FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number 1-6948
SPX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 38-1016240
(State of Incorporation) (I.R.S. Employer Identification No.)
700 Terrace Point Drive, Muskegon, Michigan 49443-3301
(Address of Principal Executive Office)
Registrant's Telephone Number including Area Code (616) 724-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Common shares outstanding July 24, 1998 -- 12,310,848
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
(Unaudited)
June 30, December 31,
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 12,395 $ 12,113
Receivables 168,733 172,783
Inventories 129,624 92,875
Deferred income tax asset and refunds 62,983 72,021
Prepaid and other current assets 18,390 33,753
---------- ----------
Total current assets $ 392,125 $ 383,545
Property, plant and equipment, at cost 283,143 263,821
Accumulated depreciation (150,296) (141,703)
---------- ----------
Net property, plant and equipment $ 132,847 $ 122,118
Goodwill 96,141 60,156
Other assets 21,770 17,988
---------- ----------
Total assets $ 642,883 $ 583,807
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term debt $ 3,181 $ 2,774
Accounts payable 97,865 91,491
Accrued liabilities 166,514 182,773
Income taxes payable 15,395 9,516
---------- ----------
Total current liabilities $ 282,955 $ 286,554
Long-term liabilities 92,692 90,205
Deferred income taxes 44,838 46,142
Minority interest 2,021 1,764
Long-term debt 258,803 202,490
Shareholders' equity:
Common stock 168,807 166,999
Paid in capital 69,816 68,400
Retained deficit (35,135) (63,837)
Common stock held in treasury (219,939) (191,413)
Unearned compensation (16,897) (17,704)
Cumulative translation adjustments (5,078) (5,793)
---------- ----------
Total shareholders' equity $ (38,426) $ (43,348)
---------- ----------
Total liabilities and shareholders' equity $ 642,883 $ 583,807
========== ==========
The accompanying notes are an integral part of these statements.
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
(Unaudited)
Three months ended Six months ended
June 30 June 30
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
Revenues $231,654 $230,263 $462,018 $466,925
Costs and expenses:
Cost of products sold 165,461 166,079 332,686 340,246
Selling, general and administrative 41,178 41,841 83,406 87,230
Goodwill/intangible amortization 753 818 1,563 1,780
Minority and equity interests 82 67 157 97
Special charges and (gains) 5,691 - (7,092) 6,500
-------- -------- -------- --------
Operating income $ 18,489 $ 21,458 $ 51,298 $ 31,072
Other expense (income), net (726) (458) (1,473) (72,694)
Interest expense, net 4,206 2,924 7,924 7,252
-------- -------- -------- --------
Income before income taxes $ 15,009 $ 18,992 $ 44,847 $ 96,514
Provision for income taxes 5,403 7,027 16,145 49,844
-------- -------- -------- --------
Income before extraordinary item $ 9,606 $ 11,965 $ 28,702 $ 46,670
Extraordinary item, net of tax - - - (10,330)
-------- -------- -------- --------
Net income $ 9,606 $ 11,965 $ 28,702 $ 36,340
Other comprehensive income (foreign
currency translation adjustment) 502 (114) 715 (3,929)
-------- -------- -------- --------
Comprehensive income $ 10,108 $ 11,851 $ 29,417 $ 32,411
======== ======== ======== ========
Basic income (loss) per share:
Income before extraordinary item $ 0.81 $ 0.90 $ 2.40 $ 3.44
Extraordinary item, net of tax - - - (0.76)
-------- -------- -------- --------
Net income $ 0.81 $ 0.90 $ 2.40 $ 2.68
======== ======== ======== ========
Weighted average number of
common shares outstanding 11,917 13,251 11,972 13,571
Diluted income (loss) per share:
Income before extraordinary item $ 0.78 $ 0.88 $ 2.33 $ 3.33
Extraordinary item, net of tax - - - (0.74)
-------- -------- -------- --------
Net income $ 0.78 $ 0.88 $ 2.33 $ 2.59
======== ======== ======== ========
Weighted average number of
common shares outstanding 12,246 13,670 12,342 14,040
Dividends per share $ - $ - $ - $ 0.10
The accompanying notes are an integral part of these statements.
SPX CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30,
1998 1997
---------- ----------
Cash flows from operating activities:
Net income from operating activities $ 28,702 $ 36,340
Adjustments to reconcile net income to net
cash from operating activities -
Extraordinary item - 10,330
Depreciation and amortization 11,981 13,325
Special charges and (gains) (7,092) 6,500
Gain on sale of business - (71,895)
Compensation recognized under employee stock plan 2,376 2,033
Deferred taxes 7,739 8,078
Change in operating assets and liabilities
(net of effect of acquired and disposed businesses):
Receivables 20,321 (41,120)
Inventories (24,885) (12,904)
Prepaid and other assets 13,202 (5,060)
Accounts payable and accrued liabilities (14,853) (7,714)
Income taxes payable 4,810 26,909
Other, net 2,155 1,554
---------- ----------
Net cash provided (used) by operating activities $ 44,456 $ (33,624)
Cash flows from investing activities:
Proceeds from sale of business $ - $ 223,000
Investment in businesses (58,967) (5,109)
Capital expenditures (14,593) (10,575)
---------- ----------
Net cash provided (used) by investing activities $ (73,560) $ 207,316
Cash flows from financing activities:
Net borrowings (payments) under debt agreements $ 56,697 $ (36,358)
Payment of costs related to debt extinguishment - (16,397)
Purchases of common stock (28,526) (120,207)
Net shares sold under stock option plan 1,444 3,728
Dividends paid - (1,424)
---------- ----------
Net cash provided (used by) financing activities $ 29,615 $(170,658)
Effect of exchange rate changes on cash (229) 487
---------- ----------
Net increase in cash and cash equivalents $ 282 $ 3,521
Cash and cash equivalents, beginning of period 12,113 12,312
---------- ----------
Cash and cash equivalents, end of period $ 12,395 $ 15,833
========== ==========
The accompanying notes are an integral part of these statements.
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998 (Unaudited)
1. The interim financial statements reflect the adjustments which are, in the
opinion of management, necessary to a fair statement of the results of the
interim periods presented. Adjustments are of a normal recurring nature.
The preparation of SPX Corporation's (the "Company") consolidated condensed
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated condensed
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Information regarding the Company's segments was as follows:
Three months Six months
ended June 30, ended June 30,
1998 1997 1998 1997
------- ------- ------- -------
(in millions) (in millions)
Revenues:
Service Solutions $ 170.9 $ 162.2 $ 333.2 $ 305.9
Vehicle Components (1) 60.8 68.1 128.8 161.0
------- ------- ------- -------
Total $ 231.7 $ 230.3 $ 462.0 $ 466.9
======= ======= ======= =======
Operating income (loss):
Service Solutions (2) $ 20.7 $ 17.6 $ 36.4 $ 21.2
Vehicle Components 8.5 9.6 18.0 21.2
General Corporate (3) (10.7) (5.7) (3.1) (11.3)
------- ------- ------- -------
Total $ 18.5 $ 21.5 $ 51.3 $ 31.1
======= ======= ======= =======
Capital Expenditures:
Service Solutions $ 2.0 $ 1.4 $ 4.5 $ 2.9
Vehicle Components 4.2 4.2 10.0 7.4
General Corporate 0.0 0.1 0.1 0.3
------- ------- ------- -------
Total $ 6.2 $ 5.7 $ 14.6 $ 10.6
======= ======= ======= =======
Depreciation and Amortization:
Service Solutions $ 2.5 $ 2.8 $ 5.0 $ 5.5
Vehicle Components 3.3 3.2 6.4 7.3
General Corporate 0.3 0.1 0.6 0.5
------- ------- ------- -------
Total $ 6.1 $ 6.1 $ 12.0 $ 13.3
======= ======= ======= =======
June 30, December 31,
1998 1997
------- -------
Identifiable Assets:
Service Solutions $ 401.6 $ 320.0
Vehicle Components 144.7 147.6
General Corporate 96.6 116.2
------- -------
Total $ 642.9 $ 583.8
======= =======
(1) The Company sold its Sealed Power division in February 1997, see Note 3.
(2) 1997 includes a $6.5 million special charge, see Note 4.
(3) 1998 includes a $5.7 special charge in the second quarter of 1998 and a
$7.1 million special gain for the six months ended June 30, 1998 related
to the Echlin transaction, see Note 10.
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998 (Unaudited)
3. On February 7, 1997, the Company completed the sale of substantially all of
the assets and rights used in the manufacture and distribution of piston
rings and cylinder liners, known as the Sealed Power division ("SPD"). The
sale to Dana Corporation was for $223 million gross cash proceeds. SPD
included the accounts of Sealed Power, a U.S. division, SP Europe Limited
Partnership, 70% owned, Allied Ring Corporation, 50% owned, and Promec, 40%
owned. In addition, the buyer assumed substantially all of the liabilities
and obligations of the business, excluding liabilities relating to income
and other taxes, certain liabilities arising outside the ordinary course of
business, debt, and certain employee related liabilities. The transaction
includes a ten-year noncompetition agreement precluding the Company from
competing with SPD. The gain on the sale of SPD was $71.9 million. On an
after-tax basis, the gain was $31.2 million, which reflects the effect of
the write-off of non-deductible goodwill attributable to SPD of $59.4
million.
The accompanying consolidated condensed financial statements include the
results of SPD through February 7, 1997, its date of disposition. The
following unaudited proforma first six months 1997 selected financial data
reflects the disposition of this division as if it had occurred as of the
beginning of the period. The unaudited proforma selected results of
operations do not purport to represent what the Company's results of
operations would actually have been had the disposition in fact occurred as
of January 1, 1997, or project the results for any future date or period
(in millions, except per share):
First Six
Months 1997
Proforma
Revenues $ 443.4
Cost of products sold 320.6
-------
Gross margin $ 122.8
SG&A 86.2
Goodwill/intangible amortization 1.6
Minority and equity interests 0.1
Special charges 6.5
-------
Operating income $ 28.4
Other income (0.8)
Interest expense, net 6.3
-------
Income before income taxes $ 22.9
Provision for income taxes 8.5
-------
Income before extraordinary item $ 14.4
=======
Diluted income per share $ 1.03
Weighted average number of shares 14.0
4. During the first quarter of 1997, the Company recorded a $6.5 million
special charge ($4.1 million after-tax). This charge reflects anticipated
future legal costs associated with the ongoing litigation with Snap-on
Incorporated. This charge was previously classified as other expense
(income), net, in the Company's 1997 filing on Form 10-Q for the six months
ended June 30, 1997.
5. During the first quarter of 1997, the Company commenced a cash tender offer
for all $128.4 million (principal amount) of its outstanding 11 3/4% Senior
Subordinated Notes, due 2002. The tender offer expired on April 9, 1997 and
$126.7 million of the Notes were tendered. The Company paid for these notes
on April 14, 1997. As a result of the Company's irrevocable agreement with
note holders tendering as of March 25 1997, the Company recorded an
extraordinary pretax charge of $16.4 million, or $10.3 million after-tax,
for the cost to repurchase the Notes.
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998 (Unaudited)
6. During 1997, the Company purchased 2.147 million shares of its common stock
through a Dutch auction self-tender offer for $56.00 per share. As of June
30, 1998, the Company had purchased an additional 787,700 shares through
open market purchases. Also, concurrent with the Dutch auction, the Company
announced the elimination of quarterly cash dividends and stated that
future distributions to shareholders would be in the form of open purchases
of common stock, when deemed appropriate by management.
7. During the first quarter of 1997, the Company terminated its practice of
selling undivided fractional interests in domestic trade accounts
receivable. At December 31, 1996, approximately $26.0 million had been sold
under this practice.
8. During the first quarter of 1997, the Company made three strategic
investments totaling $5.1 million. Effective the beginning of 1997, the
Company acquired an additional 30% of JATEK which raised the Company's
ownership in this Japanese company to 80%. Also effective the beginning of
1997, the Company purchased an additional 10% of IBS Filtran which raised
the Company's ownership to 60% in this German company. Effective March 1,
1997, the Company acquired A.R. Brasch Marketing Inc., which provides
technical service and training materials for vehicle manufacturers. A.R.
Brasch has annual sales approaching $10 million. Had this acquisition taken
place on January 1, 1997, consolidated revenues and income would not have
been significantly different from reported results.
9. In the fourth quarter of 1997, the Company recorded special charges of
$110.0 million. These charges included a $99.0 million restructuring
charge, a $4.1 million charge for corporate executive staff reductions, and
$6.9 million of costs associated with various legal matters, including
legal costs associated with a settled case in California.
The Company recorded the $99.0 million restructuring charge to combine two
divisions within the Service Solution segment and to recognize reduced
carrying value of certain assets resulting from the decision to combine the
divisions and exit certain manufactured diagnostic equipment product lines.
The restructuring of the two Service Solutions businesses was in response
to changing market dynamics and changing needs of customers. The Company
decided to combine its OE Tool and Equipment business with its Aftermarket
Tool and Equipment business to provide a single business focused on the
combined market and customer needs. Additionally, the Company decided to
exit certain products to focus upon new generation products that will
better meet customer needs. The decision resulted in a reduction of
workforce and the closing of certain facilities. The components of the
charge have been computed based on management's estimate of the realizable
value of the affected tangible and intangible assets and estimated exit
costs including severance and other employee benefits based on existing
severance policies and local laws.
The $99.0 million charge included $63.7 million of restructuring costs,
$25.8 million of reduced inventory value and $9.5 million of reduced value
of other tangible and intangible assets related to exiting certain product
lines. These restructuring costs included $13.7 million of severance
related costs for approximately 800 people, $20.3 million for incremental
repossession and distribution exit costs (including the termination of
lease financing and distributor agreements), $21.2 million for incremental
service and software update obligations
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998 (Unaudited)
resulting from the Company's decision to maintain adequate service
capabilities and appropriate software updates of the exited products for
customers who have previously purchased the exited products, and $8.5
million of costs associated with idled facilities. The implementation of
this restructuring is expected to be substantially complete by the end of
1998.
Of the total 1997 special charges of $116.5 million (including the special
charge described in Note 4), the components of the charge that will require
the future payment of cash total $80.9 million. Cash payments through June
30, 1998 related to the special charges were $16.7 million. The expected
future cash payments include an estimated $34.0 million over the balance of
1998 with the remainder, principally repossession costs and service and
software update obligations, over the following two years. As there is some
uncertainty associated with the timing of the cash payments, the remaining
accrual at June 30, 1998 of $64.2 million has all been classified as
current liabilities. Management estimates that savings from the
restructuring will increase operating income by $3.0 million in 1998 and
$10.0 million in 1999. The savings result primarily from the reduction in
headcount and facilities. Through the second quarter of 1998, approximately
300 employees had been terminated. Savings associated with the
restructuring were not significant during the first six months of 1998.
10. On May 6, 1998, the Company announced that it was withdrawing its exchange
offer for Echlin Inc. As of June 30, 1998, the Company had liquidated its
investment in 1.150 million shares of Echlin Inc. common stock, which were
acquired in late 1997 and early 1998. During the first quarter of 1998, the
Company recorded a $12.8 million gain relating to the Echlin transaction
consisting of an unrealized gain on the investment in Echlin stock of $17.3
million and transaction costs of $4.5 million. During the second quarter,
the Company recorded a $5.7 million charge to adjust the unrealized gain on
the investment to the actual realized total gain of $13.7 million and to
record the final $2.1 million of transaction costs related to the proposed
acquisition.
11. During the second quarter of 1998, the Company acquired two businesses. On
June 19, 1998, the Company acquired 89% of Tecnotest S.r.l., an Italian
company, for $15.1 million in cash and assumed debt. The Company has an
option to purchase the remaining 11% of the company. Tecnotest designs,
manufactures and distributes hand-held scan tools and other hand-held
electronic equipment, diagnostic software, gas and diesel emissions testing
equipment and safety lane products and has annual revenues of approximately
$25 million. On June 30, 1998, the Company acquired The Valley Forge Group
for $43.9 in cash and assumed debt. The Valley Forge Group develops service
procedures, owners' literature and service training materials, and provides
other services such as language conversion and labor time studies, for
vehicle manufacturers and has annual revenues of approximately $30 million.
Had these acquisitions taken place on January 1, 1998, consolidated
revenues and income would not have been significantly different from
reported results.
SPX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998 (Unaudited)
12. On July 20, 1998, the Company announced that it had signed a definitive
merger agreement for the Company to acquire General Signal Corporation
("GSX") for cash and Company shares. The aggregate purchase price is valued
at approximately $2 billion based on the last reported trading price of the
Company's common stock immediately prior to the public announcement of the
execution of the merger agreement. The Company will also assume
approximately $335 million of GSX's debt, net of cash. Under the terms of
the merger agreement, the aggregate merger consideration to be paid to GSX
shareholders will consist 60% of Company stock and 40% of cash, with each
shareholder able to choose among three options -- all cash ($45.00 per
share of GSX common stock), all Company stock (0.6977 shares of Company
common stock per share of GSX common stock), or a 40/60 cash/stock
combination ($18.00 and 0.4186 shares of Company common stock per share of
GSX common stock), subject to proration if the all cash or all stock
elections are over subscribed. The Company has received commitments,
underwritten by Chase Manhattan Bank, to provide up to $1.7 billion of
financing to be used to fund the cash portion of the merger and to
refinance existing indebtedness of the Company and GSX. The transaction,
which has been approved by both companies' boards of directors, is subject
to shareholder approvals, antitrust clearance and other customary
conditions, and is expected to close early in the fourth quarter of 1998.
The transaction will be accounted for as a reverse acquisition as the
shareholders of GSX will own a majority of the shares of the combined
company upon completion of the transaction. Accordingly, for accounting
purposes, the Company will be treated as the acquired company and GSX will
be considered to be the acquiring company. The purchase price will be
allocated to the assets and liabilities of the Company based on their
estimated fair market values at the acquisition date. Under reverse
acquisition accounting, the purchase price of the Company will be based on
the fair market value of the Company's common stock at July 19, 1998, the
date of the signing of the definitive merger agreement. The cash portion of
the purchase price will be accounted for as a dividend by the combined
company.
GSX is a leading manufacturer of quality products for the process control,
electrical control and industrial technology industries worldwide and had
annual 1997 revenues of approximately $2 billion.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
The following unaudited information should be read in conjunction with the
Company's unaudited consolidated financial statements and related footnotes.
Results of Operations - Second Quarter 1998 vs. Second Quarter 1997
Consolidated: Three months ended Six months ended
June 30, June 30,
1997 1998 1997 1998
-------- -------- -------- --------
(in millions)
Revenues:
Service Solutions $ 170.9 $ 162.2 $ 333.2 $ 305.9
Vehicle Components 60.8 68.1 128.8 161.0
-------- -------- -------- --------
Total $ 231.7 $ 230.3 $ 462.0 $ 466.9
======== ======== ======== ========
Operating income (loss):
Service Solutions $ 20.7 $ 17.6 $ 36.4 21.2
Vehicle Components 8.5 9.6 18.0 21.2
General corporate expense (10.7) (5.7) (3.1) (11.3)
-------- -------- -------- --------
Total $ 18.5 $ 21.5 $ 51.3 $ 31.1
Other expense (income), net (0.7) (0.5) (1.4) (72.7)
Interest expense, net 4.2 3.0 7.9 7.3
-------- -------- -------- --------
Income before income taxes $ 15.0 $ 19.0 $ 44.8 $ 96.5
Provision for income taxes 5.4 7.0 16.1 49.8
-------- -------- -------- --------
Income before extraordinary item $ 9.6 $ 12.0 $ 28.7 $ 46.7
Extraordinary item, net of tax - - - (10.3)
-------- -------- -------- --------
Net income $ 9.6 $ 12.0 $ 28.7 $ 36.4
======== ======== ======== ========
Capital expenditures $ 6.2 $ 5.7 $ 14.6 10.6
Depreciation and amortization 6.1 6.1 12.0 13.3
June 30, 1998 December 31, 1997
(in millions)
Identifiable assets $ 642.9 $ 583.8
General corporate expenses and other consolidated items that are not
allocated to the segments are explained below, followed by segment information.
Second Quarter 1998 vs. Second Quarter 1997
General Corporate expense
These expenses represent general unallocated expenses. The second quarter
1998 included a $3.6 million adjustment to reflect the reduction of the $17.3
million unrealized gain recorded in the first quarter of 1998 to the actual
realized gain of $13.7 million on the Company's investment in Echlin Inc. The
second quarter of 1998 also included a $2.1 million charge for final transaction
costs related to the Company's offer to acquire Echlin Inc. This net charge of
$5.7 million is classified as special charges and gains on the consolidated
statement of income. Excluding this net charge, second quarter 1998 corporate
expenses were comparable to the second quarter of 1997.
Other expense (income), net
These expense and income items represent expenses and income not included
in the determination of operating results. Included are gains or losses on
currency exchange, translation gains or losses of financial statements in highly
inflationary countries, gains or losses on the sale of fixed assets, and unusual
non-operational gains or losses.
Interest expense, net
Second quarter 1998 interest expense was greater than the second quarter
1997 interest expense due to higher debt levels.
Provision for Income Taxes
The overall second quarter 1998 effective income tax rate was 36% and
represents the Company's estimated rate for the year. The second quarter 1997
effective income tax rate was 37%.
First Six Months of 1998 vs. First Six Months of 1997
General Corporate expense
These expenses represent general unallocated expenses. The first six months
of 1998 included a $13.7 million realized gain on the Company's investment in
Echlin Inc., which was liquidated during the second quarter, and $6.6 million of
expenses associated with the Company's offer to acquire Echlin Inc. This net
gain, $7.1 million, is classified as special charges and gains on the
consolidated statement of income. Excluding this net gain, first six months of
1998 corporate expenses were approximately $1 million lower than the first six
months of 1997 due to cost reductions.
Other expense (income), net
These expense and income items represent expenses and income not included
in the determination of operating results. Included are gains or losses on
currency exchange, translation gains or losses of financial statements in highly
inflationary countries, gains or losses on the sale of fixed assets, and unusual
non-operational gains or losses.
In the first quarter of 1997, the Company completed the sale of the Sealed
Power division for $223.0 million in cash. The Company recorded a $71.9 million
gain on the sale, and the after-tax gain was $31.2 million. The results of
operations of Sealed Power are included in the Company's consolidated results
through the date of divestiture, February 7, 1997.
Interest expense, net
First six months of 1998 interest expense was greater than the first six
months of 1997 interest expense due to higher debt levels.
Provision for Income Taxes
The overall first six months of 1998 effective income tax rate was 36% and
represents the Company's estimated rate for the year. The first six months of
1997 income tax provision includes $40.7 million provided on the sale of the
Sealed Power division. Without this item, the effective income tax rate for the
first six months of 1997 was 37%.
Extraordinary item, net of taxes
In the first quarter of 1997, the Company recorded a pretax charge of $16.4
million, $10.3 million after-tax, to reflect the costs to repurchase $126.4
million of its 11 3/4% Senior Subordinated Notes tendered as of March 25, 1997,
pursuant to the Company's tender offer for these notes.
Service Solutions:
Three months ended Six months ended
June 30, June 30,
1997 1998 1997 1998
-------- -------- -------- --------
(in millions)
Revenues............................. $ 170.9 $ 162.2 $ 333.2 $ 305.9
Gross Profit......................... 53.4 50.8 102.4 96.3
% of revenues...................... 31.2% 31.3% 30.7% 31.5%
Selling, general & administrative.... 32.2 32.6 64.9 67.5
% of revenues...................... 18.9% 20.1% 19.5% 22.1%
Goodwill/intangible amortization..... 0.5 0.6 1.1 1.1
Minority and equity interests........ 0.0 0.0 0.0 0.0
Special charge....................... - - - 6.5
-------- -------- -------- --------
Operating income..................... $ 20.7 $ 17.6 $ 36.4 $ 21.2
======== ======== ======== ========
Capital expenditures................. $ 2.0 $ 1.4 $ 4.5 $ 2.9
Depreciation and amortization........ 2.5 2.8 5.0 5.5
June 30, 1998 December 31, 1997
(in millions)
Identifiable assets.................. $ 401.6 $ 320.0
Second Quarter 1998 vs. Second Quarter 1997
Revenues
Second quarter 1998 revenues increased $8.7 million, or 5.4%, from the
second quarter of 1997. The increase was principally due to higher sales of
hand-held diagnostic equipment, high-pressure hydraulic equipment and dealer
equipment. Sales of certain PC based engine diagnostic and wheel service
equipment were down as a result of the Company's decision to phase out these
products.
Gross margin
Second quarter 1998 gross margin of 31.2% was comparable to the 31.3% gross
margin in 1997. The increase in dealer equipment revenue reduced the 1998 gross
margin relative to 1997. However, revenue increased in other higher margin
products, namely hand-held diagnostic equipment, largely offsetting the effect
of lower dealer equipment margins.
Selling, General and Administrative ("SG&A")
Second quarter 1998 SG&A expense was $32.2 million, or 18.9% of revenues,
compared to $32.6 million, or 20.1% of revenues, in 1997. The reduction in costs
resulted from an increased portion of revenues attributable to dealer equipment
sales, which have relatively low SG&A costs, and continuing cost reductions due
to initiatives undertaken over the past year.
Goodwill/Intangible Amortization
Second quarter 1998 expense was comparable to second quarter 1997.
Minority and equity interests
This line represents the 20% minority interest in JATEK's results. Such
minority interest was immaterial in both quarters.
Operating Income
The increase in the 1998 second quarter operating income to $20.7 million
from $17.6 million in the second quarter 1997 was primarily attributable to
increased revenues and cost reductions.
First Six Months of 1998 vs. First Six Months of 1997
Revenues
First six months of 1998 revenues increased $27.3 million, or 8.9%, from
the first six months of 1997. The increase was due to higher hand-held
diagnostic equipment, high-pressure hydraulic equipment, dealer equipment and
gas emission testing equipment revenues. Air conditioning tool sales were down
from 1997, and are expected to be lower than full year 1997 levels for the
remainder of 1998 primarily due to lower demand for refrigerant recycling and
recovery equipment. Sales of certain PC based engine diagnostic and wheel
service equipment were down as a result of the Company's decision to phase out
these products. During the first quarter 1998, the Company enhanced its dealer
equipment program with a major vehicle manufacturer and is now recording
revenues and related cost of goods sold from this program.
Gross margin
First six months of 1998 gross margin of 30.7% was lower than the 31.5%
gross margin in 1997. The decrease in the gross margin was a result of the
higher gas emissions testing equipment and dealer equipment sales during the
first six months of 1998, which carry lower gross margins.
Selling, General and Administrative ("SG&A")
First six months of 1998 SG&A expense was $64.9 million, or 19.5% of
revenues, compared to $67.5 million, or 22.1% of revenues, in 1997. The
reduction in costs resulted from an increased portion of revenues attributable
to dealer equipment sales, which have relatively low SG&A costs, and continuing
cost reductions due to initiatives undertaken over the past year.
Goodwill/Intangible Amortization
First six months of 1998 expense was comparable to first six months of
1997.
Minority and equity interests
This line represents the 20% minority interest in JATEK's results. Such
minority interest was immaterial in both periods.
Special Charge
During the first quarter 1997, the Company recorded a $6.5 million special
charge ($4.1 million after-tax). This charge reflects anticipated future legal
costs associated with the ongoing litigation with Snap-on Incorporated.
Operating Income
The increase in first six months of 1998 operating income to $36.4 million
from $21.2 million in the first six months of 1997 was primarily attributable to
increased revenues and cost reductions. Additionally, operating income for the
first six months of 1997 was reduced by the $6.5 million special charge related
to the Snap-on litigation.
Capital Expenditures
First six months of 1998 capital expenditures were $4.5 million compared to
first six months of 1997 capital expenditures of $2.9 million. Capital
expenditures for 1998 are expected to total approximately $12 million and to
include further expenditures for new information systems.
Identifiable Assets
First six months of 1998 identifiable assets increased approximately $82
million from year-end 1997. The increase was predominately due to the
acquisition of Tecnotest and Valley Forge, which increased identifiable assets
by approximately $75 million. Excluding the effect of the acquisitions,
inventory increased approximately $25 million from year-end and accounts
receivable decreased approximately $15 million from year-end. The increase in
inventory reflects expected third quarter demand and normal seasonal build-up.
The decrease in accounts receivable reflects lower revenues in the second
quarter of 1998 compared to the fourth quarter of 1997.
During the first six months of 1998, inventory of PC based engine diagnostic and
wheel service equipment was reduced from approximately $14.0 million at December
31, 1997 to approximately $3.0 million at June 30, 1998. This decrease reflects
the continuing reduction of this inventory in connection with management's
strategic decision to exit certain manufactured diagnostic equipment product
lines. The remaining inventory of these products is expected to be sold during
1998.
Vehicle Components:
Three months ended Six months ended
June 30, June 30,
1997 1998 1997 1998
-------- -------- -------- --------
(in millions)
Revenues........................... $ 60.8 $ 68.1 $ 128.8 $ 161.0
Gross Profit....................... 12.9 13.4 27.0 30.4
% of revenues.................... 21.2 % 19.7% 21.0% 18.9%
Selling, general & administrative.. 4.0 3.5 8.3 8.4
% of revenues.................... 6.6 % 5.1% 6.4% 5.2%
Goodwill/intangible amortization... 0.3 0.3 0.5 0.7
Minority and equity interests...... 0.1 0.0 0.2 0.1
-------- ------- -------- --------
Operating income................... $ 8.5 $ 9.6 $ 18.0 $ 21.2
======== ======= ======== ========
Capital expenditures............... $ 4.2 $ 4.2 $ 10.0 $ 7.4
Depreciation and amortization...... 3.3 3.2 6.4 7.3
June 30, 1998 December 31, 1997
(in millions)
Identifiable assets.................. $ 144.7 $ 147.6
Second Quarter 1998 vs. Second Quarter 1997
Revenues
Second quarter 1998 revenues were down $7.3 million, or 10.7%, from second
quarter 1997 revenues primarily due to less product demand caused by a strike at
General Motors Corporation and the elimination of a product at the die-casting
operation. The reduction in die-casting revenues will be partially offset over
the balance of 1998 as the Company's new die-casting facility ramps up
production.
Gross Profit
Second quarter 1998 gross margin of 21.2% compares favorably to second
quarter 1997 gross margin of 19.7% as favorable product mix shifts and
operational improvements are being realized.
Selling, General and Administrative ("SG&A")
SG&A was $4.0 million, or 6.6% of revenues, in the second quarter of 1998
compared to $3.5 million, or 5.1% of revenues, in 1997. The increase in SG&A as
a percentage of revenues reflected higher costs associated with market
penetration and business expansion efforts.
Goodwill/Intangible Amortization
Goodwill and intangible amortization expense in 1998 was comparable to
1997.
Minority and equity interests
This represents the 40% minority interest in IBS Filtran's results.
Operating Income
Second quarter 1998 operating income was $8.5 million compared to $9.6
million in the second quarter of 1997. The decrease was primarily a result of
the lower revenues.
First Six Months of 1998 vs. First Six Months of 1997
Revenues
First six months quarter 1998 revenues were down $32.2 million from the
first six months of 1997 revenues primarily due to the February 7, 1997
divestiture of the Sealed Power division. The first quarter of 1997 includes
$23.5 million of revenues from Sealed Power. The remaining decrease from 1997
was due primarily to less product demand caused by a strike at General Motors
and the elimination of a product at the die-casting operation. The strike at
General Motors continued through late July, and as a result, third quarter 1998
revenues will likely be lower than the third quarter of 1997. The reduction in
die-casting revenues will be partially offset over the balance of 1998 as the
Company's new die-casting facility ramps up production.
Gross Profit
First six months 1998 gross margin of 21.0% compares favorably to first six
months 1997 gross margin of 18.9% as favorable product mix shifts and
operational improvements are being realized. A portion of the increase in gross
margin was due to the disposal of Sealed Power which was a lower margin
business. The Company anticipates a negative impact on third quarter gross
margins resulting from the General Motors strike due to incremental costs that
will be incurred to resume production as well as the impact of lost productivity
in July.
Selling, General and Administrative ("SG&A")
SG&A was $8.3 million, or 6.4% of revenues, in the first six months of 1998
compared to $8.4 million, or 5.2% of revenues, in 1997. The increase in SG&A as
a percentage of revenues reflected higher costs associated with market
penetration and business expansion efforts. Additionally, the lower revenues
associated with the strike at General Motors resulted in SG&A representing an
increased percentage of revenues.
Goodwill/Intangible Amortization
Goodwill and intangible amortization expense was lower in 1998 due to the
sale of the Sealed Power division.
Minority and equity interests
This represents the 40% minority interest in IBS Filtran's results.
Operating Income
First six months 1998 operating income was $18.0 million compared to $21.2
million in the first six months of 1997. The first six months of 1997 operating
income included $2.7 million attributable to the Sealed Power division (which
was sold effective February 7, 1997).
Capital Expenditures
Capital expenditures in the first six months of 1998 were $10.0 million and
$7.4 million in the first six months of 1997. Capital expenditures for 1998 are
expected to total approximately $18 million and will be focused upon certain
capacity expansions (including a new die-casting facility), cost reductions and
maintenance of the operations.
Identifiable Assets
Identifiable assets were comparable to year-end 1997.
Liquidity and Financial Condition
The Company's liquidity needs arise primarily from capital investment in
equipment, funding working capital requirements to support business growth
initiatives and to meet interest costs. Management believes that cash flow from
operations and the current credit arrangements will be sufficient to supply
funds needed in 1998, excluding the GSX transaction. To consummate the GSX
transaction, the Company has received commitments, underwritten by Chase
Manhattan Bank, to provide up to $1.7 billion of financing to be used to fund
the cash portion of the merger and to refinance existing indebtedness of the
Company and GSX.
Cash Flow
Six months ended June 30,
1998 1997
-------- --------
(in millions)
Cash flow from:
Operating activities...... $ 44.5 $ (33.6)
Investing activities...... (73.6) 207.3
Financing activities...... 29.4 (170.2)
-------- --------
Net Cash Flow............ $ 0.3 $ 3.5
======== ========
Operating Activities - The principal elements that contributed to the first six
months 1998 cash flow were net income, depreciation and amortization and net
increases in deferred and payable income taxes totaling $53.2 million.
Offsetting this positive cashflow was a net increase in other working capital
and other items of $8.7 million. Changes in working capital include a $20.3
million reduction in accounts receivable due to lower revenues in the second
quarter of 1998 compared to the fourth quarter of 1997, a $24.9 million increase
in inventory to meet higher third quarter revenue expectations, a $13.2 million
decrease in prepaid and other assets due to the liquidation of the Echlin
investment that was held at year-end ($14.9 million), and a $14.9 million
reduction in current liabilities due to incentive compensation and restructuring
payments made in the first six months of 1998. At June 30, 1998, days sales
outstanding of accounts receivable were 66 days compared to 64 days at December
31, 1997. Days sales of inventory on hand was 50 days at June 30, 1998 compared
to 35 days at December 31, 1997. Both accounts receivable outstanding and
inventory on hand (both expressed as a multiple of days sales) at June 30, 1998
were higher due to the late second quarter acquisitions of Tecnotest and Valley
Forge. The cash outflow from operations for the first six months of 1997 cash
outflow of $33.6 million was principally due to seasonal buildups of accounts
receivable and inventories, and included the $26.0 million effect of terminating
an accounts receivable securitization program during the first quarter of 1997.
Investing Activities - The first six months of 1998 cash flow from investing
activities reflected $14.6 million in capital expenditures and $59.0 million of
cash to purchase Tecnotest and Valley Forge. Capital expenditures for 1998 are
expected to total approximately $30 million. Cash flow from investing activities
during the first six months of 1997 included $223.0 million of cash received on
the sale of Sealed Power, offset by $5.1 million used for investments in A.R.
Brasch, JATEK and IBS Filtran, and $10.6 million used for capital expenditures.
Financing Activities - The first six months of 1998 cash flow from financing
activities consists of borrowings of $56.7 million (principally to fund the
acquisitions of Tecnotest and Valley Forge), $28.5 million used to purchase
397,500 shares of common stock in the open market, and proceeds from shares sold
under the stock option plan. Cash flow from financing activities during the
first six months of 1997 reflects uses comprised of the Company's former
quarterly dividend payment, $16.4 million of extinguishment costs paid in the
second quarter to repurchase $126.7 million of 11 3/4% Senior Subordinated
Notes, $120.2 million to purchase 2.147 million shares of the Company in the
"Dutch" auction, and a $36.4 million reduction in borrowings, offset by proceeds
from shares sold under the stock option plan.
Total Debt
At June 30, 1998, the following summarizes the debt outstanding and unused
credit availability:
Total Amount Unused Credit
Commitment Outstanding Availability
(in millions)
Revolving credit............ $ 400.0 $ 230.0 $ 162.1(a)
Swingline loan facility..... 5.0 - 5.0
Industrial Revenues Bonds... 15.1 15.1 -
Other....................... 23.7 16.9 6.8
---------- ---------- ----------
Total debt................ $ 443.8 $ 262.0 $ 173.9
========== ========== ==========
(a) Decreased by $7.9 million of facility letters of credit outstanding at
June 30, 1998, which reduce the unused credit availability.
During the second quarter of 1998, the Company redeemed the remaining $1.7
million of the 11 3/4% Senior Subordinated Notes.
The Company is required to maintain compliance with restrictive covenants
contained in the revolving credit agreement, as amended. At June 30, 1998, the
Company was in compliance with all restrictive covenants contained in the
revolving credit agreement. Under the most restrictive financial covenants, the
Company is required to:
(1) Maintain a Debt/EBITDA Ratio less than 3.5/1.0 for fiscal quarters
ending June and September of 1998 and a ratio less than 3.0/1.0
thereafter. At June 30, 1998, the ratio was 2.37/1.0.
(2) Maintain a Fixed Charge Coverage Ratio greater than 1.75/1.0 through
September of 1998 and a ratio greater than 2.0/1.0 thereafter. At June
30, 1998, the ratio was 3.70/1.0.
Management believes that, excluding the pending GSX transaction and related
financing, the unused credit availability is sufficient to meet operating cash
needs, including working capital requirements and capital expenditures planned
for 1998. Aggregate future maturities of total debt are not material through
2001. In 2002, the revolving credit agreement expires and borrowings on the
revolver would become due, however, management believes that the existing
revolving credit agreement would likely be extended or that alternate financing
will be available to the Company.
Other Matters
General Signal Corporation Transaction - On July 20, 1998, the Company announced
that it had signed a definitive merger agreement for the Company to acquire
General Signal Corporation ("GSX") for cash and Company shares. The aggregate
purchase price is valued at approximately $2 billion based on the last reported
trading price of the Company's common stock immediately prior to the public
announcement of the execution of the merger agreement. The Company will also
assume approximately $335 million of GSX's debt, net of cash. Under the terms of
the merger agreement, the aggregate merger consideration to be paid to GSX
shareholders will consist 60% of Company stock and 40% of cash, with each
shareholder able to choose among three options -- all cash ($45.00 per share of
GSX common stock), all Company stock (0.6977 shares of Company common stock per
share of GSX common stock), or a 40/60 cash/stock combination ($18.00 and 0.4186
shares of Company common stock per share of GSX common stock), subject to
proration if the all cash or all stock elections are over subscribed. The
Company has received commitments, underwritten by Chase Manhattan Bank, to
provide up to $1.7 billion of financing to be used to fund the cash portion of
the merger and to refinance existing indebtedness of the Company and GSX. The
transaction, which has been approved by both companies' boards of directors, is
subject to shareholder approvals, antitrust clearance and other customary
conditions, and is expected to close early in the fourth quarter of 1998.
The transaction will be accounted for as a reverse acquisition as the
shareholders of GSX will own a majority of the shares of the combined company
upon completion of the transaction. Accordingly, for accounting purposes, the
Company will be treated as the acquired company and GSX will be considered to be
the acquiring company. The purchase price will be allocated to the assets and
liabilities of the Company based on their estimated fair market values at the
acquisition date. Under reverse acquisition accounting, the purchase price of
the Company will be based on the fair market value of the Company's common stock
at July 19, 1998, the date of the signing of the definitive merger agreement.
The cash portion of the purchase price will be accounted for as a dividend by
the combined company.
GSX is a leading manufacturer of quality products for the process control,
electrical control and industrial technology industries worldwide and had annual
1997 revenues of approximately $2 billion.
Impact of Strike at General Motors Corporation - As of the date of this filing,
the strike at General Motors was reported to be resolved. General Motors is the
Company's largest customer (22% of consolidated revenues in 1997 and
approximately $100 million of Vehicle Components revenues in 1997). In the month
of July 1998, the Company's Vehicle Components segment continued to experience
reduced revenues comparable with the results reported during second quarter of
1998. It remains uncertain whether these reduced revenues will be recovered as
General Motors resumes production. Even if these revenues are recovered, the
Company anticipates a negative impact on its gross margins on these revenues due
to incremental costs that will be incurred to resume production as well as the
impact of lost productivity in July.
Echlin Transaction - On May 6, 1998, the Company announced that it was
withdrawing its exchange offer to acquire Echlin Inc. because it was not in the
best interests of SPX shareholders to compete with the terms of Dana
Corporation's merger agreement with Echlin. As of June 30, 1998, the Company had
liquidated its approximately 1.15 million Echlin shares that it held.
Significance of Goodwill - The Company had goodwill of $96.1 million and
shareholders' deficit of $38.4 million at June 30, 1998. The Company amortizes
its goodwill on a straight-line method over the estimated periods benefited, not
to exceed 40 years. In determining the estimated useful life, management
considers the nature, competitive position, life cycle position, and historical
and expected future operating income of each acquired company, as well as the
Company's commitment to support these acquired companies through continued
investment in capital expenditures, operational improvements, and research and
development. After an acquisition, the Company continually reviews whether
subsequent events and circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or that the remaining
balance of goodwill may not be recoverable. If events and circumstances indicate
that goodwill related to a particular business should be reviewed for possible
impairment, the Company uses projections to assess whether future operating
income on a non-discounted basis (before goodwill amortization) of the unit is
likely to exceed the goodwill amortization over the remaining life of the
goodwill, to determine whether a write-down of goodwill to recoverable value is
appropriate. There can be no assurance that circumstances will not change in the
future that will effect the useful life or carrying value of goodwill.
EVA Incentive Compensation - The Company utilizes a measure known as Economic
Value Added ("EVA") for its incentive compensation plans for a majority of
employees. EVA is internally computed by the Company based upon Net Operating
Profit after Tax less a charge on the capital invested in the Company. These
computations use certain assumptions that vary from generally accepted
accounting principles. EVA is not a measure under generally accepted accounting
principles and is not intended to be used as an alternative to net income and
measuring operating performance presented in accordance with generally accepted
accounting principles. The Company believes that EVA, as internally computed,
does represent a strong correlation to the ultimate returns of the Company's
shareholders. Annual incentive compensation expense is dependent upon the annual
change in EVA relative to pre-established improvement targets and the expense
can vary significantly.
Accounting Pronouncements - In 1998, the Company must adopt Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" and Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." Statement No. 131
will require the Company to report certain information about operating segments
in the consolidated financials statements. The Company is currently evaluating
the provisions of this statement to determine its impact upon current segment
disclosures. Statement No. 132 will require the Company to standardize its
disclosures and other information for pensions and other postretirement
benefits.
In 2000, the Company must adopt Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities." Statement
No. 133 will require the Company to record derivatives on the balance sheet as
assets or liabilities, measured at fair value, and gains or losses resulting
from the changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company is evaluating the standard and does not expect it to
have a material impact on the financial results or condition of the Company as
the use of derivatives at the Company is not significant.
--------------------
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward looking
statements which reflect management's current views with respect to future
events and financial performance. These forward looking statements are subject
to certain risks and uncertainties, including but not limited to those matters
discussed above. Due to such uncertainties and risks, readers are cautioned not
to place undue reliance on such forward looking statements, which speak only as
of the date hereof. Reference is made to the Company's 1997 Annual Report on
Form 10-K for additional cautionary statements and discussion of certain
important factors as they relate to forward looking statements.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held the Annual Meeting of Shareholders on May 20,
1998 at which shareholders elected three directors to three year
terms expiring in 2001, approved an amendment to the Company's
Certificate of Incorporation to increase the amount of authorized
shares of Company common stock from 50,000,000 to 100,000,000
shares, and approved any adjournment of the Annual Meeting
proposed by the Board of Directors. The proposed amendment to
issue shares of the Company's common stock in connection with the
proposed acquisition of Echlin Inc. was not voted on as the
Company had withdrawn its exchange offer prior to the Annual
Meeting.
The results of the voting in connection with the above items were
as follows:
Voting on Directors For Withheld
Sarah R. Coffin 11,304,928 22,466
Charles E. Johnson, II 11,307,474 19,920
David P. Williams 11,304,081 23,313
Voting on: For Against Abstain
Amendment to increase the
amount of authorized shares 10,450,094 826,757 50,573
Adjournment of the Annual
Meeting by the Board 9,631,782 1,483,109 212,503
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) Agreement and Plan of Merger among SPX Corporation, SAC Corp. and
General Signal Corporation, dated as of July 19, 1998,
incorporated herein by reference from the Company's Form 8-K
filed on July 20, 1998.
(3)(iv)Restated Certificate of Incorporation of SPX Corporation, as
amended, dated June 12, 1998.
(4) None.
(10) None.
(11) Statement regarding computation of earnings per share. See
Consolidated Condensed Statements of Income.
(15) None.
(18) None.
(19) None.
(20) None.
(22) None.
(23) None.
(24) None.
(27) Financial data schedule.
(99) None.
(b) Reports on Form 8-K
8-K Dated July 19, 1998, Announcement of Merger Agreement with General
Signal Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPX CORPORATION
(Registrant)
Date: July 31, 1998 By /s/ John B. Blystone
---------------------
John B. Blystone
Chairman, President and
Chief Executive Officer
Date: July 31, 1998 By /s/ Patrick J. O'Leary
-----------------------
Patrick J. O'Leary
Vice President, Finance,
Treasurer and Chief
Financial Officer
Date: July 31, 1998 By /s/ Kenneth C. Dow
-------------------
Kenneth C. Dow
Controller and Chief
Accounting Officer
5
6-MOS
DEC-31-1998
JUN-30-1998
12,395
0
176,849
(8,116)
129,624
392,125
283,143
(150,296)
642,883
282,955
0
0
0
168,807
(207,233)
642,883
462,018
462,018
332,686
410,720
(1,473)
0
7,924
44,847
16,145
28,702
0
0
0
28,702
2.33
2.33
June 12, 1998
CERTIFICATE OF INCORPORATION
OF
SPX CORPORATION
* * * * *
FIRST. The name of the corporation is SPX CORPORATION.
SECOND. The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
THIRD. The nature of the business, or objects or purposes to be
conducted or promoted by the Corporation are:
(a) To manufacture, purchase or otherwise acquire, invest in, or
mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade, deal
in and with goods, wares and merchandise and property of every class and
description, including but not limited to the manufacturer and sale of
automotive engine parts and related products.
(b) To have one or more offices, to carry on all or any of its
operations and business and without restriction or limit as to amount to
purchase or otherwise acquire, hold, own, mortgage, sell, convey or otherwise
dispose of, real and personal property of every class and description in any of
the states, districts, territories or possessions of the United States, and in
any and all foreign countries, subject to the laws of such state, district,
territory, possession or country.
(c) To purchase, hold, sell and transfer the shares of its own capital
stock; provided it shall not use its funds or property for the purchase of its
own shares of capital stock when such use would cause any impairment of its
capital except as otherwise permitted by law, and provided further that shares
of its own capital stock belonging to it shall not be voted upon directly or
indirectly.
(d) To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
FOURTH. 1. Authorized Shares. The total number of authorized shares
of the stock of all classes which the Corporation shall have authority to issue
is one hundred three million (103,000,000), of which three million (3,000,000)
shall be shares of Preferred Stock without par value and one hundred
million (100,000,000) shall be shares of Common Stock of the par value of $10
per share.
2. Preferred Stock. (a) The Preferred Stock shall be issuable in
series, and in connection with the issuance of any series of Preferred Stock and
to the extent now or hereafter permitted by the laws of the State of Delaware,
the Board of Directors is authorized to fix by resolution the designation of
each series, the stated value of the shares of each series, the dividend rate of
each series and the date or dates and other provisions respecting the payment of
dividends, the provisions, if any, for a sinking fund for the shares of each
series, the preferences of the shares of each series in the event of the
liquidation or dissolution of the Corporation, the provisions, if any,
respecting the redemption of the shares of each series and, subject to
requirements of the laws of the State of Delaware, the voting rights (except
that such shares shall not have more than one vote per share), the terms, if
any, upon which the shares of each series shall be convertible into or
exchangeable for any other shares of stock of the Corporation and any other
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, of the shares of each series.
(b) Preferred Stock of any series redeemed, converted, exchanged,
purchased, or otherwise acquired by the Corporation shall constitute authorized
but unissued Preferred Stock.
(c) All shares of any series of Preferred Stock, as between
themselves, shall rank equally and be identical; and all series of Preferred
Stock, as between themselves, shall rank equally and be identical except as set
forth in resolutions of the Board of Directors authorizing the issuance of such
series.
3. Common Stock. (a) After dividends to which the holders of Preferred
Stock may then be entitled under the resolutions creating any series thereof
have been declared and after the Corporation shall have set apart the amounts
required pursuant to such resolutions for the purchase or redemption of any
series of Preferred Stock, the holders of Common Stock shall be entitled to have
dividends declared in cash, property, or other securities of the Corporation out
of any net profits or net assets of the Corporation legally available therefor.
(b) In the event of the liquidation or dissolution of the
Corporation's business and after the holders of Preferred Stock shall have
received amounts to which they are entitled under the resolutions creating such
series, the holders of Common Stock shall be entitled to receive ratably the
balance of the Corporation's net assets available for distribution.
(c) Each share of Common Stock shall be entitled to one vote, but
shall not be entitled to vote for the election of any directors who may be
elected by vote of the Preferred Stock voting as a class.
4. Preemptive Rights. No holder of any shares of the Corporation shall
have any preemptive right to subscribe for or to acquire any additional shares
of the Corporation of the same or of any other class, whether now or hereafter
authorized or any options or warrants giving the right to purchase any such
shares, or any bonds, notes, debentures or other obligations convertible into
any such shares.
FIFTH. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS
B. J. Consono 100 West Tenth Street
Wilmington, Delaware
F. J. Obara, Jr. 100 West Tenth Street
Wilmington, Delaware
A. D. Grier 100 West Tenth Street
Wilmington, Delaware
SIXTH. The Corporation is to have perpetual existence.
SEVENTH. The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatever.
EIGHTH. Except as otherwise fixed by resolution of the Board of
Directors pursuant to the provisions of Article FOURTH hereof relating to the
rights of the holders of Preferred Stock to elect directors as a class, the
number of the directors of the Corporation shall be fixed from time to time by
or pursuant to the By-Laws of the Corporation. The directors, other than those
who may be elected by the holders of Preferred Stock, shall be classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible. The first class shall be initially elected
for a term expiring at the next ensuing annual meeting, the second class shall
be initially elected for a term expiring one year thereafter, and the third
class shall be elected for a term expiring two years thereafter, with each class
to hold office until its successor is elected and qualified. At each annual
meeting of the stockholders of the Corporation held after the initia1
classification and election of directors, the successors of the class of
directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.
Advance notice of stockholder nominations for the election of directors
shall be given in the manner provided in the By-Laws of the Corporation.
Except as otherwise fixed by resolution of the Board of Directors
pursuant to the provisions of Article FOURTH hereof relating to the rights of
the holders of Preferred Stock to elect directors as a class, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created (subject to the
requirements of this Article EIGHTH that all classes be as nearly equal in
number as possible) or in which the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of an
incumbent director.
Subject to the rights of the holders of Preferred Stock to elect
directors as a class, a director may be removed only for cause and only by the
affirmative vote of the holders of 80% of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
1. To adopt, amend and repeal the By-Laws of the Corporation. Any
by-laws adopted by the directors under the powers conferred hereby may be
amended or repealed by the directors or by the stockholders. Notwithstanding the
foregoing or any other provision in this Certificate of Incorporation or the
By-Laws of the Corporation to the contrary, Article II, Sections 3 and 7 and
Article III, Sections 1, 2 and 3 of the By-Laws shall not be amended or repealed
and no provision inconsistent therewith shall be adopted without the affirmative
vote of the holders of at least 80% of the voting power of all the shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
2. To fix and determine, and to vary the amount of, the working
capital of the Corporation, and to determine the use or investment of any assets
of the Corporation, to set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose and to
abolish any such reserve or reserves.
3. To authorize the purchase or other acquisition of shares of stock of
the Corporation or any of its bonds, debentures, notes, scrip, warrants or other
securities or evidences of indebtedness.
4. Except as otherwise provided by law, to determine the places within
or without the State of Delaware, where any or all of the books of the
Corporation shall be kept.
5. To authorize the sale, lease or other disposition of any part or
parts of the properties of the Corporation and to cease to conduct the business
connected therewith or again to resume the same, as it may deem best.
6. To authorize the borrowing of money, the issuance of bonds,
debentures and other obligations or evidences of indebtedness of the
Corporation, secured or unsecured, and the inclusion of provisions as to
redeemability and convertibility into shares of stock of the Corporation or
otherwise; and the mortgaging or pledging, as security for money borrowed or
bonds, notes, debentures or other obligations issued by the Corporation, of any
property of the Corporation, real or personal, then owned or thereafter acquired
by the Corporation.
In addition to the powers and authorities herein or by statute
expressly conferred upon it, the Board of Directors may exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation,
subject, nevertheless, to the provisions of the laws of the State of Delaware,
of this Certificate of Incorporation and of the By-Laws of the Corporation.
Subject to any limitation in the By-Laws, the members of the Board of
Directors shall be entitled to reasonable fees, salaries or other compensation
for their services, as determined from time to time by the Board of Directors,
and to reimbursement for their expenses as such members. Nothing herein
contained shall preclude any director from serving the Corporation or its
subsidiaries or affiliates in any other capacity and receiving compensation
therefor.
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80% of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to alter, amend, adopt any provision inconsistent with or repeal
this Article EIGHTH.
NINTH. Both stockholders and directors shall have power, if the
By-Laws so provide, to hold their meetings and to have one or more offices
within or without the State of Delaware.
Except as otherwise fixed by resolution of the Board of Directors
pursuant to the provisions of Article FOURTH hereof relating to the rights of
the holders of Preferred Stock, any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders. Except as otherwise required by law and subject to the
rights of the holders of Preferred Stock, special meetings of stockholders may
be called only by the Chairman on his own initiative, the President on his own
initiative or by the Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal this Article NINTH.
TENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ELEVENTH. Except as otherwise provided in this Certificate of
Incorporation, the Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TWELFTH. No contract or other transaction between the Corporation and
any person, firm, association or Corporation and no other act of this
Corporation shall, in the absence of fraud, be invalidated or in any way
affected by the fact that any of the directors of the Corporation are, directly
or indirectly, pecuniarily or otherwise interested in such contract, transaction
or other act or related to or interested in such person, firm, association or
corporation as director, stockholder, officer, employee, member or otherwise.
Any director of the Corporation individually, or any firm or association of
which any director may be a member, may be a party to, or may be pecuniarily or
otherwise interested in, any contract or transaction of the Corporation,
provided that the fact that he individually or such firm or association is so
interested shall be disclosed or known to the Board of Directors or a majority
of such members thereof as shall be present at any meeting of the Board of
Directors, or of any committee of directors having the powers of the full Board,
at which action upon any such contract, transaction or other act is taken, and
if such fact shall be so disclosed or known any director of this Corporation so
related or otherwise interested may be counted in determining the presence of a
quorum at any meeting of the Board of Directors or of such committee at which
action upon any such contract, transaction or act shall be taken and may vote
thereat with respect to such action with like force and effect as if he were not
so related or interested. Any director of the Corporation may vote upon any
contract or other transaction between the Corporation and any subsidiary or
affiliated corporation without regard to the fact that he is also a director of
such subsidiary or affiliated corporation.
THIRTEENTH. (a) A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentiona1 misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. If the General Corporation Law of the
State of Delaware, or any other applicable law, is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of the State of Delaware, or any other applicable law, as so amended. Any
repeal or modification of this Section (a) by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
(b)(1) Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer or employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the General Corporation Law
of the State of Delaware, or any other applicable law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that except
as provided in paragraph (2) of this Section (b) with respect to proceedings
seeking to enforce rights to indemnification, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section (b) shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the General Corporation Law of the State of Delaware, or any
other applicable law, requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section (b) or otherwise.
(2) If a claim under paragraph (1) of this Section (b) is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware, or any other applicable
law, for the Corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, stockholders or
independent legal counsel) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, or any other
applicable law, nor an actual determination by the Corporation (including its
Board of Directors, stockholders or independent legal counsel) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(3) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Section (b) shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
(4) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware, or any other
applicable law.
(5) The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to be paid
by the Corporation the expenses incurred in defending any proceeding in advance
of its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Section (b) with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(6) Any repeal or modification of this Section (b) by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director, officer, employee or agent of the Corporation existing at the time of
such repeal or modification.
FOURTEENTH. In determining whether an "Acquisition Proposal" is in the
best interests of the Corporation and its stockholders, the Board of Directors
shall consider all factors it deems relevant including, without limitation, the
following:
(a) the consideration being offered in the Acquisition Proposal, not
only in relation to the then current market price, but also in relation to the
then current value of the Corporation in a freely negotiated transaction and in
relation to the Board of Directors' estimate of the future value of the
Corporation as an independent entity; and
(b) the social, legal and economic effects upon employees, suppliers,
customers and on the communities in which the Corporation is located, as well as
on the long term business prospects of the Corporation.
"Acquisition Proposal" means any proposal of any person (i) for a
tender offer, exchange offer or any other method of acquiring any equity
securities of the Corporation with a view to acquiring control of the
Corporation, (ii) to merge or consolidate the Corporation with another
corporation, or (iii) to purchase or otherwise acquire all or substantially all
of the properties and assets of the Corporation.
The Article shall not be interpreted to create any rights on behalf of
third persons, such as employees, suppliers, or customers.
FIFTEENTH. 1. Higher Vote for Certain Business Combinations. A
higher than majority stockholder vote to approve certain Business Combinations
shall be required as follows (all capitalized terms being used as subsequently
defined in this Article FIFTEENTH):
(a) Any merger or consolidation of the Corporation or any
Subsidiary with (i) any Substantial stockholder of (ii) any other
corporation (whether or not itself a Substantial Stockholder) which is,
or after such merger or consolidation would be, an Affiliate or
Associate of a Substantial Stockholder; or
(b) Any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Substantial Stockholder or any Affiliate or Associate of
any Substantial Stockholder of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value of $10,000,000 or
more; or
(c) The issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Substantial
Stockholder or any Affiliate or Associate of any Substantial Stockholder
in exchange for cash, securities or other consideration (or a
combination thereof) having an aggregate Fair Market Value of
$10,000,000 or more: or
(d) The adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any
Substantial Stockholder or any Affiliate or Associate of any Substantial
Stockholder; or
(e) Any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any Subsidiary or any other
transaction (whether or not with or into or otherwise involving a
Substantial Stockholder) which has the effect, directly or indirectly,
of increasing the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Substantial
Stockholder or any Affiliate or Associate of any Substantial
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (the "Voting Stock"),
voting together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
2. Definition of "Business Combination." The term "Business
Combination" as used in this Article FIFTEENTH shall mean any transaction which
is referred to in any one or more of subparagraphs (a) through (e) of paragraph
1.
3. When Higher Vote Is Not Required. The provisions of paragraph 1 of
this Article FIFTEENTH shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote, if any, as is required by law, any other provision of this Certificate of
Incorporation or any agreement with any national securities exchange, if in the
case of a Business Combination that does not involve any cash or other
consideration being received by the stockholders of the Corporation, solely in
their capacities as stockholders, the condition specified in the following
subparagraph (a) is met, or if in the case of any other Business Combination,
the conditions specified in either of the following subparagraphs (a) or (b) are
met:
(a) The Business Combination shall have been approved by at least
two-thirds of the Continuing Directors.
(b) All of the following conditions shall have been met:(i) The
aggregate amount of the cash and the Fair Market Value as of the date
of the consummation of the Business Combination (the "Consummation
Date") of the consideration other than cash to be received per share by
holders of Common Stock of the Corporation in such Business Combination
shall be an amount at least equal to the highest of the following (it
being intended that the requirements of this subparagraph (b)(i) shall
be required to be met with respect to all shares of Common Stock
outstanding, whether or not the Substantial Stockholder has previously
acquired any Common Stock):
(A) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid in order to acquire any shares of Common Stock
beneficially owned by the Substantial Stockholder which were
acquired (1) within the two-year period immediately prior to
the first public announcement of the proposal of the Business
Combination (the "Announcement Date") or (2) in the
transaction in which it became a Substantial Stockholder,
whichever is higher, plus interest compounded annually from
the date on which the Substantial Stockholder became a
Substantial Stockholder through the Consummation Date at the
prime rate of interest of Harris Trust and Savings Bank (or
other major bank headquartered in Chicago, Illinois, selected
by a majority of the Continuing Directors) from time to time
in effect in Chicago, less the aggregate amount of any cash
dividends paid, and the Fair Market Value of any dividends
paid in other than cash, per share of Common Stock from the
date on which the Substantial Stockholder became a Substantial
Stockholder through the Consummation Date in an amount up to
but not exceeding the amount of such interest payable per
share of Common Stock; or
(B) the Fair Market Value per share of Common Stock
on the Announcement Date or on the date on which the
Substantial Stockholder became such Substantial Stockholder
(the "Determination Date"), whichever is higher; or
(C) the price per share equal to the Fair Market
Value per share of Common Stock determined pursuant to clause
(B) immediately preceding, multiplied by the ratio of (i) the
highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of Common Stock beneficially owned by the
Substantial Stockholder which were acquired within the
two-year period immediately prior to the Announcement Date to
(ii) the Fair Market Value per share of Common Stock on the
first day in such two-year period on which the Substantial
Stockholder beneficially owned any shares of Common Stock.
(ii) The aggregate amount of the cash and the Fair Market
Value as of the Consummation Date of the consideration other than cash
to be received per share by holders of shares of any class of
outstanding Voting Stock, other than Common Stock, shall be the amount
at least equal to the highest of the following (it being intended that
the requirements of this subparagraph (b)(ii) shall be required to be
met with respect to every such class of outstanding Voting Stock,
whether or not the Substantial Stockholder beneficially owns any shares
of a particular class of Voting Stock):
(A) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid in order to acquire any shares of such class of
Voting Stock beneficially owned by the Substantial Stockholder
which were acquired (1) within the two-year period immediately
prior to the Announcement Date of (2) in the transaction in
which it became a Substantial Stockholder, whichever is
higher, plus interest compounded annually from the date on
which the Substantial Stockholder became a Substantial
Stockholder through the Consummation Date at the prime rate of
interest of Harris Trust and Savings Bank (or other major bank
headquartered in Chicago, Illinois, selected by a majority of
the Continuing Directors) from time to time in effect in
Chicago, less the aggregate amount of any cash dividends paid,
and the Fair Market Value of any dividends paid in other than
cash, per share of such class of Voting Stock from the date on
which the Substantial Stockholder became a Substantial
Stockholder through the Consummation Date in an amount up to
but not exceeding the amount of such interest payable per
share of such class of Voting Stock; or
(B) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the Determination
Date, whichever is higher; or
(C) the price per share equal to the Fair Market
Value per share of such class of Voting Stock determined
pursuant to clause (B) immediately preceding, multiplied by
the ratio of (i) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid in order to acquire any shares of such class of
Voting Stock beneficially owned by the Substantial Stockholder
which were acquired within the two-year period immediately
prior to the Announcement Date to (ii) the Fair Market Value
per share of such class of Voting Stock on the first day in
such two-year period on which the Substantia1 Stockholder
beneficially owned any shares of such class of Voting Stock;
or
(D) the highest preferential amount per share to
which the holders of shares of such class of Voting Stock are
entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
(iii) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as was previously paid for shares
of such class of Voting Stock which are beneficially owned by the
Substantial Stockholder. If the Substantial Stockholder beneficially
owns any shares of any class of Voting Stock which were acquired with
varying forms of consideration, the form of consideration to be
received by holders of such class of Voting Stock shall be either cash
or in the form used to acquire the largest number of shares of such
class of Voting Stock previously beneficially owned by it.
(iv) After such Substantial Stockholder has become a
Substantial Stockholder and prior to the consummation of such Business
Combination: (A) except as approved by at least two-thirds of the
Continuing Directors, there shall have been no failure to declare and
pay at the regular date therefor any full quarterly dividends (whether
or not cumulative) on any outstanding Preferred Stock of the
Corporation; (B) there shall have been (1) no reduction in the annual
rate of dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock), except as approved by at
least two-thirds of the Continuing Directors, and (2) an increase in
such annual rate of dividends as necessary to prevent any such
reduction in the event of any reclassification (including any reverse
stock split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of outstanding
shares of Common Stock, unless the failure so to increase such annual
rate is approved by at least two-thirds of the Continuing Directors;
and (C) such Substantial Stockholder shall not have become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Substantial Stockholder
becoming a Substantial Stockholder.
(v) After such Substantial Stockholder has become a
Substantial Stockholder, such Substantial Stockholder shall not have
received the benefit, directly or indirectly (except proportionately as
a stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the Corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to public stockholders of the Corporation
at least 30 days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions).
(vii) All per share prices shall be adjusted to reflect any
intervening stock splits, stock dividends and reverse stock splits.
4. Certain Definitions. For the purposes of this Article FIFTEENTH:
(a) A "person" shall mean any individual, firm, corporation or other
entity.
(b) "Substantial Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, or more than
10% of the voting power of the outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Substantial Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act
of 1933.
(c) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly) or
(ii) which such person or any of its Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or
(B) the right to vote pursuant to any agreement, arrangement
or understanding; or
(iii) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(d) For the purpose of determining whether a person is a Substantial
Stockholder pursuant to subparagraph (b) of this paragraph 4, the
number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned by a Substantial Stockholder through
application of subparagraph (c) of this paragraph 4, but shall not
include any other shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
March 1, 1985 (the term "registrant" in said Rule 12b-2 meaning in
this case the Corporation).
(f) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the
definition of Substantial Stockholder set forth in subparagraph (b) of
this paragraph 4, the term "Subsidiary" shall mean only a corporation
of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.
(g) "Continuing Director" means any member of the Board of Directors
of the Corporation (the "Board") who is unaffiliated with and not a
representative of the Substantial Stockholder and was a member of the
Board prior to the time that the Substantial Stockholder became a
Substantial Stockholder, and any successor of a Continuing Director
who is unaffiliated with and not a representative of the Substantial
Stockholder and is recommended to succeed a Continuing Director by at
least two-thirds of the Continuing Directors then on the Board.
(h) "Fair Market Value" means:
(i) in the case of stock, the highest closing sale price during
the 30-day period immediately preceding the date in question of a
share of such stock on the Composite Tape for the New York Stock
Exchange--Listed Stocks, or if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is
not listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on which
such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing sale price, or if none, the highest
closing bid quotation, with respect to a share of such stock during
the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or
any system then in use, or if no such quotations are available, the
fair market value on the date in question of a share of such stock as
determined by at least a two-thirds of the Continuing Directors in
good faith; and
(ii) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by
at least two-thirds of the Continuing Directors in good faith.
(i) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as
used in subparagraphs (b)(i) and (ii) of paragraph 3 shall include the
Common Shares or the shares of any other class of outstanding Voting
Stock retained by the holders of such shares, or both.
5. Powers of Continuing Directors. At least two-thirds of the
Continuing Directors of the Corporation shall have the power and duty to
determine, on the basis of information known to them after reasonable inquiry,
all facts necessary to determine compliance with this Article FIFTEENTH,
including without limitation (i) whether a person is a Substantial Stockholder,
(ii) the number of shares of Voting Stock beneficially owned by any person,
(iii) whether a person is an Affiliate or Associate of another, (iv) whether the
requirements of subparagraph (b) of paragraph 3 have been met with respect to
any Business Combination, and (v) whether the assets which are the subject of
any Business Combination have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any Subsidiary in any
Business Combination has, an aggregate Fair Market Value of $10,000,000 or more,
and the good faith determination of at least two-thirds of the Continuing
Directors on such matters shall be conclusive and binding for all the purposes
of this Article FIFTEENTH.
6. No Effect on Fiduciary Obligations of Interested Stockholders. Nothing
contained in this Article FIFTEENTH shall be construed to relieve the Board of
Directors or any Substantial Stockholder from any fiduciary obligation imposed
by law.
7. Amendment, Repeal, etc. Notwithstanding any other provisions of this
Certificate of Incorporation or the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, the
other sections of this Certificate of Incorporation or the By-Laws of the
Corporation), the affirmative vote of the stockholders holding not less than 80%
of the outstanding Voting Stock, voting together as a single class, shall be
required to amend or repeal, or to adopt any provisions inconsistent with, this
Article FIFTEENTH of this Certificate of Incorporation; provided, however, that
the preceding provisions of this paragraph 7 shall not be applicable to any
amendment to this Article FIFTEENTH, and such amendment shall require only such
affirmative vote as is required by law and any other provisions of this
Certificate of Incorporation, if such amendment shall have been approved by at
least two-thirds of the Continuing Directors.
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this Certificate, hereby
declaring and certifying that this is our act and deed and the facts herein
stated are true, and accordingly have hereunto set our hands this 9th day of
February, 1968.
/s/ B. J. Consono
/s/ F. J. Obara. Jr.
/s/ A. D. Grier
STATE OF DELAWARE )
) SS:COUNTY OF NEW CASTLE )
BE IT REMEMBERED that on this 9th day of February, A.D. 1968, personally
came before me, a Notary Public for the State of Delaware, B. J. Consono, F. J.
Obara, Jr. and A. D. Grier, all of the parties to the foregoing Certificate of
Incorporation, known to me personally to be such, and severally acknowledged the
said Certificate to be the act and deed of the signers respectively and that the
facts stated therein are true. GIVEN under my hand and seal of office the date
and year aforesaid.
-----------------------------------------------------
Notary Public
