-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ibq1CQEMM1FBgRO/4kPwreCkNLaoy9C4igdVP4A3tfjJ0eRBMK0zHwGC1ogtqs58 aQqbjYz0iJSrjMic8FCgnQ== 0001068800-02-000215.txt : 20020813 0001068800-02-000215.hdr.sgml : 20020813 20020813165305 ACCESSION NUMBER: 0001068800-02-000215 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARDNER DENVER INC CENTRAL INDEX KEY: 0000916459 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 760419383 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13215 FILM NUMBER: 02730342 BUSINESS ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 BUSINESS PHONE: 2172225400 MAIL ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 FORMER COMPANY: FORMER CONFORMED NAME: GARDNER DENVER MACHINERY INC DATE OF NAME CHANGE: 19931221 10-Q 1 tenq.txt GARDNER DENVER, INC. FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-13215 GARDNER DENVER, INC. (Exact name of Registrant as Specified in its Charter) DELAWARE 76-0419383 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1800 GARDNER EXPRESSWAY QUINCY, ILLINOIS 62301 (Address of Principal Executive Offices and Zip Code) (217) 222-5400 (Registrant's Telephone Number, Including Area Code) 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 requirement for the past 90 days. Yes X No --------- --------- Number of shares outstanding of the issuer's Common Stock, par value $.01 per share, as of July 26, 2002: 15,880,666 shares. ============================================================================ PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. GARDNER DENVER, INC. CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share amounts) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Revenues $104,854 $104,554 $211,463 $205,450 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 71,289 73,307 145,891 144,761 Depreciation and amortization 3,593 4,197 7,141 8,472 Selling and administrative expenses 20,308 16,625 40,280 33,274 Interest expense 1,730 1,547 3,412 3,389 Other income, net (435) (1,350) (567) (2,291) -------- -------- -------- -------- Income before income taxes 8,369 10,228 15,306 17,845 Provision for income taxes 2,845 3,784 5,204 6,602 -------- -------- -------- -------- Net income $ 5,524 $ 6,444 $ 10,102 $ 11,243 ======== ======== ======== ======== Basic earnings per share $ 0.35 $ 0.41 $ 0.64 $ 0.73 ======== ======== ======== ======== Diluted earnings per share $ 0.34 $ 0.41 $ 0.63 $ 0.72 ======== ======== ======== ======== The accompanying notes are an integral part of this statement.
- 2 - GARDNER DENVER, INC. CONSOLIDATED BALANCE SHEET (dollars in thousands, except per share amounts)
(UNAUDITED) JUNE 30, DECEMBER 31, 2002 2001 ----------- ------------ ASSETS Current assets: Cash and equivalents $ 16,766 $ 29,980 Receivables, net 83,291 85,538 Inventories, net 75,779 76,650 Deferred income taxes 6,750 4,956 Other 4,112 4,011 -------- -------- Total current assets 186,698 201,135 -------- -------- Property, plant and equipment, net 73,574 74,097 Goodwill 184,612 183,145 Other intangibles, net 24,957 25,692 Deferred income taxes 515 2,093 Other assets 3,769 2,526 -------- -------- Total assets $474,125 $488,688 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt $ 7,500 $ 7,375 Accounts payable and accrued liabilities 67,083 77,202 -------- -------- Total current liabilities 74,583 84,577 -------- -------- Long-term debt, less current maturities 136,943 160,230 Postretirement benefits other than pensions 36,211 36,890 Other long-term liabilities 9,125 8,263 -------- -------- Total liabilities 256,862 289,960 -------- -------- Stockholders' equity: Common stock, $.01 par value; 50,000,000 shares authorized; 15,875,985 shares issued and outstanding at June 30, 2002 176 174 Capital in excess of par value 169,681 166,262 Treasury stock at cost, 1,715,520 shares at June 30, 2002 (25,803) (25,602) Retained earnings 72,164 62,062 Accumulated other comprehensive income (loss) 1,045 (4,168) -------- -------- Total stockholders' equity 217,263 198,728 -------- -------- Total liabilities and stockholders' equity $474,125 $488,688 ======== ======== The accompanying notes are an integral part of this statement.
- 3 - GARDNER DENVER, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in thousands) (Unaudited)
SIX MONTHS ENDED JUNE 30, --------------------------- 2002 2001 -------- -------- Cash flows from operating activities: Net income $ 10,102 $ 11,243 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,141 8,472 Net loss on asset dispositions 26 63 Stock issued for employee benefit plans 1,132 1,114 Deferred income taxes (251) (847) Changes in assets and liabilities: Receivables 3,983 1,137 Inventories 1,597 (160) Accounts payable and accrued liabilities (11,312) (4,237) Other assets and liabilities, net (49) (928) -------- -------- Net cash provided by operating activities 12,369 15,857 -------- -------- Cash flows from investing activities: Capital expenditures (4,842) (5,354) Disposals of plant and equipment 72 50 Other (5) (32) -------- -------- Net cash used in investing activities (4,775) (5,336) -------- -------- Cash flows from financing activities: Principal payments on long-term debt (31,162) (26,221) Proceeds from long-term borrowings 8,000 6,000 Proceeds from stock options 2,289 1,499 Purchase of treasury stock (201) (108) Debt issuance costs (664) -- Other (610) (739) -------- -------- Net cash used in financing activities (22,348) (19,569) -------- -------- Effect of exchange rate changes on cash and equivalents 1,540 (1,518) -------- -------- Decrease in cash and equivalents (13,214) (10,566) -------- -------- Cash and equivalents, beginning of period 29,980 30,239 -------- -------- Cash and equivalents, end of period $ 16,766 $ 19,673 ======== ======== The accompanying notes are an integral part of this statement.
- 4 - NOTES TO CONDENSED FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Basis of Presentation. The accompanying condensed consolidated financial statements include the accounts of Gardner Denver, Inc. ("Gardner Denver" or the "Company") and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. The financial information presented as of any date other than December 31 has been prepared from the books and records without audit. The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such financial statements, have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto incorporated by reference in Gardner Denver's Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations for the three months and six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year. Certain prior year amounts have been reclassified to conform with current year presentation. NOTE 2. RECENT ACQUISITIONS. During 2001, the Company's Compressed Air Products segment completed two acquisitions. Effective September 10, 2001, the Company acquired certain assets and stock of Hoffman Air and Filtration Systems ("Hoffman"). Hoffman, headquartered in Syracuse, New York, manufactures and distributes multistage centrifugal blowers and vacuum systems, primarily for wastewater treatment and industrial applications. Effective September 1, 2001, the Company also acquired certain assets and stock of the Hamworthy Belliss & Morcom compressor business ("Belliss & Morcom"). Belliss & Morcom is headquartered in Gloucester, England and manufactures and distributes lubricated and oil-free reciprocating air compressors for a variety of applications. All acquisitions have been accounted for by the purchase method, and accordingly, their results are included in the Company's consolidated financial statements from the respective dates of acquisition. Under the purchase method, the purchase price is allocated based on the fair value of assets received and liabilities assumed as of the acquisition date. The purchase price allocation for Hoffman and Bellis & Morcom, used in preparation of the June 30, 2002 consolidated balance sheet, is preliminary and subject to adjustment when the valuation of certain intangible assets is finalized. In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), the cost in excess of net assets acquired ("goodwill") for each acquisition has not been amortized. - 5 - NOTE 3. EARNINGS PER SHARE. The following table details the calculation of basic and diluted earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Basic EPS: Net income $ 5,524 $ 6,444 $ 10,102 $ 11,243 ======== ======== ======== ======== Shares Weighted average number of common shares outstanding 15,856 15,545 15,806 15,499 ======== ======== ======== ======== Basic earnings per common share $ 0.35 $ 0.41 $ 0.64 $ 0.73 ======== ======== ======== ======== Diluted EPS: Net income $ 5,524 $ 6,444 $ 10,102 $ 11,243 ======== ======== ======== ======== Shares Weighted average number of common shares outstanding 15,856 15,545 15,806 15,499 Assuming conversion of dilutive stock options issued and outstanding 283 196 263 196 -------- -------- -------- -------- Weighted average number of common shares outstanding, as adjusted 16,139 15,741 16,069 15,695 ======== ======== ======== ======== Diluted earnings per common share $ 0.34 $ 0.41 $ 0.63 $ 0.72 ======== ======== ======== ========
NOTE 4. INVENTORIES.
JUNE 30, DECEMBER 31, 2002 2001 -------- ------------ Raw materials, including parts and subassemblies $ 34,368 $ 33,156 Work-in-process 11,357 15,908 Finished goods 33,287 30,942 Perishable tooling and supplies 2,328 2,328 -------- -------- 81,340 82,334 Excess of current standard costs over LIFO costs (5,561) (5,684) -------- -------- Inventories, net $ 75,779 $ 76,650 ======== ========
NOTE 5. COMPREHENSIVE INCOME. For the three months ended June 30, 2002 and 2001, comprehensive income was $12.5 million and $6.2 million, respectively. For the six months ended June 30, 2002 and 2001, - 6 - comprehensive income was $15.3 million and $10.4 million, respectively. Items impacting the Company's comprehensive income, but not included in net income, consist of foreign currency translation adjustments. NOTE 6. CASH FLOW INFORMATION. In the first six months of 2002 and 2001, the Company paid $3.3 million and $7.9 million, respectively, to the various taxing authorities for income taxes. Interest paid for the first six months of 2002 and 2001, was $3.3 million and $3.2 million, respectively. NOTE 7. SEGMENT INFORMATION.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------- 2002 2001* 2002 2001* --------- --------- --------- --------- Revenues: Compressed Air Products $ 89,240 $ 73,972 $ 177,751 $ 148,251 Pump Products 15,614 30,582 33,712 57,199 --------- --------- --------- --------- Total $ 104,854 $ 104,554 $ 211,463 $ 205,450 ========= ========= ========= ========= Operating Earnings: Compressed Air Products $ 8,800 $ 5,481 $ 16,140 $ 10,888 Pump Products 864 4,944 2,011 8,055 --------- --------- --------- --------- Total 9,664 10,425 18,151 18,943 Interest expense 1,730 1,547 3,412 3,389 Other income, net (435) (1,350) (567) (2,291) --------- --------- --------- --------- Income before income taxes $ 8,369 $ 10,228 $ 15,306 $ 17,845 ========= ========= ========= ========= * As a result of adopting SFAS 142, periodic goodwill amortization ceased effective January 1, 2002. Operating earnings for the quarter ended June 30, 2001, excluding goodwill amortization expense, would have been $6,386 and $5,134 for the Compressed Air Products and Pump Products segments, respectively. Operating earnings for the six months ended June 30, 2001, excluding goodwill amortization expense, would have been $12,698 and $8,435 for the Compressed Air Products and Pump Products segments, respectively.
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS. Effective July 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") applicable to business combinations completed after June 30, 2001. Effective January 1, 2002, additional provisions of SFAS 142, relating to business combinations completed prior to July 1, 2001 became effective and were adopted by the Company. Under the provisions of this standard, intangible assets deemed to have indefinite lives and goodwill are not subject to amortization. All other intangible assets are amortized over their estimated useful lives. Intangible assets and goodwill are subject to annual impairment testing using the guidance and criteria described in this standard. This testing requires comparison of carrying values to fair values, and when appropriate, the carrying value of impaired assets is reduced to fair value. During the second quarter of 2002, the Company completed its transitional impairment test and determined that no impairment of goodwill existed. Net income, basic and diluted earnings per share for the three and six months ended June 30, 2001, adjusted to exclude goodwill amortization, are as follows: - 7 -
Three Months Six Months Ended Ended June 30, 2001 June 30, 2001 ------------- ------------- Reported net income $6,444 $11,243 Adjustments: goodwill amortization 940 1,880 ------ ------- Adjusted net income $7,384 $13,123 ====== ======= Basic earnings per share: Reported $ 0.41 $ 0.73 Adjusted $ 0.48 $ 0.85 Diluted earnings per share: Reported $ 0.41 $ 0.72 Adjusted $ 0.47 $ 0.84
The changes in the carrying amount of goodwill attributable to each business segment for the six months ended June 30, 2002, are as follows:
COMPRESSED PUMP AIR PRODUCTS PRODUCTS ------------ -------- Balance as of December 31, 2001 $157,614 $25,531 Foreign currency translation 1,467 --- -------- ------- Balance as of June 30, 2002 $159,081 $25,531 ======== =======
Other intangible assets at June 30, 2002 consisted of the following:
GROSS CARRYING ACCUMULATED AMOUNT AMORTIZATION -------------- ------------ Amortized intangible assets: Acquired technology $ 9,187 $(6,082) Customer lists and relationships 5,000 (365) Other 2,661 (1,439) ------- ------- Total $16,848 $(7,886) ======= ======= Unamortized intangible assets Trademarks $11,850 Other 4,145 ------- Total $15,995 =======
Amortization of intangible assets for the three months and six months ended June 30, 2002, was $0.5 million and $1.1 million, respectively. Amortization of intangible assets is anticipated to be approximately $2 million per year for 2002 through 2006. NOTE 9. CONTINGENCIES. The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature. Due to the bankruptcies of several asbestos manufacturers and other primary defendants, the Company has begun to be named as a defendant in an - 8 - increasing number of asbestos personal injury lawsuits. In addition, the Company has also been named as a defendant in a number of silicosis personal injury lawsuits. Predecessors to the Company manufactured and sold the products allegedly at issue in these asbestos and silicosis lawsuits, namely: (a) asbestos-containing components supplied by third parties; and (b) portable compressors that were used as components for sandblasting equipment manufactured and sold by other parties. Since its formation in 1993, the Company has not manufactured or sold asbestos containing products or portable compressors. Nonetheless, these lawsuits represent potential contingent liabilities to the Company as a result of its predecessors' historical sales of these products. The Company believes that these pending legal proceedings, lawsuits and administrative actions will not, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: (1) the Company's anticipated insurance and indemnification rights to address the risks of such matters; (2) the limited risk of potential asbestos exposure from the components described above, due to the complete enclosure of the components within the subject products and the additional protective non-asbestos binder which encapsulated the components; (3) the fact that neither the Company, nor its predecessors, ever manufactured, marketed or sold sandblasting equipment; (4) various other potential defenses available to the Company with respect to such matters; and (5) the Company's prior disposition of comparable matters. The Company has also been identified as a potentially responsible party with respect to various sites designated for cleanup under various state and federal laws. The Company does not own any of these sites. The Company does not believe that the future potential costs related to these sites will have a material adverse effect on its consolidated financial position, results of operations or liquidity. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS. PERFORMANCE IN THE QUARTER ENDED JUNE 30, 2002 COMPARED WITH THE QUARTER ENDED JUNE 30, 2001 Revenues Revenues increased slightly to $104.9 million for the three months ended June 30, 2002, compared to $104.6 million in the same period of 2001. Excluding incremental revenue from acquisitions, revenues declined $16.7 million (16%) over the same period of 2001. See Note 2 to the Financial Statements for further information on the Company's recent acquisitions. For the three months ended June 30, 2002, revenues for the Compressed Air Products segment, including $17.0 million from acquisitions, increased $15.3 million (21%) to $89.2 million, compared to the same period of 2001. Excluding acquisitions, the decline in revenues was primarily attributable to softness in the U.S. and European industrial markets, which weakened demand for compressors and blowers. Favorable foreign currency exchange rates partially offset this negative factor. Pump Products segment revenues declined $15.0 million (49%) to $15.6 million for the three months ended June 30, 2002, compared to the same period of 2001. This decline resulted from depressed demand for petroleum pump products due to lower natural gas prices and rig counts, which began negatively impacting order rates in the second half of 2001. - 9 - Costs and Expenses Gross margin (defined as sales less cost of sales excluding depreciation and amortization) for the three months ended June 30, 2002 increased $2.3 million (7%) to $33.6 million compared to the same period of 2001. Gross margin as a percentage of revenues (gross margin percentage) increased to 32.0% in the three-month period of 2002 from 29.9% in the same period of 2001. This increase in the gross margin percentage was principally attributable to an overall favorable sales mix (in part relating to decreased pump product sales), lower warranty expense in the Compressed Air Products segment, the incremental impact of acquisitions and ongoing cost reduction efforts. Depreciation and amortization decreased 14% to $3.6 million in the three-month period of 2002, compared with $4.2 million for the same period of 2001. The decrease in depreciation and amortization expense was due to the adoption of SFAS 142 effective January 1, 2002, which eliminated goodwill amortization. For the three-month periods, depreciation and amortization expense as a percentage of revenues decreased to 3.4% in 2002 from 4.0% in 2001. This percentage decrease is due to the cessation of goodwill amortization in 2002, as noted above. Selling and administrative expenses increased in the three-month period of 2002 by 22% to $20.3 million from $16.6 million in the same period of 2001 due to acquisitions. Excluding acquisitions, selling and administrative expenses decreased slightly in 2002 compared to the prior year period. Selling and administrative expenses as a percentage of revenues increased to 19.4% in the second quarter of 2002 compared to 15.9% in 2001 primarily as a result of the decline in revenues excluding acquisitions. Acquisitions also contributed to this increase as they currently have higher selling and administrative expenses relative to revenues than the Company's previously existing operations. Other income for the three months ended June 30, 2001, included approximately $0.7 million from non-recurring litigation settlement proceeds and $0.5 million of interest income related to the finalization of an income tax settlement with the Internal Revenue Service. The Compressed Air Products segment generated operating margins (defined as revenues, less cost of sales, depreciation and amortization, and selling and administrative expenses) of 9.9% for the three-month period ended June 30, 2002, an increase from 7.4% for the same period of 2001. This increase is primarily due to reduced warranty expense, the cessation of goodwill amortization, the incremental impact of acquisitions and ongoing cost reduction efforts. The Pump Products segment generated operating margins of 5.5% for the three-month period ended June 30, 2002, compared to 16.2% for the same period in 2001. This decrease is primarily attributable to the negative impact of decreased leverage of the segment's fixed and semi-fixed costs over a lower revenue base. Interest expense increased $0.2 million (12%) to $1.7 million for the three months ended June 30, 2002, compared to the same period of 2001. This increase is a result of higher average borrowings (due to businesses acquired in 2001) partially offset by lower average interest rates. The average interest rate for the three-month period of 2002 was 4.5%, compared to 6.0% for the same period of 2001. Income before income taxes decreased $1.9 million (18%) to $8.4 million for the three months ended June 30, 2002, compared to the same period of 2001. This decrease is primarily the result of decreased leverage of fixed costs over a lower revenue base (excluding acquisitions) for both - 10 - segments and the non-recurring gains included in 2001 other income mentioned above. These negative factors were partially offset by the cessation of goodwill amortization. The provision for income taxes decreased by $0.9 million to $2.8 million for the three month period of 2002, compared to $3.8 million in 2001, as a result of the lower income before taxes and a lower overall effective tax rate. The Company's effective tax rate for the three months ended June 30, 2002 decreased to 34.0%, compared to 37.0% in the prior year period, principally as a result of the cessation of non-deductible goodwill amortization. Net income for the three months ended June 30, 2002 decreased $0.9 million (14%) to $5.5 million ($0.34 diluted earnings per share), compared to $6.4 million ($0.41 diluted earnings per share) for the same period of 2001. This decrease in net income is attributable to the same factors that resulted in decreased income before taxes noted above. PERFORMANCE IN THE SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2001 Revenues Revenues increased $6.0 million, or 3% to $211.5 million for the six months ended June 30, 2002, compared to $205.5 million in the same period of 2001. Excluding incremental revenue from acquisitions, revenues declined $35.2 million (17%) over the same period of 2001. See Note 2 to the Financial Statements for further information on the Company's recent acquisitions. For the six months ended June 30, 2002, revenues for the Compressed Air Products segment, including $41.3 million from acquisitions, increased $29.5 million (20%) to $177.8 million, compared to the same period of 2001. Excluding acquisitions, the decline in revenues was primarily attributable to softness in the U.S. and European industrial markets, which weakened demand for compressors and blowers. Pump Products segment revenues declined $23.5 million (41%) to $33.7 million for the six months ended June 30, 2002, compared to the same period of 2001. This decline resulted from depressed demand for petroleum pump products due to lower natural gas prices and rig counts, which began negatively impacting order rates in the second half of 2001. Costs and Expenses Gross margin (defined as sales less cost of sales excluding depreciation and amortization) for the six months ended June 30, 2002 increased $4.9 million (8%) to $65.6 million compared to the same period of 2001. Gross margin as a percentage of revenues (gross margin percentage) increased to 31.0% in the six-month period of 2002 from 29.5% in the same period of 2001. This increase in the gross margin percentage was principally attributable to an overall favorable sales mix (in part relating to decreased pump product sales), lower warranty expense in the Compressed Air Products segment, the incremental impact of acquisitions and ongoing cost reduction efforts. Depreciation and amortization decreased 16% to $7.1 million in the six-month period of 2002, compared with $8.5 million for the same period of 2001. The decrease in depreciation and amortization expense was due to the adoption of SFAS 142 effective January 1, 2002, which eliminated goodwill amortization. For the six-month periods, depreciation and amortization - 11 - expense as a percentage of revenues decreased to 3.4% in 2002 from 4.1% in 2001. This percentage decrease is due to the cessation of goodwill amortization in 2002, as noted above. Selling and administrative expenses increased in the six-month period of 2002 by 21% to $40.3 million from $33.3 million in the same period of 2001 due to acquisitions. Excluding acquisitions, selling and administrative expenses decreased slightly in 2002 compared to the prior year period. Selling and administrative expenses as a percentage of revenues increased to 19.0% in the second quarter of 2002 compared to 16.2% in 2001 primarily as a result of the decline in revenues excluding acquisitions. Acquisitions also contributed to this increase as they currently have higher selling and administrative expenses relative to revenues than the Company's previously existing operations. Other income for the six months ended June 30, 2001 included approximately $1.4 million from non-recurring litigation settlement proceeds and $0.5 million of interest income related to the finalization of an income tax settlement with the Internal Revenue Service. The Compressed Air Products segment generated operating margins (defined as revenues, less cost of sales, depreciation and amortization, and selling and administrative expenses) of 9.1% for the six-month period ended June 30, 2002, an increase from 7.3% for the same period of 2001. This increase is primarily due to reduced warranty expense, the cessation of goodwill amortization, the incremental impact of acquisitions and ongoing cost reduction efforts. These positive factors were partially offset by the negative impact of decreased leverage of the segment's fixed and semi-fixed costs over a lower revenue base (excluding acquisitions) and higher fringe benefit costs. The Pump Products segment generated operating margins of 6.0% for the six-month period ended June 30, 2002, compared to 14.1% for the same period in 2001. This decrease is primarily attributable to the negative impact of decreased leverage of the segment's fixed and semi-fixed costs over a lower revenue base. Interest expense was $3.4 million for the six months ended June 30, 2002 and 2001, as higher average borrowings (due to businesses acquired in 2001) were offset by lower average interest rates. The average interest rate for the six-month period of 2002 was 4.3%, compared to 6.2% for the same period of 2001. Income before income taxes decreased $2.5 million (14%) to $15.3 million for the six months ended June 30, 2002, compared to the same period of 2001. This decrease is primarily the result of decreased leverage of fixed costs over a lower revenue base (excluding acquisitions) for both segments and the non-recurring gains included in 2001 other income mentioned above. These negative factors were partially offset by the cessation of goodwill amortization. The provision for income taxes decreased by $1.4 million to $5.2 million for the six month period of 2002, compared to $6.6 million in 2001, as a result of the lower income before taxes and a lower overall effective tax rate. The Company's effective tax rate for the six months ended June 30, 2002 decreased to 34.0%, compared to 37.0% in the prior year period, principally as a result of the cessation of non-deductible goodwill amortization. Net income for the six months ended June 30, 2002 decreased $1.1 million (10%) to $10.1 million ($0.63 diluted earnings per share), compared to $11.2 million ($0.72 diluted earnings per - 12 - share) for the same period of 2001. This decrease in net income is attributable to the same factors that resulted in decreased income before taxes noted above. Outlook Demand for pump products has historically been related to market conditions and expectations for oil and natural gas prices. Orders for pump products were $12.9 million in the second quarter of 2002, a decrease of $29.5 million compared to the same period of 2001. For the first six months of 2002, pump product orders were $26.2 million, a decrease of $49.0 million compared to the same period of 2001. Compared to June 30, 2001, backlog for this business segment decreased $19.6 million to $13.1 million on June 30, 2002. These decreases can primarily be attributed to lower natural gas prices and rig counts which began negatively impacting order rates in the second half of 2001. Future increases in demand for these products will likely be dependent upon oil and natural gas prices and rig counts, which the Company cannot predict. In general, demand for compressed air products follows the rate of manufacturing capacity utilization and the rate of change of industrial production because compressed air is often used as a fourth utility in the manufacturing process. Over longer time periods, demand also follows the economic growth patterns indicated by the rates of change in the Gross Domestic Product. In the second quarter of 2002, orders for compressed air products were $93.6 million, compared to $70.7 million in the same period of 2001. For the first six months of 2002, orders for compressed air products were $179.2 million, compared to $147.8 million in the same period of 2001. Order backlog for the Compressed Air Products segment was $61.2 million as of June 30, 2002, compared to $46.3 million as of June 30, 2001. These increases are solely due to acquisitions. Excluding the businesses acquired in 2001, orders and backlog were down 8% and 20%, respectively, in the first six months of 2002, compared to the prior year period, due to softness in the U.S. and European industrial markets, as noted above. The Company's largest supplier of iron castings, Atchison Casting Corporation ("Atchison") recently announced that it intends to sell its LaGrange, Missouri foundry ("LaGrange Foundry"). The LaGrange Foundry is utilized by Atchison to meet its iron casting supply commitments to the Company. The LaGrange Foundry was previously owned by the Company and was sold to Atchison in 1995. As part of the sale agreement, the Company entered into a five-year agreement for the supply of certain cast iron products from Atchison/LaGrange Foundry. Since the expiration of the supply agreement in 2000, the Company has entered into more favorable arrangements for some of these iron castings from other suppliers, as part of its ongoing material cost reduction initiatives. In the process, the Company has achieved significant cost reductions and diminished its reliance on the LaGrange Foundry. Nonetheless, Atchison remains the Company's largest supplier of iron castings. Atchison recently informed the Company that if a sale of the LaGrange Foundry is not consummated, it may be necessary to close the foundry. The Company does not anticipate that a potential closure of the LaGrange Foundry would have a material adverse impact on its long-term financial performance. In the event of a closure, the Company would be required to secure alternative supply sources over a short-term transition period. During such short-term period, there would be a negative impact on the Company's financial performance as alternative iron casting supply sources are fully integrated into the Company's supply and manufacturing processes. With this in mind, - 13 - Company management is continuously monitoring this situation, and has developed a contingency plan to mitigate the severity of the impact during such a transition period. This contingency plan is designed to minimize the disruption to the Company's manufacturing operations that currently utilize iron castings from the LaGrange Foundry as new supply sources are integrated. The ultimate success, however, of this plan would be predicated in large measure on the skill, commitment and availability of the alternate suppliers and the Company's ability to effectively manage the transition. LIQUIDITY AND CAPITAL RESOURCES Operating Working Capital During the six months ended June 30, 2002, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) increased $7.0 million due to lower accounts payable and accrued liabilities partially offset by lower receivables and inventories. These changes were primarily the result of changes in foreign currency exchange rates combined with reduced activity levels. Cash Flows During the six months of 2002, the Company generated cash from operations totaling $12.4 million, compared to $15.9 million in the prior year period. This change is primarily due to a less favorable change in operating working capital compared to the prior year period. Net payments on long-term debt totaled $23.2 million during the six months ended June 30, 2002. The cash flows provided by operating activities and used in investing and financing activities, combined with the effect of changes in foreign currency exchange rates, resulted in a net cash decrease of $13.2 million for the six months ended June 30, 2002. Capital Expenditures and Commitments Capital projects to increase operating efficiency and flexibility, expand production capacity and product quality resulted in expenditures of $4.8 million in the first six months of 2002. This was $0.5 million lower than the level of capital expenditures in the comparable period in 2001 due to the timing of capital projects. Commitments for capital expenditures at June 30, 2002 totaled $8.9 million. Management expects additional capital authorizations to be committed during the remainder of the year and that capital expenditures for 2002 will approximate $12-15 million, primarily due to expenditures for cost reductions and additional machining capacity at certain operations. Capital expenditures related to environmental projects have not been significant in the past and are not expected to be significant in the foreseeable future. In October 1998, Gardner Denver's Board of Directors authorized the repurchase of up to 1,600,000 shares of the Company's common stock to be used for general corporate purposes. Approximately 200,000 shares remain available for repurchase under this program. The Company has also established a Stock Repurchase Program for its executive officers to provide a means for them to sell Gardner Denver common stock and obtain sufficient funds to meet alternative minimum tax obligations which arise from the exercise of incentive stock options. The Gardner Denver Board has authorized up to 400,000 shares for repurchase under this program, and of this amount, approximately 200,000 shares remain available for repurchase. As of June 30, 2002, a total of 1,572,542 shares have been repurchased at a cost of $22.8 million under both repurchase - 14 - programs. During the first half of 2002, the Company accepted shares of its common stock, valued at $0.2 million, which were tendered for the exercise of stock options. Liquidity On March 6, 2002, the Company amended and restated its Revolving Line of Credit Agreement (the "Credit Line"), increasing the borrowing capacity to $150 million and extending the maturity date to March 6, 2005. Subject to approval by lenders holding more than 75% of the debt, the Company may request up to two, one-year extensions. The total debt balance will be due upon final maturity. On June 30, 2002, the Credit Line had an outstanding principal balance of approximately $62.0 million, leaving $88.0 million available for future use, subject to the terms of the Credit Line. The amended and restated agreement also provided for an additional $50.0 million Term Loan which was used to retire debt outstanding under the Interim Credit Agreement. The five-year loan requires principal payments of $2.5 million in years one and two, and $15.0 million in years three through five. The Company's borrowing arrangements are generally unsecured and permit certain investments and dividend payments. There are no material restrictions on the Company as a result of its credit agreements, other than customary covenants regarding certain earnings, liquidity, and capital ratios. Management currently expects the Company's future cash flows to be sufficient to fund its scheduled debt service and provide required resources for working capital and capital investments. CONTINGENCIES The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature. Due to the bankruptcies of several asbestos manufacturers and other primary defendants, the Company has begun to be named as a defendant in an increasing number of asbestos personal injury lawsuits. In addition, the Company has also been named as a defendant in a number of silicosis personal injury lawsuits. Predecessors to the Company manufactured and sold the products allegedly at issue in these asbestos and silicosis lawsuits, namely: (a) asbestos-containing components supplied by third parties; and (b) portable compressors that were used as components for sandblasting equipment manufactured and sold by other parties. Since its formation in 1993, the Company has not manufactured or sold asbestos containing products or portable compressors. Nonetheless, these lawsuits represent potential contingent liabilities to the Company as a result of its predecessors' historical sales of these products. The Company believes that these pending legal proceedings, lawsuits and administrative actions will not, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: (1) the Company's anticipated insurance and indemnification rights to address the risks of such matters; (2) the limited risk of potential asbestos exposure from the components described above, due to the complete enclosure of the components within the subject products and the additional protective non-asbestos binder which encapsulated the components; (3) the fact that neither the Company, nor its predecessors, ever manufactured, marketed or sold sandblasting equipment; (4) various other potential defenses available to the Company with respect to such matters; and (5) the Company's prior disposition of comparable matters. - 15 - The Company has also been identified as a potentially responsible party with respect to various sites designated for cleanup under various state and federal laws. The Company does not own any of these sites. The Company does not believe that the future potential costs related to these sites will have a material adverse effect on its consolidated financial position, results of operations or liquidity. NEW ACCOUNTING STANDARDS Effective July 1, 2001, the Company adopted the provisions of the Financial Accounting Standards Board ("FASB"), Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") applicable to business combinations completed after June 30, 2001. Effective January 1, 2002, additional provisions of SFAS 142, relating to business combinations completed prior to July 1, 2001 became effective and were adopted by the Company. Under the provisions of this standard, intangible assets deemed to have indefinite lives and goodwill are not subject to amortization. All other intangible assets are amortized over their estimated useful lives. Intangible assets and goodwill are subject to annual impairment testing using the guidance and criteria described in this standard. This testing requires comparison of carrying values to fair values, and when appropriate, the carrying value of impaired assets is reduced to fair value. During the second quarter of 2002, the Company completed its transitional impairment test and determined that no impairment of goodwill existed. In June 2001, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." This standard requires that legal obligations associated with the retirement of long-lived intangible assets be recorded at fair value when incurred. The Company will adopt this standard on January 1, 2003 and management believes it will not have a material impact on the Company's future consolidated financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 provides for the rescission of several previously issued accounting standards, new accounting guidance for the accounting for certain lease modifications and various technical corrections that are not substantive in nature to existing pronouncements. SFAS No. 145 will be adopted by the Company beginning January 1, 2003, except for the provisions relating to the amendment of SFAS No. 13, which will be adopted for transactions occurring subsequent to May 15, 2002. Adoption of SFAS No. 145 will not have a material impact on the Company's future consolidated financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)," and requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than when a company commits to such an activity. SFAS No. 146 also establishes that fair value be the objective for initial measurement of the liability. SFAS No. 146 will be adopted by the Company for exit or disposal activities that are initiated after December 31, 2002. Adoption of SFAS No. 146 will not have a material impact on the Company's future consolidated financial statements. - 16 - CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS All of the statements in this Management's Discussion and Analysis, other than historical facts, are forward-looking statements made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of 1995, including, without limitation, certain statements made under the caption "Outlook". As a general matter, forward-looking statements are those focused upon anticipated events or trends and expectations and beliefs relating to matters that are not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to Gardner Denver's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. These uncertainties and factors could cause actual results to differ materially from those matters expressed in or implied by such forward-looking statements. The following uncertainties and factors, among others, could affect future performance and cause actual results to differ materially from those expressed in or implied by forward-looking statements: the ability to maintain and to enter into key purchasing and supply relationships; the ability to identify, negotiate and complete future acquisitions; the speed with which the Company is able to integrate its recent acquisitions and realize the related financial benefit; the domestic and/or worldwide level of oil and natural gas prices and oil and gas drilling and production, which affect demand for the Company's petroleum products; changes in domestic and/or worldwide industrial production and industrial capacity utilization rates, which affect demand for the Company's compressed air products; pricing of Gardner Denver products; the degree to which the Company is able to penetrate niche markets; the ability to attract and retain quality management personnel; and the continued successful implementation of cost reduction efforts. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes in the Company's exposure to market risk between December 31, 2001 and June 30, 2002. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders (the "Annual Meeting") was held pursuant to notice on May 7, 2002. At the Annual Meeting, Donald G. Barger, Jr. and Raymond R. Hipp were elected to serve as directors for a three-year term expiring in 2005. There were 14,427,489 affirmative votes cast and 75,185 votes withheld concerning Mr. Barger's election as a director and 14,425,430 affirmative votes cast and 77,244 votes withheld concerning Mr. Hipp's election as a director. Stockholders also elected to amend the Long-Term Incentive Plan with 11,480,995 affirmative votes cast, 2,636,012 votes against and 385,667 abstaining votes or non-votes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: 10.1 Gardner Denver, Inc. Long-Term Incentive Plan, as amended July 30, 2002. 10.13 Change in Control Agreement dated August 1, 2002, entered into between Gardner Denver, Inc. and its Chief Executive Officer. - 17 - 10.14 Form of Change in Control Agreement dated August 1, 2002, entered into between Gardner Denver, Inc. and its executive officers. 99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K During the quarter ended June 30, 2002, the Company filed a Current Report on Form 8-K, dated June 26, 2002, related to its dismissal of Arthur Andersen LLP as the Company's independent public accountants. The Company has engaged KPMG LLP to serve as its independent public accountants for the fiscal year 2002. - 18 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GARDNER DENVER, INC. Date: August 13, 2002 By: /s/Ross J. Centanni -------------------------------------- Ross J. Centanni Chairman, President & CEO Date: August 13, 2002 By: /s/Philip R. Roth -------------------------------------- Philip R. Roth Vice President, Finance & CFO Date: August 13, 2002 By: /s/Daniel C. Rizzo, Jr. -------------------------------------- Daniel C. Rizzo, Jr. Vice President and Corporate Controller (Chief Accounting Officer) - 19 - GARDNER DENVER, INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 10.1 Gardner Denver, Inc. Long-Term Incentive Plan, as amended July 30, 2002. 10.13 Change in Control Agreement dated August 1, 2002, entered into between Gardner Denver, Inc. and its Chief Executive Officer. 10.14 Form of Change in Control Agreement dated August 1, 2002, entered into between Gardner Denver, Inc. and its executive officers. 99.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - 20 - EX-10.1 3 ex10p1.txt LONG-TERM INCENTIVE PLAN Exhibit 10.1 GARDNER DENVER, INC. LONG-TERM INCENTIVE PLAN (As amended May 7, 1996, May 4, 1998, November 2, 1998, May 4, 1999, March 6, 2000, January 1, 2001, May 7, 2002 and July 30, 2002) (Adjusted to reflect two-for-one stock split January 15, 1997 and three-for-two stock split December 29, 1997) 1. PURPOSE The purpose of the Gardner Denver, Inc. Long-Term Incentive Plan (the "Plan") is to promote the long-term financial interests of Gardner Denver, Inc. (the "Company"), including its growth and performance, by encouraging employees of the Company and its subsidiaries to acquire an ownership position in the Company, enhancing the ability of the Company to attract and retain employees of outstanding ability, and providing employees with an interest in the Company parallel to that of the Company's stockholders. 2. DEFINITIONS 2.1 "Administrative Policies" means the administrative policies and procedures adopted and amended from time to time by the Committee to administer the Plan. 2.2 "Award" means any form of stock option, stock appreciation right, restricted stock award, performance share or long-term cash bonus granted under the Plan, whether singly, in combination, or in tandem, to a Participant by the Committee pursuant to such terms, conditions, restrictions and limitations, if any, as the Committee may establish by the Award Agreement or otherwise. 2.3 "Award Agreement" means a written agreement with respect to an Award between the Company and a Participant establishing the terms, conditions, restrictions and limitations applicable to an Award. To the extent an Award Agreement is inconsistent with the terms of the Plan, the Plan shall govern the rights of the Participant thereunder. 2.4 "Base Salary" means the base salary paid by the Company to the Participant, exclusive of any bonuses, commissions or other actual or imputed income from any Company-provided benefits or perquisites, but prior to any reductions for salary deferred pursuant to any deferred compensation plan or for contributions to a plan qualifying under Section 401(k) of the Code or contributions pursuant to a cafeteria plan under Section 125 of the Code. 2.5 "Base Salary Factor" means a multiplier expressed as a percentage of the Executive Officer's Base Salary, as determined by the Committee pursuant to Section 12.3 of the Plan for purposes of calculating an Executive Officer's Long-Term Cash Bonus. 2.6 "Board" shall mean the Board of Directors of the Company. 1 2.7 "Business Criteria" means any one, or a combination, of the following: (i) revenues of the Company; (ii) operating income of the Company; (iii) net income of the Company; (iv) earnings per share of the Company's Common Stock; (v) earnings before taxes of the Company; (vi) the Company's return on equity; (vii) cash flow of the Company; or (viii) Company stockholder total return. 2.8 "Change of Control" means the occurrence of any one of the following events: (i) any "person" (as defined in Sections 13(d) and 14(d) of U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, acquires "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% of the combined voting power of the Company; or (ii) during any period of not more than two consecutive years, individuals who, at the beginning of such period, constitute the Board and any new directors (other than any director designated by a person who has entered into an agreement with the Company to effect a transaction described in subsections 2.8(i), 2.8(iii), or 2.8(iv) of this Plan) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; or (iii) the stockholders of the Company approve and the Company consummates a merger other than (A) a merger that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company and any Subsidiary, at least 50% of the combined voting power of all classes of stock of the Company or such surviving entity outstanding immediately after such merger or (B) a merger effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve and the Company consummates a plan of complete liquidation or dissolution of the Company, or a sale of all or substantially all of the assets of the Company. 2 2.9 "Change of Control Price" means the higher of (i) the Fair Market Value on the date of determination of the Change of Control or (ii) the highest price per share actually paid for the Common Stock in connection with the Change of Control of the Company. 2.10 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.11 "Committee" means the Management Development and Compensation Committee of the Board, or such other committee designated by the Board to administer the Plan, provided that the Committee shall be constituted so as to satisfy any applicable legal requirements, including the requirements of Rule 16b-3 promulgated under the Exchange Act and Section 162(m) of the Code, or any respective successor rule or statute. 2.12 "Common Stock" means the Common Stock, par value $0.01 per share, of the Company. 2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.14 "Executive Officer" means the Chairman, Chief Executive Officer, President, any Executive Vice President, any Senior Vice President, any senior officer reporting directly to the Chief Executive Officer and any other Vice President or senior executive or officer designated by the Chief Executive Officer. 2.15 "Fair Market Value" means the average of the high and low price of a share of Common Stock as reported on the composite tape for securities listed on the Stock Exchange for the applicable date, provided that if no sales of Common Stock were made on the Stock Exchange on that date, the average of the high and low prices as reported on the composite tape for the preceding day on which sales of Common Stock were made. 2.16 "Long-Term Cash Bonus" means a payment in cash of an Executive Officer's Payment Opportunity. 2.17 "Payment Opportunity" means the amount determined pursuant to any bonus formula established by the Committee for an Executive Officer for a given Performance Period pursuant to Section 12.3 of the Plan, taking into account the actual achievement of the relevant Performance Targets and the Executive Officer's Base Salary Factor. 2.18 "Performance Period" means a stated period over which the Company's performance is measured for purposes of Awards under the Plan. The duration of Performance Periods may vary with respect to different types of Awards under the Plan, as determined by the Committee. 2.19 "Performance Shares" means Awards in the form of shares of Common Stock that may be earned pursuant to the terms set forth in Section 10 of the Plan. 3 2.20 "Performance Targets" means the predetermined goal or goals established by the Committee in writing (which may be cumulative or alternative) based upon one, or any combination, of the Business Criteria. 2.21 "Participant" means an officer or employee of the Company or its subsidiaries who is selected by the Committee to participate in the Plan, and nonemployee directors of the Company to the extent provided in Section 11 hereof. 2.22 "Stock Exchange" means the composite tape of the New York Stock Exchange ("NYSE") or, if the Common Stock is no longer included on the NYSE, then such other market price reporting system on which the Common Stock is traded or quoted designated by the Committee after it determines that such other exchange is both reliable and reasonably accessible. 3. ADMINISTRATION 3.1 The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and the acts of a majority of a quorum shall be the acts of the Committee. 3.2 Subject to the provisions of the Plan, the Committee (i) shall select the Participants, determine the type of Awards to be made to Participants, determine the shares or share units subject to Awards, and (ii) shall have the authority to interpret the Plan, to establish, amend, and rescind any Administrative Policies, to determine the terms and provisions of any agreements entered into hereunder, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it shall deem desirable to carry it into effect. The determinations of the Committee in the administration of the Plan, as described herein, shall be final and conclusive, provided, however, that no action shall be taken which will prevent the options granted under Section 11 or any Award granted under the Plan from meeting the requirements for exemption from Section 16(b) of the Exchange Act, or subsequent comparable statute, as set forth in Rule 16b-3 of the Exchange Act or any subsequent comparable rule; and, provided further, that no action shall be taken which will prevent Awards that are intended to constitute "qualified performance-based compensation," within the meaning of Section 162(m) of the Code, from doing so. 3.3 Notwithstanding the powers and authorities of the Committee under the Plan, the Committee shall not permit the repricing of stock options by any method, including by cancellation and reissuance. 3.4 In order to enable Participants who are foreign nationals or employed outside the United States, or both, to receive Awards under the Plan, the Committee may adopt such amendments, Administrative Policies, subplans and the like as are necessary or advisable, in the opinion of the Committee, to effectuate the purposes of the Plan. 4 4. ELIGIBILITY All employees of the Company and its subsidiaries who have demonstrated significant management potential or who have the capacity for contributing in a substantial measure to the successful performance of the Company, as determined by the Committee, are eligible to be Participants in the Plan. Participants may receive one or more Awards under the Plan. Directors of the Corporation other than directors who are employees of the Corporation shall be eligible only to receive stock options pursuant to Section 11 hereof. 5. SHARES SUBJECT TO THE PLAN 5.1 The aggregate number of shares of Common Stock available for grant of Awards under the Plan shall be that number of shares remaining available for grant under the Plan on the close of business on the date immediately prior to the 2001 Annual Meeting of Stockholders plus 750,000, subject to the adjustments provided for in Section 16 hereof. Shares of Common Stock available for issuance under the Plan may be authorized and unissued shares or treasury shares, as the Company may from time to time determine. 5.2 Subject to adjustment as set forth in Section 16 hereof, the maximum aggregate number of shares of Common Stock that may be granted under the Plan in the form of restricted stock grants shall not exceed 50% of the aggregate shares of Common Stock available under the Plan. 5.3 Shares of Common Stock subject to an Award that expires unexercised or that is forfeited, terminated or canceled, in whole or in part, or is paid in cash in lieu of Common Stock, shall thereafter again be available for grant under the Plan, except that any such shares attributable to a Restricted Stock Award (as defined in Section 9) shall be counted against the restricted stock limit set forth in Section 5.2 hereof. 6. AWARDS Awards under the Plan may consist of: stock options (either incentive stock options within the meaning of Section 422 of the Code or nonstatutory stock options), stock appreciation rights, restricted stock grants, performance shares and long-term cash bonuses; provided that no Participant may be granted Awards during any calendar year with respect thereto in excess of 180,000 shares of Common Stock, subject to the provisions of Section 16. Awards of performance shares and restricted stock may provide the Participant with dividends or dividend equivalents and voting rights prior to vesting (whether based on a period of time or based on attainment of specified performance conditions). The terms, conditions and restrictions of each Award shall be set forth in an Award Agreement. 7. STOCK OPTIONS 7.1 Grants. Awards may be granted in the form of stock options. Stock options may be incentive stock options within the meaning of Section 422 of the Code or nonstatutory 5 stock options (i.e., stock options which are not incentive stock options), or a combination of both, or any particular type of tax advantage option authorized by the Code from time to time. Awards of stock options made to Participants subject to Section 162(m) of the Code are intended to qualify as "qualified performance-based compensation" under Section 162(m) and the provisions of such Awards shall be interpreted in a manner consistent with that intent, to the extent appropriate. 7.2 Terms and Conditions of Options. An option shall be exercisable in whole or in such installments and at such times and upon such terms as may be determined by the Committee; provided, however, that no stock option shall be exercisable more than ten years after the date of grant thereof. The option exercise price shall be established by the Committee, but such price shall not be less than the Fair Market Value on the date of the stock option's grant, subject to adjustment as provided in Section 16 hereof. 7.3 Restrictions Relating to Incentive Stock Options. Stock options issued in the form of incentive stock options shall, in addition to being subject to all applicable terms, conditions, restrictions and limitations established by the Committee, comply with Section 422 of the Code. Incentive stock options shall be granted only to full time employees of the Company and its subsidiaries within the meaning of Section 424 of the Code. The aggregate Fair Market Value (determined as of the date the option is granted) of shares with respect to which incentive stock options are exercisable for the first time by an individual during any calendar year (under this Plan or any other plan of the Company which provides for the granting of incentive stock options) may not exceed $100,000 or such other number as may be applicable under the Code from time to time. 7.4 Payment. Upon exercise, a Participant may pay the option exercise price of a stock option in cash, shares of Common Stock, stock appreciation rights or a combination of the foregoing, or such other consideration as the Committee may deem appropriate. The Committee shall establish appropriate methods for accepting Common Stock and may impose such conditions as it deems appropriate on the use of such Common Stock to exercise a stock option. 7.5 Additional Terms and Conditions. The Committee may, by way of the Award Agreement or Administrative Policies, establish such other terms, conditions or restrictions, if any, on any stock option award, provided they are consistent with the Plan. The Committee may condition the vesting of stock options on the achievement of financial performance criteria established by the Committee at the time of grant. 8. STOCK APPRECIATION RIGHTS 8.1 Grants. Awards may be granted in the form of stock appreciation rights ("SARs"). Awards of SARs made to Participants subject to 162(m) of the Code are intended to qualify as "qualified performance-based compensation" under Section 162(m) and the provisions of such Awards shall be interpreted in a manner consistent with that intent, to the extent appropriate. SARs shall entitle the recipient to receive a payment equal to the appreciation in market value of a stated number of shares of Common Stock from the price stated in the Award 6 Agreement to the Fair Market Value on the date of exercise or surrender. An SAR may be granted in tandem with all or a portion of a related stock option under the Plan ("Tandem SARs"), or may be granted separately ("Freestanding SARs"); provided, however, that Freestanding SARs shall be granted only to Participants who are foreign nationals or are employed outside of the United States, or both, and as to whom the Committee determines the interests of the Company could not as conveniently be served by the grant of other forms of Awards under the Plan. A Tandem SAR may be granted either at the time of the grant of the related stock option or at any time thereafter during the term of the stock option. In the case of SARs granted in tandem with stock options granted prior to the grant of such SARs, the appreciation in value shall be appreciation from the option exercise price of such related stock option to the Fair Market Value on the date of exercise. 8.2 Terms and Conditions of Tandem SARs. A Tandem SAR shall be exercisable to the extent, and only to the extent, that the related stock option is exercisable. Upon exercise of a Tandem SAR as to some or all of the shares covered in an Award, the related stock option shall be canceled automatically to the extent of the number of SARs exercised, and such shares shall not thereafter be eligible for grant under Section 5 hereof. 8.3 Terms and Conditions of Freestanding SARs. Freestanding SARs shall be exercisable in whole or in such installments and at such times as may be determined by the Committee. The base price of a Freestanding SAR shall be determined by the Committee; provided, however, that such price shall not be less than the Fair Market Value on the date of the award of the Freestanding SAR. 8.4 Deemed Exercise. The Committee may provide that an SAR shall be deemed to be exercised at the close of business on the scheduled expiration date of such SAR, if at such time the SAR by its terms is otherwise exercisable and, if so exercised, would result in a payment to the Participant. 8.5 Additional Terms and Conditions. The Committee may, by way of the Award Agreement or Administrative Policies, determine such other terms, conditions and restrictions, if any, on any SAR Award, provided they are consistent with the Plan. 9. RESTRICTED STOCK AWARDS 9.1 Grants. Awards may be granted in the form of restricted stock ("Restricted Stock Awards"). Restricted Stock Awards shall be awarded in such numbers and at such times as the Committee shall determine. 9.2 Award Restrictions. Restricted Stock Awards shall be subject to such terms, conditions or restrictions as the Committee deems appropriate including, but not limited to, restrictions on transferability, requirements of continued employment, achievement of individual performance goals or Performance Targets. The period of vesting and the forfeiture restrictions shall be established by the Committee at the time of grant, except that each restriction period shall not be less than 12 months. To the extent Restricted Awards are subject to Performance 7 Targets, it is intended that all such Restricted Stock Awards granted to Participants subject to Section 162(m) of the Code will qualify as "qualified performance-based compensation" under Section 162(m) and such Awards shall be interpreted in a manner consistent with that intent, to the extent appropriate. 9.3 Rights as Shareholders. During the period in which any restricted shares of Common Stock are subject to forfeiture restrictions imposed under the preceding paragraph, the Committee may, in its discretion, grant to the Participant to whom such restricted shares have been awarded, all or any of the rights of a shareholder with respect to such shares, including, but not limited to, the right to vote such shares and to receive dividends. 9.4 Evidence of Award. Any Restricted Stock Award granted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book entry registration or issuance of a stock certificate or certificates. 10. PERFORMANCE SHARES 10.1 Grants. Awards may be granted in the form of shares of Common Stock that are earned only after the attainment of predetermined performance targets during a performance period as established by the Committee ("Performance Shares"). 10.2 Performance Criteria. The Committee may grant an Award of Performance Shares to Participants as of the first day of each Performance Period established for Performance Shares. Performance Targets will be established at the beginning of each Performance Period. The Committee shall be permitted to make adjustments when determining the attainment of the applicable Performance Targets to reflect extraordinary or nonrecurring items or events, or unusual nonrecurring gains or losses identified in the Company's financial statements, as long as any such adjustments are made in a manner consistent with Section 162(m) to the extent applicable. Awards of Performance Shares made to Participants subject to Section 162(m) of the Code are intended to qualify under Section 162(m) and provisions of such Awards shall be interpreted in a manner consistent with that intent, to the extent appropriate. At the end of the Performance Period, Performance Shares shall be converted into Common Stock (or cash or a combination of Common Stock and cash, as determined by the Award Agreement) and distributed to Participants based upon such entitlement. Award payments made in cash rather than the issuance of Common Stock shall not, by reason of such payment in cash, result in additional shares being available for reissuance pursuant to Section 5 hereof. 10.3 Additional Terms and Conditions. The Committee may, by way of the Award Agreement or Administrative Policies, determine the manner of payment of Awards of Performance Shares and other terms, conditions or restrictions, if any, on any Award of Performance Shares, provided they are consistent with the Plan and to the extent applicable, Section 162(m) of the Code. 8 11. DIRECTORS' STOCK OPTIONS 11.1 Grants. Awards may be granted to nonemployee directors only in the form of stock options satisfying the requirements of this Section 11 ("Director Stock Options"). Subject to Section 16 hereof, on the date following the commencement of the Company's annual meeting of stockholders each year, there shall be granted to each nonemployee director an option to purchase up to a maximum of 9,000 shares of Common Stock. The amount of shares subject to the option shall be determined in the Committee's discretion. All such options shall be nonstatutory stock options. 11.2 Option Exercise Price. The option exercise price of Director Stock Options shall be 100 percent of the Fair Market Value on the date such options are granted. The Committee shall be authorized to compute the price per share on the date of grant. Payment of the option exercise price may be made in cash or in shares of Common Stock or a combination of cash and Common Stock. 11.3 Award Agreement. Director Stock Options shall be evidenced by an Award Agreement in the form of a stock option agreement, dated as of the date of the grant, which agreement shall be in such form, consistent with the terms and requirements of this Section 11, as shall be approved by the Committee from time to time and executed on behalf of the Company by its Chief Executive Officer. 11.4 Terms and Conditions of Director Stock Options. Director Stock Options shall become fully exercisable on the first anniversary of the date of grant and shall terminate upon the expiration of five years from the date of grant. To the extent an option is not otherwise exercisable at the date of the nonemployee director's retirement under a retirement plan or policy of the Company or at the time a nonemployee director ceases to be a director on account of disability, it shall become fully exercisable upon such retirement or cessation of service as a director due to disability. Upon such retirement or cessation of service due to disability, such options shall be exercisable for a period of five years, subject to the original term thereof. Options not otherwise exercisable at the time of the death of a nonemployee director during service with the Company shall become fully exercisable upon his death. Upon the death of a nonemployee director while in service as a director or within the five-year period during which the options are exercisable following the retirement or disability of a nonemployee director, such options shall remain exercisable (subject to the original term of the option) for a period of one year after the date of death. To the extent an option is exercisable on the date a director ceases to be a director (other than by reason of disability, death or retirement), the option shall continue to be exercisable (subject to the original term of the option) for a period of 90 days thereafter. 11.5 Transferability. No option shall be transferable by a nonemployee director except by will or the laws of descent and distribution, and during the director's lifetime options may be exercised only by him or his legal representative. 9 11.6 Change of Control. Director Stock Options not otherwise exercisable at the time of a Change of Control shall become fully exercisable upon such Change of Control. In the case of a Change of Control: (i) The Company shall make payment to directors with respect to Director Stock Options in cash in an amount equal to the appreciation in the value of the Director Stock Option from the option exercise price specified in the Award Agreement to the Change of Control Price; (ii) The cash payments to directors shall be due and payable, and shall be paid by the Company, immediately upon the occurrence of such Change of Control; and (iii) After the payment provided for in (i) above, nonemployee directors shall have no further rights under Director Stock Options outstanding at the time of such Change in Control. 12. LONG-TERM CASH BONUS 12.1 Eligibility. Only Executive Officers shall be eligible to receive a Long-Term Cash Bonus. Not later than ninety (90) days after the commencement of a Performance Period, the Committee shall select the Executive Officers eligible to receive a Long-Term Cash Bonus for the Performance Period. Each Executive Officer participating in a Performance Period shall be eligible to receive a Long-Term Cash Bonus upon completion of a Performance Period only if Executive Officer is still employed by the Company upon the last day of such Performance Period, provided, however, that the Committee shall have the discretion to grant eligibility to the Executive Officer in its discretion, notwithstanding the fact that the Executive Officer is not still employed by the Company at such point. 12.2 Performance Target(s); Business Criteria; Base Salary Factors. The applicable Business Criteria and Performance Targets for a given Performance Period shall be established by the Committee in advance of the deadlines set forth in the regulations under Section 162(m) of the Code and while the performance relating to the Performance Targets remains substantially uncertain within the meaning of Section 162(m) of the Code. The Committee shall be permitted to make adjustments when determining the attainment of Performance Targets to reflect extraordinary or nonrecurring items or events, or unusual nonrecurring gains or losses identified in the Company's financial statements, as long as any such adjustments are made in a manner consistent with Section 162(m) of the Code, to the extent applicable. 12.3 Calculation of Long-Term Cash Bonus. At the beginning of each Performance Period, the Committee shall provide in terms of an objective formula or standard for each Executive Officer: (a) the method of computing the specific amount that will represent the Executive Officer's Long-Term Cash Bonus; and (b) the Base Salary Factor to be used in calculating any Executive Officer's Long-Term Cash Bonus. Subject to Section 12.4, at the first meeting of the Committee after the expiration of the Performance Period, the Committee shall determine the extent to which the Performance Targets have been achieved, and shall determine each Executive Officer's Payment Opportunity based on his or her Base Salary Factor. 10 Notwithstanding the attainment of the Performance Targets, Long-Term Cash Bonuses for individual Executive Officers may be denied or adjusted by the Committee, in its sole judgment, based on its assessment of the Executive Officer's performance. However, no upward adjustment may be made to a Long-Term Cash Bonus for an Executive Officer if Section 162(m) of the Code would limit the deduction the Company may claim for that Executive Officer's compensation. 12.4 Maximum Long-Term Cash Bonus. Notwithstanding any other provision in the Plan, no Executive Officer shall receive for any Performance Period any Long-Term Cash Bonus under the Plan in excess of $3,000,000 or, if less, three times his or her Base Salary as of the last day of the applicable Performance Cycle. Any Payment Opportunity in excess of the foregoing limits shall be reduced automatically to the extent of the excess. 12.5 Payment. Long-Term Cash Bonuses shall be paid in cash or Restricted Stock Awards, as determined by the Committee and subject to the remaining terms of this Plan. Payment of Long-Term Cash Bonuses shall occur within a reasonable time after the Committee has certified in writing the extent to which the Performance Targets have been achieved and determined the amount of each Executive Officer's Long-Term Cash Bonus for the given Performance Period pursuant to Sections 12.3 and 12.4 hereof. 13. DIVIDENDS AND DIVIDEND EQUIVALENTS; DEFERRALS 13.1 If an Award is granted in the form of a Restricted Stock Award or Performance Shares, the Committee may choose, at the time of the grant of the Award, to include as part of such Award an entitlement to receive dividends or dividend equivalents, subject to such terms, conditions, restrictions or limitations, if any, as the Committee may establish. Dividends and dividend equivalents shall be paid in such form and manner and at such time as the Committee shall determine. 13.2 The Committee may permit Participants to elect to defer the issuance of shares or the settlement of Awards in cash under Administrative Policies established by the Committee. It may also provide that deferred settlements include the payment or crediting of interest on the deferral amounts or the payment or crediting of dividend equivalents on deferred settlements denominated in shares. Notwithstanding the foregoing, to the extent the Award being deferred is that of a Participant subject to Section 162(m) of the Code, the Committee will ensure that any increase in the Award will be based upon a reasonable rate of interest or on one or more predetermined actual investments such that the amount payable at the later date will be based upon actual returns, including any decrease or increase in the value of the investment(s). 11 14. TERMINATION OF EMPLOYMENT Consistent with the requirements of Section 162(m) regarding "qualified performance-based compensation," the Committee shall adopt Administrative Policies determining the entitlement of Participants who cease to be employed by either the Company or its subsidiaries due to death, disability, resignation, termination or retirement pursuant to an established retirement plan or policy of the Company or its subsidiaries. 15. ASSIGNMENT AND TRANSFER The rights and interests of a Participant under the Plan may not be assigned, encumbered or transferred except, in the event of the death of a Participant, by will or the laws of descent and distribution. Notwithstanding the foregoing, the Committee may, in its discretion, grant stock options to one or more executive officers of the Company on terms that permit the stock options to be transferred by any such executive officer, for estate planning purposes, to (a) the executive officer's spouse, children, grandchildren, parents, siblings, stepchildren, stepgrandchildren or in-laws ("Family Members"), (b) entities that are exclusively family-related, including trusts for the exclusive benefit of Family Members and limited partnerships or limited liability companies in which Family Members are the only partners or members, or (c) such other persons or entities specifically approved by the Committee. The terms and conditions applicable to the transfer of any such stock options shall be established by the Committee, in its discretion but consistent with this Section 15, and shall be contained in the applicable stock option agreement between the Company and the executive officer. 16. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION In the event of any change in the outstanding shares of Common Stock by reason of a reorganization, recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation or any change in the corporate structure or shares of the Company, the maximum aggregate number and class of shares as to which Awards may be granted under the Plan, including any limitations upon individual Participants or regarding Director Stock Options, as well as the number and class of shares issuable, and the related option exercise price, pursuant to then outstanding Awards, shall be appropriately adjusted by the Committee, whose determination shall be final. 17. WITHHOLDING TAXES The Company shall have the right to deduct from any payment to be made pursuant to the Plan the amount of any taxes required by law to be withheld therefrom, or to require a Participant to pay to the Company such amount required to be withheld prior to the issuance or delivery of any shares of Stock or the payment of cash under the Plan. The Committee may, in its discretion, permit a Participant to elect to satisfy such withholding obligation by having the Company retain the number of shares of Common Stock whose Fair Market Value equals the 12 amount required to be withheld. Any fraction of a share of Common Stock required to satisfy such obligation shall be disregarded and the amount due shall instead be paid in cash to the Participant. 18. REGULATORY APPROVALS AND LISTINGS Notwithstanding anything contained in this Plan to the contrary, the Company shall have no obligation to issue or deliver certificates of Common Stock evidencing Restricted Stock Awards or any other Award payable in Common Stock prior to (i) the obtaining of any approval from any governmental agency which the Company shall, in its sole discretion, determine to be necessary or advisable, (ii) the admission of such shares to listing on the Stock Exchange and (iii) the completion of any registration or other qualification of said shares under any state or federal law or ruling of any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable. 19. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or its subsidiaries. Further, the Company and its subsidiaries expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any Award Agreement entered into hereunder. 20. CHANGE OF CONTROL In the event of a Change of Control, (i) all SARs which have not been granted in tandem with stock options shall become exercisable in full, (ii) the restrictions applicable to all shares of restricted stock shall lapse and such shares shall be deemed fully vested and all restricted stock granted in the form of share units shall be paid in cash, (iii) all Performance Shares and Long-Term Cash Bonuses shall be deemed to be earned in full at the Payment Opportunity associated with the achievement of 100% of the Performance Targets assigned to such Awards, and all Performance Shares granted in the form of share units shall be paid in cash, and (iv) any Participant who has been granted a stock option which is not exercisable in full shall be entitled, in lieu of the exercise of the portion of the stock option which is not exercisable, to obtain a cash payment in an amount equal to the difference between the option price of such stock option and (A) in the event the Change of Control is the result of a tender offer or exchange offer for the Common Stock, the final offer price per share paid for the Common Stock, or such lower price as the Committee may determine with respect to any incentive stock option to preserve its incentive stock option status, multiplied by the number of shares of Common Stock covered by such portion of the stock option, or (B) in the event the Change of Control is the result of any other occurrence, the aggregate value of the Common Stock covered by such portion of the stock option, as determined by the Committee at such time. The Committee may, in its discretion, include such further provisions and limitations in, any agreement documenting such Awards as it may deem equitable and in the best interests of the Company. 13 21. AMENDMENT The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that no amendment shall be made that would impair the rights of a Participant under an outstanding Award without the Participant's consent, and no amendment shall be made without stockholder approval if such approval is necessary in order to preserve the applicability of any exemption under Rule 16b-3 under the Exchange Act or qualification of any Award under Section 162(m), or is otherwise required as a matter of law. Further, no amendment to the Plan shall be effective that would: (a) increase the maximum amount that can be paid to a Participant under the Plan; (b) change the Business Criteria for payment of performance-based Awards; or (c) modify the eligibility requirements for Participants in the Plan, unless first approved by the Company's stockholders. 22. GOVERNING LAW The validity, construction and effect of the Plan and any actions taken or relating to the Plan shall be determined in accordance with the laws of the State of Delaware and applicable Federal law. 23. RIGHTS AS SHAREHOLDER Except as otherwise provided in the Award Agreement, a Participant shall have no rights as a shareholder until he or she becomes the holder of record. To the extent any person acquires a right to receive payments from the Company under this Plan, such rights shall be no greater than the rights of an unsecured creditor of the Company. 24. EFFECTIVE DATE The Plan became effective on December 23, 1993. Subject to earlier termination pursuant to Section 20, the Plan shall terminate effective December 31, 2005. After termination of the Plan, no future Awards may be granted but previously made Awards shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of the Plan. 14 EX-10.13 4 ex10p13.txt CHANGE IN CONTROL AGREEMENT Exhibit 10.13 CHIEF EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT THIS AGREEMENT is entered into this 1st day of August, 2002 by and --- ------ between GARDNER DENVER, INC., a Delaware corporation (the "Company"), and Ross J. Centanni (the "Executive"). - ---------------- WHEREAS, the Company's Board of Directors (the "Board") has determined that it is in the best interests of the Company and its stockholders to ensure that the Company and its affiliates will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a termination of the Executive's employment in certain circumstances, including following a Change in Control as defined herein. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened termination of the Executive's employment in such circumstances and to provide the Executive with compensation and benefits arrangements upon such a termination which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations who may seek to employ the Executive. NOW, THEREFORE, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement with the Executive, and it is hereby agreed as follows: 1. Definitions. For purposes of this Agreement, the following terms ----------- will have the following meanings unless otherwise expressly provided in this Agreement: (a) Beneficiary. "Beneficiary" means any individual, trust or ----------- other entity named by the Executive to receive the severance payments and benefits payable hereunder, if any, in the event of the death of the Executive. Executive may designate a Beneficiary to receive such payments and benefits by completing a form provided by the Company and delivering it to the Company's Vice President General Counsel & Secretary. Executive may change his or her designated Beneficiary at any time (without the consent of any prior Beneficiary) by completing and delivering to the Company a new beneficiary designation form. If a Beneficiary has not been designated by the Executive, or if no designated Beneficiary survives the Executive, then the payment and benefits provided under this Agreement, if any, will be paid to the Executive's estate, which shall be deemed to be Executive's Beneficiary. (b) Board. "Board" means the Board of Directors of the ----- Company. (c) Cause. "Cause" means: ----- (i) the Executive's willful and continued failure to substantially perform the Executive's duties with the Company or its affiliates (other than any such 1 failure resulting from the Executive's incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Company which specifically identifies the manner in which the Company believes that the Executive has not substantially performed his or her duties; (ii) the final conviction of the Executive of, or an entering of a guilty plea or a plea of no contest by the Executive, to a felony; or (iii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this definition, no act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without a reasonable belief that the action or omission was in the best interests of the Company or its affiliates. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board, the instructions of a more senior officer of the Company or the advice of counsel to the Company or its affiliates will be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company and its affiliates. (d) Change in Control. A "Change in Control" means the ----------------- occurrence of any one of the following events: (i) any "person" (as defined in Sections 13(d) and 14(d) of U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, acquires "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% of the combined voting power of the Company; or (ii) during any period of not more than two consecutive years, individuals who, at the beginning of such period, constitute the Board and any new directors (other than any director designated by a person who has entered into an agreement with the Company to effect a transaction described in subsections 1(d)(i), 1(d)(iii), or 1(d)(iv) of this Agreement) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or 2 whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; or (iii) the stockholders of the Company approve and the Company consummates a merger other than (A) a merger that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company and any Subsidiary, at least 50% of the combined voting power of all classes of stock of the Company or such surviving entity outstanding immediately after such merger or (B) a merger effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve and the Company consummates a plan of complete liquidation or dissolution of the Company, or a sale of all or substantially all of the assets of the Company. (e) Date of Termination means the date specified in a Notice ------------------- of Termination pursuant to paragraph 3 hereof, or the Executive's last date as an active employee of the Company and its affiliates before a termination of employment due to death, Disability, or other reason, as the case may be. (f) Disability. "Disability" means the Executive's total and ---------- permanent disability as defined under the terms of the Company's long-term disability plan in effect on the Date of Termination. (g) Effective Period. The "Effective Period" means the ---------------- 36-month period following any Change in Control. (h) Good Reason. "Good Reason" means, unless the Executive has ----------- consented in writing thereto, the occurrence of any of the following: (i) The assignment to the Executive of any duties inconsistent with the Executive's position, including any change in status, title, authority, duties or responsibilities or any other action which results in a diminution in such status, title, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company or the Executive's employer promptly after receipt of notice thereof given by the Executive; (ii) A reduction by the Company or the Executive's employer in the Executive's base salary; 3 (iii) The relocation of the Executive's office to a location more than 40 miles outside Quincy, ------- Illinois; -------- (iv) Following a Change in Control, unless a plan providing a substantially similar compensation or benefit is substituted, (A) the failure by the Company or any of its affiliates to continue in effect any material fringe benefit or compensation plan, retirement plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating prior to the Change in Control, or (B) the taking of any action by the Company or any of its affiliates which would adversely affect the Executive's participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit; or (v) Following a Change in Control, the failure of the Company or the affiliate of the Company by which the Executive is employed, or any affiliate which directly or indirectly owns or controls any affiliate by which the Executive is employed, to obtain the assumption in writing of the Company's obligation to perform this Agreement by any successor to all or substantially all of the assets of the Company or such affiliate within 15 days after a reorganization, merger, consolidation, sale or other disposition of assets of the Company or such affiliate. (vi) Any purported termination of the Executive's employment by the Company which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph 3 hereof; and for purposes of this Agreement, no such purported termination shall be effective. For purposes of this Agreement, any determination of "Good Reason" made by the Executive in good faith based upon his reasonable belief and understanding shall be conclusive. 2. Term. The term ("Term") of this Agreement shall commence on the ---- date first above written (the "Commencement Date") and, unless terminated earlier as provided hereunder, shall continue through the third anniversary of the Commencement Date (the "Termination Date"); provided, however, that commencing on the day following the Termination Date (the "Extension Date"), and on the anniversary of the Extension Date each year thereafter, the term of this Agreement shall automatically be extended for one additional year, unless at least 90 days prior to such Extension Date, the Company shall have given notice that it does not wish to extend this Agreement. Upon the occurrence of a Change in Control during the term of this Agreement, including any extensions thereof, this Agreement shall automatically be extended until the end of the Effective Period and may not be terminated by the Company during such time. 4 3. Notice of Termination. --------------------- (a) Any termination of the Executive's employment by the Company, or by any affiliate of the Company by which the Executive is employed, for Cause, or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with paragraph 10 of this Agreement. For purposes of this Agreement, a "Notice of Termination" for termination of employment for Cause or for Good Reason means a written notice which (i) is given at least thirty (30) days prior to the Date of Termination; (ii) indicates the specific termination provision in this Agreement relied upon, (iii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, (iv) specifies the employment termination date; and (v) allows the recipient of the Notice of Termination at least thirty (30) days to cure the act or omission relied upon in the Notice of Termination. The failure to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause will not waive any right of the party giving the Notice of Termination hereunder or preclude such party from asserting such fact or circumstance in enforcing its rights hereunder. (b) A Termination of Employment of the Executive will not be deemed to be for Cause unless and until there has been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive has engaged in the conduct described in paragraph 1(c) hereof, and specifying the particulars of such conduct. (c) A Termination of Employment of the Executive will not be deemed to be for Good Reason unless the Executive gives the Notice of Termination provided for herein within twelve (12) months after the Executive has actual knowledge of the act or omission of the Company constituting such Good Reason. 4. Obligations of the Company Upon Termination of Executive's ---------------------------------------------------------- Employment Following a Change in Control. ---------------------------------------- (a) If, during the Effective Period, the Company terminates the Executive's employment other than for Cause or the Executive terminates employment with the Company for Good Reason, the Company will pay the following to the Executive: (i) Cash in the amount of the Executive's annual base salary through the Date of Termination to the extent not theretofore paid; 5 (ii) Cash in the amount of the highest annual bonus received by the Executive in the three years immediately preceding the Notice of Termination; (iii) Cash in an amount equal to the product of three times the Executive's annual base salary at the greater of (A) the rate in effect at the time Notice of Termination is given or (B) the rate in effect immediately preceding the Change in Control, payable in a lump sum; (iv) A lump sum cash amount equal to the product of three times the highest annual bonus received by the Executive in the three years immediately preceding the Notice of Termination; (v) A lump sum cash amount equal to compensation previously deferred by the Executive, and all interest and earnings accrued thereon to the Date of Termination, under any and all nonqualified deferred compensation plans sponsored or maintained by the Company or by any affiliate controlled by the Company, including without limitation the Non-qualified Retirement Plans, in effect and in which the Executive was a participant, on the Date of Termination; (vi) The continuation of the provision of health insurance, dental insurance and life insurance benefits for a period of three years following the Date of Termination to the Executive and the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies of the Company as in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Period or on the Date of Termination, at the election of the Executive; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility; and (vii) The acceleration of vesting and the continued accrual of benefits under any and all defined benefit retirement plans sponsored or maintained by the Company or by any affiliate controlled by the Company, including without limitation the Non-qualified and Qualified Plans, in effect on and in which the Executive was a Participant on the Date of Termination, in each case for a period of three years, but in no event beyond the date that the Executive or Executive's spouse begins to receive benefits under such plan. (b) "Compensation" Under Retirement Plans. Any and all amounts ------------------------------------- paid under this Agreement in the amount of or otherwise in respect of the Executive's annual base salary and bonuses, whether or not deferred under a deferred compensation 6 plan or program, are intended to be and will be "Compensation" for purposes of determining Compensation under any and all retirement plans sponsored or maintained by the Company or by any affiliate controlled by the Company. (c) Effect of Death or Disability. If the Executive's ----------------------------- employment is terminated by reason of the Executive's death or Disability during the Term of this Agreement, this Agreement shall terminate automatically on the date of death or, in the event of Disability, on the Date of Termination. In the event of the Executive's death following the Executive's Date of Termination, but prior to the payment of the severance payments and benefits provided under paragraph 4 hereof, if any, such payments and benefits will be paid to the Executive's Beneficiary. 5. Mitigation of Damages. The Executive will not be required to --------------------- mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise. Except as otherwise specifically provided in this Agreement, the amount of any payment provided for under this Agreement will not be reduced by any compensation earned by the Executive as the result of self-employment or employment by another employer or otherwise. 6. Stock Options; Stock Appreciation Rights; Long-Term Cash Bonus; --------------------------------------------------------------- Restricted Stock; Performance Shares. The benefits provided under paragraph - ------------------------------------ 4 above are intended to be in addition to the value of any options to acquire common stock of the Company, Stock Appreciation Rights, shares of Restricted Stock, Restricted Stock Units, Performance Shares and Long-Term Cash Bonuses awarded under the Gardner Denver, Inc. Long-Term Incentive Plan (the "Stock Plan") and any other incentive or similar plan heretofore or hereafter adopted by the Company. The exercisability or vesting of such awards upon a Change in Control shall be governed by the terms of the Stock Plan and any award agreements entered into thereunder. 7. Tax Effect. ---------- (a) If Independent Tax Counsel determines that any payment or distribution by the Company or its affiliates to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") constitutes a "parachute payment" as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") (or any successor provision thereto)("Parachute Payment") which would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive will be entitled to receive an additional payment (a "Gross-Up Payment") in an amount equal to the sum of the Excise Tax, any and all federal, state and local income taxes and Medicare tax on the Excise Tax, and the excise tax imposed by Section 4999 of the Code on the Excise Tax, together with any interest or penalties incurred by the Executive with respect to such income, Medicare and excise taxes. 7 (b) Subject to the provisions of paragraph 7(d) below, all determinations required to be made under this paragraph 7, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determinations, will be made by Independent Tax Counsel which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. For purposes of this paragraph, "Independent Tax Counsel" will mean a lawyer, a certified public accountant with a nationally recognized accounting firm, or a compensation consultant with a nationally recognized actuarial and benefits consulting firm with expertise in the area of executive compensation tax law, who will be selected by the Company and will be reasonably acceptable to the Executive, and whose fees and disbursements will be paid by the Company. (c) Any Gross-Up Payment will be paid by the Company to the Executive within five days of the Company's receipt of the Independent Tax Counsel's determination. If Independent Tax Counsel determines that no Excise Tax is payable by the Executive, it will furnish the Executive with a written opinion that the Executive has substantial authority not to report any Excise Tax on the Executive's Federal income tax return. If the Executive is subsequently required to make a payment of any Excise Tax, then the Independent Tax Counsel will determine the amount of such additional payment ("Gross-Up Underpayment"), and any such Gross-Up Underpayment will be promptly paid by the Company to or for the benefit of the Executive. The fees and disbursements of the Independent Tax Counsel will be paid by the Company. (d) The Executive will notify the Company in writing within 15 days of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. If the Company notifies the Executive in writing that it desires to contest such claim and that it will bear the costs and provide the indemnification as required by this paragraph, the Executive will: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company will bear and pay directly all 8 costs and expenses (including additional interest and penalties) incurred in connection with such contest and will indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. The Company will control all proceedings taken in connection with such contest; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company will advance the amount of such payment to the Executive on an interest-free basis, and will indemnify and hold the Executive harmless on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance. (e) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph 7(d)(iv), the Executive becomes entitled to receive any refund with respect to such claim, the Executive will, within 10 days of receipt thereof, pay to the Company the amount of such refund, together with any interest paid or credited thereon after taxes applicable thereto. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph 7(d)(iv), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance will be forgiven and will not be required to be repaid and the amount of such advance will offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 8. Confidential Information; Non-solicitation. For the Term of this ------------------------------------------ Agreement, and for the period of time during which the Executive receives benefits pursuant to paragraph 4(a)(vi) hereof, the Executive covenants and agrees as follows: (a) to hold in a fiduciary capacity for the benefit of the Company and its affiliates all secret, proprietary or confidential material, knowledge, data or any other information relating to the Company or any of its affiliated companies and their respective businesses ("Confidential Information"), which has been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and that has not been, is not now and hereafter does not become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement), and will not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it; the Executive further agrees to return to the Company any and all records and documents (and all copies thereof) and all other property belonging to the Company or relating to the Company, its affiliates or their businesses, upon termination of Executive's employment with the Company and its affiliates; and, 9 (b) not to solicit or entice any other employee of the Company or its affiliates to leave the Company or its affiliates to go to work for any other business or organization which is in direct or indirect competition with the Company or any of its affiliates, nor request or advise a customer or client of the Company or its affiliates to curtail or cancel such customer's business relationship with the Company or its affiliates. 9. Rights and Remedies Upon Breach. ------------------------------- (a) The Executive hereby acknowledges and agrees that the provisions contained in paragraph 8 of this Agreement (the "Restrictive Covenants"), are reasonable and valid in duration and in all other respects. If any court of competent jurisdiction determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants will not thereby be affected and will be given full effect without regard to the invalid portions. (b) If the Executive breaches, or threatens to commit a breach of, any of the Restrictive Covenants, the Company will have the following rights and remedies, each of which rights and remedies will be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity: (i) Specific Performance. The right and remedy to -------------------- have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company. (ii) Accounting. The right and remedy to require the ---------- Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by the Executive as the result of any action constituting a breach of the Restrictive Covenants. (iii) Cessation of Severance Benefits. The right and ------------------------------- remedy to cease any further severance, benefit or other compensation payments under this Agreement to the Executive or the Executive's Beneficiary from and after the commencement of such breach by the Executive. 10. Arbitration. The Company and Executive agree that any claim, ----------- dispute or controversy arising under or in connection with this Agreement (including, without limitation, any such claim, dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in the city of St. Louis (or at such other location as shall be mutually agreed by the parties). The arbitration 10 shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitrator shall be selected by alternatively striking from a list of five arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, experts, witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other than the arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorney's fees related to such action. Notwithstanding the provisions of this paragraph, either party may seek injunctive relief in a court of competent jurisdiction, whether or not the case is then pending before the panel of arbitrators. Following the court's determination of the injunction issue, the case shall continue in arbitration as provided herein. 11. Notices. Any notice provided for in this Agreement will be given in ------- writing and will be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice will be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission, or, if mailed, on the date of actual receipt thereof. Notices will be properly addressed to the parties at their respective addresses set forth below or to such other address as either party may later specify by notice to the other in accordance with the provisions of this paragraph: If to the Company: Gardner Denver, Inc. 1800 Gardner Expressway Quincy, IL 62301 (217) 228-8260 (Fax) Attention: Corporate Secretary/General Counsel If to the Executive: Ross J. Centanni 2910 Curved Creek Road Quincy, Illinois 62301 11 12. Entire Agreement. This Agreement contains the entire agreement ---------------- between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto, including, without limitation, the Letter Agreement entered into between the Company and the Executive dated effective February 24, 1994, and any and all prior ----------------- employment or severance agreements and related amendments entered into between the Company and the Executive. Furthermore, the severance payments and benefits provided for under this Agreement are separate and apart from and, to the extent they are actually paid, will be in lieu of any payment under any policy of the Company or any of its affiliates regarding severance payments generally. 13. Waivers and Amendments. This Agreement may be amended, superseded, ---------------------- canceled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties hereto or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any waiver on the part of any party of any such right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 14. Governing Law. This Agreement will be governed by and construed in ------------- accordance with the laws of the state of Delaware (without giving effect to the choice of law provisions thereof), where the employment of the Executive will be deemed, in part, to be performed, and enforcement of this Agreement or any action taken or held with respect to this Agreement will be taken in the courts of appropriate jurisdiction in Delaware. 15. Assignment. This Agreement, and any rights and obligations ---------- hereunder, may not be assigned by the Executive and may be assigned by the Company only to any successor in interest, whether by merger, consolidation, acquisition or the like, or to purchasers of substantially all of the assets of the Company. 16. Binding Agreement. This Agreement will inure to the benefit of and ----------------- be binding upon the Company and its respective successors and assigns and the Executive and his legal representatives. 17. Counterparts. This Agreement may be executed in separate ------------ counterparts, each of which when so executed and delivered will be deemed an original, but all of which together will constitute one and the same instrument. 18. Headings. The headings in this Agreement are for reference purposes -------- only and will not in any way affect the meaning or interpretation of this Agreement. 19. Authorization. The Company represents and warrants that the Board ------------- of Directors of the Company has authorized the execution of this Agreement. 12 20. Validity. The invalidity or unenforceability of any provisions of -------- this Agreement will not affect the validity or enforceability of any other provisions of this Agreement, which will remain in full force and effect. 21. Tax Withholding. The Company will have the right to deduct from all --------------- benefits and/or payments made under this Agreement to the Executive any and all taxes required by law to be paid or withheld with respect to such benefits or payments. 22. No Contract of Employment. Nothing contained in this Agreement will ------------------------- be construed as a contract of employment between the Company or any of its affiliates and the Executive, as a right of the Executive to be continued in the employment of the Company or any of its affiliates, or as a limitation of the right of the Company or any of its affiliates to discharge the Executive with or without cause. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. The Company GARDNER DENVER, INC. THE EXECUTIVE By: /s/ Tracy D. Pagliara /s/ Ross J. Centanni --------------------------------- --------------------------------- Name: Tracy D. Pagliara Name: Ross J. Centanni --------------------------------- Title: Vice President, General Counsel --------------------------------- & Secretary --------------------------------- 13 EX-10.14 5 ex10p14.txt FORM OF CHANGE IN CONTROL AGREEMENT Exhibit 10.14 EXECUTIVE CHANGE IN CONTROL AGREEMENT THIS AGREEMENT is entered into this 1st day of August, 2002 by and --- ------ between GARDNER DENVER, INC., a Delaware corporation (the "Company"), and (the "Executive"). - ---------------- WHEREAS, the Company's Board of Directors (the "Board") has determined that it is in the best interests of the Company and its stockholders to ensure that the Company and its affiliates will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a termination of the Executive's employment in certain circumstances, including following a Change in Control as defined herein. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened termination of the Executive's employment in such circumstances and to provide the Executive with compensation and benefits arrangements upon such a termination which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations who may seek to employ the Executive. NOW, THEREFORE, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement with the Executive, and it is hereby agreed as follows: 1. Definitions. For purposes of this Agreement, the following terms ----------- will have the following meanings unless otherwise expressly provided in this Agreement: (a) Beneficiary. "Beneficiary" means any individual, trust or ----------- other entity named by the Executive to receive the severance payments and benefits payable hereunder, if any, in the event of the death of the Executive. Executive may designate a Beneficiary to receive such payments and benefits by completing a form provided by the Company and delivering it to the Company's Vice President General Counsel & Secretary. Executive may change his or her designated Beneficiary at any time (without the consent of any prior Beneficiary) by completing and delivering to the Company a new beneficiary designation form. If a Beneficiary has not been designated by the Executive, or if no designated Beneficiary survives the Executive, then the payment and benefits provided under this Agreement, if any, will be paid to the Executive's estate, which shall be deemed to be Executive's Beneficiary. (b) Board. "Board" means the Board of Directors of the ----- Company. (c) Cause. "Cause" means: ----- (i) the Executive's willful and continued failure to substantially perform the Executive's duties with the Company or its affiliates (other than any such 1 failure resulting from the Executive's incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Company which specifically identifies the manner in which the Company believes that the Executive has not substantially performed his or her duties; (ii) the final conviction of the Executive of, or an entering of a guilty plea or a plea of no contest by the Executive, to a felony; or (iii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this definition, no act or failure to act on the part of the Executive shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without a reasonable belief that the action or omission was in the best interests of the Company or its affiliates. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board, the instructions of a more senior officer of the Company or the advice of counsel to the Company or its affiliates will be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company and its affiliates. (d) Change in Control. A "Change in Control" means the ----------------- occurrence of any one of the following events: (i) any "person" (as defined in Sections 13(d) and 14(d) of U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, acquires "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% of the combined voting power of the Company; or (ii) during any period of not more than two consecutive years, individuals who, at the beginning of such period, constitute the Board and any new directors (other than any director designated by a person who has entered into an agreement with the Company to effect a transaction described in subsections 1(d)(i), 1(d)(iii), or 1(d)(iv) of this Agreement) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or 2 whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; or (iii) the stockholders of the Company approve and the Company consummates a merger other than (A) a merger that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company and any Subsidiary, at least 50% of the combined voting power of all classes of stock of the Company or such surviving entity outstanding immediately after such merger or (B) a merger effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve and the Company consummates a plan of complete liquidation or dissolution of the Company, or a sale of all or substantially all of the assets of the Company. (e) Date of Termination means the date specified in a Notice ------------------- of Termination pursuant to paragraph 3 hereof, or the Executive's last date as an active employee of the Company and its affiliates before a termination of employment due to death, Disability, or other reason, as the case may be. (f) Disability. "Disability" means the Executive's total and ---------- permanent disability as defined under the terms of the Company's long-term disability plan in effect on the Date of Termination. (g) Effective Period. The "Effective Period" means the ---------------- 24-month period following any Change in Control. (h) Good Reason. "Good Reason" means, unless the Executive has ----------- consented in writing thereto, the occurrence of any of the following: (i) The assignment to the Executive of any duties inconsistent with the Executive's position, including any change in status, title, authority, duties or responsibilities or any other action which results in a diminution in such status, title, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company or the Executive's employer promptly after receipt of notice thereof given by the Executive; (ii) A reduction by the Company or the Executive's employer in the Executive's base salary; 3 (iii) The relocation of the Executive's office to a location more than 40 miles outside ; ------------ (iv) Following a Change in Control, unless a plan providing a substantially similar compensation or benefit is substituted, (A) the failure by the Company or any of its affiliates to continue in effect any material fringe benefit or compensation plan, retirement plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating prior to the Change in Control, or (B) the taking of any action by the Company or any of its affiliates which would adversely affect the Executive's participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit; or (v) Following a Change in Control, the failure of the Company or the affiliate of the Company by which the Executive is employed, or any affiliate which directly or indirectly owns or controls any affiliate by which the Executive is employed, to obtain the assumption in writing of the Company's obligation to perform this Agreement by any successor to all or substantially all of the assets of the Company or such affiliate within 15 days after a reorganization, merger, consolidation, sale or other disposition of assets of the Company or such affiliate. (vi) Any purported termination of the Executive's employment by the Company which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph 3 hereof; and for purposes of this Agreement, no such purported termination shall be effective. For purposes of this Agreement, any determination of "Good Reason" made by the Executive in good faith based upon his reasonable belief and understanding shall be conclusive. 2. Term. The term ("Term") of this Agreement shall commence on the ---- date first above written (the "Commencement Date") and, unless terminated earlier as provided hereunder, shall continue through the third anniversary of the Commencement Date (the "Termination Date"); provided, however, that commencing on the day following the Termination Date (the "Extension Date"), and on the anniversary of the Extension Date each year thereafter, the term of this Agreement shall automatically be extended for one additional year, unless at least 90 days prior to such Extension Date, the Company shall have given notice that it does not wish to extend this Agreement. Upon the occurrence of a Change in Control during the term of this Agreement, including any extensions thereof, this Agreement shall automatically be extended until the end of the Effective Period and may not be terminated by the Company during such time. 4 3. Notice of Termination. --------------------- (a) Any termination of the Executive's employment by the Company, or by any affiliate of the Company by which the Executive is employed, for Cause, or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with paragraph 10 of this Agreement. For purposes of this Agreement, a "Notice of Termination" for termination of employment for Cause or for Good Reason means a written notice which (i) is given at least thirty (30) days prior to the Date of Termination; (ii) indicates the specific termination provision in this Agreement relied upon, (iii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, (iv) specifies the employment termination date; and (v) allows the recipient of the Notice of Termination at least thirty (30) days to cure the act or omission relied upon in the Notice of Termination. The failure to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause will not waive any right of the party giving the Notice of Termination hereunder or preclude such party from asserting such fact or circumstance in enforcing its rights hereunder. (b) A Termination of Employment of the Executive will not be deemed to be for Cause unless and until there has been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive has engaged in the conduct described in paragraph 1(c) hereof, and specifying the particulars of such conduct. (c) A Termination of Employment of the Executive will not be deemed to be for Good Reason unless the Executive gives the Notice of Termination provided for herein within twelve (12) months after the Executive has actual knowledge of the act or omission of the Company constituting such Good Reason. 4. Obligations of the Company Upon Termination of Executive's ---------------------------------------------------------- Employment Following a Change in Control. ---------------------------------------- (a) If, during the Effective Period, the Company terminates the Executive's employment other than for Cause or the Executive terminates employment with the Company for Good Reason, the Company will pay the following to the Executive: (i) Cash in the amount of the Executive's annual base salary through the Date of Termination to the extent not theretofore paid; 5 (ii) Cash in the amount of the highest annual bonus received by the Executive in the three years immediately preceding the Notice of Termination; (iii) Cash in an amount equal to the product of two times the Executive's annual base salary at the greater of (A) the rate in effect at the time Notice of Termination is given or (B) the rate in effect immediately preceding the Change in Control, payable in a lump sum; (iv) A lump sum cash amount equal to the product of two times the highest annual bonus received by the Executive in the three years immediately preceding the Notice of Termination; (v) A lump sum cash amount equal to compensation previously deferred by the Executive, and all interest and earnings accrued thereon to the Date of Termination, under any and all nonqualified deferred compensation plans sponsored or maintained by the Company or by any affiliate controlled by the Company, including without limitation the Non-qualified Retirement Plans, in effect and in which the Executive was a participant, on the Date of Termination; (vi) The continuation of the provision of health insurance, dental insurance and life insurance benefits for a period of two years following the Date of Termination to the Executive and the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies of the Company as in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Period or on the Date of Termination, at the election of the Executive; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility; and (vii) The acceleration of vesting and the continued accrual of benefits under any and all defined benefit retirement plans sponsored or maintained by the Company or by any affiliate controlled by the Company, including without limitation the Non-qualified and Qualified Plans, in effect on and in which the Executive was a Participant on the Date of Termination, in each case for a period of three years, but in no event beyond the date that the Executive or Executive's spouse begins to receive benefits under such plan. (b) "Compensation" Under Retirement Plans. Any and all amounts ------------------------------------- paid under this Agreement in the amount of or otherwise in respect of the Executive's annual base salary and bonuses, whether or not deferred under a deferred compensation 6 plan or program, are intended to be and will be "Compensation" for purposes of determining Compensation under any and all retirement plans sponsored or maintained by the Company or by any affiliate controlled by the Company. (c) Effect of Death or Disability. If the Executive's ----------------------------- employment is terminated by reason of the Executive's death or Disability during the Term of this Agreement, this Agreement shall terminate automatically on the date of death or, in the event of Disability, on the Date of Termination. In the event of the Executive's death following the Executive's Date of Termination, but prior to the payment of the severance payments and benefits provided under paragraph 4 hereof, if any, such payments and benefits will be paid to the Executive's Beneficiary. 5. Mitigation of Damages. The Executive will not be required to --------------------- mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise. Except as otherwise specifically provided in this Agreement, the amount of any payment provided for under this Agreement will not be reduced by any compensation earned by the Executive as the result of self-employment or employment by another employer or otherwise. 6. Stock Options; Stock Appreciation Rights; Long-Term Cash Bonus; --------------------------------------------------------------- Restricted Stock; Performance Shares. The benefits provided under paragraph - ------------------------------------ 4 above are intended to be in addition to the value of any options to acquire common stock of the Company, Stock Appreciation Rights, shares of Restricted Stock, Restricted Stock Units, Performance Shares and Long-Term Cash Bonuses awarded under the Gardner Denver, Inc. Long-Term Incentive Plan (the "Stock Plan") and any other incentive or similar plan heretofore or hereafter adopted by the Company. The exercisability or vesting of such awards upon a Change in Control shall be governed by the terms of the Stock Plan and any award agreements entered into thereunder. 7. Tax Effect. ---------- (a) If Independent Tax Counsel determines that any payment or distribution by the Company or its affiliates to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") constitutes a "parachute payment" as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") (or any successor provision thereto)("Parachute Payment") which would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive will be entitled to receive an additional payment (a "Gross-Up Payment") in an amount equal to the sum of the Excise Tax, any and all federal, state and local income taxes and Medicare tax on the Excise Tax, and the excise tax imposed by Section 4999 of the Code on the Excise Tax, together with any interest or penalties incurred by the Executive with respect to such income, Medicare and excise taxes. 7 (b) Subject to the provisions of paragraph 7(d) below, all determinations required to be made under this paragraph 7, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determinations, will be made by Independent Tax Counsel which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. For purposes of this paragraph, "Independent Tax Counsel" will mean a lawyer, a certified public accountant with a nationally recognized accounting firm, or a compensation consultant with a nationally recognized actuarial and benefits consulting firm with expertise in the area of executive compensation tax law, who will be selected by the Company and will be reasonably acceptable to the Executive, and whose fees and disbursements will be paid by the Company. (c) Any Gross-Up Payment will be paid by the Company to the Executive within five days of the Company's receipt of the Independent Tax Counsel's determination. If Independent Tax Counsel determines that no Excise Tax is payable by the Executive, it will furnish the Executive with a written opinion that the Executive has substantial authority not to report any Excise Tax on the Executive's Federal income tax return. If the Executive is subsequently required to make a payment of any Excise Tax, then the Independent Tax Counsel will determine the amount of such additional payment ("Gross-Up Underpayment"), and any such Gross-Up Underpayment will be promptly paid by the Company to or for the benefit of the Executive. The fees and disbursements of the Independent Tax Counsel will be paid by the Company. (d) The Executive will notify the Company in writing within 15 days of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. If the Company notifies the Executive in writing that it desires to contest such claim and that it will bear the costs and provide the indemnification as required by this paragraph, the Executive will: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company will bear and pay directly all 8 costs and expenses (including additional interest and penalties) incurred in connection with such contest and will indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. The Company will control all proceedings taken in connection with such contest; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company will advance the amount of such payment to the Executive on an interest-free basis, and will indemnify and hold the Executive harmless on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance. (e) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph 7(d)(iv), the Executive becomes entitled to receive any refund with respect to such claim, the Executive will, within 10 days of receipt thereof, pay to the Company the amount of such refund, together with any interest paid or credited thereon after taxes applicable thereto. If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph 7(d)(iv), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance will be forgiven and will not be required to be repaid and the amount of such advance will offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 8. Confidential Information; Non-solicitation. For the Term of this ------------------------------------------ Agreement, and for the period of time during which the Executive receives benefits pursuant to paragraph 4(a)(vi) hereof, the Executive covenants and agrees as follows: (a) to hold in a fiduciary capacity for the benefit of the Company and its affiliates all secret, proprietary or confidential material, knowledge, data or any other information relating to the Company or any of its affiliated companies and their respective businesses ("Confidential Information"), which has been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and that has not been, is not now and hereafter does not become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement), and will not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it; the Executive further agrees to return to the Company any and all records and documents (and all copies thereof) and all other property belonging to the Company or relating to the Company, its affiliates or their businesses, upon termination of Executive's employment with the Company and its affiliates; and, 9 (b) not to solicit or entice any other employee of the Company or its affiliates to leave the Company or its affiliates to go to work for any other business or organization which is in direct or indirect competition with the Company or any of its affiliates, nor request or advise a customer or client of the Company or its affiliates to curtail or cancel such customer's business relationship with the Company or its affiliates. 9. Rights and Remedies Upon Breach. ------------------------------- (a) The Executive hereby acknowledges and agrees that the provisions contained in paragraph 8 of this Agreement (the "Restrictive Covenants"), are reasonable and valid in duration and in all other respects. If any court of competent jurisdiction determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants will not thereby be affected and will be given full effect without regard to the invalid portions. (b) If the Executive breaches, or threatens to commit a breach of, any of the Restrictive Covenants, the Company will have the following rights and remedies, each of which rights and remedies will be independent of the others and severally enforceable, and each of which is in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity: (i) Specific Performance. The right and remedy to -------------------- have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company. (ii) Accounting. The right and remedy to require the ---------- Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by the Executive as the result of any action constituting a breach of the Restrictive Covenants. (iii) Cessation of Severance Benefits. The right and ------------------------------- remedy to cease any further severance, benefit or other compensation payments under this Agreement to the Executive or the Executive's Beneficiary from and after the commencement of such breach by the Executive. 10. Arbitration. The Company and Executive agree that any claim, ----------- dispute or controversy arising under or in connection with this Agreement (including, without limitation, any such claim, dispute or controversy arising under any federal, state or local statute, regulation or ordinance or any of the Company's employee benefit plans, policies or programs) shall be resolved solely and exclusively by binding arbitration. The arbitration shall be held in the city of St. Louis (or at such other location as shall be mutually agreed by the parties). The arbitration 10 shall be conducted in accordance with the Expedited Employment Arbitration Rules (the "Rules") of the American Arbitration Association (the "AAA") in effect at the time of the arbitration, except that the arbitrator shall be selected by alternatively striking from a list of five arbitrators supplied by the AAA. All fees and expenses of the arbitration, including a transcript if either requests, shall be borne equally by the parties. If Executive prevails as to any material issue presented to the arbitrator, the entire cost of such proceedings (including, without limitation, Executive's reasonable attorneys fees) shall be borne by the Company. If Executive does not prevail as to any material issue, each party will pay for the fees and expenses of its own attorneys, experts, witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the party prevails on a claim for which attorney's fees are recoverable under the Rules). Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by applicable state law. If either the Company or Executive pursues any claim, dispute or controversy against the other in a proceeding other than the arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive relief regarding such action and recovery of all costs, losses and attorney's fees related to such action. Notwithstanding the provisions of this paragraph, either party may seek injunctive relief in a court of competent jurisdiction, whether or not the case is then pending before the panel of arbitrators. Following the court's determination of the injunction issue, the case shall continue in arbitration as provided herein. 11. Notices. Any notice provided for in this Agreement will be given in ------- writing and will be delivered personally, telegraphed, telexed, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice will be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission, or, if mailed, on the date of actual receipt thereof. Notices will be properly addressed to the parties at their respective addresses set forth below or to such other address as either party may later specify by notice to the other in accordance with the provisions of this paragraph: If to the Company: Gardner Denver, Inc. 1800 Gardner Expressway Quincy, IL 62301 (217) 228-8260 (Fax) Attention: Corporate Secretary/General Counsel If to the Executive: ---------------------------- ---------------------------- ---------------------------- 11 12. Entire Agreement. This Agreement contains the entire agreement ---------------- between the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, with respect thereto, including, without limitation, the Letter Agreement entered into between the Company and the Executive dated effective , and any and all prior --------- employment or severance agreements and related amendments entered into between the Company and the Executive. Furthermore, the severance payments and benefits provided for under this Agreement are separate and apart from and, to the extent they are actually paid, will be in lieu of any payment under any policy of the Company or any of its affiliates regarding severance payments generally. 13. Waivers and Amendments. This Agreement may be amended, superseded, ---------------------- canceled, renewed or extended, and the terms and conditions hereof may be waived, only by a written instrument signed by the parties hereto or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any waiver on the part of any party of any such right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 14. Governing Law. This Agreement will be governed by and construed in ------------- accordance with the laws of the state of Delaware (without giving effect to the choice of law provisions thereof), where the employment of the Executive will be deemed, in part, to be performed, and enforcement of this Agreement or any action taken or held with respect to this Agreement will be taken in the courts of appropriate jurisdiction in Delaware. 15. Assignment. This Agreement, and any rights and obligations ---------- hereunder, may not be assigned by the Executive and may be assigned by the Company only to any successor in interest, whether by merger, consolidation, acquisition or the like, or to purchasers of substantially all of the assets of the Company. 16. Binding Agreement. This Agreement will inure to the benefit of and ----------------- be binding upon the Company and its respective successors and assigns and the Executive and his legal representatives. 17. Counterparts. This Agreement may be executed in separate ------------ counterparts, each of which when so executed and delivered will be deemed an original, but all of which together will constitute one and the same instrument. 18. Headings. The headings in this Agreement are for reference purposes -------- only and will not in any way affect the meaning or interpretation of this Agreement. 19. Authorization. The Company represents and warrants that the Board ------------- of Directors of the Company has authorized the execution of this Agreement. 12 20. Validity. The invalidity or unenforceability of any provisions of -------- this Agreement will not affect the validity or enforceability of any other provisions of this Agreement, which will remain in full force and effect. 21. Tax Withholding. The Company will have the right to deduct from all --------------- benefits and/or payments made under this Agreement to the Executive any and all taxes required by law to be paid or withheld with respect to such benefits or payments. 22. No Contract of Employment. Nothing contained in this Agreement will ------------------------- be construed as a contract of employment between the Company or any of its affiliates and the Executive, as a right of the Executive to be continued in the employment of the Company or any of its affiliates, or as a limitation of the right of the Company or any of its affiliates to discharge the Executive with or without cause. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. The Company GARDNER DENVER, INC. THE EXECUTIVE By: ------------------------------ ------------------------------ Name: Ross J. Centanni Name: ------------------------------ Title: Chairman, President & ------------------------------ Chief Executive Officer ------------------------------ 13 EX-99.1 6 exh99p1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Gardner Denver, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ross J. Centanni, Chairman, President & Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Ross J. Centanni --------------------- Ross J. Centanni Title: Chairman, President & CEO Gardner Denver, Inc. August 13, 2002 EX-99.2 7 exh99p2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Gardner Denver, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Philip R. Roth, Vice President, Finance & Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Philip R. Roth ------------------- Philip R. Roth Title: Vice President, Finance & CFO Gardner Denver, Inc. August 13, 2002 -----END PRIVACY-ENHANCED MESSAGE-----