Plan of 1980 and any substantially similar plans of the Company hereafter adopted (at which time such stock awards shall be cancelled and of no further force or effect). In addition, all options to purchase shares of Common Stock of the Company ("Common Stock") and all stock appreciation rights held by the Employee immediately prior to Termination shall become exercisable at any time on and after the date of Termination, whether or not otherwise exercisable in accordance with the terms of the employee benefit plans pursuant to which such options and stock appreciation rights were granted. (e) Savings and Stock Investment Plan. The Company shall pay to the Employee, in cash as soon as practicable following the determination thereof, an amount equal to the value (measured as of the date of Termination) of all contributions to the Company's Savings and Stock Investment Plan (and earnings and appreciation attributable thereto) that theretofore were made by the Company on behalf of the Employee and are forfeited as a result of the Termination. 105 EXHIBIT 10(iii)(e) Page 6 of 13 (f) Retirement Benefits. Commencing on the last day of the calendar month in which Termination occurs, the Employee shall be entitled to receive, without reduction for early payment, an amount per month equal to the excess of (i) such pension benefits as he would have received commencing on the last day of the calendar month in which the Employee attained age 65 under the Pension Plan for Employees of Ingersoll-Rand Company and the supplemental pension arrangements approved by the Board of Directors of the Company at a meeting held on November 5, 1975 (collectively, the "Pension Plans"), as in effect immediately prior to the Effective Date, after crediting the Employee with five additional Years of Credited Service (within the meaning of the Pension Plans) or, if less, the number of full years remaining prior to the Employee's 65th birthday, over (ii) the benefits to which the Employee is entitled for such month pursuant to the Pension Plans. (g) Valuation of Common Stock Equivalents. The Employee's Common Stock Equivalents under the Incentive Plan shall, for purposes of payments pursuant thereto, be valued at the highest of (i) the closing sale price of the Common Stock on the New York Stock Exchange on the Effective Date, (ii) the closing sale price of the Common Stock on the New York Stock Exchange on the date of Termination and (iii) the highest closing sale price of the Common Stock on the New York Stock Exchange during the 30 trading days immediately preceding the acquisition of more than 50% of the outstanding Common Stock by any person or group (including affiliates of such person or group). If, as of any valuation date, the Common Stock is not traded on the New York Stock Exchange, valuations shall be based on the closing sale price of the Common Stock on the principal national securities exchange on which the Common Stock is traded or, if the Common Stock is not traded on any national securities exchange, the closing bid price of the Common Stock in the over-the-counter market. (h) Waiver. At any time, the Employee may, by written notice to the Company, waive either or both of (i) the right to require the Company to obtain the Letter of Credit pursuant to paragraph 4(c) and (ii) the right to elect a lump sum settlement pursuant to paragraph 5(b). Any such waiver shall be irrevocable and shall relieve the Company of any obligation to obtain such Letter of Credit or to make such lump sum settlement, as the case may be. 106 EXHIBIT 10(iii)(e) Page 7 of 13 (i) Mitigation. Subject to paragraph 4(c), all payments or benefits required by the terms of this paragraph 5 shall be made or provided without offset, deduction, or mitigation on account of income the Employee may receive from other employment or otherwise. (j) Death of the Employee. In the event of the Employee's death subsequent to Termination, all payments called for hereunder shall be paid to the Employee's designated beneficiary or beneficiaries, or to his estate if he has not designated a beneficiary or beneficiaries. 6. ACCELERATION. All payments due or required to be made to the Employee under this Agreement shall become immediately due and payable without any offset, deduction or mitigation on account of any income the Employee may receive from other employment or otherwise (but subject to paragraph 4(c)), and without further notice or demand, upon the occurrence of any of the following events of default: (i) the failure of the Company to make any such payment when due or as accelerated, which failure continues for five days after the due date thereof; or (ii) (A) the filing of a petition by or against the Company for adjudication as a bankrupt under the Bankruptcy Reform Act, as now or hereafter amended or supplemented, or for reorganization within the meaning of Chapter 11 of Title 11 of the United States Code, or the filing of any petition for similar relief, (B) the commencement of any action or proceeding for the appointment of a receiver or a trustee of all or substantially all the property of the Company, (C) the taking of possession of any property of the Company by any governmental or judicial officer or agency pursuant to statutory authority for the dissolution, rehabilitation, reorganization, or liquidation of the Company, (D) the dissolution or the commencement of any action or proceeding, whether voluntary or involuntary, for the dissolution or liquidation of the Company, or (E) the making by the Company of any assignment for the benefit of creditors; provided that the Company shall have ninety days within which to effect the dismissal of any involuntary proceeding of a type referred to above that is commenced against it. In the event of any acceleration in accordance with this paragraph 6, the Employee shall thereupon be released, relieved and discharged of any and all future obligations under this Agreement other than those 107 EXHIBIT 10(iii)(e) Page 8 of 13 provided in paragraph 8 herein. If any provision of this Agreement causes any payment or benefit to become subject to Federal income tax prior to the date on which such payment or benefit is payable to the Employee, then any such payment or benefit becoming so taxable shall be paid to the Employee promptly following receipt of a notice of proposed deficiency from the Internal Revenue Service that tax is due on such unpaid payment or benefit. 7. VESTED BENEFITS. Except to the extent expressly provided herein, no provision of this Agreement shall affect or limit any interests or rights vested in the Employee under any other agreement or arrangement with the Employee or under any pension, profit-sharing, insurance or other benefit plans of the Company which may be in effect and in which the Employee may be participating at any time. 8. CONFIDENTIALITY. The Employee agrees to hold in confidence any and all confidential information known to him concerning the Company and its businesses so long as such information is not otherwise publicly disclosed. 9. NON-COMPETITION. During the Employment Term, the Employee will not, without the prior written consent of the Company, accept employment as an officer, employee, agent or consultant of a business that is directly competitive within any metropolitan area to the business of the Company. Nothing contained herein, however, shall prohibit the Employee from investing in any securities of the Company without limitation as to value or amount, or of any other entity in amounts not exceeding five percent of any single class of such securities outstanding. 108 EXHIBIT 10(iii)(e) Page 9 of 13 10. MISCELLANEOUS. (a) Legal Expenses. The Company shall pay all costs and expenses, including attorneys' fees, of the Company and, at least quarterly, the Employee, in connection with any legal proceedings, whether or not instituted by the Company, relating to the interpretation or enforcement of this Agreement. In the event that the provisions of this paragraph shall be determined to be invalid or unenforceable in any respect, such declaration shall not affect the remaining provisions of this Agreement, which shall continue in full force and effect. (b) Notices. Any notice or other communication provided for in this Agreement or contemplated hereby shall be sufficiently given if given in writing and delivered by certified mail, return receipt requested, and addressed, in the case of the Company, to the Company at: 200 Chestnut Ridge Road Woodcliff Lake, New Jersey 07675 Attention: Chairman of the Board of Directors and, in the case of the Employee, to the Employee at: Either party may designate a different address by giving notice of change of address in the manner provided above. (c) Waiver. No waiver or modification in whole or in part of this Agreement, or any term or condition hereof, shall be effective against any party unless in writing and duly signed by the party sought to be bound. Any waiver of any breach of any provision hereof or any right or power by any party on one occasion shall not be construed as a waiver of, or a bar to, the exercise of such right or power on any other occasion or as a waiver of any subsequent breach. 109 EXHIBIT 10(iii)(e) Page 10 of 13 (d) Binding Effect; Successors. This Agreement shall be binding upon and shall inure to the benefit of the Company and the Employee and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this paragraph shall continue to apply to each subsequent employer of the Employee hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer. (e) Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. INGERSOLL-RAND COMPANY By _______________________ _______________________ 110 EXHIBIT 10(iii)(e) Page 11 of 13 Schedule A CERTAIN DEFINITIONS As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Change of Control Event" means any one of the following: (a) a change is proposed by the stockholders of the Company as to the number of members, or incumbent membership, of the Company's Board of Directors such that the incumbent members of said Board of Directors immediately prior to such change would no longer constitute at least two-thirds of the Board of Directors after such change and such proposal is enacted; or the Board of Directors as constituted immediately prior to any action by the Company's stockholders with respect to such proposal determines that such proposal, if enacted, would constitute a change in control of the Company and such proposal is enacted; (b) any determination is made by the Board of Directors of the Company that there has been a change in the control of the Company because a person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), together with its affiliates (as such term is defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act), has become, at any date hereafter, the beneficial owner (as such term is defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of 5% or more of the voting power of the Company's then outstanding securities; (c) any person (other than any employee stock ownership trust or similar entity created by the Company for the benefit of its employees), together with its affiliates, has become, at any date hereafter, the beneficial owner, directly or indirectly, of 20% or more of the voting power of the Company's then outstanding securities entitled generally to vote for the election of the Company's directors; or (d) the approval by the stockholders of the Company of the merger or consolidation of the Company with any other corporation, unless the incumbent members of the Board of Directors of the Company as constituted immediately prior to such merger or consolidation shall constitute at least a majority of the directors of the surviving corporation of such merger or consolidation and any parent (as 111 EXHIBIT 10(iii)(e) Page 12 of 13 such term is defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act) of such corporation. Any determination of the occurrence of any Change of Control Event made in good faith by the Board of Directors of the Company, on the basis of information available at the time to it, shall be conclusive and binding on the Employee for all purposes of this Agreement. "Cause" means willful misconduct on the part of the Employee that is materially detrimental to the Company as determined in good faith by the Company's Board of Directors. "Good Reason" means (a) any assignment to the Employee of any duties other than those contemplated by, or any limitation of the responsibilities of the Employee in any respect not contemplated by, paragraph 3 and the continuance thereof for a period of thirty days after written notice from the Employee, (b) any failure to pay, or any reduction of, the Employee's compensation or other benefits provided for in paragraph 4(a) or 4(b), (c) the relocation of the principal place of the Employee's employment to a location that is more than 35 miles further from the Employee's residence than such principal place of employment immediately prior to the Effective Date, or the imposition of travel requirements on the Employee not substantially consistent with such travel requirements existing immediately prior to the Effective Date, (d) the failure of the Company to obtain the assumption of, and the agreement to perform, this Agreement by any successor as contemplated in paragraph 11(d), (e) the failure of the Company to perform any of its obligations under paragraph 4(c), or (f) the failure of the Company to perform any of its other obligations under this Agreement and the continuation of such failure for a period of thirty days after written notice from the Employee. "Permanent Disability", as applied to the Employee, means that (a) he has been totally incapacitated by bodily injury or disease so as to be prevented thereby from engaging in any occupation or employment for remuneration or profit, (b) such total incapacity shall have continued for a period of six consecutive months and (c) such total incapacity will, in the opinion of a qualified physician, be permanent and continuous during the remainder of the Employee's life. 112 EXHIBIT 10(iii)(e) Page 13 of 13 "Significant Transfer" means the sale, lease, transfer or other disposition during any two consecutive fiscal years by the Company (including subsidiaries thereof), in one or more transactions (excluding transactions in the ordinary course of business), of assets having an aggregate net book value in excess of 15% of the Company's shareowners' equity as of the commencement of such two-year period. "Termination" means the termination of the Employment Term following the occurrence of any Change of Control Event, upon ten days' prior written notice, by the Employee for Good Reason or by the Company without Cause; provided, that such term shall not include any termination of the Employment Term as a result of the death or Permanent Disability of the Employee. 113 EX-10.(III)(F) 10 EXHIBIT 10(III)(F) EXHIBIT 10(iii)(f) Page 1 of 13 AGREEMENT AGREEMENT made as of July 19, 1983, between INGERSOLL-RAND COMPANY, a New Jersey corporation (the "Company"), and (the "Employee"). Unless otherwise indicated, terms used herein and defined in Schedule A hereto shall have the meanings assigned to them in said Schedule. The Company and the Employee agree as follows: 1. OPERATION OF AGREEMENT. This Agreement shall be effective immediately upon its execution and shall continue thereafter from year to year unless terminated as of any anniversary of the date hereof by either party upon written notice to the other party given at least 60 days, but not more than 90 days, prior to such anniversary date. None of the provisions of this Agreement shall become operative unless and until a Change of Control Event has occurred and, following such a Change of Control Event, this Agreement shall terminate only upon the expiration of the Employment Term (as defined below) or as otherwise expressly provided herein, notwithstanding the first sentence of this paragraph 1. 2. EMPLOYMENT TERM. The term of employment of the Employee pursuant to this Agreement (the "Employment Term") shall begin on the date of any Change of Control Event (the "Effective Date") and shall end on the earlier of the fifth anniversary of the Effective Date or the death or Permanent Disability of the Employee. 3. EMPLOYEE'S POSITION AND RESPONSIBILITIES. The Employee will continue to serve the Company during the Employment Term in the same capacity as he serves the Company immediately prior thereto, or in such other comparable executive, administrative or management capacities, requiring substantially equivalent expertise and responsibility, as the Board of Directors or chief executive officer of the Company shall determine and deem suitable and in the best interests of the Company. 114 EXHIBIT 10(iii)(f) Page 2 of 13 During the Employment Term the Employee shall devote his entire business time and attention exclusively to the business and affairs of the Company and shall use his best efforts to promote the interests of the Company. The participation of the Employee in outside directorships and civic activities not otherwise inconsistent with Company policy shall not be deemed a violation of this paragraph 3. 4. COMPENSATION AND OTHER BENEFITS. The Company and the Employee agree that, upon the occurrence of any Change of Control Event, the Employee shall receive a basic annual salary, bonus and fringe benefits as follows: (a) Basic Annual Salary and Bonus. The Employee's basic annual salary shall be at a rate not less than the annual salary being paid to the Employee immediately prior to The Effective Date, with such increases (but not decreases) as may be contemplated by any salary adjustment programs of the Company in effect immediately prior to the Effective Date and applicable to the Employee and such further increases as shall be determined from time to time by the Board of Directors. In addition, the Employee shall be entitled to receive bonus and other similar management incentive compensation payments on terms and at levels no less favorable than the terms and levels of any bonus or similar management incentive compensation plan or program applicable to the Employee immediately prior to the Effective Date, or, if no such plan or program exists at that time, then in an annual amount not less than the average of the bonus and other similar management incentive compensation payments received by (or owing to) the Employee for the five full fiscal years immediately preceding the Effective Date. (b) Fringe Benefits; Business Expenses. The Employee shall be entitled to participate in any benefit plans and programs, including but not limited to pension (and supplemental pension), profit-sharing, stock option, and insurance plans (including life insurance, medical and disability income insurance and accident and personal liability insurance) which were applicable to him immediately prior to the Effective Date, on terms no less favorable than those in effect immediately prior to the 115 EXHIBIT 10(iii)(f) Page 3 of 13 Effective Date, and at no less than the same benefit levels then in effect (or shall be entitled to their equivalent), and to receive all other fringe benefits (or their equivalent) from time to time in effect for the benefit of any executive, management or administrative group for which the employment position then held by the Employee entitles the Employee to participate. The Company shall provide for the payment of or reimburse the Employee for all travel and other out-of-pocket expenses reasonably incurred by him in the performance of his duties hereunder. (c) Letter of Credit. If so requested by the Employee at any time following the Effective Date and a Significant Transfer, the Company shall obtain promptly, and in any event within 60 days following such request, an irrevocable standby letter of credit (the "Letter of Credit") in favor of the Employee from a commercial bank or trust company in the United States with capital, surplus and undivided profits of at least $50,000,000. Such Letter of Credit shall be in the amount equivalent to the undiscounted amount of all benefits that may become payable to the Employee pursuant to paragraph 5(f), determined on the basis of the Employee's actuarial life expectancy as of the date of the Employee's request, and shall provide that amounts shall be paid to the Employee by such bank or trust company upon certification by the Employee that such amounts are due and payable hereunder and have not been paid by the Company. The Company agrees that it will cause the Letter of Credit to be maintained in full force and effect at all times until the earlier of (i) the fifteenth anniversary of the Effective Date, and (ii) the date on which all payments by the Company that may be required pursuant to paragraph 5(f) have been made. The Employee acknowledges that nothing herein is intended to preclude the Company from contesting the right of the Employee to retain payments received pursuant to the Letter of Credit. In the event of a final, nonappealable determination by a court having jurisdiction that the Employee is not entitled to retain any payment received pursuant to the Letter of Credit, the Employee shall promptly reimburse the Company in an amount equal to such payment and, in the event the Employee fails to so reimburse the Company, an amount equal to such payment may be credited by the Company against payments thereafter made by the Company to the Employee pursuant to paragraph 5(f). 116 EXHIBIT 10(iii)(f) Page 4 of 13 (d) Management Incentive Award Plan. The Company and the Employee further agree that immediately upon the occurrence of any Change of Control Event, all amounts theretofore credited to the Employee under the Company's Management Incentive Award Plan, as amended (the "Incentive Plan"), shall become fully vested and all such amounts thereafter credited shall become fully vested immediately upon such crediting. 5. PAYMENTS AND BENEFITS UPON TERMINATION. Upon any Termination of the Employment Term (other than by the Company for Cause or as a result of the death or Permanent Disability of the Employee), the Employee's Common Stock Equivalents under the Incentive Plan shall, for purposes of payments pursuant thereto, be valued at the highest of (i) the closing sale price of the Common Stock on the New York Stock Exchange on the Effective Date, (ii) the closing sale price of the Common Stock on the New York Stock Exchange on the date of Termination and (iii) the highest closing sale price of the Common Stock on the New York Stock Exchange during the 30 trading days immediately preceding the acquisition of more than 50% of the outstanding Common Stock by any person or group (including affiliates of such person or group). If, as of any valuation date, the Common Stock is not traded on the New York Stock Exchange, valuations shall be based on the closing sale price of the Common Stock on the principal national securities exchange on which the Common Stock is traded or, if the Common Stock is not traded on any national securities exchange, the closing bid price of the Common Stock in the over-the-counter market. The Employee shall be entitled to the following payments and benefits upon Termination: (a) Salary and Bonus. The Company shall remain liable for, and shall continue to pay (on the respective payment dates that the following otherwise would have been payable except for Termination), for a period of three years following Termination (or, if Termination occurs more than 24 months after the Effective Date, three years less the amount of time that elapsed between the expiration of such 24 month period and the date of Termination): (i) the base annual salary in effect on the date of Termination and an annual amount equal to the average of the bonuses and similar management incentive compensation payments received by (or owing to) the Employee for the five full fiscal 117 EXHIBIT 10(iii)(f) Page 5 of 13 years immediately preceding the Effective Date; minus (ii) any amount received pursuant to paragraph 5(f) or the Pension Plans (as defined in paragraph 5(f)) in respect of the period for which a payment is being made pursuant to clause (i). (b) Lump Sum Payment Option. In lieu of the payments pursuant to paragraph 5(a), the Employee may elect by written notice to the Company (given at any time prior to notice of termination of the Employment Term by the Company or the occurrence of any event entitling the Employee to terminate the Employment Term for Good Reason) to receive a lump sum settlement amount, such amount to be paid by the Company on the thirtieth day following Termination, equal to the excess of (i) the discounted value of the base annual salary and bonus or similar management incentive compensation payments the Employee would have received under the provisions of paragraph 5(a) over (ii) the discounted value of any amounts which the Employee is entitled to receive pursuant to paragraph 5(f) or the Pension Plans in respect of the periods for which payment is made under paragraph 5(b)(i), determined by discounting such net payments at a rate equal to the lesser of the rate (on the date of Termination) at which the Federal Reserve Bank of New York extends short-term adjustment credits to depository institutions in accordance with Section 201.3 of Regulation A under the Federal Reserve Act (or any successor provision) or 10% per annum. (c) Employee Benefit Plans. The Company shall continue, for a period equal to the greater of one year following the date of Termination or the period specified in the applicable employee benefit plan, to cover the Employee under those employee benefit plans (including, but not limited to, pension, life, health and disability coverage, but not including any severance pay plan or program other than that provided pursuant to this Agreement) which were applicable to him on the date of Termination at the same benefit levels then in effect (or shall provide their equivalent). 118 EXHIBIT 10(iii)(f) Page 6 of 13 (d) Employee Stock Options and SARs. The Company shall pay to the Employee, in cash on the thirtieth day following the date of Termination, an amount equal to the aggregate market value (measured as of the close of trading on the date of Termination) of 100% of the Employee's then outstanding and unpaid stock awards under the Company's Incentive Stock Plan of 1980 and any substantially similar plans of the Company hereafter adopted (at which time such stock awards shall be cancelled and of no further force or effect). In addition, all options to purchase shares of Common Stock of the Company ("Common Stock") and all stock appreciation rights held by the Employee immediately prior to Termination shall become exercisable at any time on and after the date of Termination, whether or not otherwise exercisable in accordance with the terms of the employee benefit plans pursuant to which such options and stock appreciation rights were granted. (e) Savings and Stock Investment Plan. The Company shall pay to the Employee, in cash as soon as practicable following the determination thereof, an amount equal to the value (measured as of the date of Termination) of all contributions to the Company's Savings and Stock Investment Plan (and earnings and appreciation attributable thereto) that theretofore were made by the Company on behalf of the Employee and are forfeited as a result of the Termination. (f) Retirement Benefits. Commencing on the last day of the calendar month in which the Employee attains age 55, the Employee shall be entitled to receive, without reduction for early payment, an amount per month equal to the excess of (i) such pension benefits as he would have received commencing on the last day of the calendar month in which the Employee attained age 65 under the Pension Plan for Employees of Ingersoll-Rand Company and the supplemental pension arrangements approved by the Board of Directors of the Company at a meeting held on November 5, 1975 (collectively, the "Pension Plans"), as in effect immediately prior to the Effective Date, after crediting the Employee with five additional Years of Credited Service (within the meaning of the Pension Plans) or, if less, the number of full years remaining prior to the Employee's 65th birthday, over (ii) the benefits to which the Employee is entitled for such month pursuant to the Pension Plans. 119 EXHIBIT 10(iii)(f) Page 7 of 13 (g) Waiver. At any time, the Employee may, by a written notice to the Company, waive either or both of (i) the right to require the Company to obtain the Letter of Credit pursuant to paragraph 4(c) and (ii) the right to elect a lump sum settlement pursuant to paragraph 5(b). Any such waiver shall be irrevocable and shall relieve the Company of any obligation to obtain such Letter of Credit or to make such lump sum settlement, as the case may be. (h) Mitigation. Subject to paragraph 4(c), all payments or benefits required by the terms of this paragraph 5 shall be made or provided without offset, deduction, or mitigation on account of income the Employee may receive from other employment or otherwise. (i) Death of the Employee. In the event of the Employee's death subsequent to Termination, all payments called for hereunder shall be paid to the Employee's designated beneficiary or beneficiaries, or to his estate if he has not designated a beneficiary or beneficiaries. 6. ACCELERATION. All payments due or required to be made to the Employee under this Agreement shall become immediately due and payable without any offset, deduction or mitigation on account of any income the Employee may receive from other employment or otherwise (but subject to paragraph 4(c)), and without further notice or demand, upon the occurrence of any of the following events of default: (i) the failure of the Company to make any such payment when due or as accelerated, which failure continues for five days after the due date thereof; or (ii) (A) the filing of a petition by or against the Company for adjudication as a bankrupt under the Bankruptcy Reform Act, as now or hereafter amended or supplemented, or for reorganization within the meaning of Chapter 11 of Title 11 of the United States Code, or the filing of any petition for similar relief, (B) the commencement of any action or proceeding for the appointment of a receiver or a trustee of all or substantially all the property of the Company, (C) the taking of possession of any property of the Company by any governmental or judicial officer or agency pursuant to statutory authority for the dissolution, rehabilitation, reorganization, or liquidation of the Company, (D) the dissolution or the commencement of any action or proceeding, whether voluntary or involuntary, for the dissolution 120 EXHIBIT 10(iii)(f) Page 8 of 13 or liquidation of the Company, or (E) the making by the Company of any assignment for the benefit of creditors; provided that the Company shall have ninety days within which to effect the dismissal of any involuntary proceeding of a type referred to above that is commenced against it. In the event of any acceleration in accordance with this paragraph 6, the Employee shall thereupon be released, relieved and discharged of any and all future obligations under this Agreement other than those provided in paragraph 8 herein. If any provision of this Agreement causes any payment or benefit to become subject to Federal income tax prior to the date on which such payment or benefit is payable to the Employee, then any such payment or benefit becoming so taxable shall be paid to the Employee promptly following receipt of a notice of proposed deficiency from the Internal Revenue Service that tax is due on such unpaid payment or benefit. 7. VESTED BENEFITS. Except to the extent expressly provided herein, no provision of this Agreement shall affect or limit any interests or rights vested in the Employee under any other agreement or arrangement with the Employee or under any pension, profit-sharing, insurance or other benefit plans of the Company which may be in effect and in which the Employee may be participating at any time. 8. CONFIDENTIALITY. The Employee agrees to hold in confidence any and all confidential information known to him concerning the Company and its businesses so long as such information is not otherwise publicly disclosed. 9. NON-COMPETITION. During the Employment Term, the Employee will not, without the prior written consent of the Company, accept employment as an officer, employee, agent or consultant of a business that is directly competitive within any metropolitan area to the business of the Company. Nothing contained herein, however, shall prohibit the Employee from investing in any securities of the Company without limitation as to value or amount, or of any other entity in amounts not exceeding five percent of any single class of such securities outstanding. 121 EXHIBIT 10(iii)(f) Page 9 of 13 10. MISCELLANEOUS. (a) Legal Expenses. The Company shall pay all costs and expenses, including attorneys' fees, of the Company and, at least quarterly, the Employee, in connection with any legal proceedings, whether or not instituted by the Company, relating to the interpretation or enforcement of this Agreement. In the event that the provisions of this paragraph shall be determined to be invalid or unenforceable in any respect, such declaration shall not affect the remaining provisions of this Agreement, which shall continue in full force and effect. (b) Notices. Any notice or other communication provided for in this Agreement or contemplated hereby shall be sufficiently given if given in writing and delivered by certified mail, return receipt requested, and addressed, in the case of the Company, to the Company at: 200 Chestnut Ridge Road Woodcliff Lake, New Jersey 07675 Attention: Chairman of the Board of Directors and, in the case of the Employee, to the Employee at: Either party may designate a different address by giving notice of change of address in the manner provided above. (c) Waiver. No waiver or modification in whole or in part of this Agreement, or any term or condition hereof, shall be effective against any party unless in writing and duly signed by the party sought to be bound. Any waiver of any breach of any provision hereof or any right or power by any party on one occasion shall not be construed as a waiver of, or a bar to, the exercise of such right or power on any other occasion or as a waiver of any subsequent breach. 122 EXHIBIT 10(iii)(f) Page 10 of 13 (d) Binding Effect; Successors. This Agreement shall be binding upon and shall inure to the benefit of the Company and the Employee and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this paragraph shall continue to apply to each subsequent employer of the Employee hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer. (e) Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. INGERSOLL-RAND COMPANY By /S/ Thomas A. Holmes Thomas A. Holmes Chairman of the Board 123 EXHIBIT 10(iii)(f) Page 11 of 13 Schedule A CERTAIN DEFINITIONS As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Change of Control Event" means any one of the following: (a) a change is proposed by the stockholders of the Company as to the number of members, or incumbent membership, of the Company's Board of Directors such that the incumbent members of said Board of Directors immediately prior to such change would no longer constitute at least two-thirds of the Board of Directors after such change and such proposal is enacted; or the Board of Directors as constituted immediately prior to any action by the Company's stockholders with respect to such proposal determines that such proposal, if enacted, would constitute a change in control of the Company and such proposal is enacted; (b) any determination is made by the Board of Directors of the Company that there has been a change in the control of the Company because a person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), together with its affiliates (as such term is defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act), has become, at any date hereafter, the beneficial owner (as such term is defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of 5% or more of the voting power of the Company's then outstanding securities; (c) any person (other than any employee stock ownership trust or similar entity created by the Company for the benefit of its employees), together with its affiliates, has become, at any date hereafter, the beneficial owner, directly or indirectly, of 20% or more of the voting power of the Company's then outstanding securities entitled generally to vote for the election of the Company's directors; or (d) the approval by the stockholders of the Company of the merger or consolidation of the Company with any other corporation, unless the incumbent members of the Board of Directors of the Company as constituted immediately prior to such merger or consolidation shall 124 EXHIBIT 10(iii)(f) Page 12 of 13 constitute at least a majority of the directors of the surviving corporation of such merger or consolidation and any parent (as such term is defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act) of such corporation. Any determination of the occurrence of any Change of Control Event made in good faith by the Board of Directors of the Company, on the basis of information available at the time to it, shall be conclusive and binding on the Employee for all purposes of this Agreement. "Cause" means willful misconduct on the part of the Employee that is materially detrimental to the Company as determined in good faith by the Company's Board of Directors. "Good Reason" means (a) any assignment to the Employee of any duties other than those contemplated by, or any limitation of the responsibilities of the Employee in any respect not contemplated by, paragraph 3 and the continuance thereof for a period of thirty days after written notice from the Employee, (b) any failure to pay, or any reduction of, the Employee's compensation or other benefits provided for in paragraph 4(a) or 4(b), (c) the relocation of the principal place of the Employee's employment to a location that is more than 35 miles further from the Employee's residence than such principal place of employment immediately prior to the Effective Date, or the imposition of travel requirements on the Employee not substantially consistent with such travel requirements existing immediately prior to the Effective Date, (d) the failure of the Company to obtain the assumption of, and the agreement to perform, this Agreement by any successor as contemplated in paragraph 11(d), (e) the failure of the Company to perform any of its obligations under paragraph 4(c), or (f) the failure of the Company to perform any of its other obligations under this Agreement and the continuation of such failure for a period of thirty days after written notice from the Employee. "Permanent Disability", as applied to the Employee, means that (a) he has been totally incapacitated by bodily injury or disease so as to be prevented thereby from engaging in any occupation or employment for remuneration or profit, (b) such total incapacity shall have continued for a period of six consecutive months and (c) such total incapacity will, in the opinion of a qualified physician, be permanent and continuous during the remainder of the Employee's life. 125 EXHIBIT 10(iii)(f) Page 13 of 13 "Significant Transfer" means the sale, lease, transfer or other disposition during any two consecutive fiscal years by the Company (including subsidiaries thereof), in one or more transactions (excluding transactions in the ordinary course of business), of assets having an aggregate net book value in excess of 15% of the Company's shareowners' equity as of the commencement of such two-year period. "Termination" means the termination of the Employment Term following the occurrence of any Change of Control Event, upon ten days' prior written notice, by the Employee for Good Reason or by the Company without Cause; provided, that such term shall not include any termination of the Employment Term as a result of the death or Permanent Disability of the Employee. 126 EX-10.(III)(G) 11 EXHIBIT 10(III)(G) EXHIBIT 10(iii)(g) Page 1 of 6 INGERSOLL-RAND COMPANY RESTATED EXECUTIVE SUPPLEMENTARY RETIREMENT AGREEMENT THIS AGREEMENT, effective as of the 2nd day of April, 1985, is by and between the Ingersoll-Rand Company of Woodcliff Lake, New Jersey, hereinafter called the Company, and , hereinafter called the Employee (certain other definitions are defined in Schedule A, incorporated herein by reference). WHEREAS, the Company values the efforts, abilities and accomplishments of the Employee as an important member of management and recognizes that his future services are vital to its continued growth and profits, and the Company in order to retain the services of the Employee is willing to provide benefits for him or for his designated beneficiary as set out below, WHEREAS, the Employee was heretofore eligible to purchase life insurance coverage equal to times his current salary and average incentive compensation for the most recent five years under the Company's existing life insurance plan, and as of January 1, 1985, his eligibility thereunder was changed to two times said salary and incentive compensation base, NOW, THEREFORE, it is mutually agreed that: 1. Subject to paragraph 5 hereof, the Company shall, unless the Employee's employment has been terminated for "Cause", pay the Employee (or in the event of the Employee's death, to his beneficiary) the sum of in 120 equal monthly installments. Such payments shall commence as of the first day of the month following the month when the Employee attains age 65, or if later, upon termination of his employment. 2. If the Employee dies prior to commencement of payments hereunder, the Company shall pay the sum of in 120 equal monthly installments to the beneficiary of the Employee. The death benefit paid pursuant to this paragraph 2 shall commence as of the first day of the month following the Employee's date of death. 127 EXHIBIT 10(iii)(g) Page 2 of 6 3. If the Employee becomes "Disabled" while employed by the Company prior to commencement of payments hereunder, the Company shall pay the sum of in 120 equal monthly installments to the Employee (or in the event of the Employee's death, to his beneficiary). Such payments shall terminate if the Employee recovers from such disability, and following such recovery, any eligibility for benefits which he might then or subsequently have under paragraph 1 or 2 of this Agreement shall be subject to the limitation contained in paragraph 4 below. The disability benefit paid pursuant to this paragraph 3 shall commence as of the first day of the month in which the Employee becomes Disabled. 4. In no event shall the Employee, if he becomes eligible for a benefit under paragraph 3, receive any benefit under paragraphs 1 or 2 of the Agreement while a benefit is being paid under paragraph 3. In no event shall the total payments made by the Company to the Employee (and his beneficiary) under paragraphs 1, 2, and 3 of this Agreement exceed the sum of . 5. In the event that an Employee who voluntarily terminated employment with the Company (other than for "Good Reason") engages in "Competition" with the Company within three years after such termination of employment, no further benefits shall be payable hereunder. 6. The Employee may designate a beneficiary in writing to receive the benefits payable pursuant to this Agreement. Such beneficiary may be changed by the Employee from time to time by written notice delivered by the Employee to the Company. If no designated beneficiary survives the Employee, any payments pursuant to this Agreement made subsequent to the Employee's death shall be made to the Employee's estate. 7. Neither the Employee nor any designated beneficiary shall have any right to sell, assign, transfer or otherwise convey the right to receive any payments hereunder. 8. Any payments under this Agreement shall be independent of, and in addition to, those under any other plan, program or agreement which may be in effect between the parties hereto, or any other compensation payable to the Employee by the Company. This Agreement shall not be construed as a contract of employment nor does it restrict the right of the Company to discharge the Employee or the right of the Employee to terminate employment. 128 EXHIBIT 10(iii)(g) Page 3 of 6 9. The Company shall be under no obligation whatsoever to purchase or maintain any contract, policy, or other asset to provide the benefits under this Agreement. Furthermore, any contract, policy or other asset which the Company may utilize to assure itself of the funds to provide the benefits hereunder shall not serve in any way as security to the Employee for the Company's performance under this Agreement. The rights accruing to the Employee or his designated beneficiary shall be solely those of an unsecured creditor of the Company. The law of the State of New Jersey shall govern this Agreement. 10. The Company agrees that it will not merge, consolidate, or combine with any other business entity unless and until the succeeding or continuing corporation or business entity expressly assumes and confirms in writing the obligations of the Company to the Employee under this Agreement. 11. This restated Agreement supersedes and restates the Executive Supplemental Retirement Agreement of same date and may not be amended except by a written agreement signed by the Company and the Employee. 12. Where appropriate in this Agreement, words used in the singular shall include the plural and words used in the masculine shall include the feminine. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the day and year first hereinabove written. ______________________ Employee Ingersoll-Rand Company ______________________ 129 EXHIBIT 10(iii)(g) Page 4 of 6 Schedule A Certain Definitions As used in this Agreement, the following terms have the meanings indicated: "Cause" shall be limited to (a) action by the Employee involving willful criminal misconduct, or (b) the Employee being convicted of a felony, in each case having a material adverse effect on the Company. "Competition" shall mean performance, without the prior written consent of the Company, of services as an officer, employee, agent or consultant in a business that is directly competitive with any business of the Company with respect to which the Employee had responsibility while he was employed by the Company. "Disabled" as applied to the Employee, means that (a) he has been totally incapacitated by bodily injury or disease so as to be prevented thereby from engaging in any occupation or employment for remuneration or profit, (b) such total incapacity shall have continued for a period of six consecutive months and (c) such total incapacity will, in the opinion of a qualified physician, be permanent and continuous during the remainder of the Employee's life. "Good Reason" shall mean any of the following (without the Employee's express prior written consent): (i) The assignment to the Employee by the Company of duties inconsistent with the Employee's positions immediately prior to such assignment, duties, responsibilities, titles or offices or any removal of the Employee from or any failure to re-elect the Employee to any of such positions, except in connection with the termination of the Employee's employment for Cause, Disability, or as a result of the Employee's death or by the Employee other than for Good Reason; 130 EXHIBIT 10(iii)(g) Page 5 of 6 (ii) A reduction by the Company of the Employee's base salary as in effect at the date hereof or as the same may have been increased prior to such reduction; (iii) A failure by the Company to continue any bonus plans in which the Employee may be entitled to participate during employment (the "Bonus Plans") (provided that such plans may be modified from time to time but shall be deemed terminated if they do not remain substantially in the forms in effect when such plans are adopted) or plans providing the Employee with substantially similar benefits ("Substitute Plans"), or a failure by the Company to continue the Employee as a participant in the Bonus Plans or the Substitute Plans on at least the same basis as the Employee participates at the dates of adoption of the Bonus Plans or Substitute Plans, respectively; (iv) A relocation of the Company's principal executive offices to a location that is more than 35 miles farther from the Employee's residence at the date hereof or the Company's requiring the Employee to be based anywhere other than the location at which the Employee at the date hereof performs the Employee's duties, except for required travel on the Company's business to an extent substantially consistent with the Employee's business travel obligations at the date hereof or any adverse change in the office assignment or secretarial and other support accorded to the Employee at the date hereof; (v) A failure by the Company to continue in effect any benefit or compensation plan or stock option plan (including any pension, profit sharing, bonus, life insurance, health, accidental death or dismemberment or disability plan) in which the Employee is participating at the date hereof (or in the case of plans adopted after the date hereof and providing a type of benefit not provided by the Company at the date hereof, at the respective dates of adoption of such plans) or plans providing the Employee with substantially similar benefits or the taking of any action by the Company which would adversely affect the Employee's participation in or reduce the Employee's benefits under any of such plans; 131 EXHIBIT 10(iii)(g) Page 6 of 6 (vi) The taking of any action of the Company which would deprive the Employee of any material fringe benefit enjoyed by the Employee at the date hereof (or in the case of a fringe benefit not provided by the Company on date hereof, at the respective dates of adoption of such plans first providing such fringe benefits) or the failure by the Company to provide the Employee with the number of paid vacation days to which the Employee is entitled in accordance with the Company's practices at the date hereof; (vii) The failure by the Company to obtain the specific assumption of this Agreement by any successor or assignee of the Company or any person acquiring substantially all of the Company's assets. ADDENDUM TO THE RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT AGREEMENT (the "Agreement") DATED EFFECTIVE AS OF APRIL 2, 1985 BETWEEN INGERSOLL-RAND COMPANY (the "Company") AND (the "Employee") The Company hereby agrees that should Employee die prior to May 30, 1997, any death benefit payments owing to Employee's beneficiary pursuant to paragraphs 1, 2, or 3, of the above referenced Agreement shall be increased by (the "Additional Death Benefit"). The Additional Death Benefit shall be paid to Employee's designated beneficiary (i) in equal monthly installments over the same 120 monthly periods in which death benefits are to be paid pursuant to paragraph 2 of the Agreement, and (ii) in equal monthly installments over the same monthly periods remaining for installment payments where death benefits are to be paid under either paragraph 1 or 3 of the Agreement. Dated: Effective June 1, 1987 Ingersoll-Rand Company ______________________ ______________________ Employee 132 EX-10.(III)(I) 12 EXHIBIT 10(III)(I) EXHIBIT 10(iii)(i) Page 1 of 9 INSURANCE AGREEMENT This INSURANCE AGREEMENT entered into as of the _______ day of __________, 1988 by and between INGERSOLL-RAND COMPANY, a New Jersey corporation ("I-R"), with executive offices at 200 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07675 and _________________, residing at _______ (the "Executive"). WHEREAS, the Executive is employed by I-R in a senior executive position; and WHEREAS, I-R and the Executive desire to participate jointly in providing certain benefits to be payable upon the death of the Executive and to make provision for the allocation or the benefits provided by a life insurance Policy being purchased in connection therewith; and WHEREAS, I-R desires to commit to supplement under certain circumstances the benefits to be provided the Executive by the insurance policy being purchased pursuant hereto; NOW, THEREFORE, in consideration of the mutual covenants contained herein, it is hereby agreed as follows: 1. Policy. I-R and the Executive will take all reasonable steps to cause the issuance by the insurance company named on Exhibit 1 hereto (the "Insurance Company") of the policy referred to on Exhibit 1 (the "Policy"). Except as otherwise contemplated hereby, the parties will cooperate to ensure that the Policy remains in full force and effect. 2. Ownership of Policy. I-R shall be the sole owner of the Policy and it may exercise all the rights of ownership with respect thereto, except as otherwise provided herein. 3. Executive's Policy Death Benefit and Supplemental Death Benefit. (a) The proceeds of the Policy payable upon the death of the Executive (the "Policy Death Benefit") shall be divided between I-R and the beneficiaries designated by the Executive. In this connection, the Executive shall have the right to designate or change the direct and contingent beneficiaries of the Policy Death Benefit to the extent of a variable amount 152 EXHIBIT 10(iii)(i) Page 2 of 9 determined on the basis set forth on Exhibit 1 hereto (the "Executive's Policy Death Benefit"). (b) The beneficiaries named by the Executive under Section 3(a) may also be entitled to an amount in excess of the Executive's Policy Death Benefit, which amount shall be payable directly from I-R (and not from the proceeds of the Policy) to said beneficiaries upon the death of the Executive (the "Executive Supplemental Death Benefit"). The Executive Supplemental Death Benefit, if any, shall be a variable amount determined on the basis as set forth in Exhibit 1. 4. I-R's Policy Death Benefit. I-R shall be the beneficiary of the Policy Death Benefit which is in excess of the Executive's Policy Death Benefit (the "I-R Policy Death Benefit"). Neither the Executive nor the Executive's beneficiaries shall have any right to the I-R Policy Death benefit whether or not an Executive Supplemental Death Benefit is payable to the Executive's beneficiaries. 5. Cash Value; Borrowings. All cash value accruing on the Policy shall be owned by I-R, which shall have exclusive access in its discretion to such cash value through loans from the Insurance Company secured by the Policy. In the event any such loans are outstanding on the date of death of the Executive, the reduction in the Policy Death Benefit caused by the existence of such loans will only reduce the I-R Policy Death Benefit. No reduction in the Executive's Policy Death Benefit will be caused by the existence of Policy loans and the aggregate principal amount of the loans at any time outstanding shall not cause the Policy Death Benefit to be reduced to an amount below the Executive's Policy Death Benefit. 6. Dividends. Policy dividends shall be used to purchase paid-up additions, unless I-R, in its discretion, elects to exercise another option. Any additional paid-up insurance shall be considered as part of the Policy for purposes of this Agreement. 7. Additional Insurance. In the event that I-R determines to purchase additional insurance on the life of the Executive for purposes of meeting its obligations hereunder, the Executive agrees to cooperate with I-R in connection with applying for, and obtaining, the issuance of an additional policy or policies. 153 EXHIBIT 10(iii)(i) Page 3 of 9 8. Premiums. (a) The Executive shall contribute to the cost of providing Executive's Policy Death Benefit at the rate of $.50 per month multiplied by a fraction, the numerator of which shall equal his Annual Earnings (as hereinafter defined) and the denominator of which shall be $1,000. Such contribution shall be made to I-R on a monthly or other basis satisfactory to I-R. (b) I-R shall be responsible for remitting the premiums (including the Executive's contribution) to the Insurance Company as required by terms of the Policy. In this connection, I-R may elect to utilize the dividends payable under the Policy as a reduction in the premium to be paid to the Insurance Company or may elect any other option available under the Policy to reduce the premiums required to be paid. The Executive's contribution shall not be affected, however, by any such election. (c) For all purposes of this Agreement, including Exhibit 1, the term "Annual Earnings" shall refer to the greater of (i) the meaning as such term has in I-R's Group Life Insurance Program as in effect on the date hereof or (ii) the meaning as such term has in I-R's Group Life Insurance Program as in effect on the date the Executive's Annual Earnings are being determined. 9. Participation in I-R Group Life Insurance Program. The Executive shall continue to participate in the I-R Group Life Insurance Program to the extent, and at the level set forth on Exhibit 1 hereto. The Executive shall not alter such participation without the written consent of I-R. 10. Termination of Agreement. This Agreement shall terminate on the first to occur of any of the following events: (a) termination upon the mutual written consent of the parties; (b) termination of the employment of the Executive for any reason other than (i) Disability (as hereinafter defined) or (ii) retirement under the provisions of I-R's Pension Plan Number One; (c) at the election of the Executive, in the event of the bankruptcy, receivership or dissolution of I-R; or 154 EXHIBIT 10(iii)(i) Page 4 of 9 (d) the election of the aggrieved party if either I-R or the Executive fails for any reason to make the premium payments or perform any other obligation required to be performed by this Agreement. 11. Disposition of Policy on Termination of Agreement. (a) Upon termination of this Agreement, I-R shall be entitled to continue to own the Policy, subject to Section 11(b) below. As owner, I-R may elect to continue to make the premium payments or may elect to surrender or convert the Policy into a paid-up policy, or exercise any other right to which it is entitled as the sole owner of the Policy. (b) Notwithstanding the provisions of Section 11(a), the Executive shall have the right, for a period of thirty days after termination of this Agreement, to acquire that portion of the Policy which has a death benefit equal to the Executive's then current Annual Earnings by paying to I-R an amount equal to (i) the greater of (A) the sum of the aggregate premiums paid by I-R to the date of such termination in respect of the portion of the Policy to be transferred, or (B) the then current cash surrender value of the portion of the Policy to be transferred, less (ii) the amount of any outstanding loan on the portion of the Policy to be transferred. 12. Disability. In the event the Executive's employment is terminated due to Disability, this Agreement shall remain in effect, provided that the Executive continues to fulfill his obligations hereunder, including, without limitation, the payment of premiums as provided in Section 8. For purposes of this Agreement, the term "Disability" shall have the same meaning as such term has under I-R's Long Term Disability Plan. 13. Amendment. This Agreement shall not be modified or amended except by the written agreement of both parties. This Agreement shall be binding upon the heirs, administrators or executors and the successors and assigns of each party to this Agreement. 14. Insurance Company Not a Party. (a) The Insurance Company shall not be deemed to be a party to this Agreement for any purpose nor in any way responsible for its validity. 155 EXHIBIT 10(iii)(i) Page 5 of 9 (b) The Insurance Company shall be fully discharged from any and all liability under the terms of the Policy upon payment or other performance of its obligations in accordance with the terms of the Policy. 15. Effect on Other Agreements. The benefits payable under this Agreement shall be independent of, and in addition to, any benefits payable under any other agreement that may exist from time to time between the parties hereto, or any compensation payable by I-R to the Executive, whether as salary, bonus or otherwise. This Agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereto restrict the right of I-R to discharge the Executive, or restrict the right of the Executive to terminate his employment. 16. Notices. Any notice required or permitted under this Agreement shall be deemed sufficiently given if delivered or mailed postpaid by certified first class mail, return receipt requested, at the address of the party to whom such notice is being given set forth above, or at such other address provided by said party to the other. 17. Applicable Law. This Agreement shall be subject to and shall be construed under the laws of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. INGERSOLL-RAND COMPANY By: ________________________ ________________________ Executive 156 EXHIBIT 10(iii)(i) Page 6 of 9 EXHIBIT 1 POLICY: Northwestern Mutual Life Insurance Company Policy No. ____________________ A. Executive's Death Benefits (1) Executive's Policy Death Benefit The Executive's Policy Death Benefit, as of any date, shall equal the lesser of: (a) the Executive's Annual Earnings, as of such date; (b) the amount determined by multiplying the Executive's Annual Earnings (as of such date) by a fraction: (i) the numerator of which is $6.00, and (ii) the denominator of which is the lesser of (A) the Insurance Company's premium charge per $l,000 of death benefit for a one-year term policy based on the Executive's age, or (B) the minimum cost per $l,000 of death benefit under the provisions of Internal Revenue Service Revenue Ruling 55-247, 1955-2 CB 228 (i.e. P.S. 58), taking the Executive's age into account; or (c) the Policy Death Benefit less the aggregate amount of premiums paid through such date by I-R (not including premium contributions by the Executive). 157 EXHIBIT 10(iii)(i) Page 7 of 9 (2) Executive Supplemental Death Benefit There shall be an Executive Supplemental Death Benefit only if the Executive's Policy Death Benefit is less than his Annual Earnings and is therefore determined under Section 1(b) or 1(c) above. In such event, the amount of the Executive's Supplemental Death Benefit shall equal (a) the amount by which the Executive's Annual Earnings as of the date of his death less (b) the Executive's Policy Death Benefit as of such date, such amount to be divided by (c) .95 minus the Maximum Tax Rate (as hereinafter defined). The term "Maximum Tax Rate" means the highest rate (expressed as a decimal) at which ordinary income is subject to individual income tax pursuant to the United States Internal Revenue Code, for the year in which the death of the Executive occurs. B. Executive's Participation in I-R Group Life Insurance Program The Executive agrees, to participate in the I-R Group Life Insurance Program to the extent that he is entitled to a death benefit under such Program equal to twice his Annual Earnings. 158 EXHIBIT 10(iii)(i) Page 8 of 9 Name/address of executive Re: Group Life Insurance Program This will confirm the agreement by Ingersoll-Rand Company (the "Company") to compensate you for certain additional costs to be incurred by you as a result of modifications to the Company's group life insurance program (the "Group Program") which became effective January 1, 1987. Specifically, to the extent your Annual Earnings (as defined below) as of the date of your retirement exceeds your Annual Earnings as of December 31, 1986, the Group Program now requires you to contribute for post-retirement coverage at a rate in excess of the $.50 per month per $1,000 rate previously required. In addition, as a result of changes in federal tax law, you will now be subject to imputed income to the extent of a portion of your post-retirement insurance coverage. In order to compensate you on an after-tax basis for the additional costs to be incurred by you after retirement under the Group Program as currently in effect, and for the costs to you of the imputation of income referred to above, the Company hereby agrees to reimburse you as outlined below: 1. For purposes of calculating the reimbursement for additional premium contributions, the following terms are defined as indicated: (a) "Annual Earnings", as of any date, has the same meaning as such term has under the Company's Group Term Life Insurance Program as in effect on such date. (b) "Excess Cost" means, for any year, (i) the actual amount contributed by you for post-retirement life insurance coverage under the Group Program for 159 EXHIBIT 10(iii)(i) Page 9 of 9 such year, less (ii) an amount equal to (A) $.50 multiplied by the number of months during such year that you contributed to post-retirement coverage under the Group Program, such product to be further multiplied by (B) a fraction, the numerator of which shall be your Annual Earnings, and the denominator of which shall be $1,000. (c) "Imputed Income" means the amount determined by multiplying (i) the Table I rate under the provisions of Internal Revenue Service Regulation Section 79-3(d)(2) by (ii) a fraction (A) the numerator of which shall be your Annual Earnings as of December 31, 1986 less $50,000, and (B) the denominator of which shall be $1,000, and subtracting from such amount the amount contributed by you for post-retirement life insurance coverage as referred to in paragraph 1(b)(i) above. (d) "Maximum Tax Rate" means the highest rate (expressed as a decimal) at which ordinary income is subject to individual income tax by the United States Federal government pursuant to the Internal Revenue Code, for the year in which any reimbursement is to be paid. 2. The amount of reimbursement to which you shall be entitled with respect to the additional costs referred to above for each year after your retirement, until and including the year of your death, shall equal (a) the Excess Cost for such year, divided by (b) .95 minus the Maximum Tax Rate. 3. The amount of reimbursement to which you shall be entitled for the imputation of income referred to above shall equal (a) your Imputed Income multiplied by (b) the Maximum Tax Rate, such product to be divided by (c) .95 minus the Maximum Tax Rate. Reimbursement payments shall be made on or before January 31 of each year following any year for which a reimbursement shall be required. Very truly yours, 160 EX-10.(III)(J) 13 EXHIBIT 10(III)(J) EXHIBIT 10(iii)(j) Page 1 of 22 INGERSOLL-RAND COMPANY Incentive Stock Plan of 1990 Section 1. Purposes: The purposes of the Plan are (a) to provide additional incentive for such Key Employees of the Company and its Subsidiaries, as may be designated for participation in the Plan by authorizing the payment of bonus or incentive compensation in shares of Common Stock and by encouraging such Key Employees to invest in shares of Common Stock, thereby furthering their identity of interest with the interests of the Company's shareholders, increasing their stake in the future growth and prosperity of the Company and stimulating and sustaining constructive and imaginative thinking; and (b) to enable the Company, by offering comparable incentives, to induce the employment and continued employment of Key Employees and to compete with other organizations in attracting and retaining the services of competent executives. Section 2. Definitions: Unless otherwise required by the context, the following terms, when used in the Plan, shall have the meanings set forth in this Section 2: Act: The Securities Exchange Act of 1934, as amended. Affiliate: Used to indicate a relationship with a specified person, a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such a specified person. Associate: Used to indicate a relationship with a specified person, (a) any corporation, partnership, or other organization of which such specified person is an officer or partner, (b) any trust or other estate in which such specified person has a substantial beneficial interest or as to which such specified person serves as trustee or in a similar fiduciary capacity, (c) any relative or spouse of such specified person, or any relative of such spouse who has the same home as such specified person, or who is a director or officer of the Company or any of its parents or subsidiaries, and (d) any person who is a director, officer, or partner of such specified person or of any corporation (other than the Company or any wholly-owned subsidiary of the Company), partnership or other entity which is an Affiliate of such specified person. 161 EXHIBIT 10(iii)(j) Page 2 of 22 Beneficial Owner: As such term is defined by Rule 13d-3 under the Act (or any successor provision at the time in effect); provided, however, that any individual, corporation, partnership, group, association, or other person or entity which has the right to acquire any of the Company's outstanding securities entitled to vote generally in the election of directors at any time in the future, whether such right is contingent or absolute, pursuant to any agreement, arrangement, or understanding or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed the Beneficial Owner of such securities. Board of Directors or Board: The Board of Directors of the Company. Change in Control of the Company: The occurrence of either of the following: (a) any individual, corporation, partnership, group, association or other person or entity, together with its Affiliates and Associates (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company), is or becomes the Beneficial Owner of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors, unless a majority of the Continuing Directors determines in their sole discretion that, for purposes of the Plan, a Change in Control of the Company has not occurred; or (b) the Continuing Directors shall at any time fail to constitute a majority of the members of the Board. Change in Control Fair Market Value of the Common Stock: The highest closing price of one share of Common Stock as reported on the New York Stock Exchange-Composite Tape. If the Common Stock is not listed or admitted to trading on the New York Stock Exchange, the Change in Control Fair Market Value of the Common Stock shall be the closing price of one share of Common Stock on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is 162 EXHIBIT 10(iii)(j) Page 3 of 22 not listed or admitted to trading on any national securities exchange, the last quoted sale price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market of the Common Stock, as reported by the National Association of Securities Dealers, Inc. Automated Quotations system or such other system then in use, or, if on any such date the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices of the Common Stock as furnished by a professional market maker making a market in the Common Stock selected by the Board. If on any such date no market maker is making a market in the Common Stock, the Change in Control Fair Market Value shall be determined in good faith by the Continuing Directors. Committee: Such committee or committees as shall be appointed by the Board of Directors to administer the Plan pursuant to the provisions of Section 11. Common Stock: The Common Stock of the Company, par value $2 per share, or such other class of shares or other securities as may be applicable pursuant to the provisions of paragraph (a) of Section 9. Common Stock Equivalents: Common Stock Equivalents shall provide the holder with such of the rights and benefits of the actual owner of shares of Common Stock as the Board of Directors may determine, including the right to receive dividends and the right to receive the amount of appreciation in value, if any, on such shares of Common Stock from the date the grant of such Common Stock Equivalents became effective until they become payable to the holder. Company: Ingersoll-Rand Company, a New Jersey corporation. Continuing Director: A director who either was a member of the Board on April 26, 1990 or who became a member of the Board subsequent to such date and whose election, or nomination for election by the Company's shareholders, was Duly Approved by the Continuing Directors on the Board at the time of such nomination or election, either by a specific vote or by approval of the proxy statement issued 163 EXHIBIT 10(iii)(j) Page 4 of 22 by the Company on behalf of the Board in which such person is named as nominee for director, without due objection to such nomination. Disability: Such term as defined under the pension, retirement or appropriate benefit plan or plans of the Company or a Subsidiary applicable to the Key Employee. Dividend Equivalents: A right to receive immediately or on a deferred basis, whether or not subject to forfeiture, an amount equivalent to all or part of dividends paid or payable on a share of Common Stock subject to a Stock Incentive. Duly Approved by the Continuing Directors: An action approved by the vote of at least a majority of the Continuing Directors then on the Board, except, if the votes of such Continuing Directors in favor of such action would be insufficient to constitute an act of the Board if a vote by all of its members were to have been taken, then such term shall mean an action approved by the unanimous vote of the Continuing Directors then on the Board so long as there are at least three Continuing Directors on the Board at the time of such unanimous vote. Fair Market Value: As applied to any date, and except as otherwise provided in paragraph (e) of Section 7, the mean between the high and low sales prices of a share of Common Stock on such date as reported on the New York Stock Exchange-Composite Tape, or, if no such sales were made on such date, on the next preceding date on which there were such sales of Common Stock as reported on the Composite Tape; provided, however, that if such method of determining Fair Market Value shall not be consistent with regulations of government agencies at the time applicable to the determination of Fair Market Value in respect of a Stock Incentive, Fair Market Value in the case of such Stock Incentive shall be determined in accordance with such regulations and shall mean the value as so determined. 164 EXHIBIT 10(iii)(j) Page 5 of 22 Incentive Compensation: Bonuses, extra and other compensation payable in addition to a salary or other base amount, whether contingent or not, whether discretionary or required to be paid pursuant to an agreement, resolution, arrangement, plan or practice and whether payable currently or on a deferred basis, in cash, Common Stock or other property, awarded by the Company or a Subsidiary, whether prior or subsequent to the date of approval and adoption of the Plan by the shareholders of the Company. Key Employee: An employee of the Company or of a Subsidiary, including an officer or director who is an employee, who in the opinion of the Committee can contribute significantly to the growth and successful operations of the Company or a Subsidiary. The recommendation of the grant of a Stock Incentive to an employee by the Committee shall be deemed a determination by the Committee that such employee is a Key Employee. Management Incentive Unit: A unit credited to the account of a participant under the Management Incentive Unit Plan of the Company approved by the shareholders of the Company on April 22, 1958, as amended. Option: An option to purchase shares of Common Stock. Performance Unit: A unit representing a cash sum or one or more shares of Common Stock subject to a Stock Award the payment, issuance, transfer or retention of which is contingent, in whole or in part, upon attainment of a specified performance objective or objectives, including, without limitation, objectives determined by reference to or changes in (a) book value or earnings per share of Common Stock, or (b) sales and revenues, income, profits and losses, return on capital employed, or net worth of the Company or of any one or more of its groups, divisions, Subsidiaries or departments (on a consolidated, partially consolidated or unconsolidated basis), or (c) any combination of the foregoing factors. Plan: The Incentive Stock Plan of 1990 herein set forth as the same may from time to time be amended. Restricted Shares: Shares of Common Stock issued or transferred subject to restrictions as authorized by paragraph (d) of Section 5 or paragraph (a) of Section 12. 165 EXHIBIT 10(iii)(j) Page 6 of 22 Retirement: Such term as defined under the pension or retirement plan or plans of the Company or a Subsidiary applicable to the Key Employee, pursuant to which the Key Employee is receiving or will, upon such retirement, be entitled to receive retirement benefits. Stock Appreciation Right: A right to receive a number of shares of Common Stock, or, at the election of the Company, cash, in either event based on the increase in the Fair Market Value of the number of shares of Common Stock subject to such right, as set forth in Section 7. Stock Award: An issuance or transfer of shares of Common Stock at the time a Stock Incentive is granted or as soon thereafter as practicable, or an undertaking to issue or transfer such shares in the future, including, without limitation, such an issuance, transfer or undertaking with respect to Performance Units. Stock Incentive: A Stock Incentive granted under the Plan in one of the forms provided for in Section 3. Subsidiary: A corporation or other form of business association of which shares (or other ownership interests) having 50% or more of the voting power are owned or controlled, directly or indirectly, by the Company. Section 3. Grants of Stock Incentives: (a) Subject to the provisions of the Plan, the Board of Directors may at any time, or from time to time, grant Stock Incentives under the Plan to, and only to, Key Employees; provided, however, that no Stock Incentive shall be granted to a Key Employee who at the time of such grant is a member of the Board of Directors except by or upon the recommendation of the Committee, or by a majority of disinterested members of the Board as provided in paragraph (b) of Section 11. (b) Stock Incentives may be granted in the following forms: (i) a Stock Award, in accordance with Section 5, or (ii) an Option, in accordance with Section 6, or 166 EXHIBIT 10(iii)(j) Page 7 of 22 (iii) a Stock Appreciation Right, in accordance with Section 7, or (iv) any combination of the foregoing. Section 4. Stock Subject to the Plan: (a) Subject to the provisions of paragraph (c) of this Section 4 and of paragraph (a) of Section 9, the aggregate number of shares of Common Stock which may be issued or transferred pursuant to Stock Incentives granted under the Plan shall not exceed 3,000,000 shares of Common Stock. (b) Authorized but unissued shares of Common Stock and shares of Common Stock held in the treasury, whether acquired by the Company specifically for use under the Plan or otherwise, may be used, as the Board of Directors may from time to time determine, for purposes of the Plan; provided, however, that any shares acquired or held by the Company for the purposes of the Plan shall, unless and until transferred to a Key Employee in accordance with the terms and conditions of a Stock Incentive, be and at all times remain treasury shares of the Company irrespective of whether such shares are entered in a special account for purposes of the Plan, and shall be available for any corporate purpose. (c) If any shares of Common Stock subject to a Stock Incentive shall not be issued or transferred and shall cease to be issuable or transferable because of the termination, in whole or in part, of such Stock Incentive, or subject to the provisions of paragraph (i) of Section 6 and paragraph (d) of Section 7, for any other reason, or if any such shares shall, after issuance or transfer, be reacquired by the Company or a Subsidiary because of an employee's failure to comply with the terms and conditions of a Stock Incentive, the shares not so issued or transferred, or the shares so reacquired by the Company or a Subsidiary, shall no longer be charged against the limitation provided for in paragraph (a) of this Section 4 and may again be made subject to Stock Incentives. Section 5. Stock Awards: Stock Incentives in the form of Stock Awards shall be subject to the following provisions: 167 EXHIBIT 10(iii)(j) Page 8 of 22 (a) A Stock Award shall be granted only (i) in payment of Incentive Compensation that has been earned or (ii) as Incentive Compensation to be earned, including, without limitation, Incentive Compensation awarded concurrently with or prior to the grant of the Stock Award and Incentive Compensation awarded whether subsequent or prior to the approval and adoption of the Plan by the shareholders of the Company. (b) For the purposes of the Plan, in determining the value of a Stock Award, all shares of Common Stock subject to such Stock Award shall be valued at not less than 100% of the Fair Market Value of such shares on the date such Stock Award is granted, regardless of whether or when such shares are issued or transferred to the Key Employee and whether or not such shares are subject to restrictions which affect their value. (c) Shares of Common Stock subject to a Stock Award may be issued or transferred to a Key Employee at the time the Stock Award is granted, or at any time subsequent thereto, or in installments from time to time, as the Board of Directors shall determine. In the event that any such issuance or transfer shall not be made to the Key Employee at the time the Stock Award is granted, the Board of Directors may provide for the payment or crediting to such Key Employee of Dividend Equivalents. Any amount payable in shares of Common Stock under the terms of a Stock Award may, in the discretion of the Company, be paid in cash on each date on which delivery of shares would otherwise have been made, in an amount equal to the Fair Market Value on such date of the shares which would otherwise have been delivered. (d) A Stock Award shall contain such terms and conditions as the Board shall determine with respect to payment or forfeiture of all or any part of the Stock Award upon termination of employment or the occurrence of other circumstances. (e) A Stock Award shall be subject to such other terms and conditions, including, without limitation, restriction on sale or other disposition of the Stock Award or of the shares issued or transferred pursuant to such Stock Award, as the Board of Directors shall determine; provided, however, that upon the issuance or transfer of shares pursuant to a Stock Award, the recipient shall, with respect to such shares, be and become a shareholder of the Company fully entitled to receive dividends, 168 EXHIBIT 10(iii)(j) Page 9 of 22 to vote and to exercise all other rights of a shareholder except to the extent otherwise provided in the Stock Award. Each Stock Award shall be evidenced by a written instrument in such form as the Board of Directors or the Committee shall determine, provided the Stock Award is consistent with the Plan and incorporates it by reference. Section 6. Options: Stock Incentives in the form of Options shall be subject to the following provisions: (a) The price per share at which shares subject to an Option may be purchased shall be determined by the Board of Directors, but in no instance shall be less than the Fair Market Value of a share of Common Stock on the date such Option is granted. (b) Each Option shall expire at such time as the Board may determine on the date such Option shall be granted, but no later than ten years from the date such Option is granted. The Board may, at any time prior to the expiration of the Option, extend its term for a period ending not later than ten years from the date such Option is granted and any such extension shall not be deemed the grant of a new or additional Option for any purpose under the Plan. (c) The Option may be exercised solely by the person to whom granted except as hereinafter provided in the case of such person's death or Disability. During the lifetime of the optionee, the Option and any rights and privileges pertaining thereto shall not be transferred, assigned, pledged or hypothecated in any way, whether by operation of law or otherwise, and shall not be subject to execution, attachment or similar process. (d) Each optionee must complete twelve months of continuous employment with the Company or Subsidiary, or both, before any part of the Option may be exercised by him. (e) After the completion of the required period of employment, the Option may be exercised, in whole or in part, and from time to time during the balance of the term of the Option, subject to the terms and conditions specified in the Option or by the Board of Directors. 169 EXHIBIT 10(iii)(j) Page 10 of 22 (f) Unless otherwise determined by the Board, each Option shall terminate if and when the optionee shall terminate employment with the Company and its Subsidiaries, except that if the optionee shall die or become subject to a Disability while in the employ of the Company or of a Subsidiary, then the Option shall be exercisable within such period as shall be set forth in the Option, by the optionee or by such person or persons as shall have acquired the optionee's rights under the Option by will or by the laws of descent and distribution, or by the optionee's guardian, conservator or similar legal representative, but not later than three years after the date of death or Disability. In the event of the Retirement of the optionee, if the optionee shall have completed at least twelve months of continuous employment (or such shorter period as the Board may determine) then the Option shall be exercisable within such period as shall be set forth in the Option but not later than three years after the date of Retirement (or such longer period as the Board may determine). (g) Shares purchased under the Option shall be paid for in full at the time of the exercise of the Option as to such shares upon such terms as the Board of Directors may approve, including cash, secured or unsecured indebtedness, by exchange for other property, including shares of Common Stock, or otherwise. (h) The Board of Directors may at any time and from time to time provide for the payment to an optionee of Dividend Equivalents. (i) The Option agreements or Option grants authorized by the Plan may contain such other provisions as the Board of Directors shall deem advisable. Without limiting the foregoing, if so authorized by the Board of Directors and subject to such terms and conditions as are specified in the Option or by the Board of Directors, the Company may, with the consent of the holder of the Option, and at any time or from time to time, cancel all or a portion of the Option then subject to exercise and discharge its obligation in respect of the Option either by payment to the holder of an amount of money equal to the excess, if any, of the Fair Market Value, at such time or times, of the shares subject to the portion of the Option so cancelled over the aggregate purchase price of such shares, or by the issuance or transfer to the holder of shares of Common Stock with the Fair Market Value, at such time or times equal to any such excess, or by a 170 EXHIBIT 10(iii)(j) Page 11 of 22 combination of cash and shares. The number of shares of Common Stock subject to the Option, or portion thereof, so cancelled shall, in the event that a payment of money or transfer of shares is made by the Company in respect of such cancellation, be charged against the maximum limitation set forth in paragraph (a) of Section 4 of the Plan. (j) Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become employees of the Company or a Subsidiary as the result of a merger or consolidation of the employing corporation with the Company or a Subsidiary, or the acquisition by the Company or a Subsidiary of the assets of the employing corporation, or the acquisition by the Company or a Subsidiary of stock of the employing corporation as the result of which it becomes a Subsidiary. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this Section 6 to such extent as the Board of Directors at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the options in substitution for which they are granted. Section 7. Stock Appreciation Rights: (a) Stock Appreciation Rights may be granted in connection with any Option granted under the Plan, either at the time of the grant of such Option or at any time thereafter during the term of the Option, or may be granted independently of the grant of an Option. (b) If granted in connection with an Option, Stock Appreciation Rights shall entitle the holder of the related Option, upon surrender of the Option, or any portion thereof, to exercise the Stock Appreciation Rights, to the extent unexercised, and to receive a number of shares of Common Stock, or cash, determined pursuant to paragraph (c)(iii) of this Section 7. Such Option shall, to the extent so surrendered, thereupon cease to be exercisable. If granted independently of an Option, Stock Appreciation Rights shall entitle the holder of the Stock Appreciation Rights to receive a number of shares of Common Stock, or cash, determined pursuant to paragraph (c)(iii) of this Section 7. 171 EXHIBIT 10(iii)(j) Page 12 of 22 (c) Stock Appreciation Rights shall be subject to the following terms and conditions and to such other terms and conditions not inconsistent with the Plan as shall from time to time be approved by the Board of Directors: (i) If granted in connection with an Option, Stock Appreciation Rights shall be exercisable at such time or times and to the extent, but only to the extent, that the Option to which they relate shall be exercisable, except that, at the time of granting such Stock Appreciation Right, the Board may provide that the period during which such Stock Appreciation Right may be exercised shall expire prior to the expiration of the period during which the related Option may be exercised. If granted independently of an Option, Stock Appreciation Rights shall be exercisable at such time or times as shall be determined by the Board of Directors at the time of the grant of the Stock Appreciation Rights but, unless otherwise determined by the Board of Directors, in no event later than the date the employment of the holder of the Stock Appreciation Rights shall have terminated other than by reason of death, Disability or Retirement. In the event of termination of employment by reason of death or Disability, Stock Appreciation Rights shall be exercisable for such period as the Board may specify at the time of granting of the Stock Appreciation Rights, but in no event later than three years after such termination of employment by the holder of the Stock Appreciation Rights or by the beneficiary designated pursuant to paragraph (1) of Section 12, and in the case of Retirement, no later than three years after the date of such Retirement. Unless otherwise determined by the Board, each Stock Appreciation Right shall terminate if and when the holder thereof shall terminate employment with the Company and its Subsidiaries for reasons other than the death, Disability or Retirement of such holder. (ii) Stock Appreciation Rights shall in no event be exercisable unless and until the holder of the Stock Appreciation Rights shall have completed at least twelve months of continuous service with the Company or a Subsidiary, or both, immediately following the date upon which the Stock Appreciation Rights shall have been granted. 172 EXHIBIT 10(iii)(j) Page 13 of 22 (iii) Upon exercise of Stock Appreciation Rights, the holder thereof shall be entitled to receive a number of shares equal in Fair Market Value on the date of exercise to the amount by which the Fair Market Value of one share of Common Stock on the date of such exercise shall exceed the Fair Market Value of a share of Common Stock on the date of grant of such Stock Appreciation Rights multiplied by the number of shares in respect of which the Stock Appreciation Rights shall have been exercised. The Company may settle all or any part of its obligation arising out of an exercise of Stock Appreciation Rights by the payment of cash equal to the aggregate value of shares of Common Stock (or a fraction of a share) that it would otherwise be obligated to deliver under the preceding sentence of this paragraph (c)(iii) of Section 7. (d) To the extent that Stock Appreciation Rights shall be exercised, an Option in connection with which such Stock Appreciation Rights shall have been granted shall be deemed to have been exercised for the purpose of the maximum limitation set forth in the Plan under which such Option shall have been granted. In the case of Stock Appreciation Rights granted independently of an Option, the number of shares of Common Stock in respect of which such Stock Appreciation Rights shall be exercised shall be charged against the maximum limitation set forth in paragraph (a) of Section 4. (e) Stock Appreciation Rights may be granted by the Board in substitution for Management Incentive Units, with the consent of the holder of such Management Incentive Units, but only if the holder of such Management Incentive Units shall have been in the employ of the Company or a Subsidiary, or both, for a period of not less than five years from the date of the award of such Management Incentive Units. Notwithstanding anything in Section 2 of the Plan or elsewhere in the Plan to the contrary, in the event that Stock Appreciation Rights shall be granted in substitution for Management Incentive Units, the Fair Market Value of a share of Common Stock on the date that such Management Incentive Units were credited to the account of the participant shall be deemed the Fair Market Value of such shares on the date of grant of Stock Appreciation Rights for the purpose of paragraph (c)(iii) of this Section 7. 173 EXHIBIT 10(iii)(j) Page 14 of 22 (f) If so directed by the Board at any time and from time to time, the grant of Stock Appreciation Rights may provide for payment of Dividend Equivalents to the holder of the Stock Appreciation Rights. (g) Stock Appreciation Rights may provide that, upon exercise of such Stock Appreciation Rights, the shares or cash, as the case may be, which the holder of such Stock Appreciation Rights shall be entitled to receive, shall be distributed or paid in such installments and over such number of years as the Board may direct, with distribution or payment of each such installment contingent upon continued services of the employee to the Company or a Subsidiary, or both (except for death, Disability, Retirement or termination of employment by the Company or with its consent), to the time for distribution or payment of such installment. Section 8. Dividend Equivalents: A grant of Dividend Equivalents shall be made subject to such terms and conditions as the Board of Directors may determine, and may be awarded only in connection with a Stock Incentive granted under Section 5, 6 or 7. Dividend Equivalents may be awarded either at the time of grant of a Stock Incentive or at any time thereafter during the term of the Stock Incentive. Dividend Equivalents may be payable or credited either in cash, shares of Common Stock, or in Common Stock Equivalents. If credited in Common Stock or in Common Stock Equivalents, they shall be credited at the Fair Market Value of a share of Common Stock on the day of such crediting. The Committee may provide that any amounts representing dividends earned by Common Stock Equivalents may either be paid currently or credited in cash or in Common Stock or that they may be represented by further Common Stock Equivalents, or any combination thereof. The Board of Directors may provide that when Common Stock Equivalents shall become payable to the holder, they may be paid in cash or in shares of Common Stock, or a combination of both. To the extent that any payment to the holder with respect to Dividend Equivalents is made in shares of Common Stock, the number of shares of Common Stock used for such payment shall be charged against the maximum limitation set forth in paragraph (a) of Section 4. 174 EXHIBIT 10(iii)(j) Page 15 of 22 Section 9. Adjustment and Change in Control Provisions: (a) In the event that any recapitalization, reclassification, split-up or consolidation of shares of Common Stock shall be effected, or the outstanding shares of Common Stock are, in connection with a merger or consolidation of the Company or a sale by the Company of all or a part of its assets, exchanged for a different number or class of shares of stock or other securities of the Company or for shares of the stock or other securities of any other corporation, or a public offer by the Company or an employee benefit plan sponsored by the Company is made to purchase all or a substantial number of the outstanding shares of Common Stock for cash or other securities, or new, different or additional shares of other securities of the Company or of another corporation are received by the holders of Common Stock or any distribution is made to the holders of Common Stock other than a cash dividend, (i) the number and class of shares or other securities that may be issued or transferred pursuant to Stock Incentives, (ii) the number and class of shares or other securities which have not been issued or transferred under outstanding Stock Incentives, (iii) the purchase price to be paid per share under outstanding Options and other Stock Incentives, (iv) the Fair Market Value of a share of Common Stock on the date of grant of outstanding Stock Appreciation Rights, (v) the dates or events upon which Options and Stock Appreciation Rights may be exercised, which may, in appropriate instances, be related to specific dates or events under any of the aforesaid actions, and (vi) the price to be paid per share by the Company or a Subsidiary for shares or other securities issued or transferred pursuant to Stock Incentives which are subject to a right of the Company or a Subsidiary to reacquire such share or other securities, shall in each case be equitably adjusted. In addition, the Board may, in its discretion, make the adjustments described above in this paragraph (a) of Section 9 in the event the Company pays a cash dividend in respect of the Common Stock other than a regular quarterly dividend. (b) Notwithstanding any other provision of the Plan to the contrary (and notwithstanding any requirement that a holder of Stock Awards, Options and Stock Appreciation Rights complete a period of employment in order to be entitled to the benefits thereof), in the event of a Change in Control of the Company the holders of Stock Awards, Options and Stock Appreciation Rights outstanding as of the date of the occurrence of the Change in 175 EXHIBIT 10(iii)(j) Page 16 of 22 Control of the Company shall have the right to surrender such Stock Awards, Options and Stock Appreciation Rights within the 60-day period following the occurrence of the Change of Control of the Company and to receive cash as consideration for such surrender on the following basis: (i) A holder of a Stock Award being surrendered shall be entitled to the amount equal to the highest Change in Control Fair Market Value of one share of Common Stock during the 60 days preceding the date on which the Change in Control occurs, multiplied by the number of shares in respect of which the Stock Award shall have been surrendered. (1) (ii) A holder of an Option being surrendered shall be entitled to the amount by which the highest Change in Control Fair Market Value of one share of Common Stock during the 60 days preceding the date on which the Change in Control occurs exceeds the exercise price of one share of Common Stock subject to such Option multiplied by the number of shares in respect of which the Option shall have been surrendered. (iii) The holder of Stock Appreciation Rights being surrendered shall be entitled to the amount by which the highest Change in Control Fair Market Value of one share of Common Stock during the 60 days preceding the date on which the Change in Control occurs exceeds the Fair Market Value of one share of Common Stock on the date of grant of such Stock Appreciation Rights multiplied by the number of shares in respect of which the Stock Appreciation Rights shall have been surrendered. Stock Appreciation Rights granted in connection with the grant of Options may be surrendered only if surrendered together with the surrender of the related Options and the holder thereof shall be entitled to the payment described in this subparagraph (iii) only. (1) Amended by Board of Directors May 1 1991. 176 EXHIBIT 10(iii)(j) Page 17 of 22 (iv) All payments to be made pursuant to this paragraph (b) of Section 9 shall be made within 10 days of the delivery of written notice of such surrender by the holder to the Company except that payments to individuals subject to Section 16 of the Act with respect to Stock Awards, Options and Stock Appreciation Rights granted less than six months prior to the occurrence of the Change in Control of the Company shall be made within 10 days after the expiration of such six month period. Section 10. Term: The Plan shall be deemed adopted and shall become effective on the date it is approved by the shareholders of the Company. No Stock Incentives shall be granted under the Plan after April 30, 1995. Section 11. Administration: (a) The Plan shall be administered by a Committee which shall consist of not less than three directors of the Company designated by the Board of Directors; provided, however, that no director shall be designated as or continue to be a member of the Committee, unless he shall at the time of designation and service be a "disinterested person" within the meaning of Rule 16b-3 under the Act (or any successor provision at the time in effect). In no event shall a member of the Committee be eligible to be granted a Stock Incentive while serving on the Committee. Grants of Stock Incentives may be recommended or made either with or without consultation with employees, but, anything in the Plan to the contrary notwithstanding, the Committee shall have full authority to act in the matter of selection of all Key Employees who are members of the Board of Directors and in recommending Stock Incentives to be granted to them. (b) The Board of Directors may delegate to the Committee any or all its authority under the Plan, including the authority to award Stock Incentives, except its authority to amend or discontinue the Plan. Any powers conferred on the Committee by this Section 11 or by any other provision of the Plan shall, to the extent such authority shall not have been so delegated by the Board of Directors, be exercised by the Board; provided, however, that with respect to the participation in the Plan by any director, unless his participation shall have been recommended by the Committee, a majority of the members of the Board and a 177 EXHIBIT 10(iii)(j) Page 18 of 22 majority of its members acting in the matter shall, at the time so acting, be "disinterested persons" within the meaning of Rule 16b-3 under the Act (or any successor provision at the time in effect). (c) The Committee may establish such rules and regulations, not inconsistent with the provisions of the Plan, as it deems necessary to determine eligibility to participate in the Plan and for the proper administration of the Plan, and may amend or revoke any rule or regulation so established. The Committee may make such determinations and interpretations under or in connection with the Plan as it deems necessary or advisable. All such rules, regulations, determinations and interpretations shall be binding and conclusive upon the Company, its Subsidiaries, its shareholders and all employees, and upon their respective legal representatives, beneficiaries, successors and assigns and upon all other persons claiming under or through any of them. (d) Any action required or permitted to be taken by the Committee under the Plan shall require the affirmative vote of a majority of all the members of the Committee. The Committee may act by written determination instead of by affirmative vote at a meeting, provided that any written determination shall be signed by all of the members of the Committee, and any such written determination shall be as fully effective as a unanimous vote at a meeting. (e) Members of the Board of Directors and members of the Committee acting under the Plan shall be fully protected in relying in good faith upon the advice of counsel and shall incur no liability except for gross negligence or willful misconduct in the performance of their duties. Section 12. General Provisions: (a) With respect to any shares of Common Stock issued or transferred under any provision of the Plan, such shares may be issued or transferred subject to such conditions, in addition to those specifically provided in the Plan, as the Board of Directors or Committee may direct and, without limiting the generality of the foregoing, provision may be made in the grant of Stock Incentives that shares issued or transferred upon their grant or exercise shall be Restricted Shares subject to forfeiture upon failure to comply with conditions and restrictions imposed in the grant of such Stock Incentives. 178 EXHIBIT 10(iii)(j) Page 19 of 22 (b) The Board of Directors may fix a uniform date, within any specified period, either before or after the date so fixed, as of which any exercise of an Option or Stock Appreciation Rights shall be deemed to be effective. (c) The Board of Directors may, in its discretion, in the event of termination of employment with the consent of the Company or death, Retirement or Disability, of the holder of a Stock Incentive reduce the period of employment required before such Stock Incentive may be exercised. (d) In the event of the termination of employment of an optionee or of a holder of Stock Appreciation Rights with the consent of the Company, other than by death, Retirement or Disability, the Board of Directors may extend the period during which such Option or Stock Appreciation Rights may be exercised after the date of termination of employment but not beyond the expiration date of the term of the Option or Stock Appreciation Right. (e) Whether an authorized leave of absence or an absence for military or government service shall constitute termination of employment or interruption of required additional continuous employment for the purpose of the Plan shall be determined by the Board of Directors. (f) Nothing in the Plan nor in any instrument executed pursuant thereto shall confer upon any employee any right to continue in the employ of the Company or any Subsidiary or shall affect the right of the Company or of a Subsidiary to terminate the employment of any employee with or without cause. (g) No shares of Common Stock shall be issued or transferred pursuant to a Stock Incentive unless and until all legal requirements applicable to the issuance or transfer of such shares have, in the opinion of counsel to the Company, been complied with. In connection with any such issuance or transfer, the person acquiring the shares shall, if requested by the Company, give assurances satisfactory to counsel to the Company that the shares are being acquired for investment and not with a view to resale or distribution thereof and assurances in respect of such other matters as the Company or a Subsidiary may deem desirable to assure compliance with all applicable legal requirements. 179 EXHIBIT 10(iii)(j) Page 20 of 22 (h) No employee (individually or as a member of a group), and no beneficiary or other person claiming under or through the employee, shall have any right, title or interest in or to any shares of Common Stock allocated or reserved for the purposes of the Plan or subject to any Stock Incentive except as to such shares of Common Stock, if any, as shall have been issued or transferred to him. (i) The Company or a Subsidiary may, with the approval of the Board of Directors, enter into an agreement or other commitment to grant a Stock Incentive in the future to a person who is or will be a Key Employee at the time of grant, and, notwithstanding any other provision of the Plan, any such agreement or commitment shall not be deemed the grant of a Stock Incentive until the date on which the Board of Directors takes action to implement such agreement or commitment. (j) In the case of a grant of a Stock Incentive to any employee of a Subsidiary, such grant may, if the Board of Directors so directs, be implemented by the Company issuing or transferring the shares, if any, covered by the Stock Incentive to the Subsidiary, for such lawful consideration as the Board of Directors may specify, upon the condition or understanding that the Subsidiary will transfer the shares to the employee in accordance with the terms of the Stock Incentive specified by the Board of Directors pursuant to the provisions of the Plan. Notwithstanding any other provision hereof, such Stock Incentive may be issued by and in the name of the Subsidiary and shall be deemed granted on the date it is approved by the Board of Directors, on the date it is delivered by the Subsidiary, or on such other date between such two dates, as the Board of Directors shall specify. (k) The Company or a Subsidiary may make such provisions as it may deem appropriate for the withholding of any taxes which the Company or Subsidiary determined it is required to withhold in connection with any Stock Incentive. (l) No Stock Incentive and no rights under the Plan, contingent or otherwise, shall be assignable or subject to any encumbrance, pledge or charge of any nature except that, under such rules and regulations as the Board may establish, a beneficiary may be designated in respect of a Stock Incentive in the event of the death of the holder of such Stock Incentive and 180 EXHIBIT 10(iii)(j) Page 21 of 22 except that if such beneficiary shall be the executor or administrator of the estate of the holder of such Stock Incentive, any rights in respect of such Stock Incentive may be transferred to the person or persons or entity (including a trust) entitled thereto under the will of the holder of such Stock Incentive or, in the case of intestacy, under the laws relating to intestacy. A Stock Incentive shall be exercisable during a Key Employee's lifetime only by the Key Employee or by the Key Employee's guardian, conservator or similar legal representative. (m) Nothing in the Plan is intended to be a substitute for, or shall preclude or limit the establishment or continuation of, any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees, which the Company or any Subsidiary now has or may hereafter lawfully put into effect, including without limitation, any retirement, pension, insurance, stock purchase, incentive compensation or bonus plan. (n) The place of administration of the Plan shall conclusively be deemed to be within the State of New Jersey and the validity, construction, interpretation and administration of the Plan and of any rules and regulations or determinations or decisions made thereunder, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be governed by, and determined exclusively and solely in accordance with, the laws of the State of New Jersey. Without limiting the generality of the foregoing, the period within which any action must be commenced arising under or in connection with the Plan, or any payment or award made or purportedly made under or in connection therewith, shall be governed by the laws of the State of New Jersey, irrespective of the place where the act or omission complained of took place and of the residence of any party to such action and irrespective of the place where the action may be brought. Section 13. Amendment or Discontinuance of Plan: (a) The Plan may be amended by the Board of Directors at any time; provided, however, that without the approval of the shareholders of the Company, no amendment shall be made which (i) increases the aggregate number of shares of Common Stock that may be issued or transferred pursuant to Stock Incentives as provided 181 EXHIBIT 10(iii)(j) Page 22 of 22 in paragraph (a) of Section 4, (ii) amends the provisions of paragraph (a) of Section 11 with respect to eligibility and disinterest of the members of the Committee or of paragraph (b) of Section 11 with respect to eligibility and disinterest of a majority of the members of the Board of Directors, (iii) permits any person who is not determined to be a Key Employee at the time to be granted a Stock Incentive, (iv) amends Section 10 to extend the term of the Plan, or (v) amends this Section 13. (b) The Board of Directors may by resolution adopted by a majority of the entire Board of Directors discontinue the Plan. (c) No amendment or discontinuance of the Plan by the Board of Directors or the shareholders of the Company shall adversely affect any Stock Incentive theretofore granted without the consent of the holder thereof. 182 EX-10.(III)(K) 14 EXHIBIT 10(III)(K) EXHIBIT 10(iii)(k) Page 1 of 6 RESTATED INGERSOLL-RAND COMPANY SUPPLEMENTAL PENSION PLAN INTRODUCTION Ingersoll-Rand Company (the "Company") maintains one or more pension plans (the "Qualified Pension Plans") for salaried employees employed by the Company, and certain subsidiaries and affiliates of the Company (the "Employees"), under which benefits are subject to plan qualification limits imposed by the Internal Revenue Code of 1986, as amended (the "Code"). The Company recognizes that in certain circumstances it is desirable to provide pension benefits to Employees which are supplemental to those provided by the Qualified Pension Plans. The circumstances in which supplemental benefits will be paid are: o when the limitation on benefits payable under the Company's Qualified Pension Plans as specified in Section 415 of the Code (the "Section 415 Limits") reduces the benefit otherwise payable under the Qualified Pension Plans; and o when, effective for years after 1988, the limitation on the amount of compensation that may be taken into accounting in determining benefits under the Company's Qualified Pension Plans, as specified in Section 401(a)(17) of the Code (the "Section 401 (a)(17) Limit"), reduces the benefit otherwise payable under the Qualified Pension Plans. Accordingly, the Company maintains this Supplemental Pension Plan to provide a vehicle under which supplemental benefits can be paid to salaried employees employed by the Company and certain subsidiaries and affiliates of the Company. The provisions of this Supplemental Pension Plan shall be applicable to all persons who retire or otherwise terminate employment on or after January 1, 1992 and shall supersede the provisions of the Company's Supplemental Pension Plan maintained by the Company prior to January 1, 1992. 183 EXHIBIT 10(iii)(k) Page 2 of 6 SECTION 1 SUPPLEMENTAL PLAN BENEFITS 1.1 Excess Pension Benefit. An Employee shall be entitled to a benefit under this Supplemental Pension Plan if his benefit determined under the provisions of the Qualified Pension Plan in which he participates is less than such benefit would have been if (i) the Section 415 Limits did not apply, and (ii) the definition of Compensation specified under such Qualified Pension Plan did not exclude compensation after 1988 in excess of the Section 401(a)(17) Limit. If an Employee's benefit from the Qualified Pension Plan in which he participates is reduced as a result of any of the conditions described in the preceding paragraph, the benefit to which the Employee shall be entitled under this Supplemental Pension Plan shall be equal to the excess of (a) over (b) where: (a) is the benefit which would have been payable under the terms of such Qualified Pension Plan, as a single life annuity with benefits payable monthly, if (i) the Section 415 Limits did not apply, and (ii) the definition of Compensation specified under such Qualified Pension Plan did not exclude compensation after 1988 in excess of the Section 401 (a)(17) Limit; and (b) is the benefit actually payable as a single life annuity to the Employee under the terms of such Qualified Pension Plan. For purposes of this Section 1.1, the single life annuity payable under the terms of the Qualified Pension Plan shall be determined as of the Employee's Determination Date. The Determination Date shall be (a) in the case of separation from service by reason of retirement, the Employee's retirement date, and (b) in the case of separation from service other than by reason of retirement (such as death or disability), the first date on which the Employee becomes eligible to begin receiving payment of benefits under the Qualified Pension Plan. 184 EXHIBIT 10(iii)(k) Page 3 of 6 SECTION 2 VESTING 2.1 Vesting. An Employee shall be vested in the benefit provided under Section 1.1 of this Supplemental Pension Plan in accordance with the vesting provisions of the Qualified Pension Plan. SECTION 3 DISTRIBUTIONS 3.1 Payment of Benefits. Benefits payable under this Supplemental Pension Plan shall be made in the event of retirement, disability or any other termination of employment. Benefits shall be payable solely in the form of a lump sum. The lump sum amount, determined as of an Employee's Determination Date, shall be the Actuarial Equivalent value of the single life annuity determined under Section 1.1 hereof, using the discount factor set by the PBGC on the January 1 preceding the Determination Date. Such benefit shall be paid on the Payment Date, together with interest accrued thereon from the Determination Date, (a) if the assets are held in trust, then at the interest rate of the trust, or (b) if the assets are not held in trust, at the then current earnings rate of the Fixed Income Fund of the Ingersoll-Rand Company Savings and Stock Investment Plan. An Employee's Payment Date shall be the later of (a) the first business day of the year following the Determination Date, or (b) the first day of the sixth month following the Determination Date. 3.2 Payments to Beneficiaries. In the event that an Employee dies prior to the Payment Date but on or after the Determination Date, payment shall be made to the beneficiary designated by the Employee under this Supplemental Pension Plan. An Employee may designate a beneficiary, or change the designated beneficiary, without obtaining consent of a spouse, provided that such designation or change shall be effective only upon receipt of written notification by the Compensation and Nominating Committee, as defined in Section 4.3 (the "Committee"). In the event of failure to designate a beneficiary under this Supplemental Pension Plan, an Employee's beneficiary under this Plan shall be the same as the beneficiary under the Ingersoll-Rand Company Savings and Stock 185 EXHIBIT 10(iii)(k) Page 4 of 6 3.3 Withholding. The Company shall be entitled to withhold from the payment due under this Supplemental Pension Plan any and all taxes of any nature required by any government to be withheld from such payment. 3.4 Loans. No loans to Employees shall be permitted under this Supplemental Pension Plan. SECTION 4 MISCELLANEOUS 4.1 Amendment and Termination. This Supplemental Pension Plan may, at any time and from time to time, be amended or terminated, without consent of any Employee or beneficiary, (a) by the Board of Directors of the Company or (b) in the case of amendments which do not materially modify the provisions hereof, the Committee, provided, however, that no such amendment or termination shall reduce any benefits accrued under the terms of this Supplemental Pension Plan prior to the date of termination or amendment. Notwithstanding the foregoing, in the event the Company's Board of Directors (or any trustee involved in maintaining any reserves established by the Company for purposes of satisfying its obligations hereunder) determines that a "change of control" of the Company has occurred, any subsequent amendment modifying or terminating the Plan shall have no force or effect. For purposes of this paragraph, a "change of control" shall have the meaning designated in the Ingersoll-Rand Benefit Trust Agreement, dated as of September 1, 1988, as amended, between the Company and The Bank of New York, as trustee, established by the Company for purposes of satisfying certain obligations to executive employees of the Company. 4.2 No Contract of Employment. The establishment of this Supplemental Pension Plan or any modification thereof shall not give any Employee or other person the right to remain in the service of the Company or any of its subsidiaries, and all Employees and other persons shall remain subject to discharge to the same extent as if the Supplemental Pension Plan had never been adopted. 186 EXHIBIT 10(iii)(k) Page 5 of 6 4.3 Compensation and Nominating Committee. This Supplemental Pension Plan shall be administered by the Compensation and Nominating Committee appointed by the Company's Board of Directors, or any successor committee appointed by the Company's Board of Directors (the "Committee"). The Committee shall make all determinations as to the right of any person to a benefit. Any denial by the Committee of the claim for benefits under this Supplemental Pension Plan by an Employee or beneficiary shall be stated in writing by the Committee and delivered or mailed to the Employee or beneficiary. Such notice shall set forth the specific reasons for the Committee's decision. In addition, the Committee shall afford a reasonable opportunity to any Employee or beneficiary whose claim for benefits has been denied for a review of the decision denying the claim. 4.4 Entire Agreement; Successors. This Supplemental Pension Plan, including any subsequently adopted amendments, shall constitute the entire agreement or contract between the Company and any Employee regarding this Supplemental Pension Plan. There are no covenants, promises, agreements, conditions or understandings, either oral or written, between the Company and any Employee relating to the subject matter hereof, other than those set forth herein. This Supplemental Pension Plan and any amendment shall be binding on the Company and the Employee and their respective heirs, administrators, trustees, successors, and assigns, including but not limited to, any successors to the Company by merger, consolidation or otherwise by operation of law, and on all designated beneficiaries of the Employee. 4.5 Severability. If any provision of this Supplemental Pension Plan shall to any extent be invalid or unenforceable, the remainder of the Supplemental Pension Plan shall not be affected thereby, and each provision of the Supplemental Pension Plan shall be valid and enforced to the fullest extent permitted by law. 187 EXHIBIT 10(iii)(k) Page 6 of 6 4.6 Application of Plan Provisions. All relevant provisions of the Qualified Pension Plans shall apply to the extent applicable to the contractual obligations of the Company under this Supplemental Pension Plan. With respect to any Employee, the applicable provisions shall be those of the Qualified Pension Plan in which the Employee participates. Benefits provided under the Supplemental Pension Plan are independent of, and in addition to, any payments made to Employees under any other plan, program, or agreement between the Company and Employees in the Supplemental Pension Plan, or any other compensation payable to the Employee by the Company, or by any subsidiary, or affiliate of the Company. The laws of the state of New Jersey shall govern this Supplemental Pension Plan. 4.7 Participant as General Creditor. The Company shall have the right to establish a reserve or make any investment for the purposes of satisfying its obligation hereunder for payment of benefits at its discretion, provided, however, that no Employee eligible to participate in this Supplemental Pension Plan shall have any interest in such investment or reserve. To the extent that any person acquires a right to receive benefits under this Supplemental Pension Plan, such rights shall be no greater than the right of any unsecured general creditor of the Company. 4.8 Nonassignability. The right of any Employee or any beneficiary in any benefit hereunder shall not be subject to attachment or other legal process for the debts of such Employee or beneficiary; nor shall any such benefit be subject to anticipation, alienation, sale, transfer, assignment or encumbrance. 188 EX-10.(III)(L) 15 EXHIBIT 10(III)(L) EXHIBIT 10(iii)(l) Page 1 of 10 INGERSOLL-RAND COMPANY SUPPLEMENTAL SAVINGS AND STOCK INVESTMENT PLAN INTRODUCTION Ingersoll-Rand Company (the "Company") maintains the Ingersoll-Rand Company Savings and Stock Investment Plan (the "Qualified Savings Plan") for employees employed by the Company and certain subsidiaries and affiliates of the Company (the "Employees"), under which benefits are subject to various limitations imposed by Sections 401 and 415 of the Internal Revenue Code of 1986, as amended (the "Code"). The purpose of this Ingersoll-Rand Company Supplemental Savings and Stock Investment Plan (the "Supplemental Savings Plan") is to provide a vehicle under which Employees can be paid benefits which are supplemental to benefits payable under the Qualified Savings Plan that are limited by operation of Sections 401 and 415 of the Code (or successor provisions). It is intended that this Supplemental Savings Plan be treated as "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of the Employee Retirement Income Security Act of 1974, as amended. Unless otherwise indicated herein, capitalized terms shall have the same meanings as they have under the Qualified Savings Plan. This Supplemental Savings Plan shall be effective as of January 1, 1989. 189 EXHIBIT 10(iii)(l) Page 2 of 10 SECTION 1 ELIGIBILITY 1.1 Eligibility. An Employee shall become eligible to participate under this Supplemental Savings Plan for a calendar year as of the date on which his total Company Matching Contributions for such year under the Qualified Savings Plan are less than such total Company Matching Contributions would have been if the definition of Compensation specified in the Qualified Savings Plan did not exclude compensation in excess of the limitation provided under Section 401(a)(17) of the Code; provided, however, that an Employee shall be eligible to participate for a year only if such Employee makes total Basic Before-Tax Contributions and Basic After-Tax Contributions for the year in the aggregate equal to the maximum amount permitted under the Qualified Savings Plan. SECTION 2 ACCOUNTS/SUPPLEMENTAL BENEFITS 2.1 Accounts. The Company shall establish on its books an Account for each Employee who has become eligible to participate in this Supplemental Savings Plan (each an "Employee Account"). Such Employee Accounts shall be credited with Supplemental Company Contributions in accordance with Sections 2.2 and 2.3 hereof. 2.2 Supplemental Company Contributions. An Employee shall be entitled to receive a Supplemental Company Contribution (credited as provided in Section 2.3) for any year in which the Employee's Compensation for the year exceeds the limitation provided under Section 401(a)(17) of the Code. The amount of Supplemental Company Contributions credited to the Employee Account of an Employee who is eligible to receive a benefit for a year shall equal (a) the Company Matching Contributions for such year, calculated as if the limitation described above did not apply (and assuming that the Employee has made Basic Before-Tax Contributions and Basic After-Tax Contributions under the Qualified Savings Plan in the aggregate equal to the maximum amount permitted 190 EXHIBIT 10(iii)(l) Page 3 of 10 under such Plan), less (b) the Company Matching Contributions made with respect to the Employee under the Qualified Savings Plan. 2.3 Common Stock Equivalents. (a) For purposes hereof, the following terms shall have the Meanings set forth below: (i) "Common Stock" means shares of the common stock of the Company. (ii) "Common Stock Equivalent" means the right to receive dividends in respect of the Common Stock and the right to receive the Fair Market Value of the Common Stock. (iii) "Fair Market Value of the Common Stock" means the mean between the high and low sales prices of one share of Common Stock as reported on the New York Stock Exchange-Composite Tape. If the Common Stock is not listed or admitted to trading on the New York Stock Exchange, the Fair Market Value of the Common Stock shall be the mean between the high and low sales prices of one share of Common Stock on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted sale price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market of the Common Stock, as reported by the National Association of Securities Dealers, Inc. Automated Quotations system or such other system then in use, or, if on any such date the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices of the Common Stock as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Stock, the Fair Market Value of the Common Stock shall be determined in good faith by the Board of Directors of the Company. 191 EXHIBIT 10(iii)(l) Page 4 of 10 (b) All Supplemental Company Contributions shall be made by crediting to the Employee Account of each Employee eligible to participate in this Supplemental Savings Plan such number of Common Stock Equivalents (and fractions thereof) as will equal (i) the amount of Supplemental Company Contributions to which such Employee is entitled pursuant to Section 2.2, divided by (ii) the Fair Market Value of the Common Stock on the date such Supplemental Company Contribution is made. Crediting of Common Stock Equivalents shall occur on the last business day of each month to the Employee Accounts of eligible Employees. (c) On the date of payment of each cash dividend in respect of the Common Stock, each Employee Account shall be credited with additional Common Stock Equivalents equal to (i) the cash dividends which would be payable in respect of such number of shares of Common Stock as equals the number of Common Stock Equivalents then credited to such Employee Account (prior to the crediting of such additional Common Stock Equivalents) divided by (ii) the Fair Market Value of the Common Stock on such date. (d) In the event of any stock dividend on the Common Stock or any split-up or combination of shares of the Common Stock, appropriate adjustment shall be made by the Committee (hereinafter defined) in the aggregate number of Common Stock Equivalents credited to each Employee Account. SECTION 3 VESTING 3.1 Vesting. Except as provided in Section 6 hereof, an Employee shall vest in his Employee Account at the same time that the Employee becomes vested in his Company Account under the Qualified Savings Plan. An Employee shall forfeit the non vested portion of his Employee Account upon his termination of employment with the Company to the extent provided in the Qualified Savings Plan. 192 EXHIBIT 10(iii)(l) Page 5 of 10 SECTION 4 DISTRIBUTIONS 4.1 Time of Distribution. The amounts payable to an Employee hereunder shall be payable in a lump sum on the Employee's Payment Date. An Employee's Payment Date shall be the later of (a) the first business day of the calendar year following the date the Employee's employment with the Company terminates by reason of death, disability, retirement or otherwise, or (b) the first business day of the sixth calendar month following the date the Employee's employment with the Company terminates by reason of death, disability, retirement or otherwise. Any such payment shall be made to the Employee, or to his beneficiary under this Supplemental Savings Plan if he is not then living. The Employee's beneficiary under this Supplemental Savings Plan shall be the beneficiary under the Qualified Savings Plan unless the Employee designates another beneficiary in writing, and such written designation has been received by the Committee. An Employee may change the designated beneficiary under this Supplemental Savings Plan at any time, by providing such designation in writing to the Committee (as hereinafter defined). 4.2 Valuation Date. For purposes hereof, the Valuation Date shall be the Valuation Date (as defined in the Qualified Savings Plan) coincident with or next following the termination of the Employee's employment with the Company by reason of death, disability, retirement or otherwise, provided, however, that the Employee may by written election provided to the Committee prior to such date of termination designate the Valuation Date to be the date which is the fifth business day preceding the Payment Date. 4.3 Form of Benefits. Benefits payable under this Supplemental Savings Plan shall be in the form of a cash lump-sum equal to the product of (a) the number of Common Stock Equivalents credited to such Employee's Account as of the date of such Employee's termination of employment, multiplied by (b) the Fair Market Value of the Common Stock on the Valuation Date. The amount payable pursuant to this Section 4.3 shall accrue interest at the prime rate announced from time to time by Chase Manhattan Bank, N.A. until payment is made. 193 EXHIBIT 10(iii)(l) Page 6 of 10 4.4 Payment of Benefits. The benefits payable under this Supplemental Savings Plan shall be paid to an Employee by the Company, provided, however, that if the Company shall have made a contribution to a trust established under Section 5 hereof of all or a portion of the amount credited to such Employee's Account under this Supplemental Savings Plan (a) the amount paid to the Employee by the Company hereunder shall be reduced by the amount distributed to such Employee from such trust and (b) the amount distributed to such Employee from such trust shall be limited by the amount to which such Employee is entitled Pursuant to Section 4.3 hereof. SECTION 5 TRUST FUND/INVESTMENT 5.1 Establishment of Trust. Except as provided in Section 6.1 hereof, the Company shall have no obligation to fund the Employee Accounts hereunder. The Company may, however, in its sole discretion, enter into a trust agreement and establish a trust fund to assist it in meeting its obligations under this Supplemental Savings Plan. The trust agreement shall provide that all amounts contributed to the trust, together with earnings thereon, shall be invested and reinvested as provided therein. 5.2 Rights of Creditors. The assets held by the trust shall be subject to the claims of general creditors of the Company in the event of the Company's insolvency. The rights of an Employee to the assets of such trust fund shall not be superior to those of an unsecured creditor of the Company. 5.3 Disbursement of Funds. All contributions to the trust fund shall be held and disbursed in accordance with the provisions of the related trust agreement. No portion of the trust fund may be returned to the Company other than in accordance with the terms of the related trust agreement. 194 EXHIBIT 10(iii)(l) Page 7 of 10 5.4 Company Obligation. Notwithstanding any provisions of any such trust agreement to the contrary, the Company shall remain obligated to pay benefits under this Supplemental Savings Plan. Nothing in this Supplemental Savings Plan or any such trust agreement shall relieve the Company of its liabilities to pay benefits under this Supplemental Savings Plan except to the extent that such liabilities are met by the distribution of trust assets. SECTION 6 CHANGE OF CONTROL 6.1 Contributions to Trust. In the event the Company's Board of Directors determines that a "change of control" of the Company has occurred, the Company shall be obligated to establish a trust and to contribute to the trust an amount equal to the balance credited to each Employee's Account established hereunder, such Accounts to be valued as of the last day of the calendar month immediately preceding the date the Board of Directors determines that a "change in control" has occurred. 6.2 Amendments. Following a "change of control" of the Company, any amendment modifying or terminating this Supplemental Savings Plan shall have no force or effect. 6.3 Definition. For purposes hereof, a "change of control" shall have the meaning designated in the Ingersoll-Rand Benefit Trust Agreement, dated as of September 1, 1988, as amended, between the Company and The Bank of New York, as trustee, established by the Company for purposes of satisfying certain obligations to executive employees of the Company. 195 EXHIBIT 10(iii)(l) Page 8 of 10 SECTION 7 MISCELLANEOUS 7.1 Amendment and Termination. Except as provided in Section 6.2 hereof, this Supplemental Savings Plan may, at any time and from time to time, be amended or terminated without the consent of any Employee or beneficiary, (a) by the Board of Directors of the Company, or (b) in the case of amendments which do not materially modify the provisions hereof, the Committee, provided, however, that no such amendment or termination shall reduce any benefits accrued under the terms of this Supplemental Savings Plan prior to the date of termination or amendment. 7.2 No Contract of Employment. The establishment of this Supplemental Savings Plan or any modification thereof shall not give any Employee or other person the right to remain in the service of the Company or any of its subsidiaries, and all Employees and other persons shall remain subject to discharge to the same extent as if the Supplemental Savings Plan had never been adopted. 7.3 Limitation of Rights. Nothing in this Supplemental Savings Plan shall be construed to give any Employee any rights whatsoever with respect to shares of Common Stock. 7.4 Withholding. The Company shall be entitled to withhold from any payment due under this Supplemental Savings Plan any and all taxes of any nature required by any government to be withheld from such payment. 7.5 Loans. No loans to Employees shall be permitted under this Supplemental Savings Plan. 7.6 Compensation and Nominating Committee. This Supplemental Savings Plan shall be administered by the Compensation and Nominating Committee (or any successor committee) of the Board of Directors of the Company (the "Committee"). The Committee shall make all determinations as to the right of any person to a benefit. Any denial by the Committee of the claim for benefits under this Supplemental Savings Plan by an Employee or beneficiary shall be stated in writing by the Committee and delivered or mailed to the Employee or 196 EXHIBIT 10(iii)(l) Page 9 of 10 beneficiary. Such notice shall set forth the specific reasons for the Committee's decision. In addition, the Committee shall afford a reasonable opportunity to any Employee or beneficiary whose claim for benefits has been denied for a review of the decision denying the claim. 7.7 Entire Agreement; Successors. This Supplemental Savings Plan, including any subsequently adopted amendments, shall constitute the entire agreement or contract between the Company and any Employee regarding this Supplemental Savings Plan. There are no covenants, promises, agreements, conditions or understandings, either oral or written, between the Company and any Employee relating to the subject matter hereof, other than those set forth herein. This Supplemental Savings Plan and any amendment hereof shall be binding on the Company and the Employees and their respective heirs, administrators, trustees, successors and assigns, including but not limited to, any successors of the Company by merger, consolidation or otherwise by operation of law, and on all designated beneficiaries of the Employee. 7.8 Severability. If any provision of this Supplemental Savings Plan shall, to any extent, be invalid or unenforceable, the remainder of this Supplemental Savings Plan shall not be affected thereby, and each provision of this Supplemental Savings Plan shall be valid and enforceable to the fullest extent permitted by law. 7.9 Application of Plan Provisions. All relevant provisions of the Qualified Savings Plan shall apply to the extent applicable to the obligations of the Company under this Supplemental Savings Plan. Benefits provided under this Supplemental Savings Plan are independent of, and in addition to, any payments made to Employees under any other plan, program, or agreement between the Company and Employees eligible to participate in this Supplemental Savings Plan, or any other compensation payable to any Employee by the Company or by any subsidiary or affiliate of the Company. 7.10 Governing Law. The laws of the State of New Jersey shall govern this Supplemental Savings Plan. 197 EXHIBIT 10(iii)(l) Page 10 of 10 7.11 Participant as General Creditor. Benefits under the Supplemental Savings Plan shall be payable by the Company out of its general funds. The Company shall have the right to establish a reserve or make any investment for the purposes of satisfying its obligation hereunder for payment of benefits at its discretion, provided, however, that no Employee eligible to participate in this Supplemental Savings Plan shall have any interest in such investment or reserve. To the extent that any person acquires a right to receive benefits under this Supplemental Savings Plan, such rights shall be no greater than the right of any unsecured general creditor of the Company. 7.12 Nonassignability. To the extent permitted by law, the right of any Employee or any beneficiary in any benefit hereunder shall not be subject to attachment or other legal process for the debts of such Employee or beneficiary; nor shall any such benefit be subject to anticipation, alienation, sale, transfer, assignment or encumbrance. 198 EX-10.(III)(M) 16 EXHIBIT 10(III)(M) EXHIBIT 10(iii)(m) Page 1 of 8 INGERSOLL-RAND COMPANY SUPPLEMENTAL RETIREMENT ACCOUNT PLAN INTRODUCTION Ingersoll-Rand Company (the "Company") maintains the Ingersoll-Rand Retirement Account Plan (the "Qualified Retirement Account Plan") for employees employed by the Company and certain subsidiaries and affiliates of the Company (the "Employees"), under which benefits are subject to various limitations imposed by Sections 401 and 415 of the Internal Revenue Code of 1986, as amended (the "Code"). The purpose of this Ingersoll-Rand Company Supplemental Retirement Account Plan (the "Supplemental Retirement Account Plan") is to provide a vehicle under which Employees can be paid benefits which are supplemental to benefits payable under the Qualified Retirement Account Plan and are limited by operation of Sections 401 and 415 of the Code (or successor provisions). It is intended that this Supplemental Retirement Account Plan be treated as "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of the Employee Retirement Income Security Act of 1974, as amended. Unless otherwise indicated herein, capitalized terms shall have the same meanings as they have under the Qualified Retirement Account Plan. This Supplemental Retirement Account Plan shall be effective as of January 1, 1989. 199 EXHIBIT 10(iii)(m) Page 2 of 8 SECTION I ELIGIBILITY 1.1 Eligibility. An Employee shall become eligible to participate under this Supplemental Retirement Account Plan for a calendar year as of the date on which the aggregate amount of his Company Contributions and Company Matching Contributions, if any, for such year under the Qualified Retirement Account Plan are less than the aggregate amount which such Company Contributions and Company Matching Contributions would have been if the definition of Compensation specified in the Qualified Retirement Account Plan did not exclude compensation in excess of the limitation provided under Section 401(a)(17) of the Code; provided, however, that no Employee shall be eligible under this Supplemental Retirement Account Plan if such Employee is a Grandfathered Participant under the Qualified Retirement Account Plan. SECTION 2 ACCOUNTS/SUPPLEMENTAL BENEFITS/INTEREST 2.1 Accounts. The Company shall establish on its books an Account for each Employee who has become eligible to participate in this Supplemental Retirement Account Plan (each an "Employee Account"). Such Employee Accounts shall be credited with Supplemental Company Contributions and Supplemental Company Matching Contributions in accordance with Sections 2.2 and 2.3 hereof. 2.2 Supplemental Company Contributions. An Employee shall be entitled to receive a Supplemental Company Contribution for any year in which the Employee's Compensation for the year exceeds the limitation provided under Section 401(a)(17) of the Code. The amount of Supplemental Company Contributions credited to the Employee Account of an Employee who is eligible to receive such a benefit for any year shall equal (a) the Company Contributions for such year, calculated as if the limitation described above did not apply, less (b) the Company Contributions made with respect to the Employee under the Qualified Retirement Account Plan. 200 EXHIBIT 10(iii)(m) Page 3 of 8 2.3 Supplemental Company Matching Contributions. An Employee entitled for any year to a Supplemental Company Contribution who is also eligible for Company Matching Contributions under the Qualified Retirement Account Plan (except for the limitation provided under Section 401(a)(17) of the Code) shall be entitled to receive a Company Matching Contribution for such year. The amount of Supplemental Company Matching Contributions credited to the Employee Account of an Employee who is eligible to receive such a benefit for any year shall equal (a) the Company Matching Contributions for such year (calculated as if the limitation described above did not apply), less (b) the Company Matching Contributions made with respect to the Employee under the Qualified Retirement Account Plan. 2.4 Interest. Unless and until the Company establishes a trust pursuant to Section 3 or 6.1 hereof, the amounts credited to each Employee Account shall be credited with interest at a rate equal to the rate of return earned by the Fixed Income Fund described in Section 5.1 of the Company's Savings and Stock Investment Plan. To the extent the Company contributes funds on behalf of an Employee to a trust established under Section 3 or 6.1 hereof, his Employee Account hereunder shall be transferred to an account within such trust and shall be credited with the rate of return earned by the funds so contributed. Any unfunded portion of the Employee Account shall continue to be credited with interest as provided above in this Section 2.4. 2.5 Timing of Contributions and Interest. All Company Contributions, Company Matching Contributions and interest to be credited to an Employee Account hereunder shall be credited as of the last business day of each calendar month. 201 EXHIBIT 10(iii)(m) Page 4 of 8 SECTION 3 VESTING 3.1 Vesting. Except as provided in Section 6 hereof, an Employee shall vest in his Employee Account at the same time that the Employee becomes vested in his Company Contribution Account and Company Matching Contribution Account under the Qualified Retirement Account Plan. An Employee shall forfeit the non vested portion of his Employee Account upon his termination of employment with the Company to the extent provided in the Qualified Retirement Account Plan. SECTION 4 DISTRIBUTIONS 4.1 Time of Distribution. The amounts payable to an Employee hereunder shall be payable in a lump sum on the Employee's Payment Date. An Employee's Payment Date shall be the later of (a) the first business day of the calendar year following the date the Employee's employment with the Company terminates by reason of death, disability, retirement or otherwise, or (b) the first business day of the sixth calendar month following the date the Employee's employment with the Company terminates by reason of death, disability, retirement or otherwise. Any such payment shall be made to the Employee, or to his beneficiary under this Supplemental Retirement Account Plan if he is not then living. The Employee's beneficiary under this Supplemental Retirement Account Plan shall be the beneficiary under the Qualified Retirement Account Plan unless the Employee designates another beneficiary in writing, and such written designation has been received by the Committee. An Employee may change the designated beneficiary under this Supplemental Retirement Account Plan at any time, by providing such designation is provided in writing to the Committee (as hereinafter defined). 4.2 Form of Benefits. Benefits payable under this Supplemental Retirement Account Plan shall be in the form of a cash lump-sum equal to the sum of the amount credited to an Employee's Account as of the Employee's Payment Date. 202 EXHIBIT 10(iii)(m) Page 5 of 8 SECTION 5 TRUST FUND/INVESTMENT 5.1 Establishment of Trust. Except as provided in Section 6.1 hereof, the Company shall have no obligation to fund the Employee Accounts hereunder. The Company may, however, in its sole discretion, enter into a trust agreement and establish a trust fund to assist it in meeting its obligations under this Supplemental Retirement Account Plan. The trust agreement shall provide that all amounts contributed to the trust, together with earnings thereon, shall be invested and reinvested as provided therein. 5.2 Rights of Creditors. The assets held by the trust shall be subject to the claims of general creditors of the Company in the event of the Company's insolvency. The rights of an Employee to the assets of such trust fund shall not be superior to those of an unsecured creditor of the Company. 5.3 Disbursement of Funds. All contributions to the trust fund shall be held and disbursed in accordance with the provisions of the related trust agreement. No portion of the trust fund may be returned to the Company other than in accordance with the terms of the related trust agreement. 5.4 Company Obligation. Notwithstanding any provisions of any such trust agreement to the contrary, the Company shall remain obligated to pay benefits under this Supplemental Retirement Account Plan. Nothing in this Supplemental Retirement Account Plan or any such trust agreement shall relieve the Company of its liabilities to pay benefits under this Supplemental Retirement Account Plan except to the extent that such liabilities are met by the distribution of trust assets. 203 EXHIBIT 10(iii)(m) Page 6 of 8 SECTION 6 CHANGE OF CONTROL 6.1 Contributions to Trust. In the event the Company's Board of Directors determines that a "change of control" of the Company has occurred, the Company shall be obligated to establish a trust in accordance with the provisions of Section 3 hereof and to contribute to the trust an amount equal to the balance of each Employee's Account. 6.2 Amendments. Following a "change of control" of the Company, any amendment modifying or terminating this Supplemental Retirement Account Plan shall have no force or effect. 6.3 Definition. For purposes hereof, a "change of control" shall have the meaning designated in the Ingersoll-Rand Benefit Trust Agreement, dated as of September 1, 1988, as amended, between the Company and The Bank of New York, as trustee, established by the Company for purposes of satisfying certain obligations to executive employees of the Company. SECTION 7 MISCELLANEOUS 7.1 Amendment and Termination. Except as provided in Section 6.2 hereof, this Supplemental Retirement Account Plan may, at any time and from time to time, be amended or terminated, without the consent of any Employee or beneficiary, (a) by the Board of Directors of the Company or (b) in the case of amendments which do not materially modify the provisions hereof, the Committee, provided, however, that no such amendment or termination shall reduce any benefits accrued under the terms of this Supplemental Retirement Account Plan prior to the date of termination or amendment. 7.2 No Contract of Employment. The establishment of this Supplemental Retirement Account Plan or any modification thereof shall not give any Employee or other person the right to remain in the service of the Company or any of its subsidiaries, and all Employees and other persons shall remain subject to discharge to the same extent as if this Supplemental Retirement Account Plan had never been adopted. 204 EXHIBIT 10(iii)(m) Page 7 of 8 7.3 Withholding. The Company shall be entitled to withhold from any payment due under this Supplemental Retirement Account Plan any and all taxes of any nature required by any government to be withheld from such payment. 7.4 Loans. No loans to Employees shall be permitted under this Supplemental Retirement Account Plan. 7.5 Compensation and Nominating Committee. This Supplemental Retirement Account Plan shall be administered by the Compensation and Nominating Committee (or any successor committee) of the Board of Directors of the Company (the "Committee"). The Committee shall make all determinations as to the right of any person to a benefit. Any denial by the Committee of the claim for benefits under this Supplemental Retirement Account Plan by an Employee or beneficiary shall be stated in writing by the Committee and delivered or mailed to the Employee or beneficiary. Such notice shall set forth the specific reasons for the Committee's decision. In addition, the Committee shall afford a reasonable opportunity to any Employee or beneficiary whose claim for benefits has been denied for a review of the decision denying the claim. 7.6 Entire Agreement; Successors. This Supplemental Retirement Account Plan, including any subsequently adopted amendments, shall constitute the entire agreement or contract between the Company and any Employee regarding this Supplemental Retirement Account Plan. There are no covenants, promises, agreements, conditions or understandings, either oral or written, between the Company and any Employee relating to the subject matter hereof, other than those set forth herein. This Supplemental Retirement Account Plan and any amendment hereof shall be binding on the Company and the Employees and their respective heirs, administrators, trustees, successors and assigns, including but not limited to, any successors of the Company by merger, consolidation or otherwise by operation of law, and on all designated beneficiaries of the Employee. 7.7 Severability. If any provision of this Supplemental Retirement Account Plan shall, to any extent, be invalid or unenforceable, the remainder of this Supplemental Retirement 205 EXHIBIT 10(iii)(m) Page 8 of 8 Account Plan shall not be affected thereby, and each provision of this Supplemental Retirement Account Plan shall be valid and enforceable to the fullest extent permitted by law. 7.8 Application of Plan Provisions. All relevant provisions of the Qualified Retirement Account Plan shall apply to the extent applicable to the obligations of the Company under this Supplemental Retirement Account Plan. Benefits provided under this Supplemental Retirement Account Plan are independent of, and in addition to, any payments made to Employees under any other plan, program, or agreement between the Company and Employees eligible to participate in this Supplemental Retirement Account Plan, or any other compensation payable to any Employee by the Company or by any subsidiary or affiliate of the Company. 7.9 Governing Law. The laws of the State of New Jersey shall govern this Supplemental Retirement Account Plan. 7.10 Participant as General Creditor. Benefits under the Supplemental Retirement Account Plan shall be payable by the Company out of its general funds. The Company shall have the right to establish a reserve or make any investment for the purposes of satisfying its obligation hereunder for payment of benefits at its discretion, provided, however, that no Employee eligible to participate in this Supplemental Retirement Account Plan shall have any interest in such investment or reserve. To the extent that any person acquires a right to receive benefits under this Supplemental Retirement Account Plan, such rights shall be no greater than the right of any unsecured general creditor of the Company. 7.11 Nonassignability. To the extent permitted by law, the right of any Employee or any beneficiary in any benefit hereunder shall not be subject to attachment or other legal process for the debts of such Employee or beneficiary; nor shall any such benefit be subject to anticipation, alienation, sale, transfer, assignment or encumbrance. 206 EX-11.(I) 17 EXHIBIT 11(I) EXHIBIT 11(i) Page 1 of 2 INGERSOLL-RAND COMPANY COMPUTATION OF PRIMARY EARNINGS PER SHARE (In thousands of dollars except for shares and per share amounts) Years ended December 31, 1993 1992 1991 1990 1989 PRIMARY EARNINGS PER SHARE: Earnings before effect of accounting changes and extraordinary item.......... $ 163,524 $ 115,594 $ 150,589 $ 185,343 $ 202,225 Less dividends on preference stock ......... -- -- -- 1,838 7,498 Earnings before effect of accounting changes and extraordinary item.......... 163,524 115,594 150,589 183,505 194,727 Effect of accounting changes: - Postemployment benefits (21,000) -- -- -- -- - Postretirement benefits other than pensions....... -- (332,000) -- -- -- - Income taxes.............. -- (18,000) -- -- -- Extraordinary item............ -- -- -- -- 8,526 Net earnings (loss) applicable to common stock............. $ 142,524 $ (234,406) $ 150,589 $ 183,505 $ 203,253 Average number of common shares outstanding.......... 104,991,535 104,340,622 103,634,178 103,351,708 102,842,942 Primary earnings per share: Earnings before effect of accounting changes and extraordinary item.......... $ 1.56 $ 1.11 $1.45 $1.78 $1.89 Effect of accounting changes: - Postemployment benefits (0.20) -- -- -- -- - Postretirement benefits other than pensions..... -- (3.19) -- -- -- - Income taxes............ -- (0.17) -- -- -- Extraordinary item.......... -- -- -- -- 0.09 Primary earnings (loss) per share....................... $ 1.36 $(2.25) $1.45 $1.78 $1.98
207 EXHIBIT 11(i) Page 2 of 2 INGERSOLL-RAND COMPANY COMPUTATION OF PRIMARY EARNINGS PER SHARE (Continued) Notes: All common share and per share amounts have been adjusted for the 2-for-1 stock split which was made in the form of a stock dividend in 1992. On February 7, 1990, the board of directors authorized the redemption of the Dutch Auction Rate Transferable Securities preference stock. The company redeemed Series D-1 preference stock on March 14, 1990, and Series D-2 preference stock on April 4, 1990. Shares issuable under outstanding stock plans, applying the "Treasury Stock" method, have been excluded from the computation of primary earnings per share since such shares were less than 1% of common shares outstanding, as follows: 1993 - 600,429; 1992 - 738,149; 1991 - 632,056; 1990 - 639,836; 1989 - 714,992. 208 EX-11.(II) 18 EXHIBIT 11(II) EXHIBIT 11(ii) Page 1 of 2 INGERSOLL-RAND COMPANY COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (In thousands of dollars except for shares and per share amounts) Years ended December 31, 1993 1992 1991 1990 1989 FULLY DILUTED EARNINGS PER SHARE: Net earnings before effect of accounting changes and extraordinary item........... $ 163,524 $ 115,594 $ 150,589 $ 185,343 $ 202,225 Less dividends on preference stock ..................... -- -- -- 1,838 7,498 Earnings before effect of accounting changes and extraordinary item........... 163,524 115,594 150,589 183,505 194,727 Effect of accounting changes: - Postemployment benefits (21,000) -- -- -- -- - Postretirement benefits other than pensions........ -- (332,000) -- -- -- - Income taxes............... -- (18,000) -- -- -- Extraordinary item............. -- -- -- -- 8,526 Net earnings (loss)............ $ 142,524 $ (234,406) $ 150,589 $ 183,505 $ 203,253 Average number of common shares outstanding........... 104,991,535 104,340,622 103,634,178 103,351,708 102,842,942 Number of common shares issuable assuming exercise under incentive stock plans.. 600,429 738,149 632,056 639,836 714,992 Average number of outstanding shares, as adjusted for fully diluted earnings per share calculations........... 105,591,964 105,078,771 104,266,234 103,991,544 103,557,934 209 EXHIBIT 11(ii) Page 2 of 2 INGERSOLL-RAND COMPANY COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (In thousands of dollars except for shares and per share amounts) (Continued) Years ended December 31, 1993 1992 1991 1990 1989 Fully diluted earnings per share: Earnings before effect of accounting changes and extraordinary item........... $ 1.55 $ 1.10 $1.44 $1.76 $1.88 Effect of accounting changes: - Postemployment benefits (0.20) -- -- -- -- - Postretirement benefits other than pensions...... -- (3.16) -- -- -- - Income taxes............. -- (0.17) -- -- -- Extraordinary item........... -- -- -- -- 0.08 Fully diluted earnings (loss) per share........................ $ 1.35 $(2.23) $1.44 $1.76 $1.96 Notes: All common share and per share amounts have been adjusted for the 2-for-1 stock split which was made in the form of a stock dividend in 1992. This calculation is presented in accordance with the Securities Exchange Act of 1934, although it is not required disclosure under APB Opinion No. 15. Net earnings per share of common stock computed on a fully diluted basis are based on the average number of common shares outstanding during each year after adjustment for individual securities which may be dilutive. Securities entering into consideration in making this calculation are common shares issuable under employee incentive stock plans. Employee stock options outstanding have been included in the calculation of fully diluted earnings per share by applying the "Treasury Stock" Method quarterly. Such calculations have been made using the higher of the average month-end market prices or the market prices at the end of the quarter, in order to reflect the maximum potential dilution. On February 7, 1990, the board of directors authorized the redemption of the Dutch Auction Rate Transferable Securities preference stock. The company redeemed Series D-1 preference stock on March 14, 1990, and Series D-2 preference stock on April 4, 1990.
210 EX-12 19 EXHIBIT 12 INGERSOLL-RAND COMPANY EXHIBIT 12 COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES (Dollar Amounts in Thousands) (2) Years Ended December 31 Fixed charges: 1993 1992 1991 1990 1989 Interest expense............................ $ 60,222 $ 64,698 $ 64,476 $ 71,663 $ 44,049 Amortization of debt discount and expense... 688 288 265 255 255 Rentals (one-third of rentals).............. 19,425 20,846 21,229 20,599 17,410 Capitalized interest........................ 3,103 3,460 4,640 4,197 4,336 Total fixed charges........................... $ 83,438 $ 89,292 $ 90,610 $ 96,714 $ 66,050 Net earnings (loss)........................... $142,524 $(234,406) $150,589 $185,343 $210,751 Add: Minority income (loss) of majority- owned subsidiaries................... 13,572 (33,155) 1,938 2,232 1,304 Taxes on income........................ 90,000 67,400 84,600 99,800 100,374 Fixed charges.......................... 83,438 89,292 90,610 96,714 66,050 Effect of accounting changes........... 21,000 350,000 -- -- -- Less: Capitalized interest................... 3,103 3,460 4,640 4,197 4,336 Undistributed earnings (losses) from less than 50% owned affiliates....... 39,933 16,603 13,523 3,327 6,036 Earnings available for fixed charges ......... $307,498 $ 219,068 $309,574 $376,565 $368,107 Ratio of earnings to fixed charges ........... 3.69(1) 2.45(3) 3.42(4) 3.89 5.57 Undistributed earnings (losses) from less than 50% owned affiliates: Equity in earnings (losses)................. $ 42,077 $ 17,865 $ 14,768 $ 4,187 $ 6,903 Less: Dividends paid .................... 2,144 1,262 1,245 860 867 Undistributed earnings (losses) from less-than 50% owned affiliates............ $ 39,933 $ 16,603 $ 13,523 $ 3,327 $ 6,036 (1) The 1993 calculation includes the effect of the $5 million pretax charge relating to the restructure of the company's underground mining machinery business. Excluding this amount, the ratio would have been 3.75. (2) The company's portion of the earnings and fixed charges of the Dresser-Rand Company (a joint venture formed effective January 1, 1987 with Dresser Industries, Inc.) are included through September 30, 1992. Effective October 1, 1992, the company's ownership interest in the Dresser-Rand Company was reduced from 50% to 49%. (3) The 1992 calculation includes (i) the effect of the $10 million pretax charge relating to the restructure of the company's aerospace bearings business and (ii) the full effect of the $70 million pretax restructure of operations charge relating to the Ingersoll-Dresser Pump Company. Excluding the 1992 restructure charges the ratio would have been 3.35. (4) The 1991 ratio includes the $7.1 million net pretax benefit from a restructure of operations. Excluding this amount the ratio would have been 3.34.
211 EX-13 20 EXHIBIT 13 EXHIBIT 13 Page 1 of 64 INGERSOLL-RAND COMPANY ANNUAL REPORT TO SHAREOWNERS FOR 1993 212 EXHIBIT 13 Page 2 of 64 Table of Contents Financial Review and Management Analysis . . . . . . . 3-26 Consolidated Statement of Income . . . . . . . . . . . 27 Consolidated Balance Sheet . . . . . . . . . . . . . . 28-29 Consolidated Statement of Shareowners' Equity . . . . . 30-31 Consolidated Statement of Cash Flows . . . . . . . . . 32-33 Notes to Consolidated Financial Statements . . . . . . 34-62 Report of Management . . . . . . . . . . . . . . . . . 63 Report of Independent Accountants . . . . . . . . . . . 64 213 EXHIBIT 13 Page 3 of 64 Ingersoll-Rand Company Financial Review and Management Analysis 1993 Compared to 1992 1993 continued to be a year of challenges and accomplishments for the company. We were challenged by striving to exceed the prior year's results while faced with a continued recession in Europe throughout the year. The turnaround in Europe, which we had originally expected by the latter half of 1993 did not occur. However, based on stronger domestic markets, principally in the automotive, housing, industrial and selected construction markets, together with continued benefits from company-wide cost- containment programs, the company was able to meet its operating goals in 1993. The company's outlook for 1994 is for a steady improvement in operating results based on continued improvement in our domestic markets combined with a gradual recovery in our international markets throughout the year. These expectations are supported by our aggressive cost-containment programs, our continuing emphasis on total quality management and a focus on reengineering our business processes aimed at accelerating our efficiency gains. The company notes two significant events for the year. The first was the full year inclusion of Ingersoll-Dresser Pump Company (IDP) in the company's results. IDP is a joint venture between the company and Dresser Industries, Inc., formed effective October 1, 1992. IDP's operating results in 1993, which are discussed throughout this report, were adversely affected by the European recession, but benefitted from the restructuring plan, which was provided for in 1992 but implemented for the most part during 1993. Second, the company adopted, effective January 1, 1993, Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits." SFAS No. 112 requires an accrual for the expected cost of benefits provided by an employer to former or inactive employees after employment but before retirement. These benefits typically are associated with the continuation of medical and life insurance benefits for employees on short- and long-term disability. Previously, these benefits were expensed as incurred. The company elected to adopt this standard in the fourth quarter of 214 EXHIBIT 13 Page 4 of 64 1993, and recognized the postemployment benefit obligation as of January 1, 1993. The effect of the adoption of SFAS No. 112 for the company totalled $21.0 million ($0.20 per share), net of a $13.5 million tax benefit. Aside from the effect of the adjustment, the adoption of SFAS No. 112 was not material to the company's 1993 financial results and accordingly, the results for the first three quarters of 1993 have not been restated to reflect this adoption. A comparison of key financial data between 1993 and 1992 follows: o Net sales for 1993 totalled $4.0 billion, 6.3 percent higher than in 1992. Excluding the sales from the pump units contributed to IDP by Dresser, sales would have decreased by approximately two percent. o Cost of goods sold in 1993 was 75.0 percent of sales, compared to 76.2 percent in 1992. A partial liquidation of LIFO (last-in, first-out) inventories lowered 1993 costs by $12.5 million ($7.6 million after-tax, or seven cents per share); a similar liquidation in 1992 lowered costs by $5.8 million ($3.6 million after-tax, or three cents per share). Excluding the benefit of the LIFO liquidations, the 1993 cost of goods sold percentage relationship to sales would have been 75.3 percent versus 76.3 percent for 1992. This reduction represented the benefit from the company's continuing programs of aggressive cost-containment and improved volume from some of our domestic markets. o Administrative, selling and service engineering expenses were 17.6 percent of sales in 1993, compared to 17.1 percent for 1992. The increase was due to the combined effect of including IDP's results for the full year of 1993 and increases in salaries, administrative costs and expenses of a general nature. o The 1993 restructure of operations charge totalled $5.0 million and related to the company's decision to sell its underground coal-mining machinery business during the second quarter of the year. The sale of this business was finalized in July 1993. The 1992 restructure charges totalled $80 million, $70 million of which related to the IDP venture and was recorded in last year's fourth quarter. The remaining $10 million charge was recorded in the third quarter of 1992 and related to the company's decision to realign its aerospace bearings business. 215 EXHIBIT 13 Page 5 of 64 o Interest expense for 1993 was $52.0 million, approximately four percent lower than the $54.1 million reported for 1992. The reduction was due to the combined effect of lower overall outstanding debt and lower effective interest rates in 1993, when compared to 1992. o The "other income (expense), net" category is essentially the sum of three activities: (i) foreign exchange, (ii) equity interest in partially-owned equity companies, and (iii) other miscellaneous income and expense items. In 1993, this category totalled a net expense balance of $7.5 million, as compared to only $0.7 million for the prior year. A review of the components of this category show that: - foreign exchange activity for 1993 totalled $6.6 million of losses, as compared to $6.2 million of losses in 1992; - earnings from equity interests in partially-owned equity companies decreased by approximately $5 million in 1993, when compared to the prior year, principally due to the 1992 sale of the company's interest in one of these equity companies; and - other net miscellaneous expense items were approximately one-half of prior-year levels, but 1992 included a gain from the sale of an equity interest in a company, which offset last year's net miscellaneous expense items. o Dresser-Rand Company is another partnership between the company and Dresser Industries, Inc. It commenced operations on January 1, 1987, and comprises the worldwide reciprocating compressor and turbomachinery businesses of the two companies. The company's pretax profits from its interest in Dresser-Rand for 1993 totalled $33.1 million, as compared to $27.6 million in the prior year. The improvement in the operating results of Dresser-Rand is attributed primarily to the benefits obtained from cost-containment programs and the efficiencies generated by maintaining volume levels at their manufacturing locations. 216 EXHIBIT 13 Page 6 of 64 o The Ingersoll-Dresser Pump Company minority interest represents Dresser's interest in the operating results of IDP. In 1993, the minority interest was a charge of $11.6 million, and represented the portion of IDP's earnings that were allocable to our joint venture partner. The 1992 benefit of $35.0 million basically represented the portion of last year's $70 million restructure charge for IDP, which was the responsibility of our joint venture partner. IDP's 1992 fourth quarter results, excluding the restructure charge, were essentially at the break-even level. Overall, the restructuring efforts in IDP have been substantially completed and the company expects to realize the majority of the benefits from these actions in 1994 and beyond. o The company's effective tax rate for 1993 was 35.5 percent, which is a modest decrease over the 36.8 percent reported for the prior year. The variance from the 35.0 percent statutory rate was due primarily to the higher tax rates associated with foreign earnings and the effect of state and local taxes. o At December 31, 1993, employment totalled 35,143. This represents a net decrease of 165 employees over last year's level of 35,308. Acquisitions added a total of 2,610 employees, while divestitures, attrition and cost-reduction programs reduced total employment by 2,775. Liquidity and Capital Resources Management continues to maximize efforts to utilize assets and resources in an efficient manner. The following table contains several key measures of the company's financial performance: 1993 1992 1991 Working capital (in millions) $878 $888 $904 Current ratio 1.9 1.8 2.2 Debt-to-total capital ratio 28/72 30/70 23/77 Average working capital to net sales 22.0% 23.7% 22.8% Average days outstanding in receivables 64.1 61.1 61.1 Average months' supply of inventory 4.4 4.6 4.9 217 EXHIBIT 13 Page 7 of 64 Ingersoll-Rand, as a large multinational company, maintains significant operations in foreign countries. The movement of the U.S. dollar against foreign currencies has a day-to-day impact on the company's financial position. This impact is not always apparent since the company reports its consolidated results in U.S. dollars. During 1993, many foreign currencies weakened against the U.S. dollar for most of the year and the effect of these foreign currency fluctuations was significant. The following highlights the financial results and financial condition of the company's operations, with the impact of currency variations where appropriate: o Cash and cash equivalents totalled $228.0 million at December 31, 1993, $11.2 million more than the prior year-end balance of $216.8 million. In evaluating the net change in cash and cash equivalents, cash flows from operating, investing and financing activities, and the effect of exchange rate changes should be considered. Cash flows from operating activities totalled $164.9 million, investing activities used $60.7 million and financing activities used $86.1 million. Exchange rate changes during 1993 decreased cash and cash equivalents by approximately $6.9 million. o Marketable securities totalled $6.2 million at the end of 1993, approximately $7.2 million less than the balance at December 31, 1992. Foreign marketable securities decreased by approximately $0.8 million during the year due to foreign exchange rate fluctuations. The remaining reduction was due to the maturity of the various securities and their liquidation into cash and cash equivalents. o Receivables totalled $797.5 million at December 31, 1993, compared to $809.6 million at the prior year-end, for a net decrease of $12.1 million. Currency translation decreased the receivable balance during the year by $27.7 million, offset partially by increased receivables, principally from IDP's European operations. The average days outstanding in receivables increased slightly from 1992's level because of the higher mix of international receivables, due to the IDP joint venture, which traditionally carry longer payment terms than domestic receivables. 218 EXHIBIT 13 Page 8 of 64 o Inventories amounted to $713.7 million at December 31, 1993, $56.6 million lower than last year's level of $770.3 million. This decrease was a result of the company's aggressive inventory control programs, which reduced inventory levels by approximately $36 million. Currency movements accounted for an additional $18.8 million reduction in inventory for the year. Acquisitions less dispositions accounted for the remaining difference. During the last three years, the company has been able to reduce its inventory by more than $100 million (excluding the inventory from the contributed pump units of Dresser). The company's emphasis on inventory control was reflected in the reduction in the average months' supply of inventory, which was 4.4 months at December 31, 1993, compared to 4.6 months at the prior year-end. o Prepaid expenses totalled $39.8 million at the end of the year, $15.7 million lower than the balance at December 31, 1992. Foreign exchange activity had the effect of reducing the balance in this account by $0.8 million during the year. The net decrease for the year was split between a general decrease in the company's prepaid expenses and the disposition of certain assets held for sale. o Deferred income taxes (current) of $116.9 million at December 31, 1993, represent the deferred tax benefit of the difference between the book and tax values of various current assets and liabilities. A schedule of the components for this balance is in Note 12 of the Notes to Consolidated Financial Statements. The year-end balance represented an increase of approximately $15 million from the December 31, 1992, level. Changes due to foreign currency movements had an immaterial effect on the year's activities. o The investment in Dresser-Rand Company totalled $112.6 million at December 31, 1993. This represented a net decrease of approximately $7.1 million from 1992's balance of $119.7 million. The components of the change for 1993 consisted of income for the current year of $33.1 million, a $37.7 million change in the advance account between the entities and a $2.5 million reduction due to currency fluctuations. 219 EXHIBIT 13 Page 9 of 64 o The investments in partially-owned equity companies at December 31, 1993, totalled $158.6 million, $9.3 million higher than the 1992 balance. The components of this change consisted of income for the current year of $15.6 million, dividends of $3.1 million, a net decrease in the amounts due from these units of $7.6 million and currency movements of $4.4 million. o Net property, plant and equipment increased by approximately $28 million in 1993 to a year-end balance of $875.1 million. Fixed assets from acquisitions during 1993 added $25.9 million. Capital expenditures in 1993 totalled $132.0 million, a slight increase over the prior year's level. Foreign exchange fluctuations decreased the net fixed asset values in U.S. dollars by approximately $11.9 million. The remaining net decrease was principally due to depreciation expense. o Intangible assets, net, totalled $105.9 million at December 31, 1993, as compared to $113.2 million at December 31, 1992, for a net decrease of $7.3 million. Amortization (which was charged to expense) accounted for a reduction of $5.9 million. The remaining net change was attributable to currency fluctuations and acquisitions during the year. o Deferred income taxes (noncurrent) totalled $90.9 million at December 31, 1993. This net deferred asset arose in 1992 primarily because of the tax effects related to the adoption of SFAS No. 106 (Postretirement Benefits Other Than Pensions). The 1993 balance was $13.9 million higher than the 1992 balance, primarily due to the company's adoption of SFAS No. 112 relating to postemployment benefits. A listing of the components which comprised the balance at December 31, 1993, can be found in Note 12 of the Notes to Consolidated Financial Statements. o Other assets totalled $130.0 million at year-end, an increase of approximately $16.5 million from the December 31, 1992, balance of $113.5 million. The change in the account balance was primarily due to an increase in prepaid pensions. Foreign exchange activity in 1993 had a minimal effect on the account balance during the year. 220 EXHIBIT 13 Page 10 of 64 o Accounts payable and accruals totalled $762.4 million at December 31, 1993, a decrease of $60.7 million from last year's balance of $823.1 million. The majority of the 1993 reduction related to expenditures made with respect to restructure of operations reserves for IDP, which were established in the fourth quarter of 1992 but not paid until the current year. All other activity, including acquisitions, caused an increase of approximately $20 million in this category during the year, while foreign exchange activity decreased this account by approximately $21 million. o Loans payable were $206.9 million at the end of 1993, compared to $201.3 million at December 31, 1992. Current maturities of long-term debt, included in loans payable, were $82 million and $17.2 million at December 31, 1993 and 1992, respectively. Excluding the current maturities of long-term debt, short-term borrowings decreased by approximately $49.5 million during 1993. This balance can be attributed to a decrease in foreign short-term debt and a reduction in the total loans outstanding during 1993 of $4.2 million due to foreign currency fluctuations. o Long-term debt, excluding current maturities, totalled $314.1 million at December 31, 1993, compared to $355.6 million at December 31, 1992, a net decrease of $41.5 million. This net decrease was the result of additions to long-term debt of $101.8 million reduced by transfers to loans payable for current maturities and a $0.6 million reduction from foreign currency fluctuations. The additions to long-term debt primarily represented, the February 3, 1993, issuance by the company of $100 million of notes at 6 7/8% per annum, which are not redeemable prior to maturity in 2003. The proceeds from these notes were used to redeem $68 million of the company's outstanding 8.05% Debentures Due 2004 and for general corporate purposes. o Postemployment benefits at December 31, 1993, totalled $515.8 million, an increase of $21.3 million over the December 31, 1992, balance. Postemployment benefits include medical and life insurance postretirement benefits, long-term pension accruals and other noncurrent postemployment accruals. Postemployment benefits represent the company's noncurrent liability in accordance with SFAS Nos. 87, 106 and 112. SFAS No. 112 was adopted as of January 1, 1993. See Notes 13 and 14 of the Notes to Consolidated Financial Statements for additional information. 221 EXHIBIT 13 Page 11 of 64 o Ingersoll-Dresser Pump Company minority interest, which represents Dresser's interest in the IDP joint venture, totalled $146.3 million and $146.2 million at December 31, 1993 and 1992, respectively. Earnings allocable to IDP's minority interest totalled $11.6 million for 1993, which were virtually offset by translation adjustments and final valuation modifications. o Other liabilities (noncurrent) at December 31, 1993, totalled $24.9 million, which were $6.9 million higher than the balance at December 31, 1992. The net increase for 1993 represented changes to various accruals, which are not expected to be paid out in the company's next business cycle. These accruals generally cover environmental obligations, legal accruals, and other contractual obligations. Other information concerning the company's financial resources, commitments and plans is as follows: The average amount of short-term borrowings outstanding, excluding current maturities of long-term debt, was $159.1 million in 1993, compared to $166.5 million in 1992. The weighted average interest rate during 1993 was 7.8%, compared to 10.4% during the previous year. The decrease in the 1993 average amount of short-term borrowings outstanding was attributable to the company's foreign operations, which used short-term debt financings as a hedge against currency movements. The company had $400 million of domestic short-term credit lines at December 31, 1993, and $412 million of foreign credit available for working capital purposes, all of which were unused at the end of the year. These facilities exceed projected requirements for 1994 and provide direct support for commercial paper and indirect support for other financial instruments, such as letters of credit and comfort letters. At December 31, 1993, the debt-to-total capital ratio was 28/72, as compared to 30/70 at the prior year-end. The improvement in the ratio at December 31, 1993, was primarily due to the company's continuing program to reduce inventory and control spending to generate cash to reduce the company's overall debt obligations. 222 EXHIBIT 13 Page 12 of 64 In 1993, foreign currency adjustments decreased shareowners' equity by approximately $31.7 million. The change was due to the strengthening of the U.S. dollar against other currencies in countries where the company has significant operations. Currency fluctuations in the United Kingdom, Canada, France, Italy, Germany, Japan and Spain accounted for virtually all of the change. Inventories, accounts receivable, net property, plant and equipment, accounts payable and loans payable were the principal accounts affected. In 1993, the company continued to sell an undivided fractional ownership interest in designated pools of accounts and notes receivables up to a maximum of $125 million. Similar agreements have been in effect since 1987. These agreements expire in one- and two-year periods based on the particular pool of receivables sold. The company intends to renew these agreements at their expiration dates with either the current institution or another financial institution using the basic terms and conditions of the existing agreement. At December 31, 1993 and 1992, $125 million of such receivables remained uncollected. Capital expenditures were $132 million in 1993 and 1992. The company continues investing to improve manufacturing productivity, reduce costs and provide environmental enhancements and advanced technologies for existing facilities. The capital expenditure program for 1994 is estimated at approximately $160 million, including carryover from projects approved in prior periods. There are no planned projects that, either individually or in the aggregate, represent a material commitment for the company. Many of these projects are subject to review and cancellation at the option of the company without incurring substantial charges. As a result of high inflationary periods in the 1970s, experimental disclosure of supplementary information to measure the effects of inflation on historical financial statements in terms of the constant dollar and current costs was required. While the company presented inflation-adjusted data, the information presented was based on assumptions, estimates and judgments, which were far from precise indicators of the effects of inflation on the company. High inflationary trends have dissipated in recent years and, after a review of the effects of inflation, the company has determined that such information is neither material nor meaningful at this time. 223 EXHIBIT 13 Page 13 of 64 Environmental Matters The company is subject to extensive environmental laws and regulations. We believe that the company, as well as industry in general, will be faced with increasingly stringent laws and regulations in the future. As a result, the company has been and continues to be dedicated to an environmental program to reduce the utilization and generation of hazardous materials during the manufacturing process and to remediate identified environmental concerns. As to the latter, the company currently is engaged in site investigations and remedial activities to address environmental cleanup from past operations at current and former manufacturing facilities. During 1993, the company spent approximately $10 million on capital projects for pollution abatement and control and an additional $8 million for environmental remediation expenditures, including operation and maintenance of existing environmental programs. It should be noted that these amounts are difficult to estimate because environmental improvements are generally intertwined with the overall improvement costs at a particular plant, and the accurate estimate of which portion of an improvement or a capital expenditure relates to an environmental improvement is difficult to ascertain. The company believes that these expenditure levels will continue and may increase over time. Given the evolving nature of environmental laws, regulations and technology, the ultimate cost of future compliance is uncertain. The company is a party to environmental lawsuits and claims. It has received notices of potential violations of environmental laws and regulations from the Environmental Protection Agency and similar state authorities, and is identified as a potentially responsible party (PRP) for cleanup costs at approximately 29 federal Superfund and state remediation sites. For all sites there are other PRPs and in most instances, the company's site involvement is minimal. While all PRPs may be jointly and severally liable to pay all site investigation and remediation costs, to date, there is no indication the company will be severally liable at any site. Additional lawsuits and claims involving environmental matters are likely to arise from time to time in the future. 224 EXHIBIT 13 Page 14 of 64 Although uncertainties regarding environmental technology, state and federal laws and regulations and individual site information make estimating the liability difficult, management believes that the total liability for the cost of remediation and environmental lawsuits and claims will not have a material effect on the financial condition or the results of operations of the company for any year. Pending Transactions On December 22, 1993, Ingersoll-Rand announced that it has agreed to acquire a 12-percent interest in Nuovo Pignone from Ente Nazionale Idrocarburi (ENI), the Italian government-owned energy conglomerate. Nuovo Pignone is a manufacturer of turbines, compressors, pumps, valves and fuel dispensing systems, primarily for energy-related industries. The agreement with ENI also calls for General Electric, which leads the consortium, to acquire a 25-percent share and for Dresser Industries to acquire a 12-percent share in Nuovo Pignone. The consortium has invited several Italian banks to acquire up to 20-percent ownership. The remainder of the company will be owned by subsidiaries of ENI (20 percent) and public shareholders (11 percent). The purchase price for the company's interest totals approximately $73 million. The transaction is subject to antitrust review and is expected to close in the first half of 1994. On February 22, 1994, Ingersoll-Rand announced that it signed a letter of intent to acquire the sales and service arm of ECOAIR, a subsidiary of MAN Gutehoffnungshutte AG (MAN GHH), based in Oberhausen, Germany. In addition, Ingersoll-Rand will form a 50/50 joint venture company with MAN GHH to develop and manufacture rotary-screw airends -- a key component in certain industrial air compressors. The joint venture, to be based in Oberhausen, primarily will market airends to other worldwide compressor-packaging manufacturers and also supply airends to Ingersoll-Rand. The relevant activities for MAN GHH's screw compressor airend business will be transferred to the new company. The transactions, subject to certain regulatory approvals, are expected to be finalized by mid-1994. 225 EXHIBIT 13 Page 15 of 64 1992 Compared to 1991 1992 was a year of accomplishments and challenges for the company. The company succeeded in its efforts to form Ingersoll-Dresser Pump Company (IDP), effective October 1, 1992. The original intent to form this joint venture between the company and Dresser Industries, Inc. (Dresser), was announced in May 1991, but objections from the United States Department of Justice were not dropped until September 1992. The company owns 51 percent of this partnership; therefore, since formation, IDP has been included in the company's consolidated financial statements with Dresser's minority interest in the net assets and financial results of IDP being shown separately. It was a challenging year, not only because of IDP and changing economic scenarios during the year, but the company also adopted, effective January 1, 1992, Statements of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and No. 109, "Accounting for Income Taxes." SFAS No. 106 requires an accrual for the expected cost of providing postretirement benefits, such as health care and life insurance benefits, during the years that the employees provide service to the company. Previously, these benefits were expensed as incurred. In adopting this standard in the fourth quarter of 1992, the company elected to fully recognize the accumulated postretirement benefit obligation as of January 1, 1992, and accordingly, the company restated its results for the first three quarters of 1992. The effect of the adoption of SFAS No. 106 for the company's worldwide pre-1992 obligation totalled $283.8 million ($2.73 per share), net of a $145.2 million tax benefit. In addition, the company incurred an additional after-tax charge of $48.2 million ($0.46 per share) representing the company's share of the effect of the adoption of SFAS No. 106 by Dresser-Rand Company. Therefore, the total after-tax charge to the company for the adoption of SFAS No. 106 was $332.0 million ($3.19 per share). SFAS No. 109 changes the method of accounting for income taxes from the deferral method to the liability method. Under the liability method, deferred income taxes are determined based on enacted tax laws and rates which are applied to the differences between the financial statement bases and tax bases of assets and liabilities. The effect of adopting SFAS No. 109 at January 1, 1992, produced an $18.0 million ($0.17 per share) charge to the company. 226 EXHIBIT 13 Page 16 of 64 Finally, the worldwide economic climate had varying effects on the company's operations during the year. Overall, the domestic construction, industrial and automotive markets were stronger in 1992 than in 1991. Their strength more than offset the weakness in the European markets that developed in the latter part of 1992. A comparison of key financial data between 1992 and 1991 follows: o Net sales for 1992 totalled $3.8 billion, 5.5 percent higher than in 1991. Excluding the fourth quarter sales from the pump units contributed to IDP by Dresser, the net sales increase would have been two percent. o Cost of goods sold in 1992 was 76.2 percent of sales, compared to 76.0 percent in 1991. A partial liquidation of LIFO (last-in, first-out) inventories lowered 1992 costs by $5.8 million ($3.6 million after-tax, or three cents per share); a similar liquidation in 1991 lowered costs by $19.3 million ($12.0 million after-tax, or 12 cents per share). However, 1992 includes the effect of SFAS No. 106 (Postretirement Benefits Other Than Pensions), which added approximately $22.2 million of additional costs in 1992, which were not in 1991's cost of goods sold. Excluding the benefit of the LIFO liquidations and the 1992 effect of SFAS No. 106 from the cost of goods sold figures for the appropriate years, 1992's percentage relationship to sales would have been 75.7 percent versus 76.5 percent for 1991. This reduction represented the benefit from the company's continuing programs of aggressive cost-containment and improved volume increases in our domestic markets. o Administrative, selling and service engineering expenses were 17.1 percent of sales in 1992, compared to 16.6 percent for 1991. However, 1992 included approximately $7.4 million of additional charges for SFAS No. 106 and, without these charges, the 1992 percentage relationship to sales would have been 16.9 percent. This figure represented a slight increase over 1991 due to the fourth quarter effect of IDP, and increases in salaries, administrative costs and fees of a general nature. 227 EXHIBIT 13 Page 17 of 64 o The 1992 restructure of operations charge was comprised of the following: - $70 million charge in the fourth quarter associated with the IDP joint venture. This charge, for the reduction in work force and excess facilities, will transform IDP into a world-class competitor in the pump business. The charge was shared evenly by the partners of IDP; therefore, the minority interest elimination for the restructure was $35.0 million and the company's portion was $35.0 million ($25.7 million after-tax, or $0.25 per share). - $10.0 million charge in the third quarter relating to the company's decision to realign its aerospace bearings business due to depressed conditions in the aerospace industry. In 1991, the company reported a net benefit of $7.1 million from a first quarter restructure of operations, which included the sale of Schlage Electronics. o Interest expense for 1992 was $54.1 million, approximately nine percent lower than the $59.3 million reported for 1991. The reduction was due to lower effective interest rates in 1992, when compared to 1991. At the end of 1992, all short-term debt was related to our foreign operations. o Other income (expense) for 1992 was a net expense of $734,000 representing a favorable variance of over $18 million from 1991's net expense figure. The 1992 improvement was generated from increased earnings from partially-owned equity companies, a $15 million gain from the sale of an equity interest in a company and a reduction in costs of a miscellaneous nature. These income improvements were reduced by an $8.7 million unfavorable change in foreign currency, which produced a $6.2 million pretax loss in 1992, as compared to a $2.5 million pretax gain in the prior year. 228 EXHIBIT 13 Page 18 of 64 o Dresser-Rand Company is another partnership between the company and Dresser Industries, Inc. It commenced operations on January 1, 1987, and comprises the worldwide reciprocating compressor and turbomachinery businesses of the two companies. Effective October 1, 1992, Dresser increased its ownership interest in this partnership to 51 percent from 50 percent. Dresser-Rand, as previously mentioned, adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1992. The effect of this accounting change reduced the company's investment in Dresser-Rand by the pretax effect of approximately $73 million. The company's pretax profits from its interest in Dresser-Rand for 1992 totalled $27.6 million, compared to $40.0 million in 1991. Additional charges during 1992 for the postretirement accounting change caused $7.2 million of the year-to-year decrease, while shipment delays on some large orders and a deterioration in operating efficiencies contributed to the balance of the reduction. o The Ingersoll-Dresser Pump Company minority interest represents Dresser's interest in the operating results of IDP. This item was a decrease in expense to the company because the entire $70 million restructure of operations charge was a reduction in the company's operating results, and this charge was shared equally between the partners. Excluding the restructure of operations charge from IDP's results for 1992, the partnership generated a minor amount of earnings for its first three months of operation. Overall, the company believes that the full operating benefits of the new venture will not be realized until late 1994. o The company's effective tax rate for 1992 was 36.8 percent, which is a slight increase over the 36.0 percent reported for 1991. The variance from the 34.0 percent statutory rate was due primarily to the higher tax rates associated with foreign earnings. o At December 31, 1992, employment totalled 35,308. This represents an increase of 4,191 employees over the 1991 level of 31,117. Employees from the pump units contributed by Dresser to IDP totalled 4,741 employees and 1992 acquisitions accounted for another 156 employees. Attrition and cost reduction programs offset these increases by 706 employees. 229 EXHIBIT 13 Page 19 of 64 The following highlights the financial results and financial condition of the company's operations, with the impact of currency variations where appropriate: o Cash and cash equivalents totalled $216.8 million at December 31, 1992, $79.9 million more than the 1991 balance of $136.9 million. In evaluating the net change in cash and cash equivalents, cash flows from operating, investing and financing activities and the effect of exchange rate changes should be considered. Cash flows from operating activities totalled $169.7 million, investing activities used $106.1 million and financing activities provided $24.5 million. Exchange rate changes during 1992 decreased cash and cash equivalents by approximately $8.2 million. In addition, cash and cash equivalents from the pump units contributed by Dresser to IDP accounted for a $10.1 million decrease in the cash used for investing activities. o Marketable securities totalled $13.4 million at the end of 1992, approximately $12.1 million more than the balance at December 31, 1991. Marketable securities from pump units contributed by Dresser totalled $15.2 million. Foreign marketable securities decreased by approximately $1.5 million during the year due to foreign exchange rate fluctuations. o Receivables totalled $809.6 million at December 31, 1992, compared to $652.3 million at 1991's year-end. The net increase for 1992 of $157.3 million included approximately $130.5 million from the pump units contributed by Dresser to IDP. The remaining increase was due to stronger fourth quarter sales. Currency translation decreased the receivables balance during the year by $39.5 million. The average days outstanding in receivables remained at the 1991 year-end level, but represented a more aggressive domestic collection effort reduced somewhat by a higher mix of international receivables, with longer payment terms than domestic receivables. 230 EXHIBIT 13 Page 20 of 64 o Inventories amounted to $770.3 million at December 31, 1992, which is $23.4 million higher than 1991's level of $746.9 million. This increase included approximately $100 million of inventory contributed from Dresser's pump units. Excluding this increase from the year-to-year comparison shows that the company's aggressive inventory control programs actually reduced the inventory level by approximately $37 million and currency movements accounted for an additional $40 million reduction in inventory for 1992. During the last three years, the company has been able to reduce its inventory by more than $100 million (excluding the inventory from the contributed pump units of Dresser). The company's emphasis on inventory control is apparent by the reduction in the average months' supply of inventory, which was 4.6 months at December 31, 1992, compared to 4.9 months at the 1991 year-end. o Prepaid expenses totalled $55.6 million at the end of 1992, $6.6 million higher than the balance at December 31, 1991. Foreign exchange activity had the effect of reducing the balance in this account by $3.6 million during 1992. The net increase for the year was split between a general increase in the company's prepaid expense activity and from pump units contributed by Dresser. o Deferred income taxes (current) of $101.8 million at December 31, 1992, represent the deferred tax benefit between the book and tax values of various current assets and liabilities. A schedule of the components for this balance is in Note 12 of the Notes to Consolidated Financial Statements. The year-end balance represented an increase of approximately $6.2 million from the December 31, 1991, level. Changes due to foreign currency movements had an immaterial effect on the year's activities. o The investment in Dresser-Rand Company totalled $119.7 million at December 31, 1992. This represented a net decrease of approximately $22.3 million from 1991's balance of $142.0 million. The components of the change for 1992 consisted of the $73.1 million reduction for the adoption of SFAS No. 106; income for 1992 of $27.6 million; a $26.5 million change in the advance account between the entities and a $3.3 million reduction due to currency fluctuations. 231 EXHIBIT 13 Page 21 of 64 o The investments in partially-owned equity companies at December 31, 1992, totalled $149.4 million, $6.0 million lower than the 1991 balance. The components of this change consisted of the following: - $20.6 million increase from the company's equity earnings in these units; - $6.4 million increase in amounts due from these units to the company; - $34.7 million decrease from the sale of the company's interest in one of these units; - $1.4 million decrease for dividends from these units; - $7.3 million increase for investments from the contributed pump units of Dresser to IDP; and - $4.2 million decrease for the effect of currency fluctuations during the year. o Net property, plant and equipment increased approximately $64.0 million in 1992 to a year-end balance of $847.1 million. The contributed pump units from Dresser increased net fixed assets during the year by approximately $74.6 million (assets of $225.2 million less accumulated depreciation of $150.6 million). Fixed assets from acquisitions during 1992 added $3.5 million. Capital expenditures in 1992 totalled $131.7 million, a decrease of $9.3 million from 1991. Foreign exchange fluctuations decreased the net fixed asset values in U.S. dollars by approximately $28.1 million. The remaining net decrease was due principally to depreciation expense. o Intangible assets, net, totalled $113.2 million at December 31, 1992, as compared to $104.5 million at December 31, 1991, for a net increase of $8.7 million. Increases of $6.1 million during the year came from the contributed pump units of Dresser and acquisitions, as well as an increase in the pension intangible asset of $9.1 million. Reductions came from $5.6 million of amortization with the remainder from the effect of currency fluctuations. o Deferred income taxes (noncurrent) totalled $77.0 million at December 31, 1992. This net deferred asset arose in 1992, primarily because of the tax effects related to the adoption of SFAS No. 106. A listing of the components which comprised the December 31, 1992, balance can be found in Note 12 of the Notes to Consolidated Financial Statements. 232 EXHIBIT 13 Page 22 of 64 o Other assets totalled $113.5 million at year-end, an increase of $1.0 million from the December 31, 1991, balance of $112.5 million. Assets from the contributed pump units accounted for a major portion of this increase. Foreign exchange activity in 1992 had minimal effect on the account balance during the year. o Accounts payable and accruals totalled $823.1 million at December 31, 1992, an increase of $201.2 million over 1991's balance of $621.9 million. Liabilities of the contributed pump units from Dresser to IDP accounted for $126.1 million of the increase, and the reserves established for the company's restructure of operations charges during 1992 added another $72 million. All other activity, including the accrual for the current portion of postretirement benefits, caused another $30.1 million increase in this account for 1992. Foreign exchange activity during 1992 decreased accounts payable and accruals by approximately $27 million. o Loans payable were $201.3 million at the end of 1992, compared to $118.3 million at December 31, 1991. Current maturities of long-term debt, included in loans payable, were $17.2 million at December 31, 1992, and $8.4 million at December 31, 1991. Excluding the current maturities of long-term debt, short-term borrowings increased by approximately $74.2 million during 1992. Loan balances from the contributed pump units of Dresser accounted for $1.3 million of this increase. The remainder of this balance can be attributed to increases in foreign short-term debt of $93.0 million, offset by a reduction in the value of the total amount of loans outstanding during 1992 of $20.1 million due to foreign currency fluctuations. The company uses foreign short-term debt as a currency hedge, in addition to its traditional role for financing accounts receivables and inventory. o Long-term debt, excluding current maturities, totalled $355.6 million at December 31, 1992, compared to $375.8 million at December 31, 1991, a net decrease of $20.2 million. This net decrease was the result of additions to long-term debt of $2.8 million reduced by transfers to loans payable for current maturities and a $1.8 million reduction from foreign currency fluctuations. 233 EXHIBIT 13 Page 23 of 64 o Postemployment benefits totalled $494.5 million at December 31, 1992. Postemployment benefits represent the company's noncurrent liability in accordance with SFAS Nos. 87 and 106. Postemployment benefits include medical and life insurance postretirement benefits and pensions. See Notes 13 and 14 of the Notes to Consolidated Financial Statements for additional information. o Ingersoll-Dresser Pump Company minority interest totalled $146.2 million at December 31, 1992, and represented Dresser's interest in the IDP joint venture at year-end. o Other liabilities (noncurrent) at December 31, 1992, totalled $18.0 million, which was approximately $11 million lower than the comparable balance at December 31, 1991. The net decrease for 1992 represented the reduction caused by currency fluctuations during the year and transfers to current liabilities of previously established acquisition reserves. On May 6, 1992, the board of directors of the company declared a two-for-one split of the company's common stock. The stock split was made in the form of a stock dividend, payable on June 1, 1992, to shareowners of record on May 19, 1992. All prior year per share amounts have been restated to reflect the stock split. Concurrent with the stock split announcement, the board of directors also increased the regular quarterly cash dividend to a record 17 1/2 cents per common share on a post-split basis. Other information concerning the company's financial resources, commitments and plans was as follows: The average amount of short-term borrowings outstanding in 1992 was $177.7 million, compared to $239.3 million in 1991. The weighted average interest rate during 1992 was 10.2%, compared to 10.4% during the previous year. The decrease in the 1992 average amount of short-term borrowings outstanding was attributable to the company's foreign operations, which use short-term debt financings as a hedge against currency movements. The company had domestic short-term credit lines at December 31, 1992, of $420 million and $280 million of foreign credit available for working capital purposes, all of which were unused at the end of the year. These facilities provide direct support for commercial paper and indirect support for other financial instruments, such as letters of credit and comfort letters. 234 EXHIBIT 13 Page 24 of 64 At December 31, 1992, the debt-to-total capital ratio was 30/70, as compared to 23/77 at the prior year-end. The change in the ratio at December 31, 1992, was primarily due to the company's adoption of SFAS Nos. 106 and 109, which reduced the company's equity by $350.0 million, effective January 1, 1992. Excluding the effect of these one-time charges, the debt-to-total capital ratio would have been 25/75. In 1992, foreign currency adjustments decreased shareowners' equity by approximately $53.3 million. The change is due to the strengthening of the U.S. dollar against other currencies in countries where the company has significant operations. Currency changes in the United Kingdom, Canada, France, Italy, Germany and Spain accounted for over 83 percent of the change. Inventories, accounts receivable, net property, plant and equipment, accounts payable and loans payable were the principal accounts affected. In 1992, the company continued to sell an undivided fractional ownership interest in designated pools of accounts and notes receivables up to a maximum of $125 million. Similar agreements have been in effect since 1987. These agreements expire in one- and three-year periods based on the particular pool of receivables sold. The company intends to renew these agreements at their expiration dates with either the current institution or another financial institution using the basic terms and conditions of the existing agreement. At December 31, 1992 and 1991, $125 million of such receivables remained uncollected. REVIEW OF BUSINESS SEGMENTS Standard Machinery Standard Machinery Segment's sales of $1.3 billion were approximately $134.4 million lower than 1992's level. The 1993 sale of the Mining Machinery Group accounted for approximately $50 million of the decline with the balance attributed to weak European markets. Operating income for 1993, before a $5 million restructure of operations charge, totalled $89.6 million, which was slightly below the $90.9 million reported for the prior year. The restructure of operations charge related to the sale of the Mining Machinery Group, which was substantially completed in July 1993. 235 EXHIBIT 13 Page 25 of 64 The Construction and Mining Group's sales for 1993 were approximately five percent lower than the prior year's level due to the European recession, but the group reported a slight increase in its operating income margin primarily due to a stronger domestic market and cost-containment programs. Sales for the Air Compressor Group also were approximately five percent below 1992's levels because of the weak European markets, but it essentially maintained its operating income margin at the prior year's rate. Mining Machinery Group's operating results for 1992 and for the current year, prior to its sale, were essentially at the break-even level. Engineered Equipment Engineered Equipment Segment's sales for 1993 totalled $929.6 million, as compared to $645.3 million for 1992. However, 1993 included approximately $300 million of additional sales from the contributed pump units of Dresser to IDP, when compared to last year's total. (See Note 2 of the Notes to Consolidated Financial Statements for additional information on IDP). Operating income in 1993 totalled $30.5 million, which was comparable to last year's operating income of $29.0 million, before a $70 million restructure of operations charge. Last year's restructure of operations charge related to IDP and was for the reduction in work force and excess facilities, which was provided to transform IDP into a world-class competitor in the pump business. The segment's operations in 1993 were adversely affected by the European recession and continued weakness in the pulp and paper industry. IDP's sales and operating income for 1993 were hampered by the European recession. However, IDP substantially completed its restructuring activities during 1993 and anticipates significant operating improvements in 1994 from the results of these efforts, assuming that current or slightly higher volume levels are achieved in 1994. Process Systems Group's sales in 1993 were lower than in the prior year, principally due to the uncertainties in the pulp and paper industry and the lack of increased pricing for pulp. However, the group's operating income improved over 1992's level based on benefits derived from aggressive cost-containment programs. 236 EXHIBIT 13 Page 26 of 64 Bearings, Locks and Tools In 1993, this segment reported sales of $1.8 billion, a five percent increase over the prior year. Operating income totalled $210.7 million, 25.9 percent higher than the $167.4 million of operating income reported for 1992, before a $10 million restructure of operations charge. Bearings and Components sales for 1993 were approximately seven percent higher than the prior year. Operating income for 1993 was well above 1992's level even before considering the negative effect of last year's $10 million restructure of operations charge. The 1992 restructure charge related to the company's decision to realign its aerospace bearings business, which was completed during the second quarter of 1993. Overall, strength in the domestic automobile industry during 1993 and continued benefits from cost-containment programs were the primary reasons for the group's improvement. Door Hardware sales were approximately seven percent higher than 1992's level. The improvement in operating income was greater than the increase in sales and established a new record for the group. Continued strength in the domestic housing market and aggressive cost controls contributed to 1993's record operating income. The Production Equipment Group's sales for 1993 approximated last year's level. However, the group reported a modest increase in operating income over the amount reported for 1992. Softness in sales throughout the European served area were offset by a stronger domestic market. This domestic strength and cost- containment programs produced the 1993 operating income improvement. 237 EXHIBIT 13 Page 27 of 64 Consolidated Statement of Income In thousands except per share amounts For the years ended December 31 1993 1992 1991 Net sales $4,021,071 $3,783,787 $3,586,220 Cost of goods sold 3,016,690 2,881,861 2,725,059 Administrative, selling and service engineering expenses 707,867 646,687 594,800 Restructure of operations- (charge) benefit (5,000) (80,000) 7,090 Operating income 291,514 175,239 273,451 Interest expense 51,955 54,129 59,284 Other income (expense), net (7,536) (734) (18,978) Dresser-Rand income 33,090 27,630 40,000 Ingersoll-Dresser Pump Company minority interest (11,589) 34,988 -- Earnings before income taxes and effect of accounting changes 253,524 182,994 235,189 Provision for income taxes 90,000 67,400 84,600 Earnings before effect of accounting changes 163,524 115,594 150,589 Effect of accounting changes (net of income tax benefits): - Postemployment benefits (21,000) -- -- - Postretirement benefits other than pensions -- (332,000) -- - Income taxes -- (18,000) -- Net earnings (loss) $ 142,524 $ (234,406) $ 150,589 Earnings per share of common stock: Earnings before effect of accounting changes $ 1.56 $ 1.11 $1.45 Effect of accounting changes: - Postemployment benefits (0.20) -- -- - Postretirement benefits other than pensions -- (3.19) -- - Income taxes -- (0.17) -- Net earnings (loss) per share $ 1.36 $(2.25) $1.45 See accompanying notes to consolidated financial statements. 238 EXHIBIT 13 Page 28 of 64 Consolidated Balance Sheet In thousands except share amounts December 31 1993 1992 Assets Current assets: Cash and cash equivalents $ 227,993 $ 216,832 Marketable securities 6,172 13,418 Accounts and notes receivable, less allowance for doubtful accounts of $22,089 in 1993 and $23,057 in 1992 797,525 809,646 Inventories 713,690 770,343 Prepaid expenses 39,844 55,553 Deferred income taxes 116,936 101,839 1,902,160 1,967,631 Investments and advances: Dresser-Rand Company 112,630 119,712 Partially-owned equity companies 158,645 149,389 271,275 269,101 Property, plant and equipment, at cost: Land and buildings 521,748 491,899 Machinery and equipment 1,143,680 1,143,018 1,665,428 1,634,917 Less-accumulated depreciation 790,284 787,813 875,144 847,104 Intangible assets, net 105,855 113,227 Deferred income taxes 90,913 76,973 Other assets 129,985 113,516 $3,375,332 $3,387,552 Liabilities and Equity Current liabilities: Accounts payable and accruals $ 762,387 $ 823,122 Loans payable 206,939 201,337 Customers' advance payments 24,231 17,839 Income taxes 30,767 37,517 1,024,324 1,079,815 Long-term debt 314,136 355,598 Postemployment liabilities 515,787 494,527 Ingersoll-Dresser Pump Company minority interest 146,331 146,216 Other liabilities 24,929 18,021 Shareowners' equity: Common stock, $2 par value, authorized 400,000,000 shares; issued: 1993-108,939,462; 1992-108,276,462 217,879 216,553 Capital in excess of par value 34,917 17,148 Earnings retained for use in the business 1,268,472 1,199,438 1,521,268 1,433,139 239 EXHIBIT 13 Page 29 of 64 Consolidated Balance Sheet (Continued) In thousands except share amounts December 31 1993 1992 Less: - Treasury stock, at cost 53,035 53,036 - Foreign currency equity adjustment 118,408 86,728 Shareowners' equity 1,349,825 1,293,375 $3,375,332 $3,387,552 Certain amounts have been reclassified for comparative purposes. See accompanying notes to consolidated financial statements. 240 EXHIBIT 13 Page 30 of 64 Consolidated Statement of Shareowners' Equity In thousands except share data December 31 1993 1992 1991 Common stock, $2 par value: Balance at beginning of year $ 216,553 $ 107,393 $ 107,122 Exercise of stock options and SARs 1,095 964 164 Issuance of shares under stock plans 231 135 107 Two-for-one stock split -- 108,061 -- Balance at end of year $ 217,879 $ 216,553 $ 107,393 Capital in excess of par value: Balance at beginning of year $ 17,148 $ 106,265 $ 101,983 Exercise of stock options and SARs including tax benefits 14,294 15,592 2,465 Issuance of shares under stock plans 3,475 3,352 1,817 Two-for-one stock split -- (108,061) -- Balance at end of year $ 34,917 $ 17,148 $ 106,265 Earnings retained for use in the business: Balance at beginning of year $1,199,438 $1,505,881 $1,423,696 Net earnings (loss) 142,524 (234,406) 150,589 Cash dividends (73,490) (72,037) (68,404) Balance at end of year $1,268,472 $1,199,438 $1,505,881 Treasury stock-at cost: Common stock, $2 par value: Balance at beginning of year $ (53,036) $ (53,036) $ (53,036) Two-for-one stock split -- -- -- Purchases of stock -- -- -- Disposition of stock 1 -- -- Balance at end of year $ (53,035) $ (53,036) $ (53,036) Foreign currency equity adjustment: Balance at beginning of year $ (86,728) $ (33,447) $ (23,341) Adjustments due to translation changes (31,680) (53,281) (12,040) Sale or liquidation of investments -- -- 1,934 Balance at end of year $ (118,408) $ (86,728) $ (33,447) Total shareowners' equity $1,349,825 $1,293,375 $1,633,056 241 EXHIBIT 13 Page 31 of 64 Consolidated Statement of Shareowners' Equity (Continued) In thousands except share data December 31 1993 1992 1991 Shares of Capital Stock Common stock, $2 par value: Balance at beginning of year 108,276,462 53,696,378 53,561,116 Exercise of stock options and SARs 547,400 482,175 82,025 Issuance of shares under stock plans 115,600 67,278 53,237 Two-for-one stock split -- 54,030,631 -- Balance at end of year 108,939,462 108,276,462 53,696,378 Treasury stock-at cost: Common stock, $2 par value: Balance at beginning of year 3,672,822 1,836,409 1,836,409 Two-for-one stock split -- 1,836,409 -- Purchases of stock -- 4 -- Disposition of stock (90) -- -- Balance at end of year 3,672,732 3,672,822 1,836,409 See accompanying notes to consolidated financial statements.
242 EXHIBIT 13 Page 32 of 64 Consolidated Statement of Cash Flows In thousands For the years ended December 31 1993 1992 1991 Cash flows from operating activities: Net earnings (loss) $ 142,524 $(234,406) $ 150,589 Adjustments to arrive at net cash provided by operating activities: Effect of accounting changes 21,000 350,000 -- Restructure of operations 5,000 80,000 (7,090) Depreciation and amortization 123,521 116,579 108,693 (Gain) loss on sale of assets (5,480) (15,429) 2,468 Minority interests 13,571 (33,181) -- Equity earnings/losses, net of dividends (45,621) (46,790) (54,659) Deferred income taxes (14,767) (43,575) 6,640 Other noncash items 125 44,273 (3,428) Changes in assets and liabilities (Increase) decrease in: Accounts and notes receivable (11,998) (54,634) 1,432 Inventories 35,500 37,133 62,743 Other current and noncurrent assets (22,414) (9,825) (25,268) (Decrease) increase in: Accounts payable and accruals (73,250) 12,437 4,151 Other current and noncurrent liabilities (2,838) (32,837) (15,145) Net cash provided by operating activities 164,873 169,745 231,126 Cash flows from investing activities: Capital expenditures (132,001) (131,650) (140,900) Proceeds from sales of property, plant and equipment 6,612 5,753 4,623 Proceeds from business dispositions 55,460 53,971 58,500 Acquisitions, net of cash and formation of Ingersoll-Dresser Pump* (42,479) (2,928) (2,140) Distribution from Dresser-Rand -- -- 74,000 Decrease in marketable securities 6,416 1,641 566 Cash (invested in) or advances (to) from equity companies 45,282 (32,902) (12,629) Net cash used in investing activities (60,710) (106,115) (17,980) 243 EXHIBIT 13 Page 33 of 64 Consolidated Statement of Cash Flows (Continued) In thousands For the years ended December 31 1993 1992 1991 Cash flows from financing activities: (Decrease) increase in short-term borrowings (49,480) 92,955 (160,064) Proceeds from long-term debt 101,779 2,806 126,749 Payments of long-term debt (78,042) (12,722) (27,320) Net change in debt (25,743) 83,039 (60,635) Proceeds from exercise of stock options and treasury stock sales 13,116 13,511 1,897 Dividends paid (73,490) (72,037) (68,404) Net cash (used in) provided by financing activities (86,117) 24,513 (127,142) Effect of exchange rate changes on cash and cash equivalents (6,885) (8,231) 658 Net increase in cash and cash equivalents 11,161 79,912 86,662 Cash and cash equivalents- beginning of year 216,832 136,920 50,258 Cash and cash equivalents-end of year $ 227,993 $ 216,832 $ 136,920 *Acquisitions and formation of Ingersoll-Dresser Pump: Working capital, other than cash $ (25,542) $(127,313) $ (225) Property, plant and equipment (25,910) (78,189) (551) Intangibles and other assets (2,000) (19,088) (1,425) Long-term debt and other liabilities 10,973 221,662 61 Net cash used to acquire businesses $ (42,479) $ (2,928) $ (2,140) Cash paid during the year for: Interest, net of amounts capitalized $ 47,388 $ 53,351 $ 56,604 Income taxes 126,954 140,909 99,719 See accompanying notes to consolidated financial statements.
244 EXHIBIT 13 Page 34 of 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Principles of Consolidation: The consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. Intercompany transactions and balances have been eliminated. Partially-owned equity companies are accounted for under the equity method. Cash Equivalents: The company considers all highly liquid investments consisting primarily of treasury bills and notes, time deposits and commercial paper with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents, at cost, which approximates market, were $75,046,000 and $135,128,000 at December 31, 1993 and 1992, respectively. Marketable Securities: Marketable securities include equity and debt securities and short-term instruments with maturities of longer than three months. Marketable securities are carried at cost, which approximates market. Net realized gains and losses on the sale of marketable securities were insignificant for all years presented. Inventories: Inventories are generally stated at cost, which is not in excess of market. Domestic manufactured inventories of standard products are valued on the last-in, first-out (LIFO) method and all other inventories are valued using the first-in, first-out (FIFO) method. Property and Depreciation: The company principally uses accelerated depreciation methods for both tax and financial reporting. Intangible Assets: Intangible assets primarily represent the excess of the purchase price of acquisitions over the fair value of the net assets acquired. Such excess costs are being amortized on a straight-line basis over various periods not exceeding 40 years. Intangible assets also represent costs allocated to patents, tradenames and other specifically identifiable assets arising from business acquisitions. These assets are amortized on a straight-line basis over their estimated useful lives. Accumulated amortization at December 31, 1993 and 1992, was $19,657,000 and $21,524,000, respectively. Amortization of intangible assets was $5,852,000, $5,597,000 and $6,675,000 in 1993, 1992 and 1991, respectively. 245 EXHIBIT 13 Page 35 of 64 Income Taxes: The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" in February 1992. The company elected to adopt the new standard effective January 1, 1992. The new accounting standard requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement bases and the tax bases of the company's assets and liabilities using the enacted tax rates in effect at year-end, the "liability method" (see Note 12). Prior to 1992, the company deferred the past tax effects of timing differences between financial reporting and taxable income (the "deferral method"). Environmental Costs: Environmental expenditures relating to current operations are expensed or capitalized as appropriate. Expenditures relating to existing conditions caused by past operations, which do not contribute to current or future revenues, are expensed. Costs to prepare environmental site evaluations and feasibility studies are accrued when the company commits to perform them. Liabilities for remediation costs are recorded when they are probable and reasonably estimable, generally the earlier of completion of feasibility studies or the company's commitment to a plan of action. Revenue Recognition: Sales of products, other than long-term contracts, are recorded for financial reporting purposes generally when the products are shipped. Revenues on certain long-term contracts are recorded using the percentage-of- completion method for financial reporting purposes and a similar method for tax purposes. Research, Engineering and Development Costs: Research and development expenditures, including engineering costs, are expensed when incurred and amounted to $150,100,000 in 1993, $138,400,000 in 1992 and $123,800,000 in 1991. Foreign Currency: Assets and liabilities of foreign entities operating in other than highly inflationary economies have been translated at current exchange rates, and income and expenses have been translated using average-for-the-year exchange rates. Adjustments resulting from translation have been recorded in shareowners' equity and are included in net earnings only upon sale or liquidation of the underlying foreign investment. 246 EXHIBIT 13 Page 36 of 64 For foreign subsidiaries operating in highly inflationary economies, inventory and property balances and related income statement accounts have been translated using historical exchange rates and resulting gains and losses have been credited or charged to net earnings. Foreign currency transactions and translations recorded in the income statement decreased net earnings by $4,744,000 and $4,848,000 in 1993 and 1992, respectively, and increased net earnings in 1991 by $1,859,000. Shareowners' equity was reduced in 1993, 1992 and 1991 by $31,680,000, $53,281,000 and $12,040,000, respectively, due to foreign currency equity adjustments related to translation, financial position hedges and corresponding tax effects. In 1991, the cumulative translation adjustment in shareowners' equity was reduced by $1,934,000 as a result of the sale and/or liquidation of small foreign investments and/or subsidiaries. Tax effects were not significant for the periods presented. The company hedges foreign currency transactions and firm foreign currency commitments by entering into forward foreign exchange contracts (forward contracts). Gains and losses associated with currency rate changes on forward contracts hedging foreign currency transactions are recorded currently in income. Gains and losses on forward contracts hedging firm foreign currency commitments are deferred and included as a component of the related transaction; however, a loss is not deferred if deferral would lead to the recognition of a loss in future periods. Cash flows resulting from forward contracts are accounted for as hedges of identifiable transactions or events and classified in the same category as the cash flows from the items being hedged. Earnings Per Share: Net earnings per share of common stock are earnings divided by the average number of common shares outstanding during the year. The effect of common stock equivalents on earnings per share was not material. Accounting Changes: Effective January 1, 1993, the company adopted Statement of Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for Postemployment Benefits." SFAS No. 112 requires an accrual for the expected cost of benefits provided by an employer to former or inactive employees after employment but before retirement, such as the continuation of medical and life insurance benefits for employees on long-term disability. Previously, these benefits were expensed as incurred. The company elected to adopt this standard in the 247 EXHIBIT 13 Page 37 of 64 fourth quarter of 1993, and recognized the postemployment benefit obligation as of January 1, 1993. The effect of the adoption of SFAS No. 112 for the company totalled $21.0 million ($0.20 per share), net of a $13.5 million tax benefit. Aside from the effect of the adjustment, the adoption of SFAS No. 112 was not material to the company's 1993 financial results and accordingly, the results for the first three quarters of 1993 have not been restated to reflect this adoption. Operating results for the years preceding 1993 were not restated for the adoption of SFAS No. 112. The company adopted effective January 1, 1992, SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 109, "Accounting for Income Taxes." SFAS No. 106 requires an accrual for the expected cost of providing postretirement benefits, such as health care and life insurance benefits, during the years that the employees provide service to the company. Previously, these benefits were expensed as incurred. The effect of the adoption of SFAS No. 106 for the company's worldwide pre-1992 obligations totalled $283.8 million ($2.73 per share), net of a $145.2 million tax benefit (see Note 14). Also, in 1992, included in the $332.0 million ($3.19 per share) after-tax effect of this accounting change was $48.2 million ($0.46 per share), representing the company's share of the effect of the adoption of SFAS No. 106 by the Dresser-Rand partnership. Earnings for 1992, before the effect of accounting changes, decreased by $19.5 million ($0.19 per share) for the company's worldwide obligations associated with SFAS No. 106. In addition, the company's portion of earnings from Dresser-Rand Company was reduced by $7.2 million or $4.8 million ($0.04 per share) after- tax for the 1992 earnings effect of this accounting change. The company also elected to apply the provisions of SFAS No. 109, "Accounting for Income Taxes" effective January 1, 1992. SFAS No. 109 changes the method of accounting for income taxes from the deferral method to the liability method. Under the liability method, deferred income taxes are determined based on enacted tax laws and rates, which are applied to the differences between the financial statement bases and tax bases of assets and liabilities (see "Income Taxes" and Note 12). The effect of adopting SFAS No. 109 at January 1, 1992, produced an $18.0 million ($0.17 per share) charge to the company. This charge related principally to the differences between the financial statement value of assets and liabilities and the tax bases of those items recorded for acquisitions made since 1984. The effect of this adoption on the 1992 earnings of the company was not material. 248 EXHIBIT 13 Page 38 of 64 Operating results for the years preceding 1992 were not restated for the adoption of SFAS Nos. 106 and 109. NOTE 2 - INGERSOLL-DRESSER PUMP COMPANY: Effective October 1, 1992, the company and Dresser Industries, Inc. (Dresser), formed Ingersoll-Dresser Pump Company (IDP), a partnership, owned 51 percent by the company and 49 percent by Dresser. This joint venture includes the majority of the worldwide pump operations of the two companies, and its results have been included in the consolidated financial statements of the company since the formation date. One of the principal purposes of this venture was to create a pump company that is capable of competing for business on a global basis. Management believes that the venture will produce significantly enhanced efficiency in manufacturing, research and development, and marketing. The company's consolidated net sales for 1992 included approximately $140 million for the pump units contributed by Dresser. The effect of these sales on the company's operating income for 1992 was minimal. However, during the fourth quarter of 1992, the company recorded a $70.0 million restructure of operations charge for IDP. This charge was for the reduction in work force and realignment charges to relocate production and eliminate excess plant and capacity, which will help transform IDP into a world-class competitor in the pump business. This charge was shared evenly by the partners of IDP; therefore, the minority interest elimination for this item was $35.0 million and the company's portion was $35.0 million ($25.7 million after-tax, or $0.25 per share). The net assets contributed by each partner to IDP were approximately $180 million. NOTE 3 - ACQUISITIONS AND DISPOSITIONS OF BUSINESSES: In 1993, the company acquired the Kunsebeck, Germany, needle and cylindrical bearing business of FAG Kugelfischer Georg Schafer AG of Schweinfurt, Germany, for $42.5 million in cash, subject to final contract negotiations. In 1992, the company acquired Industrias del Rodamiento, S.A. (IRSA), for $14.0 million in cash and $1.8 million in notes. IRSA manufactures and markets an extensive line of bearings, as well as wheel kits and automotive accessories. During 1991, the company purchased the net assets of three small business units for $2.1 million in cash. 249 EXHIBIT 13 Page 39 of 64 These transactions have been accounted for as purchases and accordingly, each purchase price was allocated to the acquired assets and assumed liabilities based on their estimated fair values. The company has classified as intangible assets the costs in excess of the fair value of the net assets of companies acquired. The results of all acquired operations have been included in the consolidated financial statements from their respective acquisition dates. The company sold the assets of several small business units in 1993, as well as substantially all of the assets of its coal- mining machinery and aerospace bearings businesses for $55.5 million in cash. NOTE 4 - RESTRUCTURE OF OPERATIONS: In July 1993, the company sold substantially all of its underground coal-mining machinery assets to Long-Airdox Company. In connection with this sale, the company recorded a $5.0 million restructure of operations charge during the second quarter of 1993. During 1992, the company reported an $80,000,000 charge for restructuring of operations consisting of a fourth quarter $70,000,000 charge for IDP described in Note 2 and a third quarter $10,000,000 charge associated with the company's aerospace bearings unit. The third quarter restructure charge was for the realignment of the company's aerospace bearings unit resulting from the depressed condition of the aerospace business. The after-tax cost for this charge was $6,200,000 or $0.06 per share. During the first quarter of 1991, the company reported a net benefit of $7,090,000 from a restructure of operations. The net benefit was comprised of (i) a $38,609,000 pretax gain from the sale on January 18, 1991, of Schlage Electronics, a business unit of the company's Schlage Lock Company subsidiary, to Westinghouse Electric Corporation for $50,500,000 in cash, (ii) a $14,850,000 pretax charge for the exit costs associated with the discontinuance of certain electronic products of Schlage Lock Company, and (iii) a $16,669,000 pretax charge associated with the discontinuance and sale of the company's North American consumer compressor product line. This business was sold to the DeVilbiss Air Power Company effective as of the close of business on April 30, 1991, for cash proceeds of approximately $8,000,000. 250 EXHIBIT 13 Page 40 of 64 NOTE 5 - INVENTORIES: At December 31, inventories were as follows: In thousands 1993 1992 Raw materials and supplies $121,083 $128,605 Work-in-process 295,829 282,474 Finished goods 462,677 545,940 879,589 957,019 Less-LIFO reserve 165,899 186,676 Total $713,690 $770,343 Work-in-process inventories are stated after deducting customer progress payments of $14,395,000 in 1993 and $30,361,000 in 1992. At December 31, 1993 and 1992, LIFO inventories comprised approximately 38 percent and 43 percent, respectively, of consolidated inventories. During the periods presented, inventory quantities were reduced, resulting in partial liquidations of LIFO layers. This decreased cost of goods sold by $12,506,000 in 1993, $5,801,000 in 1992 and $19,274,000 in 1991. These liquidations increased net earnings in 1993, 1992 and 1991 by approximately $7,641,000 ($0.07 per share), $3,599,000 ($0.03 per share) and $11,957,000 ($0.12 per share), respectively. NOTE 6 - INVESTMENTS IN PARTIALLY-OWNED EQUITY COMPANIES: The company has numerous investments, ranging from 20 percent to 50 percent, in companies which operate in similar lines of business. The company's investments in and amounts due from partially- owned equity companies amounted to $131,051,000 and $27,594,000, respectively, at December 31, 1993, and $111,569,000 and $37,820,000, respectively, at December 31, 1992. The company's equity in the net earnings of its partially-owned equity companies was $15,641,000, $20,578,000 and $15,904,000 in 1993, 1992 and 1991, respectively. The company received dividends based on its equity interests in these companies of $3,110,000, $1,417,000 and $1,245,000 in 1993, 1992 and 1991, respectively. 251 EXHIBIT 13 Page 41 of 64 Summarized financial information for these partially-owned equity companies at December 31, and for the years presented was: In thousands 1993 1992 Current assets $ 355,884 $ 366,633 Property, plant and equipment, net 256,322 246,151 Other assets 23,409 24,561 Total assets $ 635,615 $ 637,345 Current liabilities $ 326,830 $ 359,026 Long-term debt 44,024 50,006 Other liabilities 24,873 25,850 Total shareowners' equity 239,888 202,463 Total liabilities and equity $ 635,615 $ 637,345 In thousands 1993 1992 1991 Net sales $ 730,138 $ 904,831 $ 995,336 Gross profit 127,467 187,802 196,545 Net earnings 48,494 42,167 51,788 NOTE 7 - DRESSER-RAND PARTNERSHIP: Dresser-Rand Company is a partnership between Dresser Industries, Inc. (51 percent), and the company (49 percent) comprising the worldwide reciprocating compressor and turbomachinery businesses of the two companies. The company's investment in Dresser-Rand is accounted for using the equity method of accounting. Summarized financial information for Dresser-Rand at December 31, and for the years presented was: In thousands 1993 1992 Current assets $ 489,122 $ 468,238 Property, plant and equipment, net 220,604 237,684 Other assets and investments 18,531 23,539 728,257 729,461 Deduct: Current liabilities 321,629 333,059 Noncurrent liabilities 188,211 172,586 509,840 505,645 Net partners' equity and advances $ 218,417 $ 223,816 252 EXHIBIT 13 Page 42 of 64 In thousands 1993 1992 1991 Net sales $1,187,279 $1,232,615 $1,194,135 Gross profit 241,906 229,396 242,884 Earnings before effect of accounting change 68,112 52,916 80,001 Net income (loss) 68,112 (93,209) 80,001 The effect of the adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" for Dresser-Rand effective January 1, 1992, was $146,125,000. Operating results for 1992 were reduced by $14,400,000 because of this accounting change. The tax effects associated with this change are recorded on the books of the partners. The company's investment in Dresser-Rand was $133,867,000 and $103,297,000 at December 31, 1993 and 1992, respectively. During 1991, Dresser-Rand approved and distributed $74,000,000 of capital to each of its partners. At December 31, 1993, the company owed Dresser-Rand $21,237,000 and at December 31, 1992, the company was due $16,415,000 from Dresser-Rand. NOTE 8 - ACCOUNTS PAYABLE AND ACCRUALS: Accounts payable and accruals at December 31, were: In thousands 1993 1992 Accounts payable $201,172 $225,519 Accrued: Payrolls and benefits 121,063 131,303 Taxes 46,842 42,112 Insurance and claims 98,474 92,535 Pensions and severance pay 31,862 47,919 Interest 14,057 12,841 Plant closings and relocation expenses 14,743 43,748 Other accruals 234,174 227,145 $762,387 $823,122 253 EXHIBIT 13 Page 43 of 64 NOTE 9 - LONG-TERM DEBT AND CREDIT FACILITIES: At December 31, long-term debt consisted of: In thousands 1993 1992 6 7/8% Notes Due 2003 $100,000 $ -- 9% Debentures Due 2021 125,000 125,000 8 3/8% Notes Due 1994 -- 75,000 8 1/4% Notes Due 1996 75,000 75,000 8.05% Debentures Due 1993-2004 -- 60,000 Other domestic and foreign loans and notes, at end- of-year average interest rates of 8.61% in 1993 and 9.02% in 1992, maturing in various amounts to 2012 14,136 20,598 $314,136 $355,598 Debt retirements for the next five years are as follows: $81,962,000 in 1994, $4,523,000 in 1995, $79,919,000 in 1996, $666,000 in 1997 and $473,000 in 1998. In February 1993, the company issued $100,000,000 of notes at 6 7/8% per annum, which are not redeemable prior to maturity in 2003. The proceeds from these notes were used to redeem $68,000,000 of the company's outstanding 8.05% Debentures Due 2004 and for general corporate purposes. The approximate fair value of the company's long-term debt at December 31, 1993, was $349,455,000. Fair value was determined by reference to the December 31, 1993, market value of comparably rated debt instruments. At December 31, 1993, the company had a $100,000,000 364-day revolving credit line and a $300,000,000 four year committed revolving credit line, all of which were unused. These lines provide support for commercial paper and indirectly provide support for other financial instruments, such as letters of credit and comfort letters, as required in the normal course of business. The company compensates banks for these lines with fees ranging from .08% to .125%, per annum. Available foreign lines of credit were $548,177,000, of which $411,609,000 were unused at December 31, 1993. No major cash balances were subject to withdrawal restrictions. At December 31, 1993, the average rate of interest for loans payable, excluding the current portion of long-term debt, was 7.90% and related principally to foreign loans. 254 EXHIBIT 13 Page 44 of 64 At December 31, 1992, the company had $64,000,000 of short-term debt and an equivalent amount of short-term investments, for which the company had a right of offset. Accordingly, the debt and investments have been eliminated from the December 31, 1992, balance sheet. Capitalized interest on construction and other capital projects amounted to $2,838,000, $3,460,000 and $4,201,000 in 1993, 1992 and 1991, respectively. Interest income, included in "Other income (expense)," was $11,720,000, $15,396,000 and $11,595,000 in 1993, 1992 and 1991, respectively. NOTE 10 - COMMITMENTS AND CONTINGENCIES: The company is involved in various litigations, claims and administrative proceedings, including environmental matters, arising in the normal course of business. Based on the advice of counsel, management believes that recovery or liability with respect to these matters would not have material effect on the financial condition or the results of operations of the company for any year. In the normal course of business, the company has issued several direct and indirect guarantees, including performance letters of credit, totalling approximately $108,000,000 at December 31, 1993. Management believes these guarantees will not adversely affect the consolidated financial statements. In 1993, the company continued to sell an undivided interest in designated pools of accounts and notes receivable up to a maximum of $125,000,000. Similar agreements have been in effect since 1987. During 1993, 1992 and 1991, such sales amounted to $518,651,000, $526,090,000 and $490,500,000, respectively. At December 31, 1993 and 1992, $125,000,000 of such sold receivables remained uncollected. The undivided interest in the designated pool of receivables was sold with limited recourse. These agreements expire in one- and two-year periods based on the particular pool of receivables sold. The company intends to renew these agreements at their expiration dates with either the current financial institution or another financial institution, using the basic terms and conditions of the existing agreements. For receivables sold, the company has retained collection and administrative responsibilities as agent for the purchaser. Receivables, excluding the designated pool of accounts and notes receivable, sold during 1993, 1992 and 1991 with recourse amounted to $39,284,000, $38,343,000 and $77,481,000, respectively. At December 31, 1993 and 1992, $16,076,000 and $19,999,000, respectively, of such receivables sold remained uncollected. 255 EXHIBIT 13 Page 45 of 64 As of December 31, 1993, the company had no significant concentrations of credit risk in trade receivables due to the large number of customers which comprise its receivables base and their dispersion across different industries and countries. At December 31, 1993, the company had entered into forward foreign exchange contracts to purchase and sell the equivalent of approximately $306,515,000 of foreign currencies principally denominated in pounds sterling, yen, French francs, Italian lira, Deutsche marks and Canadian dollars. The fair value for these forward foreign exchange contracts approximates carrying value. Fair value is based on dealer quotes. The forward contracts have maturities ranging from one to 36 months. The company's forward contracts do not subject the company to risk due to exchange rate movements, because gains and losses on these contracts generally offset losses and gains on the assets, liabilities or other transactions being hedged. The counterparties to these contracts consist of a number of major international financial institutions. The credit ratings and concentration of risk of these financial institutions are monitored on a continuing basis and present no significant credit risk to the company. All principal manufacturing facilities are owned by the company. Certain office and warehouse facilities, transportation vehicles and data processing equipment are leased. Total rental expense was $57,949,000 in 1993, $56,218,000 in 1992 and $56,936,000 in 1991. Minimum lease payments required under noncancellable operating leases with terms in excess of one year for the next five years and thereafter, are as follows: $33,863,000 in 1994, $24,618,000 in 1995, $15,818,000 in 1996, $8,648,000 in 1997, $6,738,000 in 1998 and $21,449,000 thereafter. NOTE 11 - INCENTIVE STOCK PLANS: Under the company's Incentive Stock Plans, key employees have been granted options to purchase common shares at prices not less than the fair market value at the date of grant. The plans, approved in 1980, 1985 and 1990, also authorize stock appreciation rights (SARs) and stock awards. If SARs issued in conjunction with stock options are exercised, the related stock options are cancelled; conversely, the exercise of stock options cancels the SARs. 256 EXHIBIT 13 Page 46 of 64 Changes during the year in options outstanding under the plans were as follows: Shares subject Option price to option range per share January 1, 1993 2,787,400 $ 9.38-31.00 Granted 946,200 32.44-36.31 Exercised 970,900 9.38-31.00 December 31, 1993 2,762,700 $ 9.79-36.31 Of the shares subject to option, 1,512,500 were granted with SARs. In addition, there are 176,000 SARs outstanding with no stock options. At December 31, 1993, 273,160 shares of common stock were reserved for future issue, contingent upon attainment of certain performance goals and future service. At December 31, 1993, options for 1,816,500 shares were exercisable and 1,622,360 shares were available for future awards. NOTE 12 - INCOME TAXES: Earnings before income taxes and the effect of accounting changes for the years ended December 31, were taxed within the following jurisdictions: In thousands 1993 1992 1991 United States $229,503 $120,311 $137,649 Foreign 24,021 62,683 97,540 Total $253,524 $182,994 $235,189 The provision for income taxes before the effect of accounting changes was as follows: Current tax expense: United States $ 74,912 $ 73,655 $ 50,093 Foreign 30,625 37,320 38,603 Total current 105,537 110,975 88,696 Deferred tax expense: United States 5,261 (36,698) (9,141) Foreign (20,798) (6,877) 5,045 Total deferred (15,537) (43,575) (4,096) Total provision for income taxes $ 90,000 $ 67,400 $ 84,600 As discussed in Note 1, the company adopted SFAS No. 109 as of January 1, 1992, and the effect of this accounting change was reported in the 1992 Consolidated Statement of Income. Prior years' financial statements were not restated to reflect the provisions of SFAS No. 109. 257 EXHIBIT 13 Page 47 of 64 The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory income tax rate to pretax income before the effect of accounting changes, as a result of the following differences: Percent of pretax income 1993 1992 1991 Statutory U.S. rates 35.0% 34.0% 34.0% Increase (decrease) in rates resulting from: Foreign operations 0.6 3.3 4.4 Bases difference on dispositions -- -- (3.6) Effect of changes in statutory rate on deferred taxes (2.2) -- -- Earnings/losses of equity companies (2.2) (4.4) (2.5) State and local income taxes, net of U.S. tax 1.3 2.3 2.0 Other 3.0 1.6 1.7 Effective tax rates 35.5% 36.8% 36.0% The deferred income tax accounts for 1993 and 1992 reflect the impact of "temporary differences" between the value of assets and liabilities for financial reporting purposes and their related value as measured by tax laws. These temporary differences have now been calculated in accordance with SFAS No. 109 and are more inclusive in nature than "timing differences" as determined under previously applicable accounting principles. 258 EXHIBIT 13 Page 48 of 64 A summary of the deferred tax accounts at December 31, follows: In thousands 1993 1992 Current deferred assets and (liabilities): Differences between book and tax bases of inventories and receivables $ 32,576 $ 32,046 Differences between book and tax expense for other employee related benefits and allowances 42,137 31,373 Provisions for restructure of operations and plant closings not yet deductible for tax purposes 5,328 15,718 Other reserves and valuation allowances in excess of tax deductions 27,954 25,604 Other differences between tax and financial statement values 8,941 (2,902) Gross current deferred net tax assets 116,936 101,839 Noncurrent deferred tax assets and (liabilities): Tax items associated with equity companies 31,022 29,653 Postretirement and postemployment benefits other than pensions in excess of tax deductions 159,922 150,125 Other reserves in excess of tax expense 28,136 12,747 Tax depreciation in excess of book depreciation (54,855) (52,841) Pension contributions in excess of book expense (36,607) (33,719) Taxes provided for unrepatriated foreign earnings (26,353) (25,600) Gross noncurrent deferred net tax assets 101,265 80,365 Less: deferred tax valuation allowances (10,352) (3,392) Total net deferred tax assets $207,849 $178,812 259 EXHIBIT 13 Page 49 of 64 The information presented above is in accordance with SFAS No. 109 for the years ended December 31, 1993 and 1992, respectively. The following table identifies the current and noncurrent deferred tax items which were part of the company's tax provision for the year ended December 31, 1991. In thousands 1991 Current deferred: Plant closings and resizing costs $ (1,956) Increase in reserves not currently deductible for tax purposes (7,825) Other (955) Total current deferred $(10,736) Noncurrent deferred: Depreciation $ (3,233) Pensions 6,915 Unrepatriated foreign earnings 4,760 Other (1,802) Total noncurrent deferred $ 6,640 A total of $26,353,000 of deferred taxes have been provided for a portion of the undistributed earnings of subsidiaries operating outside of the United States. As to the remainder, these earnings have been, and under current plans, will continue to be reinvested and it is not practicable to estimate the amount of additional taxes which may be payable upon repatriation. NOTE 13 - PENSION PLANS: The company has noncontributory pension plans covering substantially all domestic employees. In addition, certain employees in other countries are covered by pension plans. The company's domestic salaried plans principally provide benefits based on a career average earnings formula. The company's hourly pension plans provide benefits under flat benefit formulas. Foreign plans provide benefits based on earnings and years of service. Most of the foreign plans require employee contributions based on the employee's earnings. The company's policy is to fund an amount which could be in excess of the pension cost expensed, subject to the limitations imposed by current statutes or tax regulations. Ingersoll-Dresser Pump Company's costs for the year ended December 31, 1993, and the three months ended December 31, 1992, and status of its benefit plans at December 31, 1993 and 1992, have been consolidated. 260 EXHIBIT 13 Page 50 of 64 The components of the company's pension cost for the years ended December 31, include the following: In thousands 1993 1992 1991 Benefits earned during the year $ 27,749 $ 25,813 $ 23,700 Interest cost on projected benefit obligation 72,131 70,543 67,758 Actual return on plan assets (124,432) (84,446) (199,672) Net amortization and deferral 32,685 (7,484) 121,729 Net pension cost $ 8,133 $ 4,426 $ 13,515 261 EXHIBIT 13 Page 51 of 64 The status of employee pension benefit plans at December 31, 1993 and 1992, was as follows: 1993 1992 Overfunded Underfunded Overfunded Underfunded In thousands plans plans plans plans Actuarial present value of projected benefit obligation, based on employment service to date and current salary levels: Vested employees $ (962,348) $ (84,311) $ (807,210) $(67,972) Nonvested employees (8,067) (4,764) (4,878) (3,146) Accumulated benefit obligation (970,415) (89,075) (812,088) (71,118) Additional amount related to projected salary increases (38,713) (17,361) (45,873) (15,704) Total projected benefit obligation (1,009,128) (106,436) (857,961) (86,822) Funded assets at fair value 1,079,203 46,035 1,026,711 38,523 Assets in excess of (less than) projected benefit obligation 70,075 (60,401) 168,750 (48,299) Unamortized (net asset) liability existing at date of adoption (3,344) 4,573 (7,289) 2,826 Unrecognized prior service cost 13,685 10,015 16,196 9,901 Unrecognized net loss (gain) 27,103 5,506 (75,026) -- Adjustment required to recognize minimum liability -- (7,060) -- (1,430) Purchase accounting tax benefit on unfunded pension liability -- -- -- 3,354 Prepaid (accrued) pension cost $ 107,519 $ (47,367) $ 102,631 $(33,648)
262 EXHIBIT 13 Page 52 of 64 Plan investment assets of domestic plans are balanced between equity securities and cash equivalents or debt securities. Assets of foreign plans are invested principally in equity securities. The present value of benefit obligations for domestic plans at December 31, 1993 and 1992, was determined using an assumed discount rate of 7.0% and 7.5%, an expected long-term rate of return on assets of 8.5% and 9.0% and an assumed rate of increase in future compensation levels of 4.5% and 5.0%, respectively. The weighted averages of the actuarially assumed discount rate, long-term rate of return on assets and the rate for compensation increases for foreign plans were 8.0%, 9.0% and 5.5% in 1993, and 9.0%, 9.0% and 6.5% in 1992, respectively. Most of the company's domestic employees are covered by savings and other defined contribution plans. Employer contributions and costs are determined based on criteria specific to the individual plans and amounted to approximately $20,494,000, $19,106,000 and $18,200,000 in 1993, 1992 and 1991, respectively. In addition, the company maintains other supplemental benefit plans for officers and other key employees. The company's costs relating to foreign defined contribution plans, insured plans and other foreign benefit plans were $307,000, $553,000 and $650,000 in 1993, 1992 and 1991, respectively. In 1993, 1992 and 1991, 214, 211 and 216 employees, respectively, were covered by multiemployer pension plans. Amounts charged to pension cost and contributed to multiemployer plans in 1993, 1992 and 1991 were $484,000, $460,000 and $459,000, respectively. The existing pension rules require the recognition of a liability in the amount of the company's unfunded accumulated benefit obligation with an equal amount recognized as an intangible asset. As a result, the company recorded a current liability of $1,226,400 and a noncurrent liability of $5,833,400 in 1993. An offsetting intangible asset was recorded in the Consolidated Balance Sheet. 263 EXHIBIT 13 Page 53 of 64 NOTE 14 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: In the fourth quarter of 1992, the company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1992. The company elected to immediately recognize the effect of the change in accounting for postretirement benefits of $428.9 million ($283.8 million net of income tax benefit), which represented the accumulated postretirement benefit obligation (APBO) existing at January 1, 1992. The results for the first three quarters of 1992 were restated as a result of the adoption. In addition to the effect, the company's 1992 postretirement benefits cost increased $29.6 million ($19.5 million after-tax, or $0.19 per share). The company continues to fund benefit costs principally on a pay-as-you-go basis, with the retiree paying a portion of the costs. In situations where full-time employees retire from the company between age 55 and age 65, most are eligible to receive, at a cost to the retiree, certain health care benefits identical to those available to active employees. After attaining age 65, an eligible retiree's health care benefit coverage becomes coordinated with Medicare, with the retiree paying a portion of the cost of the coverage. Summary information on the company's plans was as follows: In thousands December 31 1993 1992 Financial status of plans: Accumulated postretirement benefit obligation: Retirees $(286,470) $(227,327) Active employees (181,606) (227,917) (468,076) (455,244) Plan assets at fair value -- -- Unfunded accumulated benefit obligation in excess of plan assets (468,076) (455,244) Unrecognized net loss (gain) 88,325 -- Unrecognized prior service benefit (95,269) (21,700) Accrued postretirement benefit cost $(475,020) $(476,944) The components of net periodic postretirement benefit cost for the years ended December 31, were as follows: In millions 1993 1992 Service cost, benefits attributed to employee service during the year $ 5.7 $11.4 Interest cost on accumulated postretirement benefit obligation 28.3 32.6 Net amortization and deferral (5.1) -- Net periodic postretirement benefit cost $28.9 $44.0 264 EXHIBIT 13 Page 54 of 64 The discount rates used in determining the APBO were 7.0% and 7.5% at December 31, 1993 and 1992, respectively. The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation were 13.0% in 1993 and 14.4% in 1992, declining each year to ultimate rates of 5.0% and 5.5% by 2003, respectively. Increasing the health care cost trend rate by 1% as of December 31, 1993, would increase the APBO by 9.3%. The effect of this change on the sum of the service cost and interest cost components of net periodic postretirement benefit cost for 1993 would be an increase of 8.2%. The company has made several modifications to the cost-sharing provisions of its postretirement plans. In 1991, charges relating to the health care and life insurance benefits for retirees were based on benefits paid and expenses incurred. Such charges amounted to $12,916,000 in 1991. NOTE 15 - COMMON STOCK: In May 1992, the board of directors declared a two-for-one split of the company's common stock. The stock split was made in the form of a stock dividend, payable on June 1, 1992, to shareowners of record on May 19, 1992. All prior year per share amounts have been restated to reflect the stock split. On December 7, 1988, the board of directors adopted a Rights Plan (Plan) and declared a dividend distribution of one right for each outstanding share of the company's common stock. Each right entitles the holder to purchase 1/100th of a share of Series A preference stock at an exercise price of $130, or, in lieu of preference stock, the common stock of the company (or in certain circumstances, the stock of an acquiring entity) for a price of approximately one-half of its value. The rights become exercisable in accordance with the provisions of the Plan a specified number of days following (i) the acquisition by a person or group of persons of 20 percent or more of the company's common stock or (ii) the commencement of a tender or exchange offer for 20 percent or more of the company's common stock. The rights may not be exercisable by holders of 20 percent or more of the company's common stock. The company has reserved 563,000 shares of Series A preference stock for issuance upon exercise of the rights. The rights may be redeemed by the company for one cent per right in accordance with the provisions of the Plan. The rights will expire on December 22, 1998, unless redeemed earlier by the company. Shares held in treasury at December 31, 1993, will be used for employee benefit plans and for other corporate purposes. 265 EXHIBIT 13 Page 55 of 64 NOTE 16 - BUSINESS SEGMENT INFORMATION: A description of business segments and operations by business segments and geographic area for the three years ended December 31, 1993 were as follows: DESCRIPTION OF BUSINESS SEGMENTS Ingersoll-Rand's operations are organized into three worldwide business segments: Standard Machinery; Engineered Equipment; and Bearings, Locks and Tools. Standard Machinery The segment's products are categorized into three groups: Air Compressor - products include reciprocating, rotary and centrifugal air compressors, vacuum pumps, air drying and filtering systems and other compressor accessories. The products are used primarily to supply pressurized air to industrial plants, refineries, chemical plants, electrical utilities and service stations. Construction and Mining - manufactures portable and packaged air compressors, vibratory compactors, pavement millers, asphalt pavers, rock drills, blasthole drills, water-well drills, crawler drills, jumbo drills, jackhammers and rock and roof stabilizers primarily for the construction, highway maintenance, metals-mining and well-drilling industries. Mining Machinery(1) - products include continuous and long-wall mining machines, crushers, coal haulers and mine-service vehicles, which principally serve the underground coal-mining industry. Engineered Equipment The segment's products are categorized into two groups: Pump(2) - manufactures centrifugal and reciprocating pumps. These products serve oil production and refining, chemical process, marine, agricultural, electric utility and general manufacturing industries. Process Systems - consists of pulp and paper processing equipment, pelleting equipment, filters, aerators and dewatering systems. This equipment is used in the pulp and paper, food and agricultural, and minerals processing industries. 266 EXHIBIT 13 Page 56 of 64 Bearings, Locks and Tools The segment's products are categorized into three groups: Bearings and Components - principal products include needle bearings, needle roller bearings, needle rollers, thrust bearings, tapered roller bearings, drawn cup bearings, high-precision ball bearings, spherical bearings, radial bearings, universal joints, dowel pins, swagers and precision components. These products are sold principally to durables- industry customers primarily in the automotive and aerospace markets. Production Equipment - manufactures air-powered tools, hoists and winches, air motors and air starters, automated assembly and test systems, air and electric automated fastener tightening systems and waterjet cutting systems. These products are sold to general manufacturing industries and to the appliance, aircraft, construction and automotive industries. Door Hardware - major products include locks, door closers and exit devices used in commercial and residential construction and the retail hardware market. (1) The Mining Machinery Group was sold during 1993. (2) See Note 2 in the accompanying Notes to the Consolidated Financial Statements for information regarding the joint venture relating to this group. 267 EXHIBIT 13 Page 57 of 64 Operations by Business Segments Dollar amounts in millions For the years ended % of % of % of December 31 1993 total 1992(b) total 1991 total Standard Machinery Sales $1,250.9 31% $1,385.3 37% $1,363.2 38% Operating income excluding restructure of operations 89.6 27% 90.9 32% 86.8 29% Restructure of operations (charge) benefit (5.0) -- (16.7) Operating income from operations 84.6 26% 90.9 44% 70.1 23% Operating income as % of sales 6.8% 6.6% 5.1% Identifiable assets 927.1 980.6 1,000.7 Depreciation 25.0 26.6 26.3 Capital expenditures 25.0 42.8 46.4 Engineered Equipment Sales 929.6 23% 645.3 17% 575.7 16% Operating income excluding restructure of operations 30.5 9% 29.0 10% 55.7 19% Restructure of operations (charge) benefit -- (70.0) -- Operating income from operations 30.5 9% (41.0) (20)% 55.7 18% Operating income as % of sales 3.3% (6.4)% 9.7% Identifiable assets 622.3 696.4 400.2 Depreciation 28.1 19.0 14.6 Capital expenditures 29.0 27.1 25.4 268 EXHIBIT 13 Page 58 of 64 Operations by Business Segments (Continued) Dollar amounts in millions For the years ended % of % of % of December 31 1993 total 1992(b) total 1991 total Bearings, Locks and Tools Sales 1,840.6 46% 1,753.2 46% 1,647.3 46% Operating income excluding restructure of operations 210.7 64% 167.4 58% 155.3 52% Restructure of operations (charge) benefit -- (10.0) 23.8 Operating income from operations 210.7 65% 157.4 76% 179.1 59% Operating income as % of sales 11.4% 9.0% 10.9% Identifiable assets 1,102.7 1,029.8 1,045.5 Depreciation 63.3 64.0 59.4 Capital expenditures 77.8 61.7 68.6 Total Sales 4,021.1 100% 3,783.8 100% 3,586.2 100% Operating income excluding restructure of operations 330.8 100% 287.3 100% 297.8 100% Restructure of operations (charge) benefit (5.0) (80.0) 7.1 Operating income from operations 325.8 100% 207.3 100% 304.9 100% Operating income as % of sales 8.1% 5.5% 8.5% Identifiable assets 2,652.1 2,706.8 2,446.4 Depreciation 116.4 109.6 100.3 Capital expenditures 131.8 131.6 140.4 General corporate expenses charged to operating income 34.3 32.1 31.4 Operating income 291.5 175.2 273.5 269 EXHIBIT 13 Page 59 of 64 Operations by Business Segments (Continued) Dollar amounts in millions For the years ended % of % of % of December 31 1993 total 1992(b) total 1991 total Unallocated Interest expense 52.0 54.1 59.3 Other income (expense), net (7.5) (0.7) (19.0) Dresser-Rand income 33.1 27.6 40.0 Ingersoll-Dresser Pump Company minority interest (11.6) 35.0 -- Earnings before income taxes, extraordinary item and effect of accounting changes 253.5 183.0 235.2 Corporate assets (a) 723.2 680.8 533.2 Total assets $3,375.3 $3,387.6 $2,979.6 (a) Corporate assets consist primarily of cash and cash equivalents, marketable securities, investments and advances, and other assets not directly associated with the operations of a business segment. (b) The 1992 change in accounting for postretirement benefits decreased operating income by $4.7 million for Standard Machinery, $5.3 million for Engineered Equipment and $19.6 million for Bearings, Locks and Tools.
270 EXHIBIT 13 Page 60 of 64 Operations by Geographic Area In millions United Other Adjustments/ For the year 1993 States Europe International Eliminations Consolidated Sales to customers $2,526.9 $1,071.5 $422.7 $ -- $4,021.1 Transfers between geographic areas 357.3 53.0 33.0 (443.3) -- Total sales and transfers $2,884.2 1,124.5 455.7 (443.3) $4,021.1 Operating income excluding restructure of operations $ 260.0 35.5 34.7 0.6 $ 330.8 Restructure of operations (charge) benefit (5.0) -- -- -- (5.0) Operating income from operations $ 255.0 35.5 34.7 0.6 $ 325.8 General corporate expenses charged to operating income 34.3 Operating income $ 291.5 Identifiable assets at December 31, 1993 $1,597.3 780.5 286.7 (12.4) $2,652.1 Corporate assets 723.2 Total assets at December 31, 1993 $3,375.3 For the year 1992 Sales to customers $2,311.2 1,064.4 408.2 -- $3,783.8 Transfers between geographic areas 370.7 47.7 44.4 (462.8) -- Total sales and transfers $2,681.9 1,112.1 452.6 (462.8) $3,783.8 Operating income excluding restructure of operations $ 184.3 54.9 47.0 1.1 $ 287.3 Restructure of operations (charge) benefit (64.5) (12.7) (2.8) -- (80.0) Operating income from operations $ 119.8 42.2 44.2 1.1 $ 207.3 General corporate expenses charged to operating income 32.1 Operating income $ 175.2 Identifiable assets at December 31, 1992 $1,564.0 854.3 301.5 (13.0) $2,706.8 Corporate assets 680.8 Total assets at December 31, 1992 $3,387.6 271 EXHIBIT 13 Page 61 of 64 Operations by Geographic Area (Continued) In millions United Other Adjustments/ For the year 1991 States Europe International Eliminations Consolidated Sales to customers $2,160.3 980.1 445.8 -- $3,586.2 Transfers between geographic areas 381.2 49.1 47.8 (478.1) -- Total sales and transfers $2,541.5 1,029.2 493.6 (478.1) $3,586.2 Operating income excluding restructure of operations $ 149.6 89.2 57.7 1.3 $ 297.8 Restructure of operations (charge) benefit 20.1 (13.0) -- -- 7.1 Operating income from operations $ 169.7 76.2 57.7 1.3 $ 304.9 General corporate expenses charged to operating income 31.4 Operating income $ 273.5 Identifiable assets at December 31, 1991 $1,459.9 702.8 297.8 (14.1) $2,446.4 Corporate assets 533.2 Total assets at December 31, 1991 $2,979.6 International sales of U.S. manufactured products were $580,700,000 in 1993, $577,200,000 in 1992 and $564,400,000 in 1991.
272 EXHIBIT 13 Page 62 of 64 NOTE 17 - PENDING TRANSACTION: On December 22, 1993, Ingersoll- Rand announced that it has agreed to acquire a 12-percent interest in Nuovo Pignone from Ente Nazionale Idrocarburi (ENI), the Italian government-owned energy conglomerate. Nuovo Pignone is a manufacturer of turbines, compressors, pumps, valves and fuel dispensing systems, primarily for energy-related industries. The agreement with ENI also calls for General Electric USA, which leads the consortium, to acquire a 25-percent share and for Dresser Industries to acquire a 12-percent share in Nuovo Pignone. The consortium has invited several Italian banks to acquire up to 20-percent ownership. The remainder of the company will be owned by subsidiaries of ENI (20 percent) and public shareholders (11 percent). The purchase price for the company's interest totals approximately $73 million. The transaction is subject to antitrust review and is expected to close in the first half of 1994. 273 EXHIBIT 13 Page 63 of 64 Report of Management The accompanying consolidated financial statements have been prepared by the company. They conform with generally accepted accounting principles and reflect judgments and estimates as to the expected effects of incomplete transactions and events being accounted for currently. The company believes that the accounting systems and related controls that it maintains are sufficient to provide reasonable assurance that assets are safeguarded, transactions are appropriately authorized and recorded, and the financial records are reliable for preparing such financial statements. The concept of reasonable assurance is based on the recognition that the cost of a system of internal accounting controls must be related to the benefits derived. The company maintains an internal audit function that is responsible for evaluating the adequacy and application of financial and operating controls and for testing compliance with company policies and procedures. The Audit Committee of the Board of Directors is comprised entirely of individuals who are not employees of the company. This committee meets periodically with the independent accountants, the internal auditors and management to consider audit results and to discuss significant internal accounting controls, auditing and financial reporting matters. The Audit Committee recommends the selection of the independent accountants, who are then appointed by the board of directors, subject to ratification by the shareowners. The independent accountants are engaged to perform an audit of the consolidated financial statements in accordance with generally accepted auditing standards. Their report follows. /S/ T. F. McBride Thomas F. McBride Senior Vice President and Chief Financial Officer 274 EXHIBIT 13 Page 64 of 64 Report of Independent Accountants February 1, 1994 To the Shareowners of Ingersoll-Rand Company: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of shareowners' equity and of cash flows present fairly, in all material respects, the financial position of Ingersoll-Rand Company and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," effective January 1, 1993 and adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1992. /S/ Price Waterhouse Price Waterhouse Hackensack, New Jersey 07601 275 EX-21 21 EXHIBIT 21 EXHIBIT 21 Page 1 of 3 LIST OF SUBSIDIARIES OF INGERSOLL-RAND COMPANY The following list represents the principal subsidiaries of the company all of which (except as otherwise indicated) are deemed to be 100% owned, directly or indirectly, and whose financial statements are included in the consolidated statements. The subsidiaries of Ingersoll-Dresser Pump Company (IDP), a general partnership owned 51% by the company, are deemed to be 100% owned by IDP directly or indirectly. The names of particular subsidiaries omitted, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. SUBSIDIARIES OF INGERSOLL-RAND COMPANY California Pellet Mill Company California Ingersoll-Rand China Limited Delaware Ingersoll-Rand International, Inc. Delaware Ingersoll-Rand International Sales Inc. Delaware Ingersoll-Rand International Holding Corporation New Jersey Ingersoll-Rand S.A. Switzerland Woodcliff Insurance, Ltd. Bermuda Ingersoll-Rand Worldwide, Inc. Delaware Schlage Lock Company California Von Duprin, Inc. Indiana Silver Engineering Works, Inc. Colorado The Aro Corporation Delaware The Torrington Company Delaware Kilian Manufacturing Corporation Delaware Torrington Holdings, Inc. Delaware Torrington France, S.A.R.L. France Ingersoll-Rand Espanola, S.A. Spain Industrias del Rodamiento S.A. Spain Ingersoll-Rand (Australia) Ltd. Australia Ingersoll-Rand S.E. Asia (Private), Limited Singapore Ingersoll-Rand Benelux Belgium N.V. Aro S.A. Belgium Ingersoll-Rand Canada, Inc. Canada Torrington, Inc. Canada Torrington Industria e Comercio Ltda. Brazil Ingersoll-Rand World Trade Ltd. Bermuda Ingersoll-Rand (Barbados) Corporation Barbados Torrington Beteiligungs GmbH Germany Torrington GmbH Germany Torrington Nadellager GmbH Germany Compagnie Ingersoll-Rand France Ingersoll-Rand Equipements de Production France 276 EXHIBIT 21 Page 2 of 3 Ingersoll-Rand Sales Company Limited Delaware Ingersoll-Rand Holdings Limited England Ingersoll-Rand Company Limited England Ingersoll-Rand Company South Africa (Proprietary) Ltd. South Africa The Torrington Company Limited England The Aro Corporation (U.K.) Limited England Ingersoll-Rand Beteiligungs GmbH Germany ABG Allgemeine Baumaschinen-Gesellschaft mbH Germany ABG Verwaltungs GmbH Germany ABG Werke GmbH Germany Ingersoll-Rand GmbH Germany Ingersoll-Rand Beteiligungs und Grundstucks Verwaltungs GmbH Germany Ingersoll-Rand Verwaltungs Gesellschaft mbH Germany Ingersoll-Rand (India) Ltd. (74% owned by the company) India Ingersoll-Rand Italiana S.p.A. Italy Ingersoll-Rand Japan Ltd. Japan Tokyo Ryuki Seizo Kabushiki Kaisha Japan Ingersoll-Rand Philippines, Inc. Philippines Ingersoll-Rand AB Sweden Ingersoll-Rand Services & Engineering Company Switzerland Ingersoll-Rand Acceptance Company, S.A. Switzerland Ingersoll-Rand Investment Company, S.A. Switzerland G. Klemm Bohrtechnik GmbH Germany Ingersoll-Rand Best Matic AB Sweden SUBSIDIARIES OF INGERSOLL-DRESSER PUMP COMPANY Worthington Argentina S.A.I.C. Argentina Ingersoll-Dresser Pumps (Australia) Pty. Limited Australia Worthington GmbH Austria Worthington Industria e Comercio Ltda. Brazil Ingersoll-Dresser Pump Canada Inc. Canada Worthington Colombiana, S.A. Colombia Worthington Centroamericana Ltda. Costa Rica Ingersoll-Dresser Pompes France IDP Pleuger France IDP International France Deutsche Ingersoll-Dresser Pumpen GmbH Germany Ingersoll-Dresser Pumpen GmbH Germany Pleuger Worthington GmbH Germany Ingersoll-Dresser Pumps S.p.A. Italy Worthington S.p.A. Italy Ingersoll-Dresser Pump (Asia) Pte. Ltd. Singapore Ingersoll-Dresser Pump S.A. Switzerland Ingersoll-Dresser Pump Services Sarl Switzerland 277 EXHIBIT 21 Page 3 of 3 ID Pump AG Switzerland Ingersoll-Dresser Pump Nederland B.V. Netherlands Ingersoll-Dresser Pumps (UK) Limited England Ingersoll-Dresser Pumps Newark Limited England Bombas Ingersoll-Dresser de Venezuela, C.A. (51% owned by IDP) Venezuela IDP Alternate Energy Company Delaware Mascoma Hydro Corporation New Hampshire Pump Investments, Inc. Delaware Energy Hydro Inc. Delaware Compania Ingersoll-Dresser Pump, S.A. Spain 278 EX-10.(III)(H) 22 EXHIBIT 10(III)(H) EXHIBIT 10(iii)(h) Page 1 of 19 INGERSOLL-RAND COMPANY Incentive Stock Plan of 1985 Section 1. Purposes: The purposes of the Plan are (a) to provide additional incentive for such Key Employees of the Company, its Subsidiaries and divisions, as may be designated for participation in the Plan, by authorizing payment of bonus or incentive compensation in shares of Common Stock and by encouraging such Key Employees to invest in shares of Common Stock, thereby furthering their identity of interest with the interests of the Company's shareholders, increasing their stake in the future growth and prosperity of the Company and stimulating and sustaining constructive and imaginative thinking; and (b) to enable the Company, by offering comparable incentives, to induce the employment and continued employment of Key Employees and to compete with other organizations in attracting and retaining the services of competent executives. Section 2. Definitions: Unless otherwise required by the context, the following terms, when used in the Plan, shall have the meanings set forth in this section 2. Board of Directors or Board: The Board of Directors of the Company. Committee: Such committee or committees as shall be appointed by the Board of Directors to administer the Plan pursuant to the provisions of section 11. Common Stock: The Common Stock of the Company, par value $2 per share, or such other class of shares or other securities as may be applicable pursuant to the provisions of section 9. Common Stock Equivalents: Common Stock Equivalents shall provide the holder with such of the rights and benefits of the actual owner of shares of Common Stock as the Board of Directors may determine, including the right to receive dividends and the right to receive the amount of appreciation in value, if any, on such shares of Common Stock from the date the grant of such Common Stock Equivalents became effective until they become payable to the holder. 133 EXHIBIT 10(iii)(h) Page 2 of 19 Company: Ingersoll-Rand Company, a New Jersey corporation. Disability: Such term as defined under the pension, retirement or appropriate benefit plan or plans of the Company or a Subsidiary applicable to the Key Employee. Dividend Equivalents: A right to receive immediately or on a deferred basis, whether or not subject to forfeiture, an amount equivalent to all or part of dividends paid or payable on a share of Common Stock subject to a Stock Incentive. Fair Market Value: As applied to any date, and except as otherwise provided in paragraph (e) of section 7 of the Plan, the mean between the high and low sales prices of a share of Common Stock on such date as reported on the Composite Tape, or, if no such sales were made on such date, on the next preceding date on which there were such sales of Common Stock as reported on the Composite Tape; provided, however, that if such method of determining Fair Market Value shall not be consistent with regulations of government agencies at the time applicable to the determination of Fair Market Value in respect of a Stock Incentive, Fair Market Value in the case of such Stock Incentive shall be determined in accordance with such regulations and shall mean the value as so determined. Incentive Compensation: Bonuses, extra and other compensation payable in addition to a salary or other base amount, whether contingent or not, whether discretionary or required to be paid pursuant to an agreement, resolution, arrangement, plan or practice and whether payable currently or on a deferred basis, in cash, Common Stock or other property, awarded by the Company or a Subsidiary, whether prior or subsequent to the date of the approval and adoption of the Plan by the shareholders of the Company. Key Employee: An employee of the Company or of a Subsidiary, including an officer or director who is an employee, who in the opinion of the Committee can contribute significantly to the growth and successful operations of the Company or a Subsidiary. The recommendation of the grant of a Stock Incentive to an employee by the Committee shall be deemed a determination by the Committee that such employee is a Key Employee. 134 EXHIBIT 10(iii)(h) Page 3 of 19 Management Incentive Unit: A unit credited to the account of a participant under the Management Incentive Unit Plan of the Company approved by the shareholders of the Company on April 22, 1958, as amended. Option: An Option to purchase shares of Common Stock. Performance Unit: A unit representing a cash sum or one or more shares of Common Stock subject to a Stock Award the payment, issuance, transfer or retention of which is contingent, in whole or in part, upon attainment of a specified performance objective or objectives, including, without limitation, objectives determined by reference to or changes in (a) book value or earnings per share of Common Stock, or (b) sales and revenues, income, profits and losses, return on capital employed, or net worth of the Company or of any one or more of its groups, divisions, Subsidiaries or departments (on a consolidated, partially consolidated or unconsolidated basis), or (c) a combination of two or more of the foregoing factors. Plan: The Incentive Stock Plan of 1985 herein set forth as the same may from time to time be amended. Restricted Shares: Shares of Common Stock issued or transferred subject to restrictions as authorized by paragraph (d) of section 5 or paragraph (a) of section 12 of the Plan. Retirement: Such term as defined under the pension or retirement plan or plans of the Company or a Subsidiary applicable to the Key Employee, pursuant to which he is receiving or will, upon such retirement, be entitled to receive retirement benefits. Stock Appreciation Right: A right to receive a number of shares of Common Stock or, at the election of the Company, cash, in either event based on the increase in the Fair Market Value of the number of shares of Common Stock subject to such right, as set forth in section 7 of the Plan. 135 EXHIBIT 10(iii)(h) Page 4 of 19 Stock Award: An issuance or transfer of shares of Common Stock at the time a Stock Incentive is granted or as soon thereafter as practicable, or an undertaking to issue or transfer such shares in the future, including, without limitation, such an issuance, transfer or undertaking with respect to Performance Units. Stock Incentive: A Stock Incentive granted under the Plan in one of the forms provided for in section 3. Subsidiary: A corporation or other form of business association of which shares (or other ownership interests) having 50% or more of the voting power are owned or controlled, directly or indirectly, by the Company. Section 3. Grants of Stock Incentives: (a) Subject to the provisions of the Plan, the Board of Directors may at any time, or from time to time, grant Stock Incentives under this Plan to, and only to, Key Employees, provided, however, that no Stock Incentive shall be granted to a Key Employee who at the time of such grant is a member of the Board of Directors except by or upon the recommendation of the Committee, or by a majority of disinterested members of the Board as provided in paragraph (b) of section 11. (b) Stock Incentives may be granted in the following forms: (i) a Stock Award, in accordance with section 5, or (ii) an Option, in accordance with section 6, or (iii) a Stock Appreciation Right, in accordance with section 7, or (iv) a combination of any one or more of the foregoing. Section 4. Stock Subject to the Plan: (a) Subject to the provisions of paragraph (c) of this section 4 and of section 9, the aggregate number of shares of Common Stock which may be issued or transferred pursuant to Stock Incentives granted under the Plan shall not exceed 1,000,000 shares of Common Stock. 136 EXHIBIT 10(iii)(h) Page 5 of 19 (b) Authorized but unissued shares of Common Stock and shares of Common Stock held in the treasury, whether acquired by the Company specifically for use under the Plan or otherwise, may be used, as the Board of Directors may from time to time determine, for purposes of the Plan, provided, however, that any shares acquired or held by the Company for the purposes of the Plan shall, unless and until transferred to a Key Employee in accordance with the terms and conditions of a Stock Incentive, be and at all times remain treasury shares of the Company irrespective of whether such shares are entered in a special account for purposes of the Plan, and shall be available for any corporate purpose. (c) If any shares of Common Stock subject to a Stock Incentive shall not be issued or transferred and shall cease to be issuable or transferable because of the termination, in whole or in part, of such Stock Incentive or, subject to the provisions of paragraph (h) of section 6 and paragraph (d) of section 7, for any other reason, or if any such shares shall, after issuance or transfer, be reacquired by the Company or a Subsidiary because of an employee's failure to comply with the terms and conditions of a Stock Incentive, the shares not so issued or transferred, or the shares so reacquired by the Company or a Subsidiary, shall no longer be charged against the limitation provided for in paragraph (a) of this section 4 and may again be made subject to Stock Incentives. Section 5. Stock Awards: Stock Incentives in the form of Stock Awards shall be subject to the following provisions: (a) A Stock Award shall be granted only (i) in payment of Incentive Compensation that has been earned or (ii) as Incentive Compensation to be earned, including, without limitation, Incentive Compensation awarded concurrently with or prior to the grant of the Stock Award and Incentive Compensation awarded whether subsequent or prior to the approval and adoption of the Plan by the shareholders of the Company. (b) For the purposes of the Plan, in determining the value of a Stock Award, all shares of Common Stock subject to such Stock Award shall be valued at not less than 100% of the Fair Market Value of such shares on the date such Stock Award is granted, regardless of whether or when such shares are issued or transferred to the Key Employee and whether or not such shares are subject to restrictions which affect their value. 137 EXHIBIT 10(iii)(h) Page 6 of 19 (c) Shares of Common Stock subject to a Stock Award may be issued or transferred to a Key Employee at the time the Stock Award is granted, or at any time subsequent thereto, or in installments from time to time, as the Board of Directors shall determine. In the event that any such issuance or transfer shall not be made to the Key Employee at the time the Stock Award is granted, the Board of Directors may provide for the payment or crediting to such Key Employee of Dividend Equivalents. Any amount payable in shares of Common Stock under the terms of a Stock Award may, at the discretion of the Company, be paid in cash on each date on which delivery of shares would otherwise have been made, in an amount equal to the Fair Market Value on such date of the shares which would otherwise have been delivered. (d) A Stock Award shall contain such terms and conditions as the Board shall determine with respect to payment or forfeiture of all or any part of the Stock Award upon termination of employment or the occurrence of other circumstances. (e) A Stock Award shall be subject to such other terms and conditions, including, without limitation, restrictions on sale or other disposition of the Stock Award or of the Shares issued or transferred pursuant to such Stock Award, as the Board of Directors shall determine; provided, however, that upon the issuance or transfer of shares pursuant to a Stock Award, the recipient shall, with respect to such shares, be and become a shareholder of the Company fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder except to the extent otherwise provided in the Stock Award. Each Stock Award shall be evidenced by a written instrument in such form as the Board of Directors or the Committee shall determine, provided the Stock Award is consistent with the Plan and incorporates it by reference. Section 6. Options: Stock Incentives in the form of Options shall be subject to the following provisions: (a) The Option price per share shall be determined by the Board of Directors from time to time, but in no instance shall be less than the Fair Market Value of a share of Common Stock on the date the Option shall be granted. 138 EXHIBIT 10(iii)(h) Page 7 of 19 (b) Each Option shall expire at such time as the Board may determine at the time such Option shall be granted but not later than ten years from the date such Option shall be granted. When an Option is granted for a term of less than ten years the Board may, with the holder's consent and at any time prior to the expiration of the Option, extend its term for a period ending not later than ten years from the date of grant of the Option; such extension shall not be deemed the grant of a new or additional Option for any purpose under the Plan. (c) The Option may be exercised solely by the person to whom granted except as hereinafter provided in the case of such person's death or Disability. During the lifetime of the optionee, the Option and any rights and privileges pertaining thereto shall not be transferred, assigned, pledged or hypothecated in any way, whether by operation of law or otherwise, and shall not be subject to execution, attachment or similar process. (d) The optionee must complete twelve months of continuous employment with the Company or a Subsidiary, or both, immediately following the date on which the Option shall be granted before any part of the Option may be exercised by him. (e) After the completion of the required period of employment, the Option may be exercised, in whole or in part, and from time to time during the balance of the term of the Option, subject to the terms and conditions specified in the Option or by the Board of Directors. (f) The Option shall terminate if and when the optionee shall cease to be an employee of the Company and its Subsidiaries, except as follows: (i) If the optionee shall die or become subject to a Disability while in the employ of the Company or of a Subsidiary, or within three months of the termination of his employment with the Company and its Subsidiaries, and after he shall have completed at least twelve months of continuous employment following the date upon which the Option was granted, then the Option shall be exercisable within such period as shall be set forth in the Option grant by the optionee or by such person or persons as shall have acquired 139 EXHIBIT 10(iii)(h) Page 8 of 19 the optionee's rights under the Option by will or by the laws of descent and distribution, or by the optionee's guardian, conservator or similar legal representative, but not later than three years after the date of death or Disability. In the event of the Retirement of the optionee after he shall have completed at least twelve months of continuous employment following the date upon which the Option was granted, then the Option shall be exercisable within such period as shall be set forth in the Option grant but not later than three years after the date of Retirement. (ii) If employment of the optionee by the Company and its Subsidiaries shall have terminated for any reason other than death, Disability or Retirement, and after he shall have completed at least twelve months of continuous employment following the date upon which the Option was granted, the Option shall be exercisable by him only within three months after such termination, but not after the expiration of the term of the Option. (g) Shares purchased under the Option shall be paid for in full at the time of the exercise of the Option as to such shares upon such terms as the Board of Directors may approve, including cash, secured or unsecured indebtedness, by exchange for other property, including shares of Common Stock of the Company, or otherwise. (h) The Board of Directors may at any time and from time to time provide for payment to the optionee of Dividend Equivalents. The Option agreements or Option grants authorized by the Plan may contain such other provisions as the Board of Directors shall deem advisable. Without limiting the foregoing and if so provided in the Option, or if so authorized by the Board of Directors and subject to such terms and conditions as are specified in the Option or by the Board of Directors, the Company may, with the consent of the holder of the Option, and at any time or from time to time, cancel all or a portion of the Option then subject to exercise and discharge its obligation in respect of the Option either by payment to the holder of an amount of money equal to the excess, if any, of the Fair Market Value, at such time or times, of the shares subject to the portion of the Option so cancelled over the aggregate purchase price of such shares, or by issuance or transfer to the holder of shares of Common Stock with a Fair Market Value, at such time or times, 140 EXHIBIT 10(iii)(h) Page 9 of 19 equal to any such excess, or by a combination of cash and shares. The number of shares of Common Stock subject to the Option, or portion thereof, so cancelled shall, in the event that a payment of money or transfer of shares is made by the Company in respect of such cancellation, be charged against the maximum limitation set forth in paragraph (a) of section 4 of the Plan. (i) Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become employees of the Company or a Subsidiary as the result of a merger or consolidation of the employing corporation with the Company or a Subsidiary, or the acquisition by the Company or a Subsidiary of the assets of the employing corporation, or the acquisition by the Company or a Subsidiary of stock of the employing corporation as the result of which it becomes a Subsidiary. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this section 6 to such extent as the Board of Directors at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the options in substitution for which they are granted. (j) In the case of any Option granted under the terms of this Plan, which Option is determined to be an incentive stock Option as that term is defined under Section 422A of the Internal Revenue Code of 1954, as amended, the aggregate Fair Market Value (determined as of the time the Option is granted) of the shares for which any employee may be granted incentive stock Options in any calendar year shall not exceed $100,000 plus any unused limit carryover to such year. The purpose of this Section of the Plan is to permit the Company to grant incentive stock Options, as defined above, to key employees and the provisions of this Section shall be interpreted in accordance with the aforesaid Section 422A and the regulations promulgated thereunder. (k) If permitted under the Option grant, the Board may at any time, with the consent of the optionee and in its sole discretion, cancel any Option and issue to the optionee a new Option for the same or different number of shares and at the same or different Option price. 141 EXHIBIT 10(iii)(h) Page 10 of 19 Section 7. Stock Appreciation Rights: (a) Stock Appreciation Rights may be granted in connection with any Option granted under the Plan, either at the time of the grant of such Option or at any time thereafter during the term of the Option, or may be granted independently of the grant of an Option. (b) If granted in connection with an Option, Stock Appreciation Rights shall entitle the holder of the related Option, upon surrender of the Option, or any portion thereof, to exercise the Stock Appreciation Rights, to the extent unexercised, and to receive a number of shares of Common Stock, or cash, determined pursuant to paragraph (c)(iii) of this section 7. Such Option shall, to the extent so surrendered, thereupon cease to be exercisable. If granted independently of an Option, Stock Appreciation Rights shall entitle the holder of the Stock Appreciation Rights to receive a number of shares of Common Stock, or cash, determined pursuant to paragraph (c)(iii) of this section 7. (c) Stock Appreciation Rights shall be subject to the following terms and conditions and to such other terms and conditions not inconsistent with the Plan as shall from time to time be approved by the Board of Directors. (i) If granted in connection with an Option, Stock Appreciation Rights shall be exercisable at such time or times and to the extent, but only to the extent, that the Option to which they relate shall be exercisable. If granted independently of an Option, Stock Appreciation Rights shall be exercisable at such time or times as shall be determined by the Board of Directors at the time of the grant of the Stock Appreciation Rights but in no event later than three months after the employment of the holder of the Stock Appreciation Rights by the Company and its Subsidiaries shall have terminated other than by reason of death, Disability or Retirement. In the event of termination of employment by reason of death or Disability, Stock Appreciation Rights shall be exercisable no later than three years after such termination of employment by the optionee or by the beneficiary designated pursuant to paragraph (1) of section 12, and in the case of Retirement, no later than three years after the date of such Retirement. If the holder shall die or become subject to a Disability 142 EXHIBIT 10(iii)(h) Page 11 of 19 within three months of the termination of his employment with the Company and its Subsidiaries then the Stock Appreciation Rights shall be exercisable within such period as shall be set forth in the grant of the Stock Appreciation Rights by the optionee or by such person or persons as shall have acquired the holder's rights under the grant by will or by the laws of descent and distribution, or by the holder's guardian, conservator or similar legal representative, but not later than three years after the date of death. In no event shall Stock Appreciation Rights be exercisable after the expiration date of such Rights. (ii) Stock Appreciation Rights shall in no event be exercisable unless and until the holder of the Stock Appreciation Rights shall have completed at least twelve months of continuous service with the Company or a Subsidiary, or both, immediately following the date upon which the Stock Appreciation Rights shall have been granted. (iii) Upon exercise of Stock Appreciation Rights, the holder thereof shall be entitled to receive a number of shares equal in Fair Market Value on the date of exercise to the amount by which the Fair Market Value of one share of Common Stock on the date of such exercise shall exceed the Fair Market Value of a share of Common Stock on the date of grant of such Stock Appreciation Rights multiplied by the number of shares in respect of which the Stock Appreciation Rights shall have been exercised. The Company may settle all or any part of its obligation arising out of an exercise of Stock Appreciation Rights by the payment of cash equal to the aggregate value of shares of Common Stock (or a fraction of a share) that it would otherwise be obligated to deliver under the preceding sentence of this paragraph 7(c)(iii). (d) To the extent that Stock Appreciation Rights shall be exercised, an Option in connection with which such Stock Appreciation Rights shall have been granted shall be deemed to have been exercised for the purpose of the maximum limitation set forth in the Plan under which such Option shall have been granted. In the case of Stock Appreciation Rights granted independently of an Option, the number of shares of Common Stock in respect of which such Stock Appreciation Rights shall be exercised shall be charged against the maximum limitation set forth in paragraph (a) of section 4. 143 EXHIBIT 10(iii)(h) Page 12 of 19 (e) Stock Appreciation Rights may be granted by the Board in substitution for Management Incentive Units, with the consent of the holder of such Management Incentive Units, but only if the holder of such Units shall have been in the employ of the Company or a Subsidiary, or both, for a period of not less than five years from the date of the award of such Management Incentive Units. Notwithstanding anything in section 2 of the Plan or elsewhere in the plan to the contrary, in the event that Stock Appreciation Rights shall be granted in substitution for Management Incentive Units, the Fair Market Value of a share of Common Stock on the date that such units were credited to the account of the participant shall be deemed the Fair Market Value of such shares on the date of grant of Stock Appreciation Rights for the purpose of paragraph (c)(iii) of this section 7. (f) If so directed by the Board at any time and from time to time, the grant of Stock Appreciation Rights may provide for payment of Dividend Equivalents to the holder of the Stock Appreciation Rights. (g) Stock Appreciation Rights may provide that, upon exercise of such Stock Appreciation Rights, the shares or cash, as the case may be, which the holder of such Stock Appreciation Rights shall be entitled to receive, shall be distributed or paid in such installments and over such number of years as the Board may direct, with distribution or payment of each such installment contingent upon continued services of the employee to the Company or a Subsidiary, or both (except for death, Disability, Retirement or termination of employment by the Company or with its consent), to the time for distribution or payment of such installment. Section 8. Dividend Equivalents: A grant of Dividend Equivalents shall be made subject to such terms and conditions as the Board of Directors may determine, and may be awarded only in connection with a Stock Incentive granted under sections 5, 6 or 7. Dividend Equivalents may be awarded either at the time of grant of a Stock Incentive or at anytime thereafter during the term of the Stock Incentive. Dividend Equivalents may be payable or credited either in cash, shares of Common Stock, or in Common Stock Equivalents. If credited in Common Stock or in Common Stock Equivalents, they shall be credited at the Fair Market Value of a share of Common Stock on the day of such crediting. 144 EXHIBIT 10(iii)(h) Page 13 of 19 The Committee may provide that any amounts representing dividends earned by Common Stock Equivalents may either be paid currently or credited in cash or in Common Stock or that they may be represented by further Common Stock Equivalents, or any combina- tion thereof. The Board of Directors may provide that when Common Stock Equivalents shall become payable to the holder, they may be paid in cash or in shares of Common Stock or a combination of both. To the extent that any payment to the holder with respect to Dividend Equivalents is made in shares of Common Stock, the number of shares of Common Stock used for such payment shall be charged against the maximum limitation set forth in paragraph (a) of section 4 of the Plan. Section 9. Adjustment Provisions: In the event that any recapitalization, or reclassification, split-up or consolidation of shares of Common Stock shall be effected, or the outstanding shares of Common Stock are, in connection with a merger or consolidation of the Company or a sale by the Company of all or a part of its assets, exchanged for a different number or class of shares of stock or other securities of the Company or for shares of the stock or other securities of any other corporation, or a public offer is made to purchase all or a substantial number of the outstanding shares of Common Stock for cash or other securities, or new, different or additional shares or other securities of the Company or of another corporation are received by the holder of Common Stock or any distribution is made to the holders of Common Stock other than a cash dividend, (a) the number and class of shares or other securities that may be issued or transferred pursuant to Stock Incentives, (b) the number and class of shares or other securities which have not been issued or transferred under outstanding Stock Incentives, (c) the purchase price to be paid per share under outstanding Options and other Stock Incentives, (d) the Fair Market Value of a share of Common Stock on the date of grant of outstanding Stock Appreciation Rights, (e) the dates or events upon which Options and Stock Appreciation Rights may be exercised, which may, in appropriate instances, be related to specific dates or events under any of the aforesaid actions, and (f) the price to be paid per share by the Company or a Subsidiary for shares or other securities issued or transferred pursuant to Stock Incentives which are subject to a right of the Company or a Subsidiary to reacquire such share or other securities, shall in each case be equitably adjusted. 145 EXHIBIT 10(iii)(h) Page 14 of 19 Section 10. Term: The Plan shall be deemed adopted and shall become effective on the date it is approved by the shareholders of the Company. No Stock Incentives shall be granted under the Plan after April 30, 1990. Section 11. Administration: (a) The Plan shall be administered by a Committee which shall consist of not less than three directors of the Company designated by the Board of Directors, provided, however, that no director shall be designated as or continue to be a member of the Committee, unless he shall at the time of designation and service be a "disinterested person" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor provision at the time in effect). In no event shall a member of the Committee be eligible to be granted a Stock Incentive while serving on the Committee. Grants of Stock Incentives may be recommended or granted either in or without consultation with employees, but, anything in the Plan to the contrary notwithstanding, the Committee shall have full authority to act in the matter of selection of all Key Employees who are members of the Board of Directors and in recommending Stock Incentives to be granted to them. (b) The Board of Directors may delegate to the Committee any or all its authority under the Plan, including the authority to award Stock Incentives, except its authority to amend or discontinue the Plan. Any powers conferred on the Committee by this section 11 or by any other provision of the Plan shall, to the extent such authority shall not have been so delegated by the Board of Directors, be exercised by the Board, provided however, that, with respect to the participation in the Plan of any director, unless his participation shall have been recommended by the Committee, a majority of the members of the Board and a majority of its members acting in the matter shall, at the time so acting, be "disinterested persons" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor provision at the time in effect). (c) The Committee may establish such rules and regulations, not inconsistent with the provisions of the Plan, as it deems necessary to determine eligibility to participate in the Plan and for the proper administration of the Plan, and may amend or revoke any rule or regulation so established. The Committee may 146 EXHIBIT 10(iii)(h) Page 15 of 19 make such determinations and interpretations under or in connection with the Plan as it deems necessary or advisable. All such rules, regulations, determinations and interpretations shall be binding and conclusive upon the Company, its Subsidiaries, its shareholders and all employees, and upon their respective legal representatives, beneficiaries, successors and assigns and upon all other persons claiming under or through any of them. (d) Any action required or permitted to be taken by the Committee under the Plan shall require the affirmative vote of a majority of all the members of the Committee. The Committee may act by written determination instead of by affirmative vote at a meeting, provided that any written determination shall be signed by all of the members of the Committee, and any such written determination shall be as fully effective as a majority vote at a meeting. (e) Members of the Board of Directors and members of the Committee acting under the Plan shall be fully protected in relying in good faith upon the advice of counsel and shall incur no liability except for gross negligence or willful misconduct in the performance of their duties. Section 12. General Provisions: (a) With respect to any shares of Common Stock issued or transferred under any provision of the Plan, such shares may be issued or transferred subject to such conditions, in addition to those specifically provided in the Plan, as the Board of Directors or Committee may direct and, without limiting the generality of the foregoing, provision may be made in the grant of Stock Incentives that shares issued or transferred upon their grant or exercise shall be Restricted Shares subject to forfeiture upon failure to comply with conditions and restrictions imposed in the grant of such Stock Incentives. (b) The Board of Directors may fix a uniform date, within any specified period, either before or after the date so fixed, as of which any exercise of an Option or Stock Appreciation Rights shall be deemed to be effective. (c) The Board of Directors may, in its discretion, in the event of termination of employment with the consent of the Company or death, Retirement or Disability, of the holder of a Stock Incentive reduce the period of additional continuous service required before such Stock Incentive may be exercised. 147 EXHIBIT 10(iii)(h) Page 16 of 19 (d) In the event of termination of employment of an optionee or of a holder of Stock Appreciation Rights with the consent of the Company, other than by death, Retirement or Disability, the Board of Directors may extend the period during which such Option or Stock Appreciation Rights may be exercised up to two years after the date of termination of employment but not beyond the expiration date of the term of the Option. (e) Whether authorized leave of absence or absence for military or government service shall constitute termination of employment or interruption of required additional continuous employment for the purpose of the Plan shall be determined by the Board of Directors. (f) Nothing in the Plan nor in any instrument executed pursuant thereto shall confer upon any employee any right to continue in the employ of the Company or Subsidiary or shall affect the right of the Company or of a Subsidiary to terminate the employment of any employee with or without cause. (g) No shares of Common Stock shall be issued or transferred pursuant to a Stock Incentive unless and until all legal requirements applicable to the issuance or transfer of such shares have, in the opinion of counsel to the Company, been complied with. In connection with any such issuance or transfer, the person acquiring the shares shall, if requested by the Company, give assurances satisfactory to counsel to the Company that the shares are being acquired for investment and not with a view to resale or distribution thereof and assurances in respect of such other matters as the Company or a Subsidiary may deem desirable to assure compliance with all applicable legal requirements. (h) No employee (individually or as a member of a group), and no beneficiary or other person claiming under or through him, shall have any right, title or interest in or to any shares of Common Stock allocated or reserved for the purposes of the Plan or subject to any Stock Incentive except as to such shares of Common Stock, if any, as shall have been issued or transferred to him. 148 EXHIBIT 10(iii)(h) Page 17 of 19 (i) The Company or a Subsidiary may, with the approval of the Board of Directors, enter into an agreement or other commitment to grant a Stock Incentive in the future to a person who is or will be a Key Employee at the time of grant, and, notwithstanding any other provision of the Plan, any such agreement or commitment shall not be deemed the grant of a Stock Incentive until the date on which the Board of Directors takes action to implement such agreement or commitment. (j) In the case of a grant of a Stock Incentive to any employee of a Subsidiary, such grant may, if the Board of Directors so directs, be implemented by the Company issuing or transferring the shares, if any, covered by the Stock Incentive to the Subsidiary, for such lawful consideration as the Board of Directors may specify, upon the condition or understanding that the Subsidiary will transfer the shares to the employee in accordance with the terms of the Stock Incentive specified by the Board of Directors pursuant to the provisions of the Plan. Notwithstanding any other provision hereof, such Stock Incentive may be issued by and in the name of the Subsidiary and shall be deemed granted on the date it is approved by the Board of Directors, on the date it is delivered by the Subsidiary, or on such other date between such two dates, as the Board of Directors shall specify. (k) The Company or a Subsidiary may make such provisions as it may deem appropriate for the withholding of any taxes which the Company or Subsidiary determines it is required to withhold in connection with any Stock Incentive. (l) No Stock Incentive and no rights under the Plan, contingent or otherwise, shall be assignable or subject to any encumbrance, pledge or charge of any nature except that, under such rules and regulations as the Board may establish, a beneficiary may be designated in respect of a Stock Incentive in the event of the death of the holder of such Stock Incentive and except, also, that if such beneficiary shall be the executor or administrator of the estate of the holder of such Stock Incentive, any rights in respect of such Stock Incentive may be transferred to the person or persons or entity (including a trust) entitled thereto under the will of the holder of such Stock Incentive or, in the case of intestacy, under the laws relating to intestacy. A Stock Incentive shall be exercisable during a Key Employee's lifetime only by him or by his guardian, conservator or similar legal representative. 149 EXHIBIT 10(iii)(h) Page 18 of 19 (m) Nothing in the Plan is intended to be a substitute for, or shall preclude or limit the establishment or continuation of, any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees, which the Company or any Subsidiary now has or may hereafter lawfully put into effect, including without limitation, any retirement, pension, insurance, stock purchase, incentive compensation or bonus plan. (n) The place of administration of the Plan shall conclusively be deemed to be within the State of New Jersey and the validity, construction, interpretation and administration of the Plan and of any rules and regulations or determinations or decisions made thereunder, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be governed by, and determined exclusively and solely in accordance with, the laws of the State of New Jersey. Without limiting the generality of the foregoing, the period within which any action must be commenced arising under or in connection with the Plan, or any payment or award made or purportedly made under or in connection therewith, shall be governed by the laws of the State of New Jersey, irrespective of the place where the act or omission complained of took place and of the residence of any party to such action and irrespective of the place where the action may be brought. Section 13. Amendment or Discontinuance of Plan: (a) The Plan may be amended by the Board of Directors at any time, provided that, without the approval of the shareholders of the Company, no amendment shall be made which (i) increases the aggregate number of shares of Common Stock that may be issued or transferred pursuant to Stock Incentives as provided in paragraph (a) of section 4, (ii) amends the provisions of paragraph (a) of section 11 with respect to eligibility and disinterest of members of the Committee or of paragraph (b) of section 11 with respect to eligibility and disinterest of a majority of members of the Board of Directors, (iii) permits any person who is not determined to be a Key Employee at the time to be granted a Stock Incentive, (iv) amends the provisions of paragraph (b) of section 5 or paragraph (a) of section 6 to permit shares to be valued or to be optioned at less than 100% of Fair Market Value, (v) amends section 10 to extend the term of the Plan, or (vi) amends this section 13. 150 EXHIBIT 10(iii)(h) Page 19 of 19 (b) The Board of Directors may by resolution adopted by a majority of the entire Board of Directors discontinue the Plan. (c) No amendment or discontinuance of the Plan by the Board of Directors or the shareholders of the Company shall adversely affect any Stock Incentive theretofore granted without the consent of the holder. 151 -----END PRIVACY-ENHANCED MESSAGE-----