-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IvnrrT/FOXJopJKsB8EsrSxwHnUF+4/CFZMwuOVNzZ0CVIRVdY6SMiMKYJyMu0vZ bs0R8ykwLrVgVjimBPldHQ== 0001000227-98-000005.txt : 19980401 0001000227-98-000005.hdr.sgml : 19980401 ACCESSION NUMBER: 0001000227-98-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980102 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TB WOODS CORP CENTRAL INDEX KEY: 0001000227 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 251771145 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14056 FILM NUMBER: 98583094 BUSINESS ADDRESS: STREET 1: 440 N FIFTH AVE CITY: CHAMBERSBURG STATE: PA ZIP: 17201 BUSINESS PHONE: 7172647161 10-K 1 FORM 10-K ANNUAL REPORT FOR TB WOOD'S CORPORATION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 2, 1998 Commission file number 1-14182 ............. TB Wood's Corporation ................................................................................ (Exact name of registrant as specified in its charter) Delaware 25-1771145 .................................. .................... (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 440 North Fifth Avenue, Chambersburg, PA 17201 ........................................................ .......... (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (717) 264-7161 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered .................................. .................................... Common Stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant based on the closing price on March 16, 1998, was $65,530,916. On March 16, 1998, there were 5,859,286 shares of the registrant's common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 1997 Annual Meeting of Shareholders are incorporated by reference into Part III hereof. Only those specific portions so incorporated are to be deemed filed as part of this Form 10-K. TB WOOD'S CORPORATION 1997 FORM 10-K ANNUAL REPORT 1 TABLE OF CONTENTS PART I ........................................................................3 Item 1. Business ............................................................3 Item 2. Properties ..........................................................8 Item 3. Legal Proceedings ...................................................8 Item 4. Submission of Matters to a Vote of Security Holders .................8 PART II .......................................................................9 Item 5. Market for Registrant's Common Equity and Related Shareholder Matters .................................................9 Item 6. Selected Financial Data ............................................10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation .................................10 Item 8. Financial Statements and Supplementary Data ........................14 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ................................34 PART III .....................................................................34 Item 10. Directors and Executive Officers of the Registrant ................34 Item 11. Executive Compensation ............................................34 Item 12. Security Ownership of Certain Beneficial Owners and Management ....................................................34 Item 13. Certain Relationships and Related Transactions ....................34 PART IV ......................................................................34 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...............................................34 SIGNATURES ...................................................................37 2 PART I Item 1. Business General TB Wood's Corporation (the "Company" or "TB Wood's") is an established designer, manufacturer and marketer of electronic and mechanical industrial power transmission products. The Company was incorporated in 1995. In January 1996, a subsidiary of the Company merged with TB Wood's Incorporated ("TBW"), a Pennsylvania Corporation that was formed in 1857, with TBW as the surviving corporation in the merger. The Company's products are sold to North American and international manufacturers and users of industrial equipment. Headquartered in Chambersburg, Pennsylvania, the Company operates eleven production facilities with over 1,100 employees in the United States, Canada, Mexico, Germany, and Italy. Industry Overview The power transmission industry provides electronic and mechanical products and systems used in automated manufacturing and material processing activities that transfer power from a motor or engine to a machine. The power transmission industry consists of three product categories: mechanical power transmission components, gear boxes and electronic drives. The Company competes in the electronic drives and mechanical power transmission components product categories. Products The Company designs, manufactures and markets electronic and mechanical power transmission products and systems. During 1997, 1996 and 1995, net sales for these product offerings were as follows:
1997 1996 1995 ---- ---- ---- Net Sales % Net Sales % Net Sales % --------- - --------- - --------- - Electronic power transmission products and systems $44.0 35.5% $32.9 32.1% $34.2 33.4% Mechanical power transmission products and systems 80.0 64.5% 69.6 67.9% 68.1 66.6% ------------ ---------- ------------ ---------- ------------ ---------- $124.0 100.0% $102.5 100.0% $102.3 100.0% ------------ ---------- ------------ ---------- ------------ ----------
Electronic Product Offering The Company designs and manufactures Alternating Current ("AC") and Direct Current ("DC") electronic drives, AC motor soft starters and brakes, and integrated electronic drive systems which are marketed throughout North America and internationally. These products are used to start, stop, and control the speed of electric motors. The Company's standard AC electronic drive products, which represent most of its electronic drive product offering net sales, are programmable to meet the needs of general requirements with particular strengths in food processing, materials handling, packaging and general machinery applications. The Company's electronic products are designed to meet both North American and European standards. The Company's integrated electronic drive systems consist of uniquely configured AC and/or DC electronic drives, programmable logic controllers and in-house designed custom software. These systems are packaged in custom enclosures to meet the requirements of specific applications. 3 Mechanical Product Offering The Company's mechanical product offering includes a full line of stock and made-to-order products including V-belt drives, synchronous drives, open belted variable speed drives, a broad line of flexible couplings, as well as hydrostatic drives, mechanical clutches and brakes. These products are used in a variety of industrial applications to transmit power from motors and engines to machines. The primary markets for these products are the construction, oil field and specialized industrial machinery, food processing, material handling, pumps, compressors, mining, pulp and paper and agricultural equipment industries. New Products Since 1993, the Company has introduced a significant number of new products. In 1993, the Company introduced the XFC E-trAC (registered trademark) micro-electronic drive product line to complement the WFC E-trAC (registered trademark), NEMA 4, AC Electronic drive product line. The Company introduced six new electronic products during the past five years, including the new WFCHT line of full-featured electronic drives that improve motor performance at low speeds, thereby expanding the applications for these products. The Company also extended its very successful line of XFC micro-inverters to 20 horsepower and the WFC inverters to 75 horsepower. The Company introduced a line of electronic drives for specific Original Equipment Manufacturer (OEM) applications that are more cost-effective than using a general purpose electronic drive, a series of 575 volt electronic drives for the Canadian market, a new DVC line of high-performance electronic drives for motor sizes up to 700 horsepower, and a new step-precision winding technology for electronic drive systems used in the synthethic fibers industry. During the last five years, several new mechanical products (two synchronous drives, one hydrostatic drive, and four couplings) have been introduced. The new mechanical products include the Dura-Flex (registerd trademark) coupling that expands the flexible coupling product line into higher performance applications. During 1997, the Company expanded its coupling product line by introducing axially-split and composite couplings. Marketing and Distribution The Company markets its products in North America and internationally. In North America, the Company sells to selected, authorized, industrial distributors which resell the Company's products to industrial consumers and Original Equipment Manufacturers ("OEMs"). The Company also sells directly to OEMs. The Company's products are sold principally throughout North America and, to a lesser extent, internationally. The Company's marketing alliances include licensing agreements and distribution agreements with distributors and manufacturers which, in some cases, market the Company's products under private label agreements. The Company has a technical sales force of approximately 40 people and several specialized manufacturers' representatives. The Company operates central distribution centers in Chambersburg, Pennsylvania; Stratford, Ontario and Mexico City, Mexico and regional distribution centers in Atlanta, Georgia; Elk Grove, Illinois; Dallas, Texas; Los Angeles, California; Portland, Oregon; Montreal, Quebec, Edmonton, Alberta and Marienheide, Germany. Most of the Company's products are manufactured to maintain stock inventories, and on-time delivery is important, therefore order backlogs are generally less than one month's shipments. Acquisitions TB Wood's seeks acquisitions that enhance product offerings, leverage fixed costs, and extend global reach. In April 1993, the Company acquired several lines of business including a flexible coupling and mechanical variable speed drive product line as well as two manufacturing facilities. In January 1994, the Company acquired Plant Engineering Consultants, Inc. ("PEC"), an integrated electronic drive systems manufacturer and marketer. 4 In early 1996, the Company acquired Grupo Blaju S.A. de C.V., providing a leading market share position in belted drive components in Mexico and a strong and cost-effective Mexican manufacturing operation. In October 1996, the Company acquired the assets of Ambi-Tech Industries, Inc., a leading manufacturer of electronic brakes. Ambi-Tech provides an important electronic product extension, as well as new technical capability to support the Company's aggressive growth plans in the electronics business. In November 1996, the Company acquired certain assets of Deck Manufacturing, a producer of gear couplings. Deck provides a valuable addition to the Company's line of couplings, the fastest growing area of the Company's mechanical business. In May 1997 the Company acquired Graseby Controls Inc. located in Greensboro, North Carolina. Graseby Controls has a leading position in the machine tool spindle drive market with its well-established Volkmann (TM) brand of high frequency, AC drives. In December, 1997 the Company acquired Berges electronics GmbH headquartered in Marienheide, Germany with operations in Germany and Italy. Berges designs, manufactures and markets AC drives for the European markets. The Company uses strategic alliances to gain access to technology and products that can not be as easily or effectively obtained through internal development or acquisition and to expand international market penetration. Since 1993 the Company has entered into six strategic alliances, the most recent being TB Wood's Enertec Ltd. an electronic joint venture in India. Customers The Company's products are consumed principally by industrial users. The Company's OEM customers include a number of Fortune 500 companies. The Company's distributor customers include, among others, Motion Industries and Kaman Industrial Technologies which are among the largest distributors in the industry. In addition, the Company's distributors also sell to OEMs. Management believes that the Company is one of the leading suppliers of power transmission products, based on sales volume, to its distributors. The Company's five largest customers accounted for approximately 30% of the Company's net sales in 1997. Motion Industries accounted for approximately 20% of the Company's total net sales in 1997 and has been a significant customer of the Company for more than 15 years. Competition The power transmission industry is highly competitive. Competitive factors in the AC and DC electronic drive product categories include product performance, physical size of the product, tolerance for hostile environments, application support, availability and price. The Company's competitors in these product categories include large multi-national companies in North America, Europe and Asia, as well as many small, domestic niche manufacturers. The integrated electronic drive system market is driven by increased demand for greater speed and process control from end users. This market includes maintenance and replacement of existing systems, upgrades to existing systems and new capacity expansion. Competitive factors include process knowledge and engineering, software design, product durability and price. Major competitors in electronic products and systems include Control Techniques Drives, Inc./Emerson Electric Co. Inc., Asea Brown Boveri, Allen Bradley and Siemens Corp. The Company competes with several divisions of large industrial companies as well as many small to mid-sized independent companies in the mechanical product category. Competitive factors include availability, quality, price, size capability, engineering and customer support. The Company's most significant competitors in the mechanical product category include Dodge, Emerson Electric Co. Inc., Martin Sprocket and Gear, Rexnord Corp. and Lovejoy Industries Inc. Management believes there are no significant foreign competitors in the North American mechanical product category market because of a fragmented customer base, prohibitive freight costs as compared to selling price and difficult access to existing distribution channels. 5 Research and Development The Company's research and development efforts include the development of new products, the testing of products and the enhancement of manufacturing techniques and processes. The Company's annual expenditures for research and development (including royalties and payments to third parties) during the last three fiscal years have averaged 3.0% of net sales, with a higher percentage being spent on electronic products. Raw Materials The Company uses purchased standard components in all of its electronics products. The Company also purchases components designed by its engineers. These purchased components include transformers, aluminum heat sinks, plastic enclosures and sheet metal stampings. These electronic parts and components are purchased from a number of suppliers and management has taken steps to qualify multiple sources for key items. The principal raw materials used in the Company's mechanical manufacturing operations are various types of steel, including pig iron, metal stampings, castings, forgings and powdered metal components. The Company also designs, tools and outsources special components made of aluminum, powdered metal and polymers. The Company purchases the materials used in its mechanical manufacturing operations from a number of suppliers and management believes that the availability of its materials is adequate. Patents and Trademarks The Company owns patents relating to its coupling, composite, synchronous drive, open belted variable speed drive, electronic drive and clutch/brake product lines. The Company also owns several patents relating to the design of its products. From time to time, the Company grants to others licenses under certain of its patents and obtains licenses under the patents of others. In addition, the Company owns, or has the right to use, registered United States trademarks for the following principal products: Sure-Flex(R), Formflex(R), Ultra-V(R), Roto-Cone(R), Var-A-Cone(TM), True Tube(TM), E-trAC(R), Ultracon(R) and Fiberlink(TM). Employees As of January 2, 1998, the Company employed approximately 1,144 people. Approximately 30 of the Company's hourly employees located at its Stratford, Ontario facility are represented by the United Steelworkers of Canada pursuant to a collective bargaining agreement dated January 20, 1995 that expired on January 19, 1998. A new agreement is in effect as of January 20, 1998 and expires on January 19, 2001. Approximately 100 of the Company's employees located at its Mexico City, Mexico facility are represented by the National Metal Workers' Union of Mexico pursuant to a collective bargaining agreement that expired on January 31, 1998. A new agreement is in effect as of January 31, 1998 and expires on January 31, 1999. Environmental Matters As with most industrial companies, the Company's operations and properties are required to comply with and are subject to liability under federal, state, local and foreign laws, regulations and ordinances relating to the use, storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials, substances and wastes. The nature of the Company's operations exposes it to the risk of claims with respect to environmental matters and there can be no assurance that material costs will not be incurred in connection with such liabilities or claims. Both the Mt. Pleasant, Michigan (the "Mt. Pleasant Facility") and the Chambersburg, Pennsylvania (the "Chambersburg Facility") facilities had been listed on the Comprehensive Environmental Response, Compensation, and Liability Information System ("CERCLIS") (a list of sites maintained by the United States Environmental Protection Agency ("USEPA") for which a determination was to be made concerning whether 6 investigation or remediation under CERCLA would be required). Both have been designated by USEPA as requiring no further action under CERCLA; therefore, the Company does not believe that material expenditures for these sites will be incurred under the CERCLA program. However, this does not assure that such expenditures would not be required under other federal and/or state programs. The Mt. Pleasant Facility is currently listed on Michigan's inactive hazardous waste site list pursuant to the Michigan version of CERCLA (formerly known as "Act 307", amended and recodified on June 5, 1995 as Part 201 of the Natural Resources and Environmental Protection Act ("Part 201")). The Mt. Pleasant Facility was first placed on the Michigan hazardous waste site list in 1991, when the Facility was owned by Dana Corporation. When the Company acquired the Mt. Pleasant Facility from Dana Corporation, the Asset Purchase Agreement dated March 31, 1993 (the "Asset Purchase Agreement") included an environmental indemnity provision. Pursuant to this provision, Dana Corporation agreed to indemnify the Company with respect to any environmental liabilities to the extent they arose out of environmental conditions first occurring on or before the closing date, including the presence or release of any hazardous substances at, in, or under the Mt. Pleasant Facility and with respect to the identification of the Mt. Pleasant Facility on the Michigan list of inactive hazardous waste sites. Dana Corporation has submitted a Remediation Plan to the Michigan Department of Environmental Quality ("MDEQ") with respect to the continued monitoring of the groundwater. The Company has not been notified by the Michigan Department of Natural Resources or any other governmental agency or person that it has any responsibility for investigating or remediating such environmental conditions. Although the Company has no reason to believe Dana Corporation cannot fulfill its remediation and indemnification obligations under the Asset Purchase Agreement, if Dana Corporation is unable to fulfill such commitments, then the Company may incur additional costs. The Company believes that its facilities are in substantial compliance with current regulatory standards applicable to air emissions, under the Clean Air Act Amendments of 1990 ("CAAA"). At this time, the Company cannot estimate when other new air standards will be imposed or what technologies or changes in processes the Company may have to install or undertake to achieve compliance with any applicable new requirements at its facilities. The Company has no reason to believe that such expenditures are likely to be material. Similarly, based upon the Company's experience to date, the Company believes that the future cost of currently anticipated compliance with existing environmental laws relating to waste water, hazardous waste and employee and community right-to-know should not have a material adverse effect on the Company's financial condition. 7
Item 2. Properties The Company owns and operates the following facilities: Location Operations Sq. Feet -------- ---------- -------- Chambersburg, Pennsylvania Foundry production of iron, and manufacturing and engineering 440,000 of mechanical products. Central distribution, administrative offices and corporate headquarters. Scotland, Pennsylvania Manufacturing and engineering of electronic products. 40,400 Trenton, Tennessee Manufacturing of mechanical products. 60,000 Stratford, Ontario Manufacturing of mechanical products. Central distribution 46,000 and administrative offices for Canada. San Marcos, Texas Manufacturing and engineering of mechanical products. *31,000 Mt. Pleasant, Michigan Manufacturing of mechanical products. 30,000 Chattanooga, Tennessee Manufacturing, engineering and sales of integrated electronic 56,000 drive systems. Headquarters of PEC. Greensboro, North Carolina Manufacturing and engineering of electronic products and 20,000 administrative offices for TB Wood's North Carolina. Elk Grove, Illinois Distribution center. 21,700
*Includes certain leased space In addition, the Company leases manufacturing facilities in: Marienheide, Germany; Naturns, Italy; Mexico City, Mexico; distribution facilities in: Dallas, Texas; Montreal, Quebec; Edmonton, Alberta; and fee warehouses in Los Angeles, California; Portland, Oregon; and Atlanta, Georgia. Item 3. Legal Proceedings The Company is a party to various lawsuits arising in the ordinary course of business. The Company does not believe that the outcome of any of these lawsuits will have a material adverse effect on the consolidated financial position of the Company. Item 4. Submission of Matters to a Vote of Security Holders None. 8 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters The Company consummated the Initial Public Offering of its common stock on February 8, 1996 and its Common Stock is listed on the New York Stock Exchange. The high and low prices for the Common Stock, and dividends paid on Common Stock, during the period from February 8, 1996 though January 2, 1998 were as follows: Sales Price Dividends ----------- --------- Fiscal Year 1997 High Low Paid in Cash ---------------- ---- --- ------------ 1st quarter $14.13 $10.75 $.08 2nd quarter 16.50 12.75 .08 3rd quarter 19.50 14.00 .08 4th quarter 22.25 18.06 .08 Fiscal Year 1996 ---------------- 1st quarter $12.125 $10.875 $.00 2nd quarter 11.750 8.875 .08 3rd quarter 9.875 8.250 .08 4th quarter 11.750 7.625 .08 On March 16, 1998, there were 161 registered shareholders of the Company's Common Stock, and the high and low sales prices for the Common Stock were $22.00 and $22.00, respectively. During fiscal year 1997, the Company paid total dividends of $.32 and declared total dividends of $.24 on the shares of its Common Stock. The declaration of any dividend, including the amount thereof, will be at the discretion of the Board of Directors of the Company, and will depend on the Company's then current financial condition, results of operations and capital requirements, and such other factors as the Board of Directors deems relevant. Item 6. Selected Financial Data The following tables set forth selected historical financial and operating data for the Company for each of the five years through fiscal year 1997 and have been derived from the Company's financial statements which have been audited by the Company's independent public accountants. The information set forth below should be read in conjunction with the Company's Consolidated Financial Statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operation". Effective fiscal year 1995, The Company changed its year end to the Friday closest to the last day of December. Fiscal year-ends are as follows: 1997 January 2, 1998 1996 January 3, 1997 1995 December 29, 1995 9
Selected Financial Data (in thousands, except per share data) Fiscal Year - ------------------------------------- ----------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Revenue and Income: Net sales $124,027 $102,505 $102,307 $95,315 $72,375 Gross profit 45,012 37,747 36,111 32,886 24,922 Operating income 16,951 12,573 12,593 9,795 6,329 Net income, before one-time charges* 8,689 6,294 4,599 3,077 1,779 -------- -------- -------- ------- ------- Cash Flow: Cash provided by operations $16,829 $9,090 $9,214 $5,379 $5,647 Capital expenditures 5,824 3,762 4,531 2,722 2,202 -------- -------- -------- ------- ------- Assets and Liabilities: Working capital** $27,682 $26,962 $26,160 $24,931 $19,815 Total assets 89,617 73,395 66,631 61,075 57,237 Total debt 26,539 22,227 41,463 42,661 42,900 Shareholders' equity (deficit) 23,606 16,875 (7,488) (12,866) (16,537) -------- -------- -------- ------- ------- Diluted Per Share Data: Net income, before one-time charges* $1.47 $1.12 $1.21 $.82 $.50 Cash dividends declared .24 .32 - - - Cash dividends paid .32 .24 - - - Book value 3.99 3.01 (1.97) (3.43) (4.64) -------- -------- -------- ------- ------- Weighted average shares outstanding 5,921 5,600 3,810 3,750 3,563
* Before $1,654 of one-time charges in 1996 related to the write-off of a noncompete agreement and the early retirement of debt related to the Initial Public Offering, $839 of one-time income in 1994 related to the sale of a product line, and $9,477 of net one-time charges in 1993 related to extraordinary income from the early repayment of debt and the cumulative effect of changes in the accounting for postretirement benefits. ** Working capital is defined as the sum of accounts receivable, inventory, and other current assets, less accounts payable and accrued expenses. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation Year Ended January 2, 1998, Compared to Year Ended January 3, 1997 Net sales for fiscal 1997 increased to $124.0 million from $102.5 million in 1996, an increase of $21.5 million or 21.0%. The improvement was broad-based with sales from existing businesses increasing $15.8 million or 15.4% and sales from businesses acquired in late 1996 and 1997 contributing an additional $5.7 million. Gross profit increased to $45.0 million from $37.7 million in 1996, an increase of $7.3 million or 19.2%. Gross profit as a percent of net sales decreased to 36.3% from 36.8%, due primarily to shifts in product mix and higher costs of sales resulting from the integration of the recently acquired coupling business. 10 Selling, general, and administrative ("SG&A") expense for fiscal 1997 increased to $28.1 million from $25.2 million in 1996, an increase of $2.9 million or 11.5%. SG&A expense as a percent of net sales decreased to 22.6% from 24.6%, primarily as a result of the significantly higher sales volume and implementation of cost reduction initiatives. Other expense for fiscal 1997 decreased to $2.5 million from $2.6 million in 1996, a decrease of $0.1 million or 4.2%. Interest expense, a component of total other expense, decreased to $1.7 million in 1997 from $2.0 million in 1996. This decrease was due primarily to lower borrowings in the first part of 1997. The effective tax rate for 1997 was 40.0%. Details of the provision for income taxes are discussed in Note 5 to the financial statements. In 1996, an extraordinary item of $1.3 million, net of tax, was related to early repayment of debt with the proceeds from the Initial Public Offering ("IPO"). Net income for fiscal 1997 increased to $8.7 million from $6.3 million in 1996, before one-time charges, an increase of $2.4 million, or 38.1%. Year Ended January 3, 1997, Compared to Year Ended December 29, 1995 Net sales for fiscal 1996 increased to $102.5 million from $102.3 million in 1995, an increase of $0.2 million or 0.2%. The Company's overall 1996 sales, excluding sales from the three businesses acquired during the year, declined by approximately $2.3 million compared to 1995. This decline resulted primarily from reduced sales of electronic drive products to distributors who delayed purchases in anticipation of the Company's introduction of a higher performance series of electronic drives during the second half of 1996. Gross profit increased to $37.7 million from $36.1 million in 1995, an increase of $1.6 million or 4.5%. Gross profit as a percent of net sales increased to 36.8% from 35.3%, due primarily to productivity improvements and cost reductions resulting from the Company's capital expenditure and Total Quality Management programs. SG&A expense for fiscal 1996 increased to $25.2 million from $23.5 million in 1995, an increase of $1.7 million or 7.0%. SG&A expense as a percent of net sales increased to 24.6% from 23.0%. The increase in SG&A expense resulted primarily from increases in research and development and marketing expenses related to new product introductions in the Company's electronics business, as well as additional SG&A expenses from acquired operations. Other expense for fiscal 1996 decreased to $2.6 million from $4.9 million in 1995, a decrease of $2.4 million or 47.7%. This decrease was due primarily to lower interest costs as a result of debt repayment from the proceeds of the IPO, prepayment of a subordinated note at a discount, and reduced interest rates on the Company's revolving line of credit. Other expense included a $0.6 million write-off of a noncompete agreement. The effective tax rate for 1996 was 40.5%. Details of the provision for income taxes are discussed in Note 5 to the financial statements. An extraordinary item of $1.3 million, net of tax, was related to early repayment of debt with the proceeds from the IPO. Net income for fiscal 1996 was $4.6 million, unchanged from 1995. In 1996 net income before one-time charges, net of tax, increased by $1.7 million or 36.9% over 1995. Liquidity and Capital Resources The Company's principal sources of funds are cash flow from operations and borrowings under the Company's revolving credit agreement. Cash provided from operations in 1997 was $16.8 million, an increase of $7.7 million over $9.1 million in 1996. 11 Net cash used for investing activities during fiscal years 1997, 1996, and 1995 was $16.4 million, $9.2 million, and $6.4 million, respectively. The Company's investing activities were primarily acquisitions and capital expenditures. In 1997, the Company acquired the assets of Graseby Controls, Inc. and Berges electronic GmbH for a total of $9.9 million, net of acquired cash. In 1996, the Company acquired the assets of Deck Manufacturing Corp. and Ambi-Tech, Inc., and purchased the stock of Grupo Blaju S.A. de C.V. for a total of $3.7 million in cash and notes. Also in 1996, the Company purchased 21% of TB Wood's Canada Ltd. for $1.6 million to make the Company's Canadian operations a wholly owned subsidiary. Capital expenditures for fiscal years 1997, 1996, and 1995 were $5.8 million, $3.8 million, and $4.5 million, respectively. During the last three fiscal years, the Company has made significant capital investments in computer controlled surface mounts, production lines for populating semi-conductors onto circuit boards, computer numerically controlled ("CNC") machine tools, test and production equipment at the Company's foundry in Chambersburg, and equipment to improve and modernize plants acquired through recent purchases of businesses. In 1997, the Company purchased a $2.1 million facility for it's electronics systems business in Chattanooga, Tennessee. These capital expenditures reduce costs, improve product quality, and provide additional capacity for meeting the Company's growth objectives. In April 1997, the Company borrowed $2.6 million by issuing Variable Rate Demand Revenue Bonds, under the authority of The Industrial Revenue Board of the City of Chattanooga, to finance a new production facility for the electronics systems business. In 1997, the net proceeds from the new revolving credit facility were $2.3 million which included borrowings of approximately $5.0 and $5.7 million to finance the purchase of Graseby Controls, Inc. and Berges electronic GmbH, respectively. On February 8, 1996, the Company completed an Initial Public Offering of its Common Stock that raised approximately $22.5 million in aggregate gross proceeds for the Company. The proceeds, net of issuance costs of $19.8 million, were used to repay debt. The Company paid $1.9 million in dividends during 1997. The Company paid an $.08 per share dividend following the first, second, and third quarters of 1997, and declared an $.08 dividend on January 8, 1998, paid on January 30, 1998, to shareholders of record on January 16, 1998. The Company believes that it will have sufficient cash flow from operations and available borrowings to meet its future cash needs for interest, operating expenses, and capital expenditures. Derivative Financial Instruments Market risk is the potential change in an instrument's value caused by, for example, fluctuations in interest and currency exchange rates. The Company's primary market risk exposures are interest rate risk and the risk of unfavorable movements in exchange rates between the U.S. dollar and each of the Mexican peso, Canadian dollar, German mark, and Italian lira. Monitoring and managing these risks is a continual process carried out by senior management. Market risk is managed based on an ongoing assessment of trends in interest rates, foreign exchange rates, and economic developments, giving consideration to possible effects on both total return and reported earnings. The Company's financial advisors, both internal and external, provide ongoing advice regarding trends that affect management's assessment. The Securities and Exchange Commission has qualified Mexico as a highly inflationary economy under the provisions of SFAS No. 52. As of January 2, 1998, the remeasurement of the Mexico operation did not have a material effect on the Company's statement of operations. 12 Year 2000 Based on a review of the implications of the Year 2000 on the Company, although final cost estimates have yet to be determined, management does not currently believe that the costs related to the Company's compliance with the Year 2000 issue will have material adverse effect on the Company's financial position, results of operations or cash flows. However, in the event that the Company or any of the Company's significant suppliers or customers experience disruptions due to the Year 2000 issue, the Company's operations could be adversely affected. Recent Accounting Pronouncements In March 1997, the Financial Accounting Standards Board issued SFAS 128, "Earnings Per Share," ("EPS") which the Company adopted for the year ended January 2, 1998. Basic net EPS is computed by dividing reported earnings available to common shareholders by weighted average shares outstanding. No dilution for any potentially dilutive securities is included in basic EPS. Diluted EPS is computed by dividing reported earnings available to common shareholders by weighted average shares and common equivalent shares outstanding. All prior year EPS amounts have been restated to conform to the provisions of SFAS 128. For the year ended January 2, 1998, the Company adopted Statement of Financial Accounting Standards No. 129 ("SFAS 129") "Disclosure of Information and Capital Structure". SFAS 129 requires disclosure of the pertinent rights and privileges of all securities other than ordinary common stock. The Company has disclosed such information in previous years' annual reports filed in Form 10-K. In July 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS 130"), "Reporting Comprehensive Income". The statement addresses the reporting and display of changes in equity that result from transactions and other economic events, excluding transactions with owners. Management has not evaluated the impact of this statement on the financial statements. During 1998, the Company plans to adopt Statement of Financial Accounting Standard No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information". The statement addresses reporting of segment information. Management has not evaluated the impact of this statement on the financial statements. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995, except for the historical information contained herein, the matters discussed in this annual report are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitve, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission. 13 Item 8. Financial Statements and Supplementary Data Page Report of Independent Public Accountants .....................................15 Consolidated Balance Sheets as of January 2, 1998 and January 3, 1997 ............................................................16 Consolidated Statements of Operations for the Years Ended January 2, 1998, January 3, 1997, and December 29, 1995 ..............17 Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the Years Ended January 2, 1998, January 3, 1997, and December 29, 1995 .....................................18 Consolidated Statements of Cash Flows for the Years Ended January 2, 1998, January 3, 1997, and December 29, 1995 ....................19 Notes to Consolidated Financial Statements ...................................20 14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of TB Wood's Corporation: We have audited the accompanying consolidated balance sheets of TB Wood's Corporation (a Delaware corporation) and subsidiaries as of January 2, 1998, and January 3, 1997, and the related consolidated statements of operations, changes in shareholders' equity (deficit), and cash flows for each of the three years in the period ended January 2, 1998. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TB Wood's Corporation and subsidiaries as of January 2, 1998 and January 3, 1997 and the results of their operations and their cash flows for each of the three years in the period ended January 2, 1998 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Item 14(a)(2) of this Form 10-K is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Atlanta, Georgia January 30, 1998 15
TB Wood's Corporation And Subsidiaries Consolidated Balance Sheets (in thousands, except per share and share amounts) 1997 1996 - -------------------------------------------------- ---- ---- ASSETS Current Assets: Cash and cash equivalents $2,552 $306 Accounts receivable, less allowances for doubtful accounts, discounts, and claims of $476 and $437 in 1997 and 1996, respectively 20,174 15,518 Inventories: Finished goods 15,417 16,293 Work in process 8,467 7,994 Raw materials 6,073 3,755 LIFO reserve (3,819) (4,057) --------- --------- 26,138 23,985 Other current assets 967 1,053 --------- --------- Total current assets 49,831 40,862 --------- --------- Property, Plant, and Equipment: Machinery and equipment 36,782 33,075 Land, buildings, and improvements 11,100 8,577 47,882 41,652 Less accumulated depreciation (23,794) (21,154) --------- --------- 24,088 20,498 Other Assets: Deferred income taxes (Note 5) 4,602 5,249 Goodwill, net of accumulated amortization of $1,123 and $958 in 1997 and 1996, respectively 9,122 4,603 Other 1,974 2,183 --------- --------- Total other assets 15,698 12,035 --------- --------- $89,617 $73,395 ========= ========= Liabilities and Shareholders' Equity (Deficit) Current Liabilities: Current maturities of long-term debt (Note 4) $611 $520 Accounts payable 8,610 5,210 Checks outstanding 1,615 1,532 Accrued expenses (Note 3) 10,987 8,384 Deferred income taxes (Note 5) 729 539 --------- --------- Total current liabilities 22,552 16,185 Long-term debt, less current maturities (Note 4) 25,928 21,707 Postretirement benefit obligation, less current portion 17,531 18,628 Commitments and Contingencies (Note 8) Shareholders' Equity (Deficit): Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued or outstanding 0 0 Common stock, $.01 par value; 40,000,000 shares authorized, 5,859,286 issued and 5,849,772 outstanding in 1997, and 5,827,397 shares issued and 58 58 outstanding in 1996 Common stock held in treasury at cost; 9,514 in 1997 and 0 in 1996 (181) 0 Additional paid-in capital 28,340 28,158 Accumulated deficit (4,408) (11,306) Foreign currency translation adjustment (203) (35) --------- --------- Total shareholders' equity 23,606 16,875 --------- --------- $89,617 $73,395 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 16
TB Wood's Corporation And Subsidiaries Consolidated Statements of Operations (in thousands, except per share amounts) 1997 1996 1995 ---------------------------------------- ---- ---- ---- Net sales $124,027 $102,505 $102,307 Cost of sales 79,015 64,758 66,196 ---------- ---------- ---------- Gross profit 45,012 37,747 36,111 Selling, general, and administrative expenses 28,061 25,174 23,518 ---------- ---------- ---------- Operating income 16,951 12,573 12,593 ---------- ---------- ---------- Other expense: Interest expense and other finance charges (1,695) (1,982) (4,461) Other, net (773) (593) (467) ---------- ---------- ---------- Other expense, net (2,468) (2,575) (4,928) ---------- ---------- ---------- Income before provision for income taxes and extraordinary item 14,483 9,998 7,665 Provision for income taxes (Note 5) 5,794 4,053 3,066 ---------- ---------- ---------- Income before extraordinary item 8,689 5,945 4,599 Extraordinary item, early extinguishment of debt (less related income tax benefit of $870) 0 (1,305) 0 ---------- ---------- ---------- Net income $8,689 $4,640 $4,599 ========== ========== ========== Per share of common stock: Basic: Income before extraordinary item $1.49 $1.08 $1.36 Extraordinary item .00 (.24) .00 ---------- ---------- ---------- Net income per common share $1.49 $.84 $1.36 ---------- ---------- ---------- Weighted average shares of common stock 5,833 5,520 3,375 ========== ========== ========== Diluted: Income before extraordinary item $1.47 $1.06 $1.21 Extraordinary item .00 (.23) .00 ---------- ---------- ---------- Net income per common share $1.47 $.83 $1.21 ========== ========== ========== Weighted average shares of common stock and equivalents outstanding 5,921 5,600 3,810 ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 17
TB Wood's Corporation And Subsidiaries Consolidated Statements of Changes in Shareholders' Equity (Deficit) Foreign Additional Currency Common Treasury Paid-In Accumulated Translation (in thousands) Stock Warrants Stock Capital Equity(Deficit) Adjustment - -------------- ----- -------- ----- ------- --------------- ---------- Balance, December 31, 1994 $33 $500 $0 $5,429 $(18,693) $(135) Net income 0 0 0 0 4,599 0 Stock option compensation 0 0 0 675 0 0 Foreign currency translation adjustment 0 0 0 0 0 104 ------ ------ ------ -------- ---------- ------- Balance, December 29, 1995 33 500 0 6,104 (14,094) (31) Net income 0 0 0 0 4,640 0 Issuance of stock in connection with ------ ------ ------ -------- ---------- ------- the Initial Public Offering 20 0 0 19,803 0 0 Investment in Wood's-Canada 0 0 0 (1,600) 0 0 Exercise of warrants 4 (500) 0 500 0 0 Gain on repayment of subordinated note 0 0 0 2,992 0 0 Dividends declared 0 0 0 0 (1,852) 0 Stock option compensation and proceeds from options exercised 1 0 0 359 0 0 Foreign currency translation adjustment 0 0 0 0 0 (4) ------ ------ ------ -------- ---------- ------- Balance, January 3, 1997 58 0 0 28,158 (11,306) (35) Net income 0 0 0 0 8,689 0 Stock issuance for 401k plan 0 0 0 100 0 0 Dividends declared 0 0 0 0 (1,400) 0 Stock option compensation and proceeds from options exercised 0 0 95 82 0 0 Treasury stock, net 0 0 (276) 0 (391) 0 Foreign currency translation adjustment 0 0 0 0 0 (168) ------ ------ ------ -------- ---------- ------- Balance, January 2, 1998 $58 $0 $(181) $28,340 $(4,408) $(203) ====== ====== ======= ======== ======== =====
The accompanying notes are an integral part of these consolidated financial statements. 18
TB Wood's Corporation And Subsidiaries Consolidated Statements of Cash Flows (in thousands) 1997 1996 1995 - -------------- ---- ---- ---- Cash Flows from Operating Activities: Net income $8,689 $4,640 $4,599 -------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,097 3,427 3,618 Deferral of interest and management fees payable to 0 288 1,152 affiliates Change in deferred income taxes, net 837 (1,095) 205 Stock option compensation expense 101 140 675 Net loss (gain) on sale of assets 10 (44) 0 Write-off of noncompete agreement 0 563 0 Extraordinary loss on early extinguishment of debt, net 0 1,305 0 Changes in working capital, net of effects of acquisitions: Accounts receivable (173) (854) (115) Inventories 1,876 (1,615) (1,612) Prepaid expenses and other current assets (227) (751) (34) Accounts payable 1,531 631 (467) Accrued and other liabilities 88 2,455 1,193 -------- -------- -------- Total adjustments 8,140 4,450 4,615 -------- -------- -------- Net cash provided by operating activities 16,829 9,090 9,214 -------- -------- -------- Cash Flows from Investing Activities: Acquisitions, net of cash acquired (9,914) (2,920) 0 Capital expenditures (5,824) (3,762) (4,531) Purchase of minority interest in subsidiary 0 (1,600) 0 Proceeds from sales of fixed assets 65 128 44 Other, net (1,003) (1,004) (1,915) -------- -------- -------- Net cash used in investing activities (16,676) (9,158) (6,402) -------- -------- -------- Cash Flows from Financing Activities: Change in checks outstanding 83 (516) (383) Repayments of subordinated note and associated taxes 0 (13,094) 0 Proceeds from (repayments of ) long-term debt, net 2,003 (14,564) (2,131) Repayments of original revolving credit facility, net 0 (10,721) (313) Proceeds from new revolving credit facility, net (Note 4) 2,300 20,200 0 Proceeds from public sale of common stock 0 19,823 0 Payment of dividends (1,866) (1,386) 0 Proceeds from issuance of stock upon option exercise 17 219 0 Treasury Stock (276) 0 0 -------- -------- -------- Net cash provided by (used in) financing activities 2,261 (39) (2,827) -------- -------- -------- Effect of changes in foreign exchange rates (168) (4) 103 -------- -------- -------- Net increase(decrease) in cash and cash equivalents 2,246 (111) 88 Cash and cash equivalents at beginning of year 306 417 329 ======== ======== ======== Cash and cash equivalents at end of year $2,552 $306 $417 ======== ======== ======== Income taxes paid during the year $6,307 $5,409 $2,140 ======== ======== ======== Interest paid during the year $1,573 $2,040 $2,868 ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. 19 TB Wood's Corporation And Subsidiaries Notes To Consolidated Financial Statements (in thousands, except per share and share amounts) 1. NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION TB Wood's Corporation and Subsidiaries (collectively, "Wood's" or the "Company") is an established designer, manufacturer, and marketer of electronic and mechanical industrial power transmission products which are sold to domestic and international manufacturers and users of industrial equipment. Principal products of TB Wood's Incorporated ("Wood's-U.S."), a wholly owned subsidiary of TB Wood's Corporation, include electronic drives, integrated electronic drive systems, mechanical belted drives, and flexible couplings. Plant Engineering Consultants, Inc. ("PEC"), a wholly owned subsidiary of Wood's-U.S., manufactures integrated electronic drive systems. TB Wood's Canada, Ltd. ("Wood's-Canada" {Note 9}) and TB Wood's Mexico, S.A., de C.V. ("Wood's-Mexico" {Note 9}), wholly owned subsidiaries of Wood's-U.S., manufacture and market mechanical industrial power transmission products and act as distributors for electronic and mechanical products manufactured by the domestic operations of Wood's-U.S. TB Wood's North Carolina ("Wood's-NC" {Note 9}), a wholly owned subsidiary of Wood's-U.S., manufactures and markets Volkmann (TM) brand of high-frequency AC drives, other AC drives, Ambi-Tech brand and other electronic brakes and Soft Starts. Berges electronic GmbH ("Berges" {Note 9}), a wholly owned subsidiary of Wood's-U.S., designs, manufactures and markets its own line of AC drives for the European market and acts as the European distributor for electronic products manufactured by the domestic operations of Wood's-U.S. To allow for more timely consolidation and reporting, Berges' operations will be reported beginning in fiscal 1998 using a fiscal year starting December 1997 and ending December 1998. Wood's-U.S. was organized in 1857 and was incorporated in Pennsylvania in 1906. The accompanying consolidated financial statements include the accounts of TB Wood's Corporation and its wholly owned subsidiaries. The minority interest in Wood's-Canada, purchased by Wood's-U.S. in connection with the Initial Public Offering ("Offering" {Note 9}), was not separately classified in the accompanying financial statements for 1995 because the minority owners were the same individuals who owned the common stock of Wood's-U.S. All significant intercompany balances and transactions have been eliminated. Year-End Fiscal year-ends are as follows: 1997 January 2, 1998 1996 January 3, 1997 1995 December 29, 1995 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Restricted Cash At January 2, 1998, $420 of cash is restricted, under the Variable Rate Demand Revenue Bonds (Note 4). This cash may be used for building renovations, improvements or other capital expenditures related to the new production facility for the electronics systems business. The funds will be used to repay the bonds if not spent prior to April 1999. Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. 20 Property, Plant, and Equipment The Company depreciates its property, plant, and equipment using principally the straight-line method over the estimated useful lives of the assets. Equipment under capital leases is depreciated over the assets estimated useful life and is included in machinery and equipment. Maintenance and repair costs are charged to expense as incurred, and major renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related carrying value and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income. Inventories Wood's-U.S., PEC, and Wood's-NC inventories are stated at the lower of cost or market using the last-in, first-out ("LIFO") method. Wood's-Canada, Wood's-Mexico, and Berges inventories are stated at the lower of cost or market using the first-in, first-out method. Market is defined as net realizable value. Cost includes raw materials, direct labor, and manufacturing overhead. Approximately 78% and 90% of total inventories were valued using the LIFO method at January 2, 1998 and January 3, 1997, respectively. Self-Insurance The Company maintains workers' compensation insurance policies, which have the potential for retrospective premium adjustments, and a partially self-insured group health insurance policy, which is subject to specific retention levels. Insurance administrators assist the Company in estimating the fully developed workers' compensation liability and group health insurance reserves which are accrued by the Company. In the opinion of management, adequate provision has been made for all incurred claims. The Company has issued letters of credit totaling $950 to cover incurred claims and other costs related to the workers' compensation policy. Foreign Currency Translation The financial statements of Wood's-Canada, Wood's-Mexico and the balance sheet of Berges have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." Translation adjustments, which result from the process of translating financial statements into U.S. dollars, are accumulated as a separate component of shareholders' equity(deficit). Exchange gains and losses resulting from foreign currency transactions, primarily intercompany sales of products between Wood's-U.S., Wood's-Canada and Wood's-Mexico, are included in other expense in the accompanying statements of operations and are not material. The Securities and Exchange Commission has qualified Mexico as a highly inflationary economy under the provisions of SFAS No. 52. As of January 2, 1998, the remeasurement of the Mexico operation did not have a material effect on the Company's statement of operations. Goodwill The excess of cost over the net assets acquired ("Goodwill") is being amortized on a straight-line basis over a period of 40 years. Goodwill relates to the acquisition of the Company in 1986 and the acquisition of certain businesses and product lines (Note 9). Long-Lived Assets and Intangible Assets The Company reviews the carrying values assigned to long-lived assets and certain identifiable intangible assets based on expectations of undiscounted future cash flows and operating income generated by the long-lived assets or the tangible assets underlying certain identifiable intangible assets in determining whether the carrying amount of such assets is recoverable. 21 Shareholders' Equity In 1996, the board of directors authorized, subject to certain business and market conditions, the purchase of up to 200,000 of the Company's common shares. At January 2, 1998 the number of treasury shares purchased under this authorization was 20,100 and the number of treasury shares issued to employees under option and purchase plans was 4,436 and under the 401(k) profit sharing plan was 6,150. The Company's Employee Stock Purchase Plan ("ESPP") enables employees of the Company to subscribe for shares of common stock on quarterly offering dates at a purchase price which is the lesser of 90% of the fair market value of the shares on the first day or the last day of the quarterly period. Employee contributions to the ESPP were $63 for 1997. Pursuant to the ESPP, 4,436 shares were issued to employees during 1997. At the annual meeting on March 10, 1997, the Company's shareholders approved the reservation of 500,000 shares to be issued under the ESPP. As of January 2, 1998, 495,564 shares are available for future issuances. Fair Value of Financial Instruments The fair value of financial instruments classified as current assets or liabilities, including cash and cash equivalents, accounts receivable and accounts payable, approximate carrying value due to the short-term maturity of the instruments. The fair value of short-term and long-term debt and deferred compensation amounts approximate carrying value and are based on their effective interest rates compared to current market rates. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cyclical Industry The markets for some of the Company's products are cyclical, generally following changes in the overall economy. Consequently, during periods of economic expansion, the Company has experienced increased demand for its products, and during periods of economic contraction, the Company has experienced decreased demand for its products. Such changes in the general economy affect the Company's results of operations in the relevant fiscal periods. 22 Sales The Company's five largest customers accounted for approximately 30%, 29%, and 28% of net sales for fiscal years 1997, 1996, and 1995, respectively. Of these customers, one accounted for approximately 20% of net sales for the year ended January 2, 1998. The loss of one or more of these customers could have an adverse effect on the Company's performance and operations. Export sales accounted for 17.0%, 17.7%, and 14.7% of total sales in fiscal years 1997, 1996, and 1995, respectively. Intercompany transactions are consummated on terms equivalent to those that prevail in arms-length transactions. Information regarding the Company's domestic and foreign operations is as follows:
United Wood's- Foreign States Canada Berges Other Eliminations Consolidated ------ ------ ------ ----- ------------ ------------ Year ended January 2, 1998 Net Sales $122,613 $14,134 $0 $2,747 $(15,467) $124,027 Operating Profit 16,068 740 0 143 0 16,951 Identifiable Assets 95,101 5,221 10,636 2,220 (23,561) 89,617
Supply of Electronic Raw Materials and Purchased Components Historically, the electronics component industry, which supplies components for the Company's electronic products, has from time to time experienced heavy demand for certain components during periods of growth in the consumer electronic industry. The rapid growth of the AC electronic drive market has also created heavy demand for power control electronics. While certain of the Company's components are obtained from a single or limited number of sources, the Company has potential alternate suppliers for most of the specialty components used in its manufacturing operations. There can be no assurance, however, that the Company will not experience shortages of raw materials or components essential to the production of its products or be forced to seek alternative sources of supply, which may increase costs or adversely affect the Company's ability to obtain and fulfill orders for its products. Net Income Per Share In March 1997, the Financial Accounting Standards Board issued SFAS 128, "Earnings Per Share," ("EPS") which the Company adopted for the year ended January 2, 1998. Basic net EPS is computed by dividing reported earnings available to common shareholders by weighted average shares outstanding. No dilution for any potentially dilutive securities is included in basic EPS. Diluted EPS is computed by dividing reported earnings available to common shareholders by weighted average shares and common equivalent shares outstanding. All prior year EPS amounts have been restated to conform to the provisions of SFAS 128. 23
The computation of weighted average shares outstanding and net income per share are as follows: (in thousands, except per share data) 1997 1996 1995 - ------------------------------------- ---- ---- ---- Weighted average shares outstanding Common shares outstanding for basic EPS 5,833 5,520 3,375 Shares issued upon assumed exercise of outstanding warrants 0 0 375 Shares issued upon assumed exercise of outstanding stock options 88 80 60 -------- -------- -------- Weighted average number of common and common equivalent shares outstanding 5,921 5,600 3,810 -------- -------- -------- Income before extraordinary item $8,689 $5,945 $4,599 Extraordinary item 0 (1,305) 0 -------- -------- -------- Net income $8,689 $4,640 $4,599 ======== ======== ======== Basic net income per common share: Before extraordinary item $1.49 $1.08 $1.36 Extraordinary item 0.00 (0.24) 0.00 -------- -------- -------- Net Income $1.49 $.84 $1.36 ======== ======== ======== Diluted net income per common share: Before extraordinary item $1.47 $1.06 $1.21 Extraordinary item 0.00 (0.23) 0.00 -------- -------- -------- Net Income $1.47 $.83 $1.21 ======== ======== ========
Effective in 1997, the Company adopted Statement of Financial Accounting Standards No. 129 ("SFAS 129") "Disclosure of Information and Capital Structure". SFAS 129 requires disclosure of the pertinent rights and privileges of all securities other than ordinary common stock. The Company has disclosed such information in previous years' annual reports filed in Form 10-K. In July 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". The statement addresses the reporting and display of changes in equity that result from transactions and other economic events, excluding transactions with owners. Management has not evaluated the impact of this statement on the financial statements. In 1998, the Company plans to adopt Statement of Financial Accounting Standard No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information". The statement addresses reporting of segment information. Management has not evaluated the impact of this statement on the financial statements. Reclassifications Certain prior period amounts have been reclassified to conform with the current period presentation. 24 3. ACCRUED EXPENSES Components of accrued expenses were as follows: 1997 1996 ---- ---- Accrued payroll and other compensation $3,428 $2,619 Other accrued liabilities 6,352 4,525 Accrued workers' compensation 1,207 1,240 --------- -------- Total $10,987 $8,384 ========= ======== 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt and capital lease obligations consist of the following: 1997 1996 ---- ---- Unsecured revolving line of credit $22,500 $20,200 Capital lease obligations 35 307 Industrial revenue bond 2,550 0 Other 1,454 1,720 --------- -------- 26,539 22,227 Less current maturities (611) (520) ========= ======== $25,928 $21,707 ========= ======== Aggregate future maturities of long-term debt and capital lease obligations as of January 2, 1998 are as follows: 1998 $611 1999 306 2000 279 2001 225 2002 22,568 Thereafter 2,550 --------- $26,539 ========= On July 18, 1996, the Company repaid principal of approximately $16,674 on a junior subordinated note payable to a company formerly related by common ownership for approximately $10,677. The gain on extinguishment of $2,992, net of tax, is reflected as a component of shareholders' equity. In connection with the proceeds received from the Offering of the Company's common stock (Note 9), the Company repaid a term loan with Fleet, a debt agreement with USL, and a portion of a revolver loan with Fleet. An extraordinary loss of approximately $1,305, net of taxes, was incurred in the first quarter 1996 as a result of the repayment of certain indebtedness. On October 10, 1996, the Company entered into a $40,000 unsecured revolving credit facility arranged by PNC Bank, N.A. The Company used the proceeds of the credit facility to repay the balance of a revolver loan with Fleet. The Company realized an initial rate reduction of approximately 50 basis points with future rates based on the ratio of total indebtedness to EBITDA, as defined. The loan agreement contains numerous restrictive financial covenants which require the Company to comply with certain financial tests, including, among other things, maintaining minimum tangible net worth, as defined, and maintaining certain specified ratios. The loan agreement also contains other restrictive covenants which include, among other things, restrictions on outside investments and restrictions on capital expenditures. 25 In April 1997, the Company borrowed $2.6 million by issuing Variable Rate Demand Revenue Bonds, under the authority of The Industrial Revenue Board of the City of Chattanooga, to finance the new production facility for the electronics systems business. The gross proceeds from (repayments of) the revolving credit facilities are as follows: 1997 1996 1995 ---- ---- ---- Proceeds from the Fleet revolving credit facility $0 $88,507 $100,977 Repayments of Fleet revolving credit facility 0 (99,228) (101,290) Proceeds from the PNC revolving credit facility 46,400 32,900 0 Repayments of the PNC revolving credit facility (44,100) (12,700) 0 5. INCOME TAXES The components of the provision (benefit) for income taxes are shown below: 1997 1996 1995 ---- ---- ---- Current: Federal and state $4,365 $4,407 $2,837 Foreign 592 442 24 -------- -------- -------- 4,957 4,849 2,861 -------- -------- -------- Deferred: Federal and state 837 (796) 203 Foreign 0 0 2 -------- -------- -------- 837 (796) 205 -------- -------- -------- Provision for income taxes $5,794 $4,053 $3,066 ======== ======== ======== Under SFAS No. 109, deferred tax assets or liabilities at the end of each period are determined by applying the current tax rate to the difference between the financial reporting and income tax bases of assets and liabilities. The deferred tax provision (benefit) is determined based on changes in deferred tax items exclusive of deferred tax implications of the early extinguishment of debt and reclassifications between deferred and current taxes. 26 The components of deferred income taxes are as follows: 1997 1996 ---- ---- Deferred income tax liabilities: Book basis in property over tax basis $(2,163) $(1,536) LIFO inventory basis differences (3,046) (3,127) Other (1,085) (964) --------- --------- Total deferred income tax liabilities (6,294) (5,627) --------- --------- Deferred income tax assets: Postretirement benefits not currently deductible 7,212 7,652 Accrued liabilities not currently deductible 1,498 1,394 Allowance for doubtful accounts and inventory reserves 825 662 Stock option compensation not currently deductible 106 326 Other 526 303 --------- --------- Total deferred income tax assets 10,167 10,337 --------- --------- Net deferred income tax asset $3,873 $4,710 ========= ========= A reconciliation of the provision for income taxes at the statutory federal income tax rate to the Company's tax provision as reported in the accompanying statements of operations is shown below: 1997 1996 1995 ---- ---- ---- Federal statutory income tax $4,924 $3,399 $2,606 State income taxes, net of federal income tax benefit 651 456 460 Changes in the valuation allowance 0 0 (112) Other, net 219 198 112 -------- -------- -------- $5,794 $4,05 $3,066 ======== ======= ======== In 1997, 1996, and 1995, earnings before income taxes included $1,259, $884, and $283, respectively, of earnings generated by the Company's foreign operations. No federal or state income taxes have been provided on such earnings, since undistributed earnings have been reinvested and are not expected to be remitted to the parent company. In September 1997, the Internal Revenue Service completed its review of the Company's 1993, 1994, and 1995 federal income tax returns. The review did not have a material effect on operations. 6. BENEFIT PLANS Compensation Plans Wood's maintains a discretionary compensation plan for its salaried and hourly employees which provides for incentive awards based on certain levels of earnings, as defined. Amounts awarded under the plan and charged to expense in the accompanying statements of operations were $2,002, $1,664, and $1,443 for fiscal years 1997, 1996, and 1995, respectively. 27 Profit-Sharing Plans Since January 1, 1988, the Company has maintained a separate defined contribution 401(k) profit-sharing plan covering all salaried and nonproduction unit domestic hourly employees. Under this plan, the Company matches a specified percentage of each eligible employee's contribution. Amounts contributed by the Company under this profit-sharing plan were approximately $530, $500, and $500, for fiscal years 1997, 1996, and 1995, respectively. In addition, the Company has other noncontributory profit-sharing plans covering its eligible production employees and Canadian employees for which $37, $40, and $41, were charged to expense for the fiscal years 1997, 1996, and 1995, respectively. Stock Options In March 1991, the Company granted nonqualified stock options to the president of the Company to purchase 157,893 shares of the Company's common stock at an option price of $6.33 per share. The options vest 30% in January 1993, 15% in January 1994, 1995, 1996, and 1997, and 10% in January 1998. On March 30, 1992, the option agreement was amended to set the option price at $1.58 per share plus an amount equal to the average yield on the 30-year U.S. Treasury bond maturing on the day closest to the fifteenth anniversary of the option measurement date. The options are exercisable on or after the seventh anniversary of the measurement date and expire one year thereafter. During 1992, the controlling shareholder granted an additional 47,367 options on the controlling shareholder's shares to a director, with terms similar to the 1991 options, as amended. Also in 1992, the Company granted an additional 30,000 options to an employee with terms similar to the 1991 options, as amended, with vesting beginning in 1994. The options are exercisable beginning on the seventh anniversary of the measurement date, as defined, and expire on the eighth anniversary of the measurement date. As a result of the above amendment, beginning in March 1992, the Company began accounting for the options under variable plan accounting, whereby increases in the value of the Company's common stock above the option price resulted in the recording of compensation expense by the Company. Through December 31, 1994, the Company recorded no compensation expense related to the options as, in the opinion of management, the fair value of the Company's common stock was equal to or below the option price, as adjusted. Due to increases in the estimated fair value of the Company's common stock, as determined by an independent appraiser, the Company recorded stock option compensation expense of $675 for the year ended December 29, 1995. Additional stock option compensation expense of approximately $230 will be recorded in future periods based on the vesting schedule of options. In July 1995, the option agreements were amended to remove features of the options that resulted in variable plan accounting. Accordingly, subsequent to July 1, 1995, the options are being accounted for as fixed options whereby future increases in the value of the Company's common stock will not result in additional stock option compensation expense. In February 1994, the Company granted an additional 105,000 options with terms similar to those discussed above, except that the February 1994 options do not have a put feature and have an option price which escalates during the vesting period at a fixed rate of 6% per year. The February 1994 options are exercisable at a fixed exercise price for a one-year period following the vesting period. The Company accounts for the February 1994 options as fixed options whereby future increases in the value of the Company's common stock do not result in the recording of compensation expense by the Company. The option agreements contain various fair value puts and calls, with fair value to be determined by the board of directors or an independent appraiser. In December 1994, the controlling shareholder of the Company granted 89,004 options on the controlling shareholder's shares to certain members of management which contain terms similar to the February 1994 options, except that the option price escalates during the vesting period at a fixed rate of 7.86% per year. 28 The Company adopted a 1996 Stock-Based Incentive Compensation Plan (the "1996 Plan"), the purpose of which is to assist the Company in attracting and retaining valued personnel by offering them a greater stake in the Company's success and a closer identity with the Company and to encourage ownership of the Company's common stock by such personnel. The 1996 Plan is administered by a committee designated by the board of directors (the "Committee"). The aggregate maximum number of shares of common stock available for awards under the 1996 Plan is 500,000, subject to adjustment to reflect changes in the Company's capitalization. Awards under the 1996 Plan may be made to officers and key employees of the Company. No awards can be made under the 1996 Plan after January 31, 2006. The Committee may grant shares of common stock in the form of either deferred stock or restricted stock, as defined in the 1996 Plan. Options granted under the 1996 Plan may be either incentive stock options ("ISOs") or nonqualified stock options. ISOs are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code. Unless an option is specifically designated at the time of grant as an ISO, options under the 1996 Plan will be nonqualified. The exercise price of the options will be determined by the Committee. The maximum term of an option or Stock Appreciation Rights ("SAR") granted under the 1996 Plan shall not exceed ten years from the date of grant or five years from the date of grant if the recipient on the date of grant owns, directly or indirectly, shares possessing more than 10% of the total combined voting power of all classes of stock of the Company. No option or SAR may be exercisable sooner than six months from the date the option or SAR is granted. In June 1997, the Company granted 46,250 options at an option price of $14.00 per share and 92,500 at an option price of $23.00. The options vest evenly over a three-year period from the grant date. The options may be exercised as they vest. The $14.00 options expire ten years from the grant date, and the $23.00 options expire five years from the grant date. As of January 2, 1998, 143,063 options have been exercised and 135,189 are exercisable under the above plans at prices ranging from $2.52 to $7.74. Effective fiscal year 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires companies to estimate the value of all stock-based compensation using a recognized pricing model. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities electing to remain with the accounting in APB No. 25 must make pro forma disclosures of net income and, if presented, earnings per share, as if the fair value-based method of accounting defined in the statement had been applied. The Company has elected to account for its stock-based compensation plans under APB No. 25; however, the Company has computed for pro forma disclosure purposes the value of all options amended during 1995 and granted during 1997 using the Black Scholes option pricing model as prescribed by SFAS No. 123 using the following assumptions: 1997 1995 ---- ---- Risk free interest rate 5.5% 5.7% Expected lives 10 years 4 years Expected volatility 31.3% 33.0% Dividend yield 2.3% 0% 29 The total value of the options granted in 1997 was $265, which would be amortized over the vesting period. The total value of the options amended during the year ended December 29, 1995 was $975, which would be amortized over the vesting period of the options. If the Company had accounted for these plans in accordance with SFAS No. 123, the Company's reported pro forma net income and pro forma net income per share for the fiscal years 1997, 1996, and 1995 would have been as follows: 1997 1996 1995 ---- ---- ---- Net income as reported $8,689 $4,640 $4,599 Pro forma 8,646 4,629 4,575 EPS as reported Basic 1.49 .84 1.36 Diluted 1.47 .83 1.21 Pro forma Basic 1.48 .84 1.36 Diluted 1.46 .83 1.20 Postretirement Benefits The Company sponsors a defined benefit postretirement medical plan which provides coverage for retirees and their dependents. A portion of the plan is paid for by retiree cost sharing. The accounting for the plan anticipates future cost sharing increases to keep pace with health care inflation. The plan is unfunded. The following table summarizes the Company's postretirement benefit obligations and the assumptions used in determining postretirement benefit cost. 1997 1996 ---- ---- Accumulated postretirement benefit obligation: Retirees $4,326 $4,061 Fully eligible active plan participants 999 938 Other active participants 1,572 1,474 --------- --------- Total obligation 6,897 6,473 Unrecognized prior service gain and actuarial gains 11,134 12,655 ---------- --------- Postretirement benefit obligation $18,031 $19,128 ========= ========= Discount rate 7.75% 7.75% ---------- --------- Initial health care cost trend 8.00% 8.00% ---------- --------- Ultimate health care cost trend rate 5.00% 5.00% ---------- --------- Year ultimate health care cost trend rate reached 2004 2004 ---------- ---------- The health care cost trend rate has an effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rate by 1.0% for each year would increase the APBO as of January 2, 1998 by approximately $950 and the aggregate of service and interest costs components of net periodic postretirement benefit cost for fiscal year 1997 by approximately $135. 30 Net periodic postretirement benefit costs include the following components: 1997 1996 ---- ---- Service cost $185 $140 Interest cost 483 762 Amortization (1,521) (475) ------- ------- Net benefit (income) cost $(853) $427 ======= ======= In 1997, the Company changed the remaining amortization period for the unrecognized prior service cost from 14.4 years to 5.4 years. 7. TRANSACTIONS WITH AFFILIATE Prior to the Offering (Note 9), the Company had a management services agreement and aircraft use agreement. The Company paid The NTC Group, Inc. an aggregate of $36 and $400 in fiscal years 1996 and 1995, respectively. 8. COMMITMENTS AND CONTINGENCIES Legal Proceedings The Company is subject to a number of legal actions arising in the ordinary course of business. In management's opinion, the ultimate resolution of these actions will not materially affect the Company's financial position or results of operations. Environmental Risks The Company's operations and properties are subject to federal, state, and local laws, regulations, and ordinances relating to certain materials, substances, and wastes. The nature of the Company's operations exposes it to the risk of claims with respect to environmental matters. Based on the Company's experience to date, management believes that the future cost of compliance with existing environmental requirements will not have a material adverse effect on the Company's operations or financial position. Operating Lease Commitments The Company leases office space, office equipment, and other items under noncancelable operating leases. The expense for noncancelable operating leases was approximately $642, $600, and $582, for fiscal years 1997, 1996, and 1995, respectively. At January 2, 1998, future minimum lease payments under noncancelable operating leases are as follows: 1998 $418 1999 260 2000 63 2001 20 2002 and thereafter 12 ------ $773 ====== 31 9. ACQUISITIONS, MERGER AND PUBLIC OFFERING Acquisitions In February 1996, the Company exercised an option to purchase the outstanding shares of Grupo Blaju, S.A., de C.V. (subsequently renamed TB Wood's Mexico, S.A., de C.V.) and its subsidiaries for approximately $458, including legal and professional fees. There was no goodwill associated with the purchase. In October 1996, the Company purchased the assets of Ambi-Tech Industries, Inc., a leading manufacturer of electronic brakes for electric motors, for approximately $991 cash, including legal and professional fees, and an $800 note payable at 7% interest. Principal is due in five annual installments of $160 beginning September, 1997. Goodwill associated with the purchase is being amortized over 40 years using the straight-line method (Note 2). In November 1996, the Company acquired certain assets of Deck Manufacturing Corp., an established designer and manufacturer of industrial disc and gear couplings, for approximately $1,471 cash, including legal and professional fees. Goodwill associated with the purchase is being amortized over 40 years using the straight-line method (Note 2). The Company also loaned Deck $400 which is secured by the excess accounts receivable and the inventory not acquired. The note receivable is included in other assets. In May 1997, the Company purchased the stock of Wood's-NC, formerly Graseby Controls, Inc., a subsidiary of Graseby plc, for cash of approximately $5,000. Wood's-NC manufactures and sells industrial AC Drives, including the Volkmann (TM) brand of high frequency AC drives, electronic brakes, and Soft Starts. Goodwill associated with the purchase is being amortized over 40 years using the straight-line method (Note 2). In November 1997, the Company purchased the stock of Berges electronics GmbH, for cash of approximately $1,480 and assumed liabilities of $4,765. Berges designs, manufactures, and markets its own line of AC inverters for the European market and sells TB Wood's inverters on a private label basis. Goodwill associated with the purchase is being amortized over 40 years using the straight-line method (Note 2). The acquisitions of Wood's-NC and Berges are not material to the consolidated financial statements. Accordingly, pro forma results of operations for the year ended January 2, 1998 have not been presented. Merger In January 1996, the Company completed a merger (the "Merger") in contemplation of an Initial Public Offering of the Company's common stock. Pursuant to the Merger, a subsidiary of a newly formed holding company merged with Wood's-U.S., with Wood's-U.S. as the surviving corporation. In the Merger, the shareholders of Wood's-U.S. received three shares of the holding company's stock in exchange for each share of Wood's-U.S. stock. The financial statements of the Company prior to January 1996 have been restated to include the effects of the Merger. 32 Initial Public Offering Effective February 8, 1996, the Company completed an Offering of its common stock that raised approximately $22,478 in aggregate gross proceeds for the Company. The net proceeds (after deducting issuance costs) of approximately $19,823 from the Offering were used to repay $4,767 of the Fleet Term Loan, $5,203 of the Senior Fleet Revolver Loan, and $10,000 of the USL Fixed and Floating Rate Notes ("USL"). In addition, the Company paid approximately $616 to USL. In conjunction with the Offering, USL redeemed warrants to purchase 375,000 shares of the Company's stock, which were included in the shares of common stock issued by selling shareholders. The Company also purchased the remaining 21.0% interest of Wood's-Canada held by the shareholders of Wood's-U.S. for approximately $1,600. The effects of interest and other charges in fiscal 1996, prior to the Offering, are not material to the consolidated financial statements. Accordingly, pro forma results of operations for the year ended January 3, 1997 have not been presented. 10. QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal Quarters 1997 First Second Third Fourth - ---- ----- ------ ----- ------ Sales $30,489 $31,739 $31,257 $30,542 Gross profit 10,951 11,507 11,487 11,067 Gross profit % 35.9% 36.3% 36.8% 36.2% Net income 2,137 2,145 2,199 2,208 Basic net income per share 0.37 0.37 0.38 0.38 Diluted net income per share 0.36 0.36 0.37 0.37 Dividends declared .00 .08 .08 .08 Dividends paid .08 .08 .08 .08
1996 First Second Third Fourth - ---- ----- ------ ----- ------ Sales $23,813 $25,107 $25,849 $27,736 Gross profit 8,892 9,190 9,324 10,341 Gross profit % 37.3% 36.6% 36.1% 37.3% Income before extraordinary item 933 (1) 1,515 1,684 1,813 Basic net income per share before extraordinary item .20 (1) .26 .29 .31 Basic net income (loss) per share (.08) .26 .29 .31 Diluted net income per share before extraordinary item .19 (1) .26 .29 .31 Diluted net income (loss) per share (.08)(2) .26 .29 .31 Dividends declared - .08 .08 .16 Dividends paid - .08 .08 .08
- -------------------------------------------- (1) Includes a nonrecurring charge of $349 ($.07 per share) net of taxes, related to the write-off of a noncompete agreement in February 1996. (2) Includes extraordinary charges of $1,305 ($.27 per share), net of taxes, for the early repayment of debt related to the Offering of stock in February 1996. 33 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant The information called for by this item regarding directors and executive officers is set forth in the Company's definitive Proxy Statement for the 1998 Annual Meeting in the sections entitled "Election of Directors", "Management" and "Compliance with Section 16(a) of the Exchange Act" and is incorporated herein by reference. Item 11. Executive Compensation The information called for by this item is set forth in the Company's definitive Proxy Statement for the 1998 Annual Meeting in the section entitled "Executive Compensation" and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information called for by this item is set forth in the Company's definitive Proxy Statement for the 1998 Annual Meeting in the section entitled "Security Ownership of Certain Beneficial Owners and Management" and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions None. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as a part of this report: (1) All financial statements; The consolidated financial statements of the Company and its subsidiaries on pages 14 through 34 hereof and the report thereon of Arthur Andersen LLP appearing on page 15 hereof. (2) Financial statement schedule Schedule II for the fiscal year ended January 2, 1998 and the report of Arthur Andersen thereon. (3) Exhibits Number Description - ------ ----------- 3.1 Amended Certificate of Incorporation of the Company (incorporated by reference to TB Wood's Corporation Registration Statement filed on Form S-1, as amended, File No. 33-96498 ("Form S-1") Exhibit 3.1). 3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Form S-1 Exhibit 3.2). 34 4.1 Shareholders' Agreements by and among TB Wood's Sons Company, Thomas C. Foley and Gifford P. Foley, Barton J. Winokur, Kurt A. Herwald, Michael L. Hurt, Michael H. Iversen, David H. Halleen, Stanley L. Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III, James E. Williams, Joseph S. Augustine, Bernard M. Goldsmith, Harvey R. Heller, Robert Patterson Saltsman, F. Philip Handy, F. Philip Handy, as Guardian of the Property of Kate Elizabeth Handy, F. Philip Handy, as Guardian of the Property of Philip Breckenridge Handy and F. Philip Handy, as Guardian of the Property of Abigail Slocum Handy (incorporated by reference to Form S-1 Exhibit 4.1). 4.2 Amendments to Shareholders' Agreements by and among TB Wood's Incorporated (formerly known as "T.B. Wood's Sons Company"), Thomas C. Foley and Gifford P. Foley, Barton J. Winokur, Kurt A. Herwald, Michael L. Hurt, Michael H. Iversen, David H. Halleen, Stanley L. Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III, James E. Williams, Joseph S. Augustine (incorporated by reference to Form S-1 Exhibit 4.2). 10.1 Stock Purchase Agreement dated January 7, 1994 by and among T.B. Wood's Sons Company, Plant Engineering Consultants, Inc. and John Morris, Jesse Batten, Ralph Pedigo, Ronald Bingham, Walter Taeubel and Cook Family Trust (incorporated by reference to Form S-1 Exhibit 10.1). 10.2 Asset Purchase Agreement dated May 12, 1994 by and between T.B. Wood's Sons Company and Magnetic Power Systems, Inc. (incorporated by reference to Form S-1 Exhibit 10.2). 10.31 Junior Subordinated Promissory Note dated March 31, 1993 issued by T.B. Wood's Sons Company in favor of The Bibb Company (incorporated by reference to Form S-1 Exhibit 10.31). 10.32 Warrant to Purchase Common Stock dated April 1993 issued by T.B. Wood's Sons Company to The Bibb Company (incorporated by reference to Form S-1 Exhibit 10.32). 10.33 Subordinated Promissory Note dated April 2, 1993 issued by T.B. Wood's Sons Company in favor of Charles O. Wood, III, together with a Subordination Agreement dated April 2, 1993 by T.B. Wood's Sons Company, TB Wood's Canada, Ltd., Mr. Wood and the subordinated creditors listed on the signature pages thereto (incorporated by reference to Form S-1 Exhibit 10.33). 10.36 Non-Qualified Stock Option Agreements between T.B. Wood's Sons Company and Joseph S. Augustine, Michael H. Iversen, David H. Halleen, Stanley L. Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III and James E. Williams (incorporated by reference to Form S-1 Exhibit 10.36). 10.37 Non-Qualified Stock Option Agreement dated as of March 15, 1991 between T.B. Wood's Sons Company and Michael L. Hurt, together with Addendum dated as of March 30, 1992 (incorporated by reference to Form S-1 Exhibit 10.37). 10.38 Asset Purchase Agreement between T.B. Wood's Sons Company and Dana Corporation dated March 31, 1993 (includes Schedule 7.11 On-Site Environmental Procedures) (incorporated by reference to Form S-1 Exhibit 10.38). 10.39 TB Wood's Corporation 1996 Stock-Based Incentive Compensation Plan (incorporated by reference to Form S-1 Exhibit 10.39). 10.40 Amendments to the Non-Qualified Stock Option Agreements between TB Wood's Incorporated (formerly known as "T.B. Wood's Sons Company") and Joseph S. Augustine, Michael H. Iversen, David H. Halleen, Stanley L. Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III and James E. Williams (incorporated by reference to Form S-1 Exhibit 10.40). 35 10.41 Second Addendum dated July 1, 1995 to the Non-Qualified Stock Option Agreement dated as of March 15, 1991 between TB Wood's Incorporated (formerly known as "T. B. Wood's Sons Company") and Michael L. Hurt (incorporated by reference to Form S-1 Exhibit 10.41). 10.43 Stock Purchase Agreement by and among TB Wood's Incorporated and Grupo Blaju, S.A. de C.V. and Jorge R. Kiewek, Ninfa D. de Callejas and Marcela Kiewek G., dated February 14, 1996 (incorporated by reference to Form 10K, for fiscal year 1995, Exhibit 10.43). 10.44 Revolving Credit Agreement by and among TB Wood's Incorporated, Plant Engineering Consultants, Inc., Grupo Blaju, S.A., de C.V., TB Wood's Canada, Ltd. and the Banks Party thereto and PNC Bank, National Association, as Agent, dated October 10, 1996 (incorporated by reference to form 10K, for fiscal year 1996, Exhibit 10.44). 10.45 TB Wood's Employee Stock Purchase Plan, dated March 1, 1997(incorporated by reference to form 10K, for fiscal year 1996, Exhibit 10.45). 10.46 Stock Purchase Agreement by and between TB Wood's Incorporated and Graseby Electro-Optics Inc., dated May 8, 1997 10.47 Translated Stock Purchase Agreement by and among TB Wood's Incorporated and Berges Antriebstechnik GmbH and Karen Sarstedt, dated October 23, 1997. 10.48 Form of the Non-Qualified Stock Option Agreements between TB Wood's Corporation and Thomas C. Foley, Michael L. Hurt, Carl Christenson, Michael H. Iversen, Willard C. Macfarland, Jr., and other key employees dated June 17, 1997 and between TB Wood's Corporation and Robert J. Dole dated July 29, 1997 issued under the 1996 Plan. 10.49 Form of the Non-Qualified Stock Option Agreements between TB Wood's Corporation and Thomas C. Foley, Michael L. Hurt, Carl Christenson, Michael H. Iversen, Willard C. Macfarland, Jr., and other key employees dated January 29, 1998 issued under the 1996 Plan. 21.1 Subsidiaries of Registrant. 23.1 Consent of Independent Public Accountants. (b) Reports on Form 8-K. There were no reports on Form 8-K by the Registrant during the fourth quarter of fiscal year 1997. 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chambersburg and Commonwealth of Pennsylvania, on March 31, 1998. TB WOOD'S CORPORATION By: /s/ MICHAEL L. HURT ------------------- Michael L. Hurt President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ THOMAS C. FOLEY Chairman of the Board and Director March 31, 1998 - ------------------- Thomas C. Foley (Principal Executive Officer) /s/ MICHAEL L. HURT President and Director March 31, 1998 - ------------------- Michael L. Hurt (Principal Executive Officer) /s/ JEAN-PIERRE L. CONTE Director March 31, 1998 - ------------------------ Jean-Pierre L. Conte /s/ CRAIG R. STAPLETON Director March 31, 1998 - ---------------------- Craig R. Stapleton /s/ ROBERT J. DOLE Director March 31, 1998 - ------------------ Robert J. Dole /s/ PHILIP A. GARTON Vice President of Finance, March 31, 1998 - -------------------- Philip A. Garton Corporate Controller (Principal Financial Officer and Principal Accounting Officer) 37
TB Wood's Corporation And Subsidiaries Schedule II Valuation and Qualifying Accounts Column A Column B Column C Column D Column E Additions Balance at Deductions (write-offs beginning of Charged to costs Charged to other of bad debts, discounts Balance at Description period and expenses accounts and claims in excess of end of period provision)(1) - ---------------------------------------------------------------------------------------------------------------------------- Year ended December 29, 1995: Allowance for doubtful $172 273 (81) $364 accounts Allowance for discounts and 207 62 (123) 146 claims ----- ----- ----- ----- 379 335 0 (204) 510 ===== ===== ===== ===== ===== Year ended January 3, 1997: Allowance for doubtful $364 65 (63) $366 accounts Allowance for discounts and 146 (75) 71 claims ----- ----- ----- ----- 510 65 0 (138) 437 ===== ===== ===== ===== ===== Year ended January 2, 1998: Allowance for doubtful $366 0 (32) $334 accounts Allowance for discounts and 71 71 0 142 claims ----- ----- ----- ----- 437 71 0 (32) 476 ===== ===== ===== ===== =====
- -------------- Note: (1) Represents write-off accounts to be uncollectible, less recoveries of amounts previously written off. 38 EX-10 2 EXHIBIT 10.46 STOCK PURCHASE AGREEMENT Between GRASEBY ELECTRO-OPTICS INC., the sole Shareholder of GRASEBY CONTROLS INCORPORATED, a Delaware corporation, as SELLER and TB WOOD'S INCORPORATED, a Pennsylvania Corporation as BUYER Dated As of May 8, 1997 39 TABLE OF CONTENTS ARTICLE I DEFINITIONS ......................................................1 ARTICLE II PURCHASE AND SALE OF SHARES ......................................6 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER .........................7 Section 3.01 - Organization, Good Standing and Authority of the Company ....................................7 Section 3.02 - Warranty of Title to the Shares ...................7 Section 3.03 - Capital Structure of the Company ..................7 Section 3.04 - No Subsidiaries ...................................7 Section 3.05 - Authorized and Effective Agreement; No Violation ......................................8 Section 3.06 - Financial Statements; Organizational Documents; Minute Books ......................................8 Section 3.07 - Operations Subsequent to December 31, 1996 ........9 Section 3.08 - Governmental Authorizations ......................10 Section 3.09 - Consents .........................................10 Section 3.10 - Intangibles ......................................10 Section 3.11 - Properties .......................................11 Section 3.12 - Environmental Matters ............................12 Section 3.13 - Tax Matters ......................................14 Section 3.14 - Employee Benefit Plans ...........................15 Section 3.15 - Certain Contracts ................................19 Section 3.16 - Legal Proceedings; Regulatory Approvals ..........19 Section 3.17 - Compliance with Laws .............................19 Section 3.18 - Brokers and Finders ..............................20 Section 3.19 - Inventory ........................................20 Section 3.20 - Accounts Receivable ..............................20 Section 3.21 - No Undisclosed Liabilities .......................20 Section 3.22 - Title ............................................21 Section 3.23 - Transactions with Related Parties ................21 Section 3.24 - Compensation Arrangements; Bank Accounts; Officers and Directors ...........................21 Section 3.25 - Labor Relations ..................................21 Section 3.26 - Products Liability ...............................22 Section 3.27 - Insurance ........................................22 (i) 40 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER .........................23 Section 4.01 - Organization, Standing and Authority of Buyer ....23 Section 4.02 - Authorized and Effective Agreement ...............23 Section 4.03 - Legal Proceedings; Regulatory Approvals ..........23 Section 4.04 - Securities .......................................24 Section 4.05 - Brokers and Finders ..............................24 ARTICLE V CONDITIONS PRECEDENT ............................................24 Section 5.01 - Conditions Precedent -- Buyer and Seller .........24 Section 5.02 - Conditions Precedent -- Seller ...................25 Section 5.03 - Conditions Precedent -- Buyer ....................25 ARTICLE VI CLOSING .........................................................27 ARTICLE VII WAIVER ..........................................................27 ARTICLE VIII CERTAIN POST-CLOSING OBLIGATIONS ................................28 Section 8.01 - Confidential Information .........................28 Section 8.02 - Indemnification by Seller ........................28 Section 8.03 - Indemnification by Buyer .........................30 Section 8.04 - Indemnification Procedures .......................30 Section 8.05 - Claims Against the Company .......................31 Section 8.06 - Tax Matters ......................................32 Section 8.07 - Noncompetition Covenant ..........................35 Section 8.08 - Nature and Survival of Representations ...........35 Section 8.09 - Employees; 401(k) Plan ...........................35 ARTICLE IX MISCELLANEOUS ...................................................36 Section 9.01 - Authorized and Effective Agreement; No Violation (Guarantors) ............36 Section 9.02 - Expenses .........................................37 Section 9.03 - Consent to Jurisdiction; Forum Selection .........37 Section 9.04 - Entire Agreement .................................37 Section 9.05 - Assignment .......................................37 Section 9.06 - Notices ..........................................37 Section 9.07 - Captions; Headings ...............................39 Section 9.08 - Amendments .......................................39 (ii) 41 Section 9.09 - Severability .....................................39 Section 9.10 - Construction .....................................39 Section 9.11 - Counterparts .....................................39 Section 9.12 - Post-Closing Cooperation .........................39 Section 9.13 - Governing Law ....................................40 List of Exhibits..............................................................44 List of Schedules.............................................................44 42 (iii) STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is made and entered into this 8th day of May, 1997 by and among GRASEBY ELECTRO-OPTICS INC., a Delaware corporation ("Seller"), the sole shareholder of Graseby Controls Incorporated (the "Company"), a Delaware corporation, TB WOOD'S INCORPORATED, a Pennsylvania corporation ("Buyer"), GRASEBY plc, an English corporation, and GRASEBY ANDERSEN INC., a Delaware corporation (Graseby plc and Graseby Andersen Inc. are sometimes collectively referred to hereinafter as "Guarantors"). W I T N E S S E T H: WHEREAS, Seller owns one hundred percent (100%) of the issued and outstanding shares of $1.00 par value common stock of the Company (the "Shares"); and WHEREAS, Seller desires to sell, transfer and assign to Buyer, and Buyer desires to purchase, assume, and accept from Seller, the Shares, for the price and on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and promises contained herein, Seller and Buyer, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended. "Business" shall mean the business presently conducted by the Company, including the business of designing, manufacturing, selling, and servicing electronic controllers for rotating electrical machinery. "Buyer" shall mean TB Wood's Incorporated. "Closing" shall have the meaning set forth in Article VI of this Agreement. "Closing Date" shall have the meaning set forth in Article VI of this Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Company" shall mean Graseby Controls Incorporated. "Consents" shall mean consents, permits or approvals of third parties necessary to transfer the Shares to Buyer or otherwise consummate the transactions contemplated hereby and to conduct the Business. "Damage" or "Damages" shall mean the aggregate amount of losses, liabilities, claims, obligations, damages, deficiencies, costs, expenses, fines or penalties, including without limitation reasonable attorney fees and other defense costs, costs of investigation, remediation or other response actions, each to the extent reasonable and actually incurred, with respect to a matter for which an indemnification obligation exists under this Agreement. "Effective Time" shall mean the time and date specified pursuant to Article VI hereof as the effective time of the Sale. 43 "Encroachment" shall mean (i) encroachments of any buildings or other improvements onto the Real Property, and (ii) encroachments of any buildings or other improvements situated on the Real Property onto properties or rights-of-way abutting the Real Property. "Financial Statements" shall mean the unaudited balance sheets (including related notes and schedules, if any) of the Company as of December 31, 1995 and 1996 and the related unaudited statements of operations and shareholders' equity (including related notes and schedules, if any) for each of the periods ended December 31, 1994, 1995, and 1996, copies of which are attached hereto as Exhibit A. "GAAP" shall mean generally accepted accounting principles in effect in the United States from time to time, as applied by the entity in respect of which the term is used, consistently with its past practices. "Governmental Body" shall mean any foreign, federal, state, local or other governmental authority or regulatory body. "Intangibles" shall mean (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, and trade names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including data and related documentation), (g) all other proprietary rights, and (h) all copies and tangible embodiments thereof (in whatever form or medium). Notwithstanding the foregoing and any other provision in this Agreement or any agreement, document, or instrument delivered or to be delivered pursuant to this Agreement, "Intangibles" does not and shall not include, and this Agreement shall in no manner represent an agreement by Seller to convey to Buyer, any right or interest in or to the name "Graseby" or any translation, adaptation, derivation, or combination thereof, provided, however, that (i) Seller hereby grants to Buyer a license to use the corporate name "Graseby Controls Incorporated" as the name of the Company, and for no other purpose, for the one (1) month period commencing on the Closing Date, it being agreed by the parties that on or before the expiration of such one (1) month period Buyer shall cause the name of the Company to be changed to a name which does not include the name "Graseby" or any translation, adaptation, derivation, or combination thereof, and (ii) the Company may use and sell, for a period of six (6) months commencing on the Closing Date, the Company's inventories 44 of products, components, supplies, brochures, stationery, business forms, and other similar materials in stock as of the Closing Date which contain the name "Graseby Controls Incorporated" and translations, adaptations, derivations, and combinations thereof, it being agreed by the parties that after the expiration of such six (6) month period Buyer shall no longer use the name "Graseby Controls Incorporated" or any translation, adaptation, derivation, or combination thereof on any product, component, supply, brochure, stationery, business forms, or other similar materials. "Knowledge," when used in the phrase "to the knowledge of" or a similar phrase, shall mean the knowledge of the officers and management (including, without limitation, the officers responsible for tax matters) of the Person to whom such phrase refers, it being understood that the Knowledge of Seller shall always be deemed to include the Knowledge of the Company. "Licenses" shall mean all licenses, permits and other authorizations issued by any federal, state or local governmental authorities to the Company in connection with the Business or required for the conduct of the Business. "Lien" shall mean any mortgage, lease, covenant, condition, restriction, deed of trust, lien, pledge, hypothecation, assignment, deposit arrangement, option, right of first refusal, indenture, license, security interest, encumbrance, right of way, easement, encroachment or similar arrangement of any kind or nature or any title defect whatsoever. "Material Adverse Effect" shall mean, with reference to any event, matter, item or circumstance (other than as a result of changes (a) in applicable laws or regulations of general applicability or interpretations thereof by court or governmental entities, or (b) in GAAP), that in and of itself, or when combined with all other events, matters, items or circumstances, such event, matter, item or circumstance reasonably could be expected to have, now or in the future, a material adverse effect on the Business, properties, financial condition, operations, or results of operations of the Company, as the case may be, but shall not include those changes which would reasonably be expected to occur as a reasonable consequence of the Sale, including, without limitation, the consequences of employee resignations and employee relations difficulties. "Ordinary Course of Business" shall mean the ordinary course of business of the entity with respect to which this term is used, conducted in the same manner as theretofore conducted during the three (3) year period preceding the date of this Agreement and consistent with the entity's past policies, practices, and methods (including with respect to quantity and frequency) in effect during such three (3) year period. When used with reference to the Company, Ordinary Course of Business shall mean the (a) Ordinary Course of Business of the Company, and (b) the Ordinary Course of Business of Graseby Volkmann Corporation prior to its merger with and into the Company. "Permitted Exceptions" shall have the meaning set forth in Section 3.11(b)(ii) of this Agreement. 45 "Person" shall mean an individual, a partnership, a corporation, a commercial bank, an industrial bank, a savings association, a savings bank, a limited liability company, an association, a joint stock company, a trust, a business trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "Personal Property" shall mean the machinery, equipment, tools, vehicles, furniture, leasehold improvements, office equipment, plant and other tangible personal property used or useful in the Business, and all computer disks and tapes, plans, diagrams, blueprints, schematics and books and records relating to the Company or the Business. "Predecessor in Interest" shall mean, with respect to the entity to which such phrase refers, all entities to which such entity has succeeded by way of merger or acquisition. When used with respect to the Company, the phrase "Predecessor in Interest" shall mean and include, but shall not be limited to, Graseby Volkmann Corporation, Tasc Drives, Inc., and Electrical South, Inc. "Purchase Price" shall have the meaning set forth in Article II. "Real Property" shall mean that certain parcel or parcels of land located in Greensboro, Guilford County, North Carolina and more particularly described in Exhibit B hereto, together with all fixtures, fittings, buildings, structures and other improvements thereon, and all easements, rights and privileges of every type and nature used by the Company in connection therewith or appurtenant thereto. "Regulations" shall mean the federal income tax regulations under the Code, promulgated by the Treasury Department and contained in Title 26 of the Code of Federal Regulations, including any amendments or any substitute or successor provisions thereto. "Related Party" shall mean Seller, any of the officers or directors of the Company or Seller, any Affiliate of Seller, the Company, or any business or entity in which Seller, the Company, or any Affiliate of any such Person has any direct, or material indirect, interest. "Rights" shall mean warrants, options, rights (whether stock appreciation rights, conversion rights, exchange rights, profit participation rights, or otherwise), convertible securities and other arrangements or commitments which obligate a Person to issue, otherwise cause to become outstanding, sell, transfer, pledge, or otherwise dispose of any of its or any other Person's capital stock or other ownership interests, or any voting rights thereof or therein. "Sale" shall mean the sale of the Shares by Seller to Buyer pursuant to this Agreement. 46 "Seller" shall mean Graseby Electro-Optics Inc., successor by merger to Graseby Overseas Corporation. "Shares" shall mean all of the issued and outstanding shares of capital stock of the Company. "Significant Contract" shall mean, with respect to the Company, (a) any note, bond, mortgage or other instrument which evidences or secures indebtedness of the Company with a balance outstanding of Twenty Five Thousand Dollars ($25,000) or more, (b) any agreement, arrangement, commitment, contract or other instrument, except a lease of Real or Personal Property, to which the Company is a party or by which the Company is bound, the performance or nonperformance of which could either (i) increase the liabilities or decrease the assets of the Company or (ii) decrease the income or increase the expenses of the Company, in each case by Twenty Five Thousand Dollars ($25,000) or more over the remaining term of the obligation, exclusive of all optional renewal periods and extensions of the term, provided, however, that any such agreement, arrangement, commitment, contract or other instrument shall not be deemed to be a Significant Contract in the event the Company has the contractual right to terminate the agreement, arrangement, commitment, contract or other instrument in question on thirty (30) days' notice or less without incurring a penalty, premium, or other expense in excess of Twenty Five Thousand Dollars ($25,000). "Significant Lease" shall mean, with respect to the Company, (a) any lease of Real or Personal Property, or any sublease of Real Property, by the Company, as lessee or sublessee, pursuant to which the Company reasonably anticipates the payment of aggregate rent, taxes, insurance, utilities (if applicable) and other charges in excess of Twenty Five Thousand Dollars ($25,000) over the remaining term of such lease or sublease, exclusive of all optional renewal periods and optional extensions of the term thereof (provided, however, that any such lease or sublease shall not be deemed a Significant Lease in the event that the Company has the contractual right to terminate such lease in question on thirty (30) days' notice or less without incurring a penalty, premium, or other expense in excess of Twenty Five Thousand Dollars ($25,000)), and (b) any lease of Real or Personal Property, or any sublease of Real Property, by the Company as lessor or sublessor. "Survey" shall mean that certain survey of the Real Property prepared by Andrew G. Zoutewelle (L-3098), dated April 23, 1997, last revised on May 6, 1997, entitled "Boundary Survey of Lot 1 Welker's Inc. Greensboro, Guilford County, N.C. Graseby Controls Inc.," a copy of which is attached hereto as Exhibit C. "Survey Defect" shall mean any of the following shown on or discernable from the Survey: (a) a lack of vehicular access to and from the Real Property to and from a dedicated and accepted public right-of-way; (b) any zoning or land use ordinances (other than Permitted Exceptions); (c) noncompliance with any applicable zoning law, including, without limitation, those relating to setback or height restrictions; (d) noncompliance with any covenant, restriction or condition affecting the Real Property; or (e) any Lien (other than Permitted Exceptions) which 47 individually or when aggregated with other matters affecting title (other than Permitted Exceptions): (i) materially detracts from the value of the Real Property, (ii) impairs, or reasonably could be expected to impair, the use of the Real Property in the manner such property is currently being used by the Company in connection with the Business, (iii) impairs, or reasonably could be expected to impair, the operations of the Company or the conduct of the Business, or (iv) renders the title to the Real Property unmarketable. "Tax" or "Taxes" shall mean any federal, state, local, foreign or other net income, gross income, gross receipts, windfall profits, severance, property, production, sales, use, transfer, gains, license, excise, franchise, employment, payroll, withholding (which includes, without limitation, income, payroll tax, foreign withholding, backup withholding, and any other withholding obligation imposed by the Code or a Governmental Body), value added, estimated, alternative or add-on minimum tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any Governmental Body. "Tax Return" shall mean any return, report or similar statement required to be filed with respect to any Taxes (including any required schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated Tax. Other terms used herein are defined elsewhere in this Agreement. ARTICLE II PURCHASE AND SALE OF SHARES At the Closing, upon satisfaction of the conditions contained in this Agreement, (i) Seller shall sell and deliver the Shares to Buyer, and (ii) in exchange therefor, Buyer shall pay the Purchase Price in full in immediate funds. The "Purchase Price" for the Shares shall be the sum of Four Million Nine Hundred Fifty Thousand United States Dollars ($4,950,000.00), of which Three Million Eight Hundred Eighteen Thousand One Hundred Ninety-Seven United States Dollars ($3,818,197.00) shall be paid to Seller in full satisfaction of the loan in that amount to the Company by Graseby Overseas Corporation (to which Seller has succeeded as payee pursuant to a merger between Graseby Overseas Corporation and Seller, with Seller as the surviving entity) and One Million One Hundred Thirty-One Thousand Eight Hundred Three United States Dollars ($1,131,803.00) shall be paid to Seller. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Buyer as follows: 48 Section 3.1. Organization, Good Standing and Authority of the Company. The Company is duly organized, validly existing, and in good standing as a general business corporation under the laws of the State of Delaware, is duly qualified to do business in the State of North Carolina, and has the powers and privileges of a general business corporation, including, without limitation, full power to carry on the Business. The Company is not required by law to qualify to do business in any foreign jurisdiction other than North Carolina, except where failure to qualify in such foreign jurisdiction would not have a Material Adverse Effect. Section 3.2. Warranty of Title to the Shares. Seller holds of record and beneficially owns, and has good and marketable title to, the Shares. The Shares are not subject to any Taxes, Liens, or Rights. Seller is not a party to any voting trust, shareholders' agreement, proxy, voting trust, or other agreement or understanding with respect to the Shares owned by Seller or the voting rights associated therewith. Section 3.3. Capital Structure of the Company. The authorized capital stock of the Company consists of One Thousand (1,000) shares of common stock, par value $1.00 per share ("Common Stock"). As of the date hereof, there were One Thousand (1,000) shares of Common Stock issued and outstanding. The Shares constitute all of such outstanding Common Stock. The Shares were not issued in violation of the terms of any agreement or other understanding binding upon the Company, and were issued in compliance with all applicable federal and state securities or "blue-sky" laws and regulations. All Shares have been duly issued and constitute validly outstanding, fully paid, and nonassessable shares of Common Stock. There are no Rights authorized, issued or outstanding with respect to any capital stock of the Company. None of the outstanding shares of the Company's capital stock has been issued in violation of the preemptive rights of any Person. Section 3.4. No Subsidiaries. The Company does not own and has not owned, directly or indirectly, any outstanding capital stock or other voting securities or ownership interests of any corporation, partnership, limited liability company, or other organization. Section 3.5. Authorized and Effective Agreement; No Violation. (a) Seller has all requisite power and authority to enter into, to deliver, and (subject to receipt of all Consents set forth in Schedule 3.9 hereto) to perform all of its obligations under this 49 Agreement. This Agreement and all other agreements and instruments required to be executed and delivered by Seller and the Company, as applicable, in connection with or pursuant hereto have been duly executed and delivered by Seller and the Company, as applicable, and constitute the legal, valid and binding obligations of Seller and the Company, as applicable, enforceable in accordance with their terms, subject as to enforceability, to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors' rights, and to general equity principles. Upon delivery to Buyer at the Closing of certificates representing the Shares in accordance herewith, Buyer will acquire good and valid title to the Shares, free and clear of all liens, claims, security interests, pledges, charges, equities, options, restrictions and encumbrances of whatsoever nature. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of Seller and the Company (including shareholder approval). (b) Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor compliance by Seller or the Company with any of the provisions hereof will: (i) conflict with or result in a breach of any provision of the articles of incorporation or bylaws of Seller or the Company; (ii) conflict with or constitute or result in a breach of any term, condition or provision of, or constitute a default under, or give rise to any right of termination, cancellation or acceleration with respect to, any note, bond, mortgage, indenture, lease, license, agreement, instrument, or other arrangement or obligation to which Seller or the Company is a party or by which any of them is bound, or result in the creation or imposition of any Lien upon any property or asset of Seller or the Company, except where such occurrence would not have a Material Adverse Effect; or (iii) violate any order, ruling, decree, charge, writ, injunction, regulatory agreement or memorandum of understanding, constitution, statute, rule or regulation applicable to Seller, the Guarantors, or the Company, except where such violation would not have a Material Adverse Effect. Section 3.6. Financial Statements; Organizational Documents; Minute Books. (a) The books of account and related records of the Company fairly reflect in all material respects and in reasonable detail all assets, liabilities and transactions of the Company in accordance with GAAP. Seller has previously delivered to Buyer the Financial Statements. The Financial Statements: (i) are correct and complete in all material respects and in accordance with the books and records of the Company; (ii) fairly present in all material respects the financial condition, assets and liabilities of the Company and the Business as of their respective dates and the results of operations and cash flows of the Company and the Business for the periods covered thereby; and (iii) reflect accurately in all material respects all costs and expenses of the Company and the Business as if the Company were independent and not affiliated with any other corporation or business, except as set forth in Schedule 3.6(a) attached hereto. (b) Seller previously has delivered to Buyer true, complete and correct copies of the articles of incorporation and bylaws of the Company, and previously has provided to Buyer 50 access to all minute books, stock certificate books and stock transfer records of the Company. The minute books of the Company contain all material actions of its shareholders and its board of directors. Section 3.7. Operations Subsequent to December 31, 1996. (a) Except as set forth in Schedule 3.7(a) attached hereto, since December 31, 1996, the Company has conducted the Business only in the Ordinary Course of Business consistent with historical practice. (b) Except as set forth in Schedule 3.7(b) attached hereto, since December 31, 1996, there has not been any change in the Business, financial condition, operations or results of operations of the Company which would have a Material Adverse Effect. (c) Except as set forth in Schedule 3.7(c) attached hereto, since December 31, 1996: (i) the Company has not sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business; (ii) the Company has not entered into any Significant Contract or Significant Lease; (iii) the Company has not accelerated, terminated, modified or canceled any agreement, contract, lease, license, (or series of related agreements, contracts, leases, or licenses), involving more than Twenty Five Thousand Dollars ($25,000) to which the Company is a party or by which the Company is bound outside the Ordinary Course of Business; (iv) the Company has not imposed, nor suffered the imposition of, any Lien upon any of its assets, tangible or intangible, except Liens granted in connection with the purchase of equipment or supplies in the Ordinary Course of Business which in the aggregate do not exceed Fifty Thousand Dollars ($50,000); (v) there has been no change made or authorized in the articles of incorporation or bylaws of the Company; (vi) the Company has not issued, sold, or otherwise disposed of any of its capital stock, or granted any Rights with respect to its capital stock, or agreed to, or allowed the imposition of, any Lien with respect to its capital stock; (vii) the Company has not declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock; (viii) the Company has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property in excess of Fifty Thousand Dollars ($50,000) per occurrence; (ix) the Company has not granted any material increase in the compensation of any of its directors, officers, employees, or independent contractors outside the Ordinary Course of Business; (x) the Company has not adopted, amended, modified or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken any such action with respect to any other Employee Benefit Plan); (xi) the Company has not made or pledged to make any charitable or other capital contribution; (xii) there has been no material change in the Company's accounting principles, practices or methods; (xiii) there has been no organized labor walkout, work stoppage or slowdown by any of the Company's employees or, to the Knowledge of Seller, any threat thereof or any organized attempts to establish unions or collectively bargain with respect to the employees of the Company; (xiv) there has been no cancellation or waiver by the Company of any right material to the operation of 51 the Company nor any disposition of or failure to keep in effect any rights in, to, or for the use of any material patent, or any trademark, service mark, or tradename used in any jurisdiction where the Company has a material amount of product sales, nor has there been any disclosure by the Company to any person not an employee of the Company or other disposal of any trade secret, process, or know-how; (xv) the Company has not made, nor has the Company or any taxing authority changed or revoked, any Tax election relating to the Company; (xvi) to the Knowledge of Seller, there has not been any other occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving the Company which has or will have a Material Adverse Effect; and (xvii) the Company has not committed to do, or to permit the occurrence of, any of the foregoing. Section 3.8. Governmental Authorizations. To the Knowledge of Seller, the Company possesses and is in material compliance with all of the Licenses and other federal, state, and local governmental approvals, certificates, filings, franchises, licenses, notices, permits, and rights ("Permits") necessary for the Company to own, lease, or operate its properties and assets and to carry on the Business as it is now conducted, which are set forth in Schedule 3.8 attached hereto. No default has occurred under any License which would have a Material Adverse Effect. The Company has conducted the Business and is now doing so in compliance with all applicable laws, rules, regulations, judgments and orders, except for such non-compliance which could not have a Material Adverse Effect. Section 3.9. Consents. Except as set forth in Schedule 3.9 attached hereto, no consent, approval, permit or authorization of, or declaration to, or filing with, any governmental or regulatory authority or any other third party is required to consummate this Agreement and the transactions contemplated hereby. Section 3.10. Intangibles. Schedule 3.10 attached hereto sets forth all Intangibles owned by or licensed to the Company (the "Company's Intangibles"). Except as set forth in Schedule 3.10: (a) no Intangibles, other than the Company's Intangibles, are required to conduct the Business in the Ordinary Course of Business; (b) none of the Company's Intangibles is used pursuant to a license from a third party or licensed to a third party; (c) all of the Company's Intangibles which consist of patents, registered trademarks, service marks and copyrights are in full force and effect and are held of record in the Company's name; (d) there is no agreement to which the Company is a party or to which the Company is legally bound, and to Seller's Knowledge no restriction, materially and adversely affecting the use by the Company of any of the Company's Intangibles; (e) there is no pending reexamination of or pending litigation with respect to any of the Company's Intangibles; (f) there is no order, holding, decision or judgment which has been rendered by any governmental authority, and no agreement, consent or stipulation exists to which the Company is a party or of which the Company has Knowledge which would prevent the 52 Company from using any of the Company's Intangibles; (g) there is no pending or, to the Company's knowledge threatened, objection or claim being asserted against the Company in any administrative or judicial proceeding or by any person with respect to the ownership, validity, enforceability, or use of any of the Company's Intangibles or challenging or questioning the validity or effectiveness of the Company's ownership or license of any of the Company's Intangibles; (h) no notice of rejection, opposition, interference or refusal to register has been received by the Company in connection with any patent application or any application for trademark, service mark or copyright registration included within the Company's Intangibles; (i) the Company has not infringed or misappropriated any rights of any other Person with respect to any United States or foreign patents, trademarks, trade names, service marks, copyrights or applications therefor or any other intellectual property rights in its operation of the Business, nor does the Company have Knowledge of any infringement or misappropriation which will occur as a result of the continued operation of the Business as now conducted; and (j) the Company has not taken any action which would permit any party other than the Company, or its agents, officers or employees (acting on behalf of the Company), to use, license, sublicense or operate under any of the Company's Intangibles. Section 3.11. Properties. (a) Personal Property; Company's Intangibles. The Company has good and marketable title to, or leasehold interests in, all of the Personal Property and the Company's Intangibles reflected on the balance sheet included in the Financial Statements as of December 31, 1996, or acquired between that date and the Effective Time, free and clear of all Liens, except (i) such imperfections of title, restrictions, covenants, and encumbrances, if any, as would not have a Material Adverse Effect, and (ii) dispositions and encumbrances for adequate consideration in the Ordinary Course of Business of the Company. The Personal Property constitutes substantially all of the personal property that is used or held by the Company for use in the operation of the Business. (b) Real Property. (i) Except for the Real Property, the Company does not own, lease or otherwise occupy any real property or interest therein and no other real property or interest therein is used in the conduct of the Business. (ii) The Company has (and will continue to have immediately following consummation of the transactions contemplated hereby) good, valid, marketable and indefeasible fee simple title to, and is in actual possession of, the Real Property. The legal description of the Real Property attached hereto as Exhibit B is accurate, current and complete. Seller has delivered to Buyer complete copies of all title reports, title opinions, title insurance commitments, title insurance policies and surveys, if any, pertaining to the Real Property that are known by Seller, after reasonable inquiry, to exist and are in the possession or control of Seller, the Company or any Affiliate of either of the same (Seller, the Company and all Affiliates of either of the same being hereinafter collectively referred to in this Section 3.11(b)(ii) as "Seller 53 Entities"). The Real Property is free and clear of all Liens and Survey Defects, including, without limitation, security interests, including, without limitation, any conditional sale or other title or interest retention agreements or arrangements, options to purchase, liens, encumbrances, mortgages, pledges, assessments, easements, covenants, restrictions, reservations, defects in title, Encroachments, leases, subleases, rights of occupancy, chattel mortgages and collateral security arrangements, rights-of-way, building use restrictions, exceptions, variances or reservations of any nature whatsoever, except the following (collectively, "Permitted Exceptions"): (A) matters set forth on Schedule 3.22; (B) minor imperfections of title, conditions, easements, covenants and restrictions, if any, none of which have a Material Adverse Effect; (C) zoning and land use ordinances, none of which, individually or in the aggregate, to the Knowledge of Seller has a Material Adverse Effect; and (D) liens for real estate taxes and assessments not yet due and payable. None of the Seller Entities has received written notice of any violation of or nonconformity with any zoning, subdivision, wetlands, or other similar law, code, rule, regulation or ordinance from any governmental authority with respect to the Real Property, or of any condemnation action, eminent domain proceeding or other litigation concerning any of the Real Property. The water, gas, electricity and other utilities serving the Real Property have been and are currently adequate to service the Business. Section 3.12. Environmental Matters. (a) The Company holds and is in compliance with all Permits required under all applicable environmental statutes, rules, regulations, ordinances and orders of any governmental entity, including those relating to Hazardous Substances (as defined below) ("Environmental Laws") in connection with the Business, and all of such Permits are in full force and effect. All such Permits are listed on Schedule 3.8 attached hereto and any that are not transferable are so designated. The Company has complied with and is not in violation of Environmental Laws. The Company has made timely application for renewals of all such Permits for which Environmental Laws require that applications must be filed on or before the Closing to maintain such Permits in full force and effect. Neither Seller nor the Company has reason to believe that such renewals will not be issued in the ordinary course or will require payment of money or imposition of conditions, other than as set forth in Schedule 3.8. (b) No notice, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending, or to Seller's Knowledge threatened, by any governmental or other entity: (i) with respect to any alleged violation by the Company of any Environmental Laws; (ii) with respect to any alleged failure by the Company to have any Permit required in connection with the Business; or (iii) with respect to any use, possession, generation, treatment, storage, recycling, transportation or disposal (collectively, "Management" or "Manage") of any hazardous or toxic substance or waste, pollutant or contaminant including petroleum products and radioactive materials ("Hazardous Substances") by or on behalf of the Company or any Predecessor in Interest of the Company. (c) The Company has not received any written request for information, notice of claim, demand or notification that it is or may be potentially responsible with respect to any 54 investigation or cleanup of any threatened or actual Release (as defined below) of any Hazardous Substance. (d) Except as set forth on Schedule 3.12(d): (i) the Company has not used, generated, treated, stored for more than ninety (90) days, recycled or disposed of any Hazardous Substances on any property now or previously owned, operated or leased by the Company, nor to Seller's Knowledge has any other Person treated, stored for more than ninety (90) days, recycled or disposed of any Hazardous Substances on any property now or previously owned, operated, or leased by the Company at any time during the Company's ownership, lease, or operation of such property; (ii) no polychlorinated biphenyls ("PCBs") or asbestos-containing materials are or have been present at any property now or previously owned, operated or leased by the Company at any time during the Company's ownership, operation, or lease of such property; and (iii) no underground storage tanks, active or abandoned, are or have been present at any property now or previously owned, operated or leased by the Company at any time during the Company's ownership, operation, or lease of such property. (e) No Hazardous Substance Managed by the Company has been recycled, treated, stored, disposed of or transported by any Person other than those listed on Schedule 3.12(e). Except as set forth on Schedule 3.12(e), no Hazardous Substance Managed by or on behalf of the Company or any Predecessor in Interest of the Company has come to be located at any site which is listed or proposed for listing under the National Priority List promulgated pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the Comprehensive Environmental Response, Compensation and Liability Information System ("CERCLIS") or on any similar state list, or which is the subject of federal, state or local enforcement actions or other investigations which may lead to claims against the Company or Buyer for clean-up costs, remedial work, damages to natural resources or for personal injury claims, including, but not limited to, claims under CERCLA. (f) Except as set forth in Schedule 3.12(f), no Hazardous Substance has been released, spilled, leaked, discharged, or disposed of, pumped, poured, emitted, emptied, injected, leached, dumped or allowed to escape ("Released") at, on, about or under any property now or formerly owned, operated or leased by the Company or any Predecessor in Interest of the Company at any time during the ownership, operation, or lease of such property by the Company or a Predecessor in Interest of the Company, which Release would have a Material Adverse Effect. (g) Except as set forth in Schedule 3.12(g), no oral or written notification of a Release or threat of Release of a Hazardous Substance has been filed by or on behalf of the Company or in relation to any property now or previously owned, operated or leased by the Company or any Predecessor in Interest of the Company. No property currently owned, leased, or operated by the Company is listed or proposed for listing on the National Priority List promulgated pursuant to CERCLA or CERCLIS or on any similar state list of sites requiring investigation or clean-up. 55 (h) There are no environmental liens on any properties currently owned or leased by the Company and no government actions have been taken or are in process or pending which could subject any of such properties to such liens. (i) The Company would not be required to place any notice or restriction relating to the presence of Hazardous Substances in the deed to any property currently owned by it, and to Seller's Knowledge no property now or formerly owned by the Company has such notice or restriction in its deed. (j) No consent, approval or authorization of, or registration or filing with any Person, including any environmental governmental authority or regulatory agency, is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. The Company has or will prepare and file all applications for Permit transfers, if any, in adequate time for transfer to occur prior to the Closing. (k) Except as set forth in Schedule 3.12(k) and as heretofore provided to Buyer, to Seller's Knowledge there have been no environmental inspections, investigations, studies, audits, tests, reviews or other analyses conducted in relation to any property now or previously owned, operated or leased by the Company. (l) Neither Seller nor the Company has Knowledge of any other facts or circumstances related to the properties of the Company or any Predecessor in Interest of the Company, or to the Business, that could reasonably be expected to lead to any future environmental claims, liabilities or responsibilities affecting the Company or Buyer. Section 3.13. Tax Matters. (a) All Tax Returns that are required to have been filed by the Company have been filed within the time and in the manner required by law, and all such Tax Returns are in all material respects true and correct and accurately reflect the Tax liabilities of the Company. All Taxes of the Company that have become due pursuant to such Tax Returns, or any assessments or demand for payment received, have been paid. The provision for Taxes reflected on the Company's December 31, 1996, balance sheet is adequate to cover all Tax liabilities, whether or not disputed, of the Company and any Predecessor in Interest of the Company with respect to any taxable year or taxable period ending on or before December 31, 1996, and nothing has occurred subsequent to December 31, 1996, to make any such provision inadequate. All Taxes related to taxable periods of the Company subsequent to December 31, 1996, have been paid or are adequately reserved for on the books and records of the Company. Except as set forth in Schedule 3.13(a), there are no current, pending, or to Seller's Knowledge or the Company's Knowledge threatened, claims, assessments, notices, proposals to assess, deficiencies, or audits with respect to any Taxes. No Governmental Body with respect to which the Company does not file Tax Returns has claimed that the Company is or may be subject to taxation by that Governmental Body. The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, shareholder, creditor, independent contractor or other party. The Company has not executed any presently effective waiver or extension of any statute of limitations against assessments and collections of Taxes. Except as set forth in Schedule 3.13(a), no Tax Returns of the Company are presently subject to an extension of time to file. 56 (b) The Company has not filed and has not had filed on its behalf an election under Section 341(f) of the Code that is applicable to the Company or any of its assets. The Company has not made any payments, is not obligated to make any payments, nor is a party to any agreement that under any circumstances could obligate it to make any payments that will not be deductible under Code Section 280G. The Company is not a party to any Tax allocation or sharing agreement. Except as disclosed on Schedule 3.13(b)(i), the Company (or any Predecessor in Interest of the Company), has never been a member of an affiliated group that elected to file or was required to file consolidated returns for federal income tax purposes or consolidated, combined or unitary tax returns for state or local income tax purposes. Except for this Agreement, and except as set forth in Schedule 3.13(b)(ii), there is no agreement with any Person pursuant to which the Company would have any obligation after Closing in respect of Taxes of such other Person. (c) None of the assets of the Company is property that the Company is required to treat as being owned by any other Person pursuant to the "safe harbor lease" provisions of former Section 168(f)(8) of the Code. None of the assets of the Company directly or indirectly secures any debt the interest on which is tax-exempt under Section 103(a) of the Code. None of the assets of the Company is "tax-exempt use property" within the meaning of Section 168(h) of the Code. (d) The Company has not agreed to make nor is it required to make any adjustment under Section 481(a) of the Code by reason of a change in accounting or otherwise. (e) Neither the Company nor Seller is a "foreign person" within the meaning of the Code and the Regulations. (f) The Company has no interest in any entity that is treated as a partnership for federal income tax purposes. (g) Except as disclosed in Schedule 3.13(g), the Company is not a successor to any other business entity by way of merger, reorganization, liquidation or similar transaction. (h) There is no ruling issued to the Company, or closing agreement or gain recognition agreement to which the Company is a party, concerning Taxes from or with any Governmental Body which would have a continuing effect on the Company after the Closing Date. 57 Section 3.14. Employee Benefit Plans. (a) Schedule 3.14(a) lists all "employee benefit plans," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and all pension, profit sharing, retirement, supplemental retirement, stock, stock option, basic and supplemental accidental death and dismemberment, basic and supplemental life and health insurance, post-retirement medical or life, welfare, dental, vision, savings, bonus, deferred compensation, incentive compensation, business travel and accident, holiday, vacation, severance pay, salary continuation, sick pay, sick leave, short and long term disability, tuition refund, service award, company car, scholarship, relocation, patent award, fringe benefit and other employee benefit plans, arrangements, contracts, policies, or practices whether written or unwritten, qualified or unqualified, funded or unfunded, (i) maintained, contributed to, or required to be contributed to by the Company or any ERISA Affiliate (as defined below) with respect to any Company employees, or (ii) pursuant to which the Company or any ERISA Affiliate may have any liability with respect to any Company employees, within the United States (the "Benefit Plans"). For purposes of this Agreement, the term "ERISA Affiliate" means: (i) any corporation included with the Company in a controlled group of corporations within the meaning of Section 414(b) of the Code; (ii) any trade or business (whether or not incorporated) which is under common control with the Company within the meaning of Section 414(c) of the Code; (iii) any member of an affiliated service group of which the Company is a member within the meaning of Section 414(m) of the Code; or (iv) any other person or entity treated as an affiliate of the Company under Section 414(o) of the Code. (b) As applicable, with respect to each of the Benefit Plans, true and complete copies of the following have been delivered to Buyer: (i) all plan documents (including all amendments and modifications thereof) pertaining to the "Graseby Savings and Investment Plan" and the Company's medical plan with United Health Care of North Carolina, Inc., and in the case of an unwritten Benefit Plan a written description thereof; (ii) the filed Form 5500 series and all schedules thereto, as applicable, for 1993, 1994 and 1995; (iii) the "Financial Statements and Supplemental Schedules to the Graseby Savings and Investment Plan" for 1992, 1993, 1994, and 1995; and (iv) copies of determination letters issued with respect to the Benefit Plans within the past five years. (c) The Company and each ERISA Affiliate are in compliance in all material respects with the provisions of ERISA and the Code applicable to the Benefit Plans. Each Benefit Plan has been maintained, operated and administered in compliance in all material respects with its terms and any related documents or agreements and the applicable provisions of ERISA and the Code. (d) No Benefit Plan is, or at any time has been, a "multiemployer plan" as defined in Section 3(37) of ERISA. (e) The Company's 401(k) plan is the only Benefit Plan which are "employee pension benefit plans" within the meaning of Section 3(2) of ERISA and which are intended to meet the qualification requirements of Section 401(a) of the Code (each a "Pension Plan"). Each Pension Plan now meets and at all times since its inception has met the qualification requirements of Section 401(a) of the Code and each related trust is now, and at all times since its inception has been, exempt from taxation under Section 501(a) of the Code. (f) Each Pension Plan has received a determination letter from the IRS to the effect that such Pension Plan is qualified and all related trusts are exempt from federal income taxes and no determination letter with respect to any Pension Plan has been revoked nor, is there any reason for such revocation, nor has any Pension Plan been amended since the date of its most recent determination letter in any respect which would adversely affect its qualification. (g) All contributions to, and payments from, any Benefit Plan which may have been required in accordance with the terms of such Benefit Plan or any related document and, when applicable, Section 302 of ERISA or Section 412 of the Code, have been timely made. No Benefit Plan has incurred an "accumulated funding deficiency" within the meaning of Section 302 of ERISA or Section 412 of the Code, nor has any waiver of the minimum funding standards of Section 302 of ERISA or Section 412 of the Code been requested, or granted, with respect to any Benefit Plan. The funding method used in connection with each Benefit Plan which is subject to the minimum funding requirements of ERISA and the Code is acceptable under current IRS guidelines, and the actuarial assumptions used in connection with funding each such Benefit Plan are reasonable. 58 (h) Each Benefit Plan subject to Title IV of ERISA has assets sufficient on a plan termination basis to be eligible on the Closing Date for standard termination pursuant to Section 4041 of ERISA. The PBGC has not instituted proceedings to terminate any Benefit Plan or to appoint a trustee or administrator of any such Benefit Plan, and no circumstances exist that constitute grounds under Title IV of ERISA for any such proceeding. There has been no "reportable event" within the meaning of Section 4043 of ERISA that has not been fully and accurately reported in a timely fashion, as required, or which, whether or nor reported, would authorize the PBGC to institute termination proceedings with respect to any Benefit Plan. No liability under Title IV of ERISA has been incurred or is expected to be incurred that could result in liability to any Benefit Plan, the Seller, any ERISA Affiliate or the Buyer, other than for premiums pursuant to Section 4007 of ERISA that are not yet due. (i) There are no pending audits or investigations by any governmental agency involving the Benefit Plans, and no pending, or to Seller's Knowledge threatened, claims (except for individual claims for benefits payable in the normal operation of the Benefit Plans), suits or proceedings involving any Benefit Plan, any fiduciary thereof or service provider thereto, nor to the Knowledge of the Seller is there any reasonable basis for any such claim, suit or proceeding. (j) Neither the Company nor any ERISA Affiliate, or any employee of the Company or any ERISA Affiliate, has engaged in a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code, nor has any such Person breached any duty imposed by Title I of ERISA, with respect to any Benefit Plan. To the Knowledge of Seller, no other Person has engaged in such a prohibited transaction or breach. (k) Any insurance premium under any insurance policy related to a Benefit Plan for any period up to and including the Closing Date has been paid, or accrued and booked on or before the Closing Date, and, with respect to any such insurance policy or premium payment obligation, none of the Company, or any ERISA Affiliate nor Buyer shall be subject to a retroactive rate adjustment, loss sharing arrangement or other actual or contingent liability. (l) With respect to each Benefit Plan that is a "group health plan" within the meaning of Section 607 of ERISA and that is subject to Section 4980B of the Code, the Company and each ERISA Affiliate comply in all material respects with the continuation coverage requirements of the Code and ERISA. (m) Except as set forth in Schedule 3.14(m), no Benefit Plan provides benefits, including, without limitation, death or medical benefits, beyond termination of service or retirement other than (i) coverage mandated by law or (ii) death or retirement benefits under a Benefit Plan qualified under Section 401(a) of the Code. 59 (n) Except as set forth in Schedule 3.14(n), the execution of, and performance of the transactions contemplated by, this Agreement will not constitute an event under the "Graseby Savings and Investment Plan" or the Company's medical plan with United Health Care of North Carolina, Inc. that will result in any payment (whether as severance pay or otherwise), acceleration, vesting or increase in benefits with respect to any employee. Except as set forth in Schedule 3.14(n), no Benefit Plan provides for "parachute payments" within the meaning of Section 280G of the Code. (o) Schedule 3.14(o) lists all pension, profit sharing, retirement, supplemental retirement, stock, stock option, basic and supplemental accidental death and dismemberment, basic and supplemental life and health insurance, post-retirement medical or life, welfare, dental, vision, savings, bonus, deferred compensation, incentive compensation, business travel and accident, holiday, vacation, severance pay, salary continuation, sick pay, sick leave, short and long term disability, tuition refund, service award, company car, scholarship, relocation, patent award, fringe benefit and other employee benefit plans, arrangements, contracts, policies or practices whether written or unwritten, funded or unfunded (i) maintained, contributed to, or required to be contributed to by the Company or any Affiliate with respect to any Company employees, or (ii) pursuant to which the Company or any Affiliate may have any liability with respect to any Company employees, outside the United States (the "Foreign Plans"). (p) A true and complete copy of each Foreign Plan, including all amendments and modifications thereof (and in the case of an unwritten Foreign Plan, a written description thereof), together with all related agreements including, without limitation, trust agreements, insurance contracts and investment management agreements have been delivered to Buyer. (q) Each Foreign Plan has been maintained, operated and administered in compliance in all material respects with its terms and any related documents or agreements and with all applicable laws. (r) There are no unfunded liabilities with respect to any Foreign Plan and all contributions and other payments required to be made by the Company or any affiliate to any Foreign Plan with respect to any period up to and including the Closing Date shall have been made or accrued and booked on or before the Closing Date. (s) There are no pending audits or investigations by any governmental or quasi-governmental agency involving the Foreign Plans and pending, or to Seller's Knowledge threatened, claims (except for individual claims for benefits payable in the normal operation of the Foreign Plan), suits or proceedings involving any Foreign Plan, any fiduciary thereof or service provider thereto, nor to the Knowledge of the Seller is there any reasonable basis for any such claim, suit or proceeding. 60 Section 3.15. Certain Contracts. (a) Except as set forth in Schedule 3.15(a), as of the date hereof the Company is not a party to, bound or affected by, nor receives benefits under (in each case whether written or oral): (i) any Significant Contract; (ii) any Significant Lease; (iii) any agreement, arrangement or commitment relating to the employment of an independent contractor or the employment, election or retention in office of any present or former officer, director, or employee, other than contracts terminable at will or on less than thirty (30) days' notice with no liability other than paying that person's usual compensation through the date of termination; or (iv) any collective bargaining agreement or other understanding with a labor union. (b) All agreements to which the Company is a party or by which it is bound are in full force and effect. The Company (i) is not in default under any such agreement, (ii) has not, during the three-year period immediately prior to the Closing, been in default under any agreement with any of its distributors or agents, which default could have a Material Adverse Effect, and (iii) to Seller's Knowledge, all other parties to any agreement to which the Company is a party or by which it is bound have complied with the provisions thereof. To Seller's Knowledge, no such other party is in default, which default would have a Material Adverse Effect, under any Significant Contract, Significant Lease, or any agreement, commitment, arrangement or other indenture described in Section 3.15(a), whether written or oral, and there has not occurred any event that, with the lapse of time or giving of notice or both, would constitute such a default. Section 3.16. Legal Proceedings; Regulatory Approvals. Except as set forth in Schedule 3.16, as of the date hereof there are: (i) no outstanding injunctions, judgments, orders, decrees, rulings or regulatory directives against the Company or to which the Company is a party; and (ii) no actions, suits, claims, governmental investigations or proceedings have been instituted, are pending, or to the Knowledge of Seller are threatened, against the Company that in any such case, if decided adversely, would reasonably be expected to have a Material Adverse Effect. There are no actual or, to Seller's Knowledge threatened, actions, suits or proceedings against the Company which present a claim to restrain or which would have the effect of prohibiting the transactions contemplated herein. Section 3.17. Compliance with Laws. The Company is, and for the three-year period immediately prior to the Closing has been, in compliance in all respects with all federal, state, and local statutes and regulations applicable to the conduct of the Business (except for any violations that do not have a Material Adverse Effect), and the Company has not received notification from any agency or department of federal, state or local government (i) asserting a violation or possible violation of any such statute or regulation, which violation would have a Material Adverse Effect, (ii) threatening to revoke any License, or (iii) restricting or limiting in any respect its operation of the Business, which restriction or limitation would have a Material Adverse Effect. 61 Section 3.18. Brokers and Finders. Except as set forth in Schedule 3.18 hereto, neither Seller, the Company, nor any of their respective officers, directors, employees or Affiliates has employed any broker, finder or financial advisor or incurred any liability for any fees or commissions or other payments in connection with the transactions contemplated herein (except for fees to accountants, lawyers and advisors). Section 3.19. Inventory. All of the inventories of the Company are valued at the lower of cost or market value, the cost thereof being determined on a first-in, first-out basis, except as disclosed in the Financial Statements. Attached hereto as Schedule 3.19 is a summary of the Company's inventory of finished goods as of the last day of the month for the month immediately preceding the present month. All of the net inventories of the Company reflected in the balance sheet dated December 31, 1996 (the "Balance Sheet") and all such inventories acquired since the date of the Balance Sheet consist of items of a quality and quantity useable and saleable in the Ordinary Course of Business within a reasonable period of time and at normal profit margins. Section 3.20. Accounts Receivable. All of the accounts and notes receivable of the Company represent amounts receivable for merchandise actually delivered or services actually provided (or, in the case of non-trade accounts or notes represent amounts receivable in respect of other bona-fide business transactions), have arisen in the Ordinary Course of Business, are not subject to any defenses, counterclaims or offsets and have been billed and are generally due within thirty (30) days after such billing. Schedule 3.20 attached hereto sets forth (a) the total amount of accounts receivable of the Company outstanding as of the last day of the month immediately preceding the present month, and (b) the agings of such receivables based on the following schedule: 0-30 days, 31-60 days, 61-90 days, and over 90 days, from the due date thereof. All such receivables are fully collectible in the Ordinary Course of Business of the Company, except to the extent of a reserve in an amount not in excess of the reserve for doubtful accounts reflected on the Balance Sheet. Section 3.21. No Undisclosed Liabilities. The Company has no liability or obligation of any nature, whether due or to become due, absolute, contingent or otherwise, including liabilities for or in respect of federal, state and local taxes and any interest or penalties relating thereto, except (a) to the extent reflected as a liability on the Balance Sheet, (b) liabilities incurred in the Ordinary Course of Business since December 31, 1996, and of the same character, kind and magnitude as are consistent with past practice and fully reflected as liabilities on the Company's books of account, none of which would have a Material Adverse Effect, and (c) liabilities disclosed on Schedule 3.21 attached hereto. 62 Section 3.22. Title. The Company has good and marketable title to all of its personal properties and assets, including the properties and assets reflected in the Balance Sheet (except those disposed of in the Ordinary Course of Business since December 31, 1996), free and clear of any mortgage, pledge, lien, restriction, encumbrance, tenancy, license, encroachment, covenant, condition, right of way, easement, claim, security interest, charge or any other matter affecting title, except (a) minor imperfections of title, none of which, individually or in the aggregate, materially detracts from the value of or impairs the use of the affected properties or impairs the operations of the Company, (b) liens for current taxes not yet due and payable, and (c) Permitted Exceptions (as set forth in Schedule 3.22). Section 3.23. Transactions with Related Parties. Except as disclosed on Schedule 3.23 attached hereto, no Related Party: (a) has borrowed money or loaned money to the Company that has not been repaid; (b) has any contractual or other claim, express or implied, of any kind whatsoever against the Company; (c) has any interest in any Intangibles used by the Company with respect to the Business; or (d) has been engaged, since January 1, 1996, in any other transaction (or series of transactions) involving in excess of Twenty Five Thousand Dollars ($25,000) in any twelve-month period with the Company (other than employment relationships at the salaries disclosed on Schedule 3.24 attached hereto). Section 3.24. Compensation Arrangements; Bank Accounts; Officers and Directors. Schedule 3.24 attached hereto sets forth the following information: (a) the names and current annual salary, including any bonus, if applicable, of all present officers and employees of the Company whose current annual salary, including any promised, expected or customary bonus, equals or exceeds Fifty Thousand Dollars ($50,000), together with a statement of the full amount of all remuneration paid by the Company to each such person and to any director of the Company, during the twelve-month period preceding the date hereof; and (b) the name of each bank in which the Company has an account or safe deposit box, the identifying numbers or symbols thereof and the names of all persons authorized to draw thereon or to have access thereto; and the names and titles of all directors and officers of the Company and of each trustee, fiduciary or plan administrator of each employee benefit plan of the Company. 63 Section 3.25. Labor Relations. Except as set forth in Schedule 3.25 attached hereto: (a) no employee of the Company is represented by any union or other labor organization; (b) there is no unfair labor practice complaint against the Company pending, or to Seller's Knowledge threatened, before the National Labor Relations Board; (c) there is no labor strike, dispute, slow down or stoppage actually pending or, to Seller's Knowledge threatened, against or involving the Company; (d) no grievance is pending which would have a Material Adverse Effect; (e) no private agreement restricts the Company from relocating, closing or terminating any of its operations or facilities; and (f) the Company in the past three (3) years has not experienced any work stoppage or other labor difficulty or committed any unfair labor practice. Section 3.26. Products Liability. Except for lawsuits, claims, damages and expenses adequately covered by insurance or fully indemnified by the Company's suppliers, and except as disclosed on Schedule 3.26 attached hereto, there are no (a) liabilities of the Company, fixed or contingent, asserted or unasserted, with respect to any product liability or any similar claim that relates to any product stored, distributed or sold by the Company to others, or (b) liabilities of the Company, fixed or contingent, asserted or unasserted, with respect to any claim for the breach of any express or implied product warranty or any other similar claim with respect to any product stored, distributed or sold by the Company to others. Section 3.27. Insurance. Attached hereto as Schedule 3.27 is a complete and correct list of all policies and binders of insurance of which the Company is the owner, insured or beneficiary, or covering any of its property (showing for each policy or binder, the carrier, risks insured, the amounts of coverage, deductible, premium rate, cash value if any, expiration date and any pending claims thereunder). All such policies are outstanding and in full force and effect. There is no default with respect to any provision contained in any such policy, nor has there been any failure to give any notice or present any claim under any such policy in a timely fashion or in the manner or detail required by the policy. There are no outstanding unpaid premiums or claims under such policies. Schedule 3.27 attached hereto contains an accurate and complete description of any provision contained in such policies which provide for retrospective or retroactive premium adjustments. No notice of cancellation or non-renewal with respect to, or disallowance of any claim under, any such policy has been received by the Company. The Company has not been refused any insurance, nor has its coverage been limited by any insurance carrier to which it has applied for insurance or with which it has carried insurance, during the last five years. Since January 1992, all products liability and general liability policies maintained by or for the benefit of the Company have been "occurrence" policies and not "claims made" policies; Schedule 3.27 attached hereto contains a complete and correct list of all such products liability and general liability policies, indicating for each policy, the carrier, risks insured, the amount and dates of coverage, deductible and any pending claims thereunder; and all such policies are in full force and effect. 64 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: Section 4.1. Organization, Standing and Authority of Buyer. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania with full corporate power and authority to carry on its business as now conducted and is duly qualified to do business in the states of the United States and foreign jurisdictions where its ownership or leasing of property or the conduct of its business requires such qualification. Section 4.2. Authorized and Effective Agreement. (a) Buyer has all requisite corporate power and authority to enter into and perform all of its obligations under this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action in respect thereof on the part of Buyer. This Agreement constitutes a legal, valid and binding obligation of Buyer, enforceable against it in accordance with its terms subject, as to enforceability, to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors' rights and to general equity principles. (b) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor compliance by Buyer with any of the provisions hereof shall (i) conflict with or result in a breach of any provision of the articles or certificate of incorporation (or charter) or bylaws of Buyer, (ii) constitute or result in a breach of any term, condition or provision of, or constitute a default under, or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any lien, charge or encumbrance upon any property or asset of Buyer pursuant to, any note, bond, mortgage, indenture, license, agreement or other instrument or obligation, or (iii) subject to receipt of all required Consents, violate any order, ruling, decree, charge, writ, injunction, regulatory agreement or memorandum of understanding, constitution, statute, rule or regulation applicable to Buyer. Section 4.3. Legal Proceedings; Regulatory Approvals. There are no actual, or to the Knowledge of Buyer threatened, actions, suits or proceedings which present a claim or restrain or prohibit the transactions contemplated herein. To the Knowledge of Buyer, Buyer is qualified legally, financially and otherwise to become the owner, as contemplated herein, of the Shares. 65 Section 4.4. Securities. Solely for purposes of enabling Seller to comply with applicable federal and state securities laws: (a) Buyer acknowledges that the offering and sale of the Shares pursuant hereto will not be registered under the Securities Act of 1933, as amended, or any other securities laws (the "Acts") and that the Shares are characterized as "restricted securities" under the Acts and may not be transferred unless a registration statement for the re-offering and sale of the Shares is appropriately filed or unless the Shares are subject to exemption from registration under the Acts; and (b) Buyer agrees that it (i) shall acquire the Shares for investment for its own account, not as a nominee or agent and not with a view to the resale or distribution of any part thereof, (ii) has no present intention of selling, granting or participating in, or otherwise distributing all or part of the Shares, (iii) has had sufficient opportunity to ask questions and receive answers from Seller and the Company regarding the Company, the Business, and the terms and conditions of this Agreement, (iv) has received all the information it considers necessary or appropriate for deciding whether to acquire the Shares, and if so under what terms and conditions, (v) is an "accredited investor," as defined in Rule 501(a) under Regulation D adopted by the Securities and Exchange Commission under the Securities Act of 1933, (vi) has no need for liquidity in its investment in the Shares, and (vii) is aware of and able to bear the risks of the investment in the Shares for an indefinite period of time. Section 4.5. Brokers and Finders. Neither Buyer nor its officers, directors, employees or Affiliates has employed any broker, finder or financial advisor or incurred any liability for any fees or commissions or other payments in connection with the transactions contemplated herein (except for fees to accountants, lawyers, and advisors). ARTICLE V CONDITIONS PRECEDENT Section 5.1. Conditions Precedent -- Buyer and Seller. The respective obligations of Buyer and Seller to effect the transactions contemplated by this Agreement shall be subject to satisfaction or waiver of the following conditions at or prior to the Effective Time: Neither Buyer, Seller, nor the Company shall be subject to any order, decree, judgment, ruling or injunction of a court or governmental body of competent jurisdiction which enjoins or prohibits consummation of the transactions contemplated herein, nor shall any of them be a party or subject to any pending action, suit or proceeding before any court or governmental agency of competent jurisdiction wherein an unfavorable order, decree, judgment, ruling or injunction would (i) enjoin or prohibit consummation of the transactions contemplated herein, (ii) cause any of the transactions contemplated herein to be rescinded following consummation, (iii) adversely affect the right of Buyer to own and/or to vote the Shares or to control the Company, or (iv) affect adversely the right of the Company to own its assets and to operate the Business. 66 Section 5.2. Conditions Precedent -- Seller. The obligations of Seller to effect the transactions contemplated by this Agreement shall be subject to satisfaction of the following additional conditions at or prior to the Effective Time unless waived by Seller pursuant to Article VII hereof: (a) The representations and warranties of Buyer set forth in Article IV hereof shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time with the same force and effect as though such representations and warranties had been made on, as of, and with reference to such Effective Time; (b) Buyer shall have performed all obligations and complied with all covenants required by this Agreement to be performed by Buyer on or before Closing; (c) Buyer shall have demonstrated its ability to make the deliveries required of it pursuant to this Agreement; (d) The Company shall have received the Consents; (e) Buyer shall have assumed responsibility for payment of the severance obligations of the Company set forth in Schedule 5.2(e) attached hereto; and (f) All instruments and documents required on Buyer's part to effectuate and consummate the transactions contemplated hereby shall be delivered to Seller and shall be in form and substance reasonably satisfactory to Seller and its counsel. Section 5.3. Conditions Precedent -- Buyer. The obligations of Buyer to effect the transactions contemplated by this Agreement shall be subject to satisfaction of the following additional conditions at or prior to the Effective Time unless waived by Buyer pursuant to Article VII hereof: (a) The representations and warranties of Seller set forth in Article III hereof shall be true and correct in all material respects as of the date of this Agreement and as of the Effective Time with the same force and effect as though such representations and warranties had been made on, as of, and with reference to such Effective Time; (b) Seller and the Company shall have in all material respects performed all material obligations and complied with all material covenants required by this Agreement to be performed by them on or before Closing; (c) Seller shall have demonstrated its ability to make the deliveries required pursuant to this Agreement; (d) The Company shall have received the Consents; 67 (e) All instruments and documents required on Seller's and the Company's part to effectuate and consummate the transactions contemplated hereby shall be delivered to Buyer and shall be in form and substance reasonably satisfactory to Buyer and its counsel; (f) No order of any court or administrative agency shall be in effect which restrains or prohibits the transactions contemplated hereby or which would limit or adversely affect Buyer's ownership or control of the Company or the Business, and there shall not have been threatened, nor shall there be pending, any action or proceeding by or before any court or governmental agency or other regulatory or administrative agency or commission, (i) challenging any of the transactions contemplated by this Agreement or seeking monetary relief by reason of the consummation of such transactions or (ii) by any present or former owner of any capital stock or equity interest in the Company (whether through a derivative action or otherwise) against the Company or any officer, director or shareholder of the Company in his, her or its capacity as such or (iii) which might have a Material Adverse Effect; (g) All loans by the Company to any Related Party shall have been repaid in full and there shall be no outstanding debts or obligations due from any Related Party to the Company; (h) Buyer shall have received all Licenses, Permits and certificates and governmental approvals listed on Schedule 3.8; (i) Seller shall have delivered to Buyer the written resignation of each member of the board of directors and each of the officers of the Company; (j) Buyer shall have obtained, at Buyer's expense, a good and valid, irrevocable ALTA title insurance binder or commitment (the "Title Commitment"), in final form from First American Title Insurance Company (the "Title Company"), committing the Title Company to issuing an ALTA extended coverage form of title insurance policy (the "Title Policy") insuring the Buyer's fee title to the Real Property in the amount of not less than Six Hundred Thousand Dollars ($600,000.00), subject to no Liens or exceptions to title other than the Permitted Exceptions; provided that the commitment of the Title Company to issue the Title Policy may be subject to and the Title Commitment may set forth or be subject to such standard requirements relating to the issuance of final policies of title insurance as are reasonably acceptable to Buyer and to the payment of the Title Company's premiums and other charges for the issuance of the Title Policy. The Title Commitment shall be effective as of a date occurring not earlier than April 18, 1997 and, if required by Buyer, the effective date of the Title Commitment shall be brought down to the morning of the Closing Date; and (k) Buyer shall have received from Seller and Graseby plc a release in the form of Exhibit D attached hereto. 68 ARTICLE VI CLOSING The transactions contemplated by this Agreement shall be consummated at a closing (the "Closing") to be held at the offices of Seller's counsel, Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., Suite 2000, Renaissance Plaza, 230 North Elm Street, Greensboro, North Carolina, or such other place as may be agreed to by Buyer and Seller, on the date hereof or such later date as may be agreed to by Buyer and Seller (the "Closing Date"). The Sale shall be effective as of the Closing on the Closing Date or at such other time and date specified by the parties at the Closing (the "Effective Time"); provided, however, that solely for financial accounting and Tax reporting purposes, the Sale shall be deemed effective as of 11:59:59 o'clock p.m., Greensboro, North Carolina local time, on the Closing Date. At Closing: (a) Seller shall deliver to Buyer (i) the various certificates, instruments and documents required of it pursuant to this Agreement, (ii) stock certificates representing ownership of the Shares, endorsed for transfer to Buyer, and (iii) any other documents that are necessary to transfer to Buyer good title to the Shares free and clear of all liens, claims, security interests, pledges, charges, equities, options, restrictions, and encumbrances of whatever nature; and (b) Buyer shall (i) deliver to Seller the various certificates, instruments and documents required of it pursuant to this Agreement, (ii) deliver to Seller copies of resolutions adopted by Buyer authorizing and approving the execution of this Agreement and the consummation of the transactions contemplated herein, certified by Buyer's Secretary as being true and correct on the Closing Date, and (iii) deliver to Seller the Purchase Price in immediately available funds. In the case at any time after the Effective Time any further action is necessary to carry out the purposes of this Agreement, Seller and Buyer shall take such further action (including the execution and delivery of such further instruments and documents) as the other may reasonably request, all at the sole cost and expense of the requesting party. ARTICLE VII WAIVER Except with respect to any required regulatory approval, each party hereto by written instrument, may at any time extend the time for the performance of any of the obligations or other acts of the other party hereto and may waive (a) any inaccuracies of the other party in the representations and warranties contained in this Agreement or any document delivered pursuant hereto, (b) compliance with any of the covenants, undertakings or agreements of the other party, or satisfaction of any of the conditions precedent to its obligations, contained herein or (c) the performance by the other party of any of its obligations set out herein. No waiver by either such party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 69 ARTICLE VIII CERTAIN POST-CLOSING OBLIGATIONS Section 8.1. Confidential Information. Seller acknowledges that after the Closing, Buyer could be irreparably damaged if Seller's or any of its Affiliates' confidential knowledge of the operations of the Company were disclosed to or utilized on behalf of any Person other than Buyer or its Affiliates, and Seller covenants and agrees that it will not following the Closing, without the prior written consent of Buyer, disclose (or permit to be disclosed) or use in any way any such confidential information, unless (i) compelled to disclose such confidential information by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, or (ii) such confidential information is generally available to the public through no fault of Seller. Section 8.2. Indemnification by Seller, Graseby Andersen Inc. and Graseby plc. (a) Extent of Indemnity. Seller and the Guarantors, jointly and severally, hereby agree to indemnify, defend and hold harmless Buyer and the Company from and against: (i) any Damages of or to Buyer or the Company arising out of or resulting from any misrepresentation or breach of representation or warranty of Seller contained in this Agreement or in any agreement or statement or certificate furnished or to be furnished by Seller or the Company to Buyer pursuant hereto or in connection with the transactions contemplated hereby; (ii) any Damages of or to Buyer or the Company arising out of or resulting from any breach or nonfulfillment of any covenant or agreement of Seller contained in this Agreement or in any agreement or statement or certificate furnished or to be furnished by Seller or the Company to Buyer pursuant hereto or in connection with the transactions contemplated hereby; (iii) regardless of whether any of the following are contained in any disclosure schedule to this Agreement or were otherwise disclosed to Buyer prior to the Closing, any and all Damages known or unknown, foreseen or unforeseen, whether contingent or otherwise, fixed or absolute, present or future, asserted against or incurred by Buyer or the Company arising out of or related to (A) the off-site transportation, storage, treatment, recycling or disposal of Hazardous Materials Managed or Released by the Company or in connection with the Business prior to the Closing; (B) any Release at, on, in or under the Real Property that requires investigation, remediation, or other response action relating to or arising from the Company's drum handling prior to Closing; and (C) any failure by the Company at any time prior to the Closing to have any Permit or give any notice required in connection with the Company's wastewater or other discharge to the applicable sewer authority including without limitation fines, penalties, and assessments arising from any such discharge; (iv) the matters described on Schedule 8.2(a)(iv); and 70 (v) any Damages incident to any of the foregoing, including reasonable attorneys' fees actually incurred by Buyer as the prevailing party in an action to enforce this Section. (b) Time Limit on Certain Indemnification Claims. No action or claim for Damages resulting from breaches of the representations and warranties of Seller shall be brought or made after June 1, 1998, except that such time limitation shall not apply to (i) claims for misrepresentations or breaches of warranty relating to Sections 3.2 (Warranty of Title to the Shares), 3.3 (Capital Structure of the Company), and 3.5 (Authorized and Effective Agreement; No Violation), (ii) claims for misrepresentations or breaches of warranty relating to Sections 3.13 (Tax Matters), 3.14 (Employee Benefit Plans), 3.18 (Brokers and Finders), 3.23 (Transactions with Related Parties), or 9.1 (Authorized and Effective Agreement; No Violations (Guarantors)), each of which may be asserted until the running of the applicable statute of limitations with respect to the period to which the particular claims relate, or (iii) any claims which have been the subject of a written notice from Buyer to Seller prior to the expiration of any of the foregoing periods, which notice specifies in reasonable detail the nature of the claim. No action or claim for Damages pursuant to Section 8.2(a)(iii)(A) or Section 8.2(a)(iii)(B) shall be brought by Buyer after expiration of the five-year period commencing on the Closing Date. No action or claim for Damages pursuant to Section 8.2(a)(iii)(C) shall be brought by Buyer after the expiration of the three-year period commencing on the Closing Date. (c) Limitations on Liability. None of Seller or either of the Guarantors shall be required to make an indemnity payment for Damages arising pursuant to Section 8.2(a)(i) unless and until the aggregate amount of Damages arising pursuant to Section 8.2(a)(i) exceeds Two Hundred Thousand Dollars ($200,000.00)(the "Deductible"). Only Damages arising pursuant to Section 8.2(a)(i) which, with respect to a single claim or a series of related claims arising pursuant to Section 8.2(a)(i), exceed Seven Thousand Five Hundred Dollars ($7,500.00) shall be taken into account in determining whether the Deductible has been reached. After the Deductible has been reached, Seller, Graseby Andersen Inc. and Graseby plc, jointly and severally, shall thereafter (subject to the time limitations indemnification procedures set forth in this section 8.2) be required to make an indemnity payment for Damages arising pursuant to Section 8.2(a)(i) which, with respect to a single claim or a series of related claims, in the aggregate exceed Seven Thousand Five Hundred Dollars ($7,500.00)(the "Basket"). None of Seller or either of the Guarantors shall have any obligation to indemnify Buyer for aggregate indemnification payments arising pursuant to Section 8.2(a)(i) in excess of the Purchase Price, notwithstanding any provision in this Agreement to the contrary, provided. however, that the foregoing limitations on liability shall not apply to Damages which arise (i) from fraud or other intentional misrepresentations or omissions on the part of Seller or the Company with respect to this Agreement or the transactions contemplated by this Agreement, or (ii) a misrepresentation or breach of warranty with respect to any one or more of Sections 3.2 (Warranty of Title to the Shares), 3.3 (Capital Structure of the Company), 3.5 (Authorized and Effective Agreement; No Violation), 3.13 (Tax Matters), 3.14 (Employee Benefit Plans), 3.18 (Brokers and Finders), 3.23 (Transactions with Related Parties), or 9.1 (Authorized and Effective Agreement; No Violations (Guarantors)) For purposes of this section, all qualifications in this Agreement regarding Material Adverse Effects and materiality shall be disregarded for purposes of applying the Deductible and the Basket to claims for Damages arising pursuant to Section 8.2(a)(i). 71 Section 8.3. Indemnification by Buyer. Buyer hereby agrees to indemnify, defend and hold harmless Seller from and against: (a) any Damage of or to Seller arising out of or resulting from any misrepresentation or breach of representation or warranty of Buyer contained in this Agreement or in any agreement or statement or certificate furnished or to be furnished by Buyer pursuant hereto or in connection with the transactions contemplated hereby; (b) any Damage of or to Seller arising out of or resulting from any breach or nonfulfillment of any covenant or agreement of Buyer contained in this Agreement or in any agreement or statement or certificate furnished or to be furnished to Buyer pursuant hereto or in connection with the transactions contemplated hereby; and (c) any Damages incident to any of the foregoing, including reasonable attorneys' fees actually incurred by Seller as the prevailing party in an action to enforce this Section. Section 8.4. Indemnification Procedures. (a) A party seeking indemnification pursuant to this Agreement (an "Indemnified Party") shall give prompt notice to the party from whom such indemnification is sought (the "Indemnifying Party") of the assertion of any claim, or the commencement of any action, suit or proceeding by a third party which is not an Affiliate of any party hereto in respect of which indemnity may be sought hereunder (a "Third Party Claim"), and will give the Indemnifying Party such information with respect thereto as the Indemnifying Party may reasonably request, but failure to give such notice shall not relieve the Indemnifying Party of any liability hereunder except to the extent that the Indemnifying Party is actually prejudiced thereby. (b) The Indemnifying Party shall have the right, exercisable by written notice to the Indemnified Party within thirty (30) days of receipt of notice from the Indemnified Party of the commencement or assertion of any Third Party Claim in respect of which indemnity may be sought hereunder, to assume and conduct the defense of such Third Party Claim with counsel selected by the Indemnifying Party and reasonably acceptable to the Indemnified Party; provided that: (i) the defense of such Third Party Claim by the Indemnifying Party will not, in the judgment of the Indemnified Party, have a Material Adverse Effect on the Indemnified Party; (ii) the Indemnifying Party has sufficient financial resources, in the judgment of the Indemnified Party, to satisfy the amount of any adverse monetary judgment that is reasonably likely to result; (iii) the Third Party Claim solely seeks (and continues to seek) monetary damages; and (iv) the Indemnifying Party expressly agrees in writing that as between the Indemnifying Party and the Indemnified Party, the Indemnifying Party shall be solely obligated to satisfy and discharge the Third Party Claim (the conditions set forth in clauses (i) through (iv) are collectively referred to as the "Litigation Conditions") . If the Indemnifying Party does not assume the defense of such Third Party Claim in accordance with this Section 8.4, the Indemnified Party may continue to defend the Third Party Claim. If the Indemnifying Party has assumed the defense of a Third Party Claim, the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defense thereof; provided, however, that if (i) the Litigation Conditions cease to be met, or (ii) the Indemnifying Party fails to take reasonable steps necessary to defend diligently such Third Party Claim, the Indemnified Party may assume its own defense, and the Indemnifying Party will be liable for all reasonable costs or expenses paid or incurred in connection therewith. (c) The Indemnifying Party or the Indemnified Party, as the case may be, shall have the right to participate in (but not control), at its own expense, the defense of any Third Party Claim which the other is defending as provided in this Agreement. (d) The Indemnifying Party, if it shall have assumed the defense of any Third Party Claim as provided in this Agreement, shall not, without the prior written consent of the Indemnified Party, consent to a settlement of, or the entry of any judgment arising from, any such Third Party Claim (i) which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party a complete release from all liability in respect of such Third Party Claim, or (ii) which grants any injunctive or equitable relief, or (iii) which may reasonably be expected to have a Material Adverse Effect on the affected business of the Indemnified Party. The Indemnified Party shall have the right to settle any Third Party Claim, the defense of which has not been assumed by the Indemnifying Party, with the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. (e) Amounts payable in respect of indemnification obligations of the parties shall be treated as an adjustment to the Purchase Price. Whether or not the Indemnifying Party chooses to defend or prosecute any Third Party Claim, all the parties hereto shall cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials and appeals, as may be reasonably requested in connection therewith. (f) Sections 8.2 through 8.4 shall not be interpreted to permit a double recovery with respect to Taxes for which indemnification is provided under Section 8.6 nor to permit a party to recover amounts with respect to Taxes that are such party's responsibility under Section 8.6. Section 8.5. Claims Against the Company. Notwithstanding any provision in this Agreement to the contrary, Seller agrees that it shall not be entitled to any indemnification from, or to make or receive any amount for any claim against, the Company in respect of any Damage or Damages arising out of or resulting from this Agreement or the transactions contemplated by this Agreement. 72 Section 8.6. Tax Matters. (a) Seller's Pre-Closing Returns. (i) The Company shall continue to be included for all taxable periods ending on or before the Closing Date in the consolidated federal income Tax Return that includes Seller and any required state or local consolidated or combined income or franchise Tax Returns of Seller or its Affiliates that include the Company. (ii) Seller shall timely prepare and file (or cause to be prepared and filed) (A) all federal, state and local income and franchise tax returns required by law, covering the Company for all taxable periods ending on or before the Closing Date (including all Tax Returns due by virtue of the Elections described below in section 8.6(f)) and (B) all other Tax Returns required by law covering the Company that are required to be filed on or before the Closing Date (all Tax Returns specified in subparagraphs (A) and (B) are hereinafter referred to as "Seller's Pre-Closing Returns"). Sellers shall timely pay (or cause to be paid) on behalf of the Company all Taxes shown as due and payable on Seller's Pre-Closing Returns. (iii) Buyer and Seller agree that if the Company is permitted under any applicable state or local income tax law to treat the Closing Date as the last day of the taxable period during which the Closing occurs, Buyer and Seller shall treat (and cause their respective affiliates to treat) such date as the last day of such taxable period. (b) Buyer's Tax Returns. Buyer shall timely prepare and file (or cause to be so prepared and filed) (i) all federal, state or local income and franchise Tax Returns required by law covering the Company for all taxable periods ending after the Closing Date and (ii) all other Tax Returns required by law covering the Company that are required to be filed after the Closing Date (all Tax Returns specified in subparagraphs (i) and (ii) are hereinafter referred to as "Buyer's Tax Returns"). Buyer shall submit to Seller copies of all Buyer's Tax Returns, as filed, that include a taxable period or date prior to or including the Closing Date. (c) Tax Cooperation. After the Closing Date, Seller shall submit to Buyer blank Tax Return work paper packages. Buyer shall cause the Company to prepare completely and accurately all information that Seller shall reasonably request in such work paper packages and shall submit to Seller such packages within the later of sixty (60) calendar days after Buyer's receipt thereof or sixty (60) calendar days after the close of the taxable period to which a work paper package relates. Buyer and Seller and their Affiliates shall reasonably cooperate with each other in connection with the preparation of Tax Returns related to the Company and shall preserve all information, returns, books, records and documents relating to any liabilities for Taxes with respect to a taxable period until the later of the expiration of all applicable statutes of limitation and extensions thereof, or a final determination with respect to Taxes for such period and shall not destroy or otherwise dispose of any record without first providing the other party with a reasonable opportunity to review and copy the same. Buyer shall provide Seller (or cause the Company to provide Seller) with applicable powers of attorney with respect to Seller's Pre-Closing Returns. 73 (d) Post-Closing Audits. (i) Buyer shall notify Seller in writing within ten (10) days after receipt by Buyer, the Company, or any Affiliate thereof, of any official inquiry, examination, audit or proceeding ("Audit") regarding any Tax Return or period with respect to which Seller may be liable for Taxes pursuant to section 8.6(a) or for which Seller may have an indemnification obligation under section 8.6(e). Seller shall have the right to exercise, at its own expense, control at any time over the handling, disposition and/or settlement of any issue raised in any Audit regarding any Seller's Pre-Closing Return. Buyer shall cooperate with Seller, as Seller may reasonably request, in any such Audit. (ii) Buyer shall have the right, at its own expense, to exercise control at any time over the handling, disposition and/or settlement of any issue raised in any official inquiry, examination or proceeding regarding any Tax Return other than as described in section 8.6(d)(i) above (including the right to settle or otherwise terminate any contest with respect thereto); provided that, in the case of any Tax Return for a period beginning before the Closing Date, Buyer shall settle any issue (if such settlement would result in a required indemnification payment by Seller under section 8.6(e)) only with the prior consent of Seller, which consent shall not be unreasonably withheld. (e) Indemnification. (i) After the Closing Date, and regardless of whether Buyer or the Company would be entitled to indemnification for such amount under Section 8.2, Seller shall indemnify and hold harmless Buyer and the Company and each of their respective affiliates, successors and assigns from and against any Tax liability with respect to Seller's Pre-Closing Returns (whether or not such Taxes are shown to be due on such Seller's Pre-Closing Returns). Seller shall pay such amounts as it is obligated to pay to Buyer or the Company within fifteen (15) calendar days after payment of any applicable Tax liability by Buyer or the Company. Seller shall also indemnify and hold harmless Buyer and the Company, regardless of whether Buyer or the Company would be entitled to indemnification for such amount under Section 8.2, from and against (A) any Tax liability for periods prior to and including the Closing Date resulting from the Company being severally liable for any Taxes of any consolidated group of which the Company as of the Closing Date is, or prior the Closing Date was, a member pursuant to Treasury Regulations ss.1.1502-6 or any analogous state or local tax provision, and (B) any Tax liability for Buyer's Tax Returns attributable to the Business and/or the Company for the period prior to the Closing. (ii) Any Taxes for a period of time including both a pre-Closing period and a post-Closing period shall be apportioned between such pre-Closing period and the post-Closing period based, in the case of real and personal property Taxes, on a per diem basis and in the case of other Taxes, on the actual activities, taxable income or taxable loss of the Company during such pre-Closing period and post-Closing period determined as if the books of the Company were closed on the close of the Closing Date. 74 (f) Section 338(h)(10). Seller and Buyer agree that they shall jointly make or cause to be made the election under Section 338(h)(10) of the Code and Treasury Regulation Section 1.338(h)(10)-1(d) (and any corresponding election under state, local or foreign tax law) with respect to the purchase and sale of the Shares (the "Election"). If Seller is not the common parent of a "selling consolidated group" of which the Company is a member, as that term is defined under Treasury Regulation Section 1.338(h)(10)-1, Seller shall cause the Person that is the common parent with respect to the Company to join in making the Election with Buyer. (The Person authorized to make the Election with respect to the Company is referred to as the "Authorized Person" herein.) Schedule 8.6(f) sets forth the principles of Seller's and the Buyer's allocation of the modified aggregate deemed sale price ("MADSP") (as defined in Treasury Regulation section 1.338(h)(10)-1(f)) among the assets of the Company. Seller and Buyer shall agree to a final allocation of the MADSP consistent with the principles set forth in Schedule 8.6(f) as soon as practicable following the Closing Date. Buyer shall prepare IRS Form 8023-A and any similar state, local or foreign tax forms required to make the Election (collectively, the "Election Forms") and submit the Election Forms to Seller no later than seventy five (75) days prior to the date the Election Forms are required to be filed. Seller then shall deliver to Buyer the Election Forms, which shall have been executed by the Authorized Person, no later than thirty (30) days prior to the date the Election Forms are required to be filed. Buyer shall thereafter complete any required attachments to the Election Forms, execute and timely file the Election Forms, and provide Seller with a copy of the Election Forms as filed. Seller and Buyer shall each take or cause to be taken any other actions that are necessary for making or perfecting the Elections. Seller and Buyer shall each report all transactions pursuant to this Agreement in a manner that is consistent with the Elections and shall take no position contrary thereto unless required to do so pursuant to a "determination" within the meaning of Section 1313 of the Code. The parties agree that a violation of the provisions of this Section 8.6(f) is a proper subject of injunctive relief. (g) Tax Effect of Payments. The amount of any payments required to be made under this section 8.6 shall be reduced by the amount of any tax benefit actually received by (including by refund or by reduction of or offset against Taxes otherwise payable) the recipient by reason of the payment or incurrence by such recipient of the item for which the indemnity is being sought. Each party shall notify the other of such receipt of any such tax benefits. (h) Refunds. Buyer shall pay to Seller or cause the Company to pay to Seller any refund of any Tax received with respect to any taxable period ending on or before the Closing Date reduced by the amount of any cost incurred by the Company or Buyer as a result of such refund. If any refund of any Tax is received with respect to a taxable period that includes both a pre-Closing period and a post-Closing period, such a refund shall be apportioned between Seller and Buyer (or the Company) in the same manner as Tax liability is apportioned under section 8.6(e)(ii). 75 Section 8.7. Noncompetition Covenant. Neither Seller nor any of Seller's Affiliates shall compete with Buyer with respect to the Business for a period of two (2) years after the Closing Date at any location within (a) North America, (b) the State of North Carolina, and (c) the Commonwealth of Pennsylvania. Notwithstanding the foregoing, Seller and Seller's Affiliates shall, during such two (2) year period, have the right to acquire or merge with one or more entities which, as an incidental portion of their business, are engaged in the business of designing, manufacturing, and selling motor drives, provided that within one (1) year after the effective date of such acquisition or merger Seller or Seller's Affiliate, as the case may be, shall divest itself of such motor drive business. Section 8.8. Nature and Survival of Representations. (a) The representations, warranties, covenants and agreements of Buyer and Seller contained in this Agreement, and all statements contained in this Agreement or any exhibit or schedule hereto, or any certificate, financial statement or report or other document delivered pursuant to this Agreement, or in connection with the transactions contemplated hereby, shall be deemed to constitute representations, warranties, covenants and agreements of the respective party delivering the same. (b) Seller and the Company acknowledge that their representations and warranties in this Agreement shall not be affected or mitigated by any investigation conducted by Buyer or its representatives prior to Closing or to any Knowledge of Buyer. Section 8.9. Employees; 401(k) Plan. (a) Employee Matters. Buyer intends to continue the employment of those employees of the Company who wish to continue employment with the Company following Buyer's purchase of the Shares ("Employees") on terms and conditions that provide employee benefits substantially similar to those provided to other similarly situated employees of Buyer, with credit for services under Seller's Benefit Plans taken into account and with no pre-existing condition limitations or waiting periods beyond those imposed by Seller's Benefit Plans. Seller covenants and agrees that it will provide Buyer with any employment, benefit participation, medical, OSHA or other records pertaining to those Employees that are not in the Company's custody that Buyer may reasonably request. Seller further agrees that it will cause any Benefit Plan, other than a plan maintained exclusively by the Company for the benefit of its employees, to cooperate with Buyer, as Buyer may reasonably request, to effect the transfer of coverage of the Employees from any Benefit Plan maintained by Seller to those employee benefit plans maintained by Buyer, in accordance with the terms of the respective plans. 76 (b) 401(k) Transfer. (i) Participation. Effective as of the Closing Date, all Employees shall cease participation in the Graseby Savings & Investment Plan ("Seller's 401(k) Plan"). As soon as practicable, following Closing, Buyer shall designate an existing savings plan, qualified under Code ss. 401(a) and ss. 401(k), and a trust thereunder that is exempt from tax under Code ss. 501(a)(collectively, "Buyer's Savings Plan"), and shall allow Employees to participate in Buyer's Savings Plan on the same terms and conditions as apply to other similarly situated employees of Buyer. (ii) 401(k) Transfer. As soon as practicable after the designation of Buyer's Savings Plan, and upon evidence reasonably satisfactory to Seller, which may be in the form of an opinion of Buyer's counsel, that Buyer's Savings Plan is qualified under Codess. 401(a) and exempt from tax under Codess.501(a), Seller's 401(k) Plan shall allow all participating Employees the option to transfer their full account balances in Seller's 401(k) Plan, determined as of the most recent valuation date and determined without regard to any applicable vesting schedule, either to (A) Buyer's Savings Plan, or (B) to an individual retirement account selected by the Employee, in either case in a transaction qualifying as a direct rollover under Codess.401(a)(31). ARTICLE IX MISCELLANEOUS Section 9.1. Authorized and Effective Agreement; No Violation (Guarantors). Guarantors hereby represent and warrant to Buyer as follows: (a) Each of the Guarantors has all requisite power and authority to enter into, to deliver, and to perform all of their respective obligations under this Agreement. This Agreement and all other agreements and instruments required to be executed and delivered by the Guarantors in connection with or pursuant hereto have been duly executed and delivered by the Guarantors and constitute the legal, valid and binding obligations of Guarantors, enforceable in accordance with their terms, subject as to enforceability, to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors' rights, and to general equity principles. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of the Guarantors. (b) Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor compliance by either or both of the Guarantors with any of the provisions hereof will: (i) conflict with or result in a breach of any provision of the articles of incorporation, bylaws, or other constitutive documents of either of the Guarantors; (ii) conflict with or constitute or result in a breach of any term, condition or provision of, or constitute a default under, or give rise to any right of termination, cancellation or acceleration with respect to, any note, bond, mortgage, indenture, lease, license, agreement, instrument, or other arrangement or obligation to which either of the Guarantors is a party or by which either of the Guarantors is bound, or result in the creation or imposition of any Lien upon any property or asset of either of the Guarantors, except where such occurrence would not have a Material Adverse Effect; or (iii) violate any order, ruling, decree, charge, writ, injunction, regulatory agreement or memorandum of understanding, constitution, statute, rule or regulation applicable to the Guarantors, except where such violation would not have a Material Adverse Effect. 77 Section 9.2. Expenses. Each party hereto shall bear and pay all costs and expenses incurred by it in connection with the transactions contemplated by this Agreement, including fees and expenses of its own financial consultants, accountants and counsel, except as may otherwise be specifically provided for herein. Section 9.3. Consent to Jurisdiction; Forum Selection. (a) Buyer hereby irrevocably (i) consents to the non-exclusive personal jurisdiction of the state and federal courts located in the City of Greensboro, North Carolina in any action, claim or other proceeding arising out of any dispute in connection with this Agreement or the transactions contemplated or consummated pursuant to this Agreement, and (ii) consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by Seller arising out of any dispute in connection with this Agreement or the transactions contemplated or consummated pursuant to this Agreement in the manner set forth in Section 9.6 of this Agreement. (b) All parties to this Agreement hereby acknowledge and agree that nothing in this Agreement affects Graseby plc's amenability, if any, to service of process in the United States, nor the ability, if any, of any state, or any state or federal court, in the United States to assert personal jurisdiction over Graseby plc, nor the right of Graseby plc to contest the personal jurisdiction, if any, of any state, or of any state or federal court, in the United States. Section 9.4. Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the transactions contemplated hereunder and supersedes all prior arrangements or understandings with respect thereto, written or oral, other than documents referred to herein that are to be executed at or in connection with the Closing. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the parties hereto, and their respective successors and permissible assignees. Nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto, and their successors, any rights, remedies, obligations or liabilities. Section 9.5. Assignment. No party hereto may assign any of its rights or obligations under this Agreement to any other Person without the prior written consent of the other parties hereto. Section 9.6. Notices. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered personally or sent by overnight express or by registered or certified mail, postage prepaid, addressed as follows: 78 If to Seller, Graseby Andersen Inc., or Graseby plc: Graseby plc Lynton House 7-12 Tavistock Square London, UK WC1H 9LT c/o Lawrence Irving, Financial Director (For Overnight Delivery): Same. With a required copy (which shall not constitute notice to Seller) to: Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P. Post Office Box 1800 Raleigh, North Carolina 27602 Attn: Robert A. Singer, Esq. and Daniel M. Sroka, Esq. (For Overnight Delivery): Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P. 2000 Renaissance Plaza, 230 North Elm Street Greensboro, North Carolina 27401 Attn: Robert A. Singer, Esq. Daniel M. Sroka, Esq. If to Buyer: TB Wood's Incorporated 440 North Fifth Avenue Chambersburg, Pennsylvania 17201-1778 (For Overnight Delivery): Same. With a required copy to: Dechert Price & Rhoads 1717 Arch Street Philadelphia, Pennsylvania 19103 Attention:........David E. Schulman, Esq. (For Overnight Delivery): Same. Section 9.7. Captions; Headings. The captions and section headings contained in this Agreement are for reference purposes only and are not part of this Agreement. Section 9.8. Amendments. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by Buyer and Seller. Section 9.9. Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. Section 9.10. Construction. Seller and Buyer have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring either party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. Seller and Buyer intend that each representation, warranty, covenant and agreement contained herein shall have independent significance. Section 9.11. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. Section 9.12. Post-Closing Cooperation. Buyer and Seller and their Affiliates shall reasonably cooperate with each other subsequent to the Closing by preparing, executing, and delivering any documents reasonably requested by another party hereto necessary to effectuate and consummate the transactions contemplated by this Agreement. Section 9.13. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina applicable to agreements made and entirely to be performed within such jurisdiction, without giving effect to any conflict of laws provisions of North Carolina law that would otherwise cause the laws of another jurisdiction to apply. 79 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. ATTEST: TB Wood's Incorporated ____________________ By: ____________________ __________ Secretary ___________ President [Corporate Seal] 80 ATTEST: Graseby Electro-Optics Inc. _________________________ By: _______________________________ _________ Secretary Title: [Corporate Seal] 81 Graseby Andersen Inc. By: Title: 82 Graseby plc By: Title: 83 List of Exhibits Exhibit A Financial Statements Exhibit B Real Property Exhibit C Survey Exhibit D Release List of Schedules Schedule Topic 3.6(a) Business with Affiliated Persons 3.7(a), (b) and (c) Operations Subsequent to December 31, 1996 3.8 Permits 3.9 Consents 3.10 Company's Intangibles 3.12(d), (e), (f) and (g) Hazardous Substances 3.12(k) Environmental Reports 3.13(a) Tax Matters 3.13(b)(i) Consolidated Groups 3.13(b)(ii) Post-Closing Tax Agreements 3.13(g) Company as Successor by Merger 3.14(a), (m), (n) and (o) Employee Benefit Plans 3.15(a) Certain Contracts 3.16 Legal Proceedings; Regulatory Approvals 3.18 Brokers and Finders 3.19 Inventory 3.20 Accounts Receivable 3.21 Undisclosed Liabilities 3.22 Permitted Exceptions 3.23 Transactions With Related Parties 3.24 Compensation Arrangements; Bank Accounts; Officers and Directors 3.25 Labor Relations 3.26 Products Liability 3.27 Insurance 5.2(e) Severance Obligations 8.2(a)(iv) Certain Indemnification Obligations 8.6(f) Modified Aggregate Deemed Sale Price EX-10 3 EXHIBIT 10.47 Purchase Agreement between 1. Berges Antriebstechnik GmbH & Co. KG (Gummersbach Local Court, HRA 1942), represented by its general partner Berges Antriebstechnik GmbH (Gummersbach Local Court, HRB 1283) which is itself represented by its managing directors with power to represent the company alone Dietmar Sarstedt and Herbert Wolfslast, all with business address at Industriestr. 13, 51709 Marienheide, - hereinafter: the "Seller", 2. Mrs. Karen Sarstedt, nee Wolfslast, Landwehrstra(beta)e 10 a, 51709 Marienheide, and 3. TB Wood's (Deutschland) GmbH, formerly JFP Achte Vermogensverwaltungsgesellschaft mbH with its seat in Wiesbaden (Wiesbaden Local Court, HRB 10579), - hereinafter: the "Buyer" - 4. Mr. Thomas C. Foley, with business address TB Wood's Incorporated, 440 North Fifth Avenue, Chambersburg, PA 17201-1778, USA, 5. TB Wood's Incorporated, 440 North Fifth Avenue, Chambersburg, PA 17201-1778, USA, represented by Mr. Thomas C. Foley as Chairman of the Board, - hereinafter: the "Guarantor" - 84 The parties No. 3 through 5 are represented by Mr. Martin Schulte, attorney at law, Punder, Volhard, Weber & Axster, Cecilienallee 6, 40474 Dusseldorf Recitals The Seller is the sole shareholder of Berges electronic GmbH (Gummersbach Local Court, hrb 1671) (hereinafter: "GmbH"); The Seller holds five shares of DM 19,000, DM 1,000, DM 30,000, DM 50,000 and DM 400,000 in GmbH's capital stock of DM 500,000; GmbH and Mrs. Karen Sarstedt are the sole shareholders of Berges electronic S.r.l. (Naturns, Italy) (Bozen Commercial Register, No. 8404) (hereinafter: "S.r.l."); GmbH holds 17,820 shares of LIT 10,000 each and Mrs. Karen Sarstedt hold 180 shares of LIT 10,000 each in the capital stock of S.r.l.; Messrs. Dietmar Sarstedt and Herbert Wolfslast are Managing Directors of GmbH with sole powers of representation and have been released from all limitations, while the management of S.r.l. is the responsibility of the Board of Directors, to which belong Mr. Dietmar Sarstedt as Chairman, Mr. Bruno Svaldi as Vice Chairman and 85 Mrs. Karen Sarstedt as member (updated commercial registry excerpts for the Seller and the personally liable shareholder thereof, as well as for GmbH, S.r.l. and Berges Italiana S.r.l. have been attached hereto as Annex 1); Mr. Dietmar Sarstedt is the sole shareholder and Managing Director of Berges Scandinavia AB, Malmo, Sweden. He is prepared to sell the shares to the Buyer or to liquidate the company as of 31 December 1997. The parties are yet to discuss and come to an agreement on this issue. NOW, THEREFORE, the Parties hereby execute the following Purchase Agreement. 1. Object of Agreement; Transfer 1.1 The Seller hereby sells and transfers its five (fully paid-in) shares with respective par values of DM 19,000, DM 1,000, DM 30,000, DM 50,000 and DM 400,000 in GmbH along with all of the dividend participation rights associated therewith for the current 1997 financial year as well as any ancillary rights to the Buyer. Immediately following the execution of this Agreement, the Seller and the Buyer shall execute the agreement on the transfer of the shares referred to in Section 1.1 attached hereto as Annex 1 A in notarial form. 1.2 The Buyer hereby accepts the above purchase offer. 1.3 Mrs. Karen Sarstedt sells and transfers the 180 shares of LIT 10,000 each, which she holds in S.r.l. to Mr. Thomas C. Foley within the framework of the agreement attached as Annex 2; Thomas C. Foley accepts this purchase offer. 86 1.4 The Seller and GmbH have each provided guarantees for the other company or have taken out loans which can be used by both companies. Berges Italiana S.r.l. and S.r.l. have likewise issued mutual guarantees vis-a-vis the financing banks. Reference is hereby made to Annex 3. Attached hereto as Annex 4 are certificates from the relevant banks which, in the opinion of the Seller and Berges Italiana S.r.l., disclose the amount of the liabilities of GmbH and S.r.l. vis-a-vis such banks as of 30 June 1997 and which, in the opinion of the Seller and Berges Italiana S.r.l., furthermore confirm that GmbH and S.r.l. shall no longer be liable for any liabilities of the Seller or Berges Italiana S.r.l. from 1 July 1997. Reference is made to Section 5.10.1 i) of this Agreement. The Buyer shall be obligated to effect prior to the Transfer Date the release of the Seller and Berges Italiana S.r.l. from the joint liability and any guarantees in favor of the companies taken over. This shall transpire through the redemption of bank loans, the provision of other securities or through refinancing. 1.5 The Guarantor waives its right resulting from the Stand By letter of Credit No. 4765500264 i-a. (Appendix 5) against Deutsche Bank AG under the condition precedent that the transfer of shares contemplated in Section 1.1 has occurred. It will confirm this waiver vis-a-vis Deutsche Bank AG as soon as practically possible. The Parties agree that the liability potentially arising from such Letter of Credit against Deutsche Bank AG is not counted as part of the loan and bank liabilities pursuant to Section 3.3 hereof. 87 2. Transfer Date In the terms of this Agreement, the Transfer Date shall be 12:00 a.m. on December 1, 1997. The Companies are deemed to be conducted for the account of and at the risk of the Buyer from that date. 3. Purchase Price; Loans 3.1 The purchase price for all shares in GmbH shall consist of a premium of DM 2,200,000.00 (in words: two million two hundred thousand Deutsche marks) +/- the Asset Book Value of the Equity (as defined in No. 3.2 below) as of 30 June 1997, which is to be computed on the basis of the Consolidated Half-Year Financial Statements (as defined in No. 3.6 below) of GmbH and S.r.l. Out of the purchase price, an amount of DM 40,000.00 is allocated to the shares transferred by Mrs. Karen Sarstedt. The purchase price shall bear interest for the time from July 1, 1997 at a rate of 3%. 3.2 The Asset Book Value of the Equity is to be computed in accordance with the following example, which is based on the figures as of 31 December 1996: a) Equity (1.) Subscribed capital DM 500,000.00 (2.) Surplus capital DM 1,135,300.00 (3.) Retained earnings/accumulated deficit DM 1,698,874.47 --------------- (4.) Interim sum DM 3,334,174.47 (5.) Compensatory item for currency translation DM 41,772.84 (6.) Compensatory item for shares of other shareholders a) in subscribed capital DM 1,810.08 b) in surplus capital DM 781.27 c) in retained earnings/accumulated deficit DM 10,331.89 ------------ DM 12,923.24 ------------ (7.) Total equity DM 3,388,870.55 b) less (1.) Intangible assets Franchises, trademarks, patents, licenses DM 1,050,430.53 (2.) Goodwill DM 2,086,470.18 (3.) Advance payments DM 0.00 (4.) Total DM 3,136,900.71 Material book value of net equity (a minus b) + DM 251,969.84 3.3 The Parties assume that the sum of a) the purchase price under No. 3.1 above, b) the liabilities of the companies taken over (after deduction of accounts receivable) vis-a-vis subsidiary and c) affiliated companies and d) the loan liabilities of the companies taken over shall not exceed DM 11,000,000.00. In the event such assumption be wrong, the purchase price under No. 3.1 above shall be reduced until the sum of a), b), c) and d) be DM 11,000,000.00. For the avoidance of doubt, the term "loan liabilities" shall not encompass any liabilities listed under the heading "trade liabilities" or "other liabilities" in the Consolidated Half-Year Financial Statements. 88 The figures are as follows as of December 31, 1996: a) Purchase price under No. 3.1 Asset Book Value of the Equity DM 251,969.84 Premium DM 2,200,000.00 b) Liabilities to subsidiary companies (Berges Antriebstechnik GmbH & Co. KG) DM 381,391.55 c) Liabilities to affiliated companies (Berges Italiana S.r.l.) DM 2,025,608.22 less accounts receivable from affiliated companies - DM 67,511.83 d) Loan liabilities (vis-a-vis banks and other loan creditors) DM 4,818,047.50 Total DM 9,609,505.28 3.4 Prior to the Transfer Date, the Buyer shall pay a partial amount of DM 1,660,000 (in words: one million six hundred and sixty thousand Deutsche marks) to Seller and Mr. Thomas C. Foley shall pay DM 40,000 (in words: forty thousand Deutsche Marks) to Mrs. Karen Sarstedt onto the following bank accounts: Seller: Account Holder: Berges Antriebstechnik GmbH & Co. KG Account No.: 0104364 Bank: Deutsche Bank AG, Gummersbach Bank Code: 384 700 91 Mrs. Karen Sarstedt: Account Holder: Dietmar Sarstedt Account No.: 0161091 Bank: Deutsche Bank AG, Gummersbach Bank Code: 384 700 91 89 The remainder of the purchase price must be paid onto the above-mentioned bank account within 10 days after the Parties agree on the Consolidated Half-Year Financial Statements. The following shall apply in the event the Buyer not recognize the Consolidated Half-Year Financial Statements presented by the Seller: A purchase price established on the basis of the variant version prepared by Arthur Andersen (see No. 3.7 below) shall be payable within 10 days after presentation of the modified version. Any further remaining amounts must be paid within 10 days of the Arbitrator's decision on the Consolidated Half-Year Financial Statements. 3.5 In the event any actual additional tax expense arise for the assessment periods prior to the Transfer Date - even as a consequence of any subsequent tax audits by the Revenue Service - which is not covered by corresponding liability items - including reserves - and which is not offset by any reduction of taxes or earnings in the subsequent years, the purchase price shall be reduced by the additional tax expense. With regard to the computation of the additional tax expense, the allocation of profit to reserves on a pro rata temporis basis must be assumed. The Buyer and Seller shall mutually provide each other any assistance related to the defense of any tax claim. In the event any audit by the Revenue Service reveal a refund, the Buyer shall be obligated to forward the resulting amount to the Seller. 3.6 The Asset Book Value of the Equity as of the Transfer Date must be computed on the basis of the consolidated financial statements of GmbH and S.r.l. to be prepared as of 30 June 1997 (Consolidated Half-Year Financial Statements). 90 GmbH and S.r.l. (hereinafter jointly referred to as "the Companies") have taken inventories as of 30 June 1997. The Guarantor did not exercise the possibility granted it to participate in the taking of the inventories. The Parties agree, however, that no acknowledgment of the results of the inventories on the part of the Buyer or the Guarantor is to be seen herein. The Seller commissioned the independent auditing firm Tombers u. Partner GmbH (Gummersbach) to audit and certify the half-year financial statements of GmbH and to prepare the Consolidated Half-Year Financial Statements on the basis thereof and on the basis of the financial statements of S.r.l. The Seller shall present these financial statements prior to November 30, 1997 at the latest. The financial statement must be prepared observing balance sheet consistency and in accordance with generally accepted accounting principles in Germany and Italy. However, in order to compute profit on an accrual basis, trade fair costs, insurance premiums, allocations rendered for insurance premiums as well as vacation pay accrued over the year must be accounted for on a pro rata temporis basis. No liability items are to be set up for the preparation and auditing of the interim financial statements. Any claim for the reimbursement of corporate income tax resulting from a potential loss as of June 30, 1997 shall be activated. 3.7 After receipt thereof, the Seller shall immediately forward one copy respectively of the semi-annual financial statements of GmbH and S.r.l. as well as the Consolidated Half-Year Financial Statements to the Buyer as well as to Arthur Andersen GmbH (hereinafter, "AA") as well as to PUENDER, VOLHARD, WEBER & AXSTER, Attorneys at Law (Attn.: Attorney Martin Schulte). Insofar as the Buyer not raise any objections to the Consolidated Half-Year Financial Statements in writing within six weeks after receipt thereof, which deadline shall under no circumstances expire prior to December 15, 1997, such financial statements shall become binding. 91 The Buyer shall have AA audit the Consolidated Half-Year Financial Statements which are prepared by the Seller. If necessary in the opinion of AA, AA shall prepare a modified version of the Consolidated Half-Year Financial Statements, which the Buyer shall then forward to the Seller within the six-week period. Insofar as the Seller not raise any written objections to the version of the Consolidated Half-Year Financial Statements modified by AA within six weeks after receipt thereof, the version of the Consolidated Half-Year Financial Statements modified by AA shall become binding. Any objections must be made in writing, whereby communication per fax shall satisfy the requirement for the written form. Objections - of the Seller are to be addressed to: Mr. Thomas C. Foley, TB Wood's Incorporated, 440 North Fifth Avenue, Chambersburg, PA 17201-1778, Telefax 203 622 6538 Arthur Andersen Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft mbH, Mergenthalerallee 10-12, 65760 Eschborn/Frankfurt am Main PUENDER, VOLHARD, WEBER & AXSTER (Attn.: Attorney Martin Schulte), Cecilienallee 6, 40474 Duesseldorf, Telefax: 0211 4355600 The aforementioned six-week period is satisfied if the objections have reached either of the three aforementioned addressees in time. - of the Buyer are to be addressed to: Mr. Dietmar Sarstedt at Berges Antriebstechnik GmbH & Co. KG, Industriestr. 13, 51709 Marienheide, fax: (+49 2264) 17130. 3.8 In the event each Party object to the Consolidated Half-Year Financial Statements presented by the other Party, the Parties hereby agree to initially enter into negotiations to attain a concerted arrangement. Such negotiations shall include a personal meeting at which Messrs. Thomas C. Foley and Dietmar Sarstedt must be in attendance. In the event such negotiations and meetings not lead to any settlement arrangement within four weeks after the receipt of the most recent objection, the two versions of the Consolidated Half-Year Financial Statements shall be presented to KPMG Deutsche Treuhandgesellschaft AG, Wirtschaftsprufungsgesellschaft, Cologne (hereinafter, "the Arbitrator"). The Arbitrator shall then make a final decision regarding the Consolidated Half-Year Financial Statements. Within the framework of such decision, the Arbitrator shall audit the drafts prepared by each Party and shall take into consideration the objections raised by each Party against the draft of the respective other Party. The Arbitrator must request to hold a joint meeting with both Parties at which the respective opinions may be explained in order to attain a concerted arrangement. This meeting may also take place within the framework of a phone conference. 3.9 The Seller shall render any advance payments requested by the Arbitrator. Upon the relevant request, the Buyer shall be obligated to immediately reimburse the Seller for half of the amounts paid in advance. 3.10 The costs for the preparation and formulation of the half-year financial statements of S.r.l. and the Consolidated Half-Year Financial Statements as well as the costs for the preparation, formulation and auditing of the half-year financial statements of GmbH shall be borne by the respective company. Insofar as any review by the Arbitrator be necessary, the Arbitrator must divide the costs in its invoice between the Seller and the Buyer in accordance with the principles of ss.ss. 91 et seq. of the Civil Procedure Code. 92 4. Compensation of Liabilities; INDEL 4.1 In the past, GmbH and S.r.l. regularly executed exchange transactions with the Seller on the one hand and Berges Italiana S.r.l. on the other. The liabilities of GmbH and S.r.l. currently amount to (after deduction of counter-claims): a) Liabilities of S.r.l. vis-a-vis Berges Italiana S.r.l.: around DM 1,630,000.00 b) Liabilities of GmbH vis-a-vis the Seller: around DM 500,000.00 c) Liabilities of S.r.l. vis-a-vis the Seller: none The Buyer is aware that the respective balance bears interest at a rate of 5.5% p.a. The Buyer shall ensure that GmbH and S.r.l. repay the above-mentioned amounts to the respective creditors prior to the Transfer Date. 4.2 The figures specified in Section 4.1 above have been computed roughly. The exact amounts of the balances of the transfer accounts have yet to be determined, given, for example, that rent and allocations are still to be settled on a prorated basis. Insofar as it become evident after the Transfer Date that the above-mentioned values are not accurate, the Parties shall compensate any difference upon presentation of proof. 93 4.3 The Buyer shall assume an absolute guarantee for the above-mentioned claims of the Seller and Berges Italiana S.r.l. against the Companies. 4.4 S.r.l. is entitled to a claim against INDEL (Austria) in the amount of ATS 4,106,486.10 (in words: four million one hundred and six thousand four hundred eighty-six Austrian shillings). S.r.l. sold and assigned this claim at the nominal value to Berges Italiana S.r.l. by way of the Deed of 24 July 1997, which is attached hereto as Annex 6. The purchase price shall be offset by the claims to which Berges Italiana S.r.l. is entitled against S.r.l. The Buyer shall instruct S.r.l. to pay Berges Italiana S.r.l. a commission of 3% plus the applicable value-added tax for all transactions conducted with Vogel Pumpen (Austria). This payment duty shall not apply so long as and insofar as INDEL be entitled to any commission claim against S.r.l. for these types of transactions. By way of the agreement with INDEL attached hereto as Annex 6, it shall be ensured that the commission due to INDEL shall be disbursed to Berges Italiana S.r.l. S.r.l. shall not have to pay the provision twice. The duty to pay commission to Berges Italiana S.r.l. shall end as soon as Berges Italiana S.r.l. has received the amount of ATS 4,106,486.10 from INDEL or S.r.l. 5. Representations and Warranties 5.1 The Seller does not assume any warranty or guarantee for the long-term value or earnings capacity of the shares or the two Companies. However, the Seller hereby represents and warrants that the following facts and circumstances are 94 accurate and complete in relation to the Transfer Date. Insofar as the following representations not represent any "warranted features" (zugesicherte Eigenschaften), the Seller shall assume an independent guarantee for the accuracy and completeness of the following facts and circumstances. 5.2 The Companies 5.2.1 The Companies have been properly formed in accordance with the respective laws of the places of incorporation and the registered offices under the bylaws, and continue to operate with legal effect. 5.2.2 The shareholders of the Companies have neither proposed nor approved the dissolution or windup of the Companies; likewise, no merger of the Companies with other companies has been proposed or approved. 5.2.3 No petition to initiate bankruptcy or composition proceedings has been filed with regard to the Companies. 5.2.4 The commercial registry excerpts which are attached hereto as Annex 1 are accurate and complete. All shareholders' resolutions and other circumstances which are subject to registration are reflected in such commercial registry excerpts. 5.2.5 The Companies are not bound by any company agreements in the terms ofss.ss. 291 et seq. of the Corporation Act. 5.2.6 Beyond the holdings mentioned in the Recitals, neither of the Companies holds any shares or other holdings in other companies. ASEL, a former subsidiary of S.r.l., has been wound up. No liabilities remain. 95 5.3 Shares 5.3.1 The factual data in the Recitals are accurate and complete. 5.3.2 The shares in GmbH and S.r.l. (hereinafter collectively: "the Shares") are free of any pledges, seizures, usufructs or other encumbrances, including any options or preemption rights in favor of third parties. The Seller may dispose of the Shares without the cooperation or approval of third parties. The Seller hereby expressly declares its approval of the share sale executed by way of this Agreement (see ss. 13 of the GmbH's Articles of Association). The approval of GmbH as shareholder of S.r.l. has likewise been obtained (Annex 7). No further restrictions exist in relation to the transferability of the Shares. 5.3.3 Since January 1, 1997, no dividends or interim dividends have been approved with regard to the Shares. No rights to future dividends or other rights related to profit have been promised, transferred or pledged to third parties. No other payments to shareholders have been made outside the course of ordinary business; the Companies have likewise not made any promises to make such payments in the future. 5.3.4 Neither the Seller itself nor the shareholders thereof nor relatives in the first or second degree of such shareholders nor any companies controlled by these groups of people hold shares directly or indirectly in companies which compete with the Companies. As a supplement hereto, reference is hereby made to No. 6.2 hereof. 96 5.4 Financial Information 5.4.1 The annual financial statements of the Companies as of December 31, 1994, 1995 and 1996 (hereinafter jointly referred to as "the Financial Statements"), which are attached hereto as Annexes 8 - 13, a) have been prepared in relation to the past five financial years in accordance with the applicable laws and generally accepted accounting principles in Germany and Italy, observing balance sheet consistency; b) provide in the terms of the Commercial Code a true and fair view of the financial position and earnings and performance of the Companies. 5.4.2 The annual financial statements of GmbH have been given an unqualified auditor's opinion by the company's independent auditor. The annual financial statements of S.r.l. have been formulated by the company's independent auditor and accountant. 5.4.3 All accounting documents, main ledgers and financial and other documents of the Companies (including electronically stored financial information and data): a) are in the possession of the Companies; b) have been properly kept with due diligence; c) have been stored for the periods prescribed by law. 5.4.4 Upon the balance sheet cutoff dates relevant to the respective financial statements, no liabilities or obligations were known, whether conditional or not, due or not due, except for those liabilities and obligations which have been listed in the attached financial statements or for which reserves have been built. 97 5.4.5 As far as is known, the Companies have no contingent liabilities except for those which have been completely accounted for in the Financial Statements or the Consolidated Half-Year Financial Statements. 5.4.6 For the period from 1 January 1997, the following is true: a) As far as is known, the Companies have not conducted any transactions or entered into any liabilities which were in themselves or in their entirety serious in relation to the Companies' business activity, except for those transactions which fell within the course of ordinary business. b) The Seller has not made any withdrawals. The Companies have likewise not rendered directly or indirectly to the Seller or the shareholders thereof any payments beyond the fulfillment of obligations arising in the course of ordinary business. c) Irrespective of whether insurance protection existed or not, no damage has occurred and no damage compensation claims against the Companies have been asserted which have affected the business activity or the assets of the Companies in any significant way beyond the course of ordinary business. d) The Companies have neither provided guarantees nor assumed joint and several liability nor issued any guaranties for the liabilities of third parties, unless such occurred within the course of ordinary business upon conditions and in amounts which were consistent with the previous business practice. 98 e) The inventory has neither increased nor decreased exceptionally. Apart from common exceptions in the course of ordinary business, the Companies have neither sold goods under any amount which was below the valuation in the 1996 annual financial statements nor have they sold inventory at any prices which did not cover costs. f) No severance payments have been rendered to managing directors of the Companies. The total payments rendered in relation to severance pay or dismissals have not increased in relation to the average of the previous year. g) The salaries, ancillary compensation, bonuses and other benefits which the managing directors or other employees of the Companies are to be granted have not increased except for the normal increases and adjustments in the course of ordinary business. 5.4.7 In the period from June 30, 1997, the economic situation of the Companies did not deteriorate in any identifiable or material fashion such that the Companies were burdened either individually or together by more than DM 500,000.00. 5.5 Leased Property 5.5.1 Neither of the Companies owns property. 5.5.2 The subject-premises described in the lease agreements attached hereto as Annex 14 are rented or leased by the Companies at the terms and conditions evident in the Annexes; the subject-premises are suited for the use for which they are intended. 99 5.5.3 According to the Seller's knowledge, the current use of the subject-premises is neither hindered nor prejudiced by any public law or third-party right. According to the Seller's knowledge, the official permits and approvals required for the current use have been presented. 5.5.4 The Buyer hereby confirms that the subject-premises are in good conditions in conformance with the provisions of the lease agreement. 5.5.5 The Companies have not used or possessed any other property in the 10-year period prior to the execution hereof. 5.5.6 According to the Seller's knowledge, the subject-premises contain neither asbestos nor any other substances which are harmful in accordance with the current state of scientific knowledge. 5.5.7 The Seller is unaware of any contamination of the subject-premises, the surroundings or ground water thereof which require redress. 5.6 Legality of Business Activity 5.6.1 According to the Seller's knowledge, no applicable laws, regulations or provisions are being violated by the business activity. This applies in particular to environmental law. 5.6.2 According to the Seller's knowledge, the Companies have always observed the provisions applicable to employment protection, safety at the workplace and hygiene. 5.6.3 According to the Seller's knowledge, the Companies have not used, stored, removed or emitted into the environment any substances which harm or pollute the environment in any way which violates applicable provisions and which is thus inadmissible and could disrupt business activity. 100 5.6.4 According to the Seller's knowledge, the Companies possess all necessary official permits so that nothing opposes the continuance of the business activity at the same place, in the same type and way and in the current scope. No issued permits have been canceled or restricted nor is any cancellation, revocation or restriction currently foreseeable. The business activity of the Companies is operated within the framework of the admissible. 5.6.5 The Seller is unaware of any serious on-the-job accidents which are not fully covered by insurance and which could lead to claims against the Companies. No employees have asserted claims against the Companies for any other work-related illnesses. 5.6.6 The Seller is unaware of any facts which make it evident that the products it produces have not always complied with all applicable laws and regulations as well as the applicable industrial standards. 5.7 Insurance 5.7.1 The Companies have concluded the insurance agreements listed in Annex 15 the policies of which are attached. The Companies have undertaken everything in order to maintain the insurance coverage resulting therefrom. 5.7.2 All insurance premiums which are due in accordance with the above-mentioned policies have been paid and all obligations for which the Companies are responsible in accordance with such policies have been fulfilled. 101 5.7.3 The insurance agreements shall remain valid until December 31, 1997, unless the respective insurance companies terminate such agreements. 5.7.4 The Companies have not been presented any notices, whereby the insurance companies intend to terminate or no longer renew the insurance agreements. 5.7.5 The Seller is unaware of any circumstances which could invalidate any of the insurance agreements or enable the insurance companies to exercise the special right to termination. The Seller is also unaware of any circumstances which could lead to an increase of the insurance premiums or deductibles. 5.8 Intellectual and Industrial Property Rights 5.8.1 The Companies are the sole and exclusive owners of the copyrights, patents and trademark rights which are listed in the certificate from the patent attorney active for the Companies, which is attached as Annex 16 and specifies the respective registration numbers, terms and material contents thereof. None of the above-mentioned property rights is encumbered in favor of third parties. The Companies shall be entitled to continue the use of the company logo (right No. 117288 of Seller) in red. 5.8.2 To the best of Sellers' knowledge, the Companies have taken all the measures necessary to maintain the above-mentioned licenses and property rights; insofar as possible, these property rights have been registered in the names of the Companies. No registration has expired. 5.8.3 The Companies have not entered into any obligations to provide third parties access to their business secrets, know-how, confidential information or lists of customers or suppliers. According to the Seller's knowledge, such information was exclusively provided in the past to the Guarantor. 102 5.8.4 As far as the Seller is aware, the performance of the business activity of the Companies does not infringe upon any third-party property rights. 5.8.5 The Companies have only concluded the license agreements listed in Annex 17 hereto. All relevant details, including the amounts of the license fees, are evident in such annex. Insofar as the Seller, one of the shareholders thereof or any of the other companies controlled thereby hold rights which pertain to the business, the Seller shall ensure that GmbH or S.r.l. be granted irrevocable, unlimited and exclusive licenses free of charge. 5.9 Employees; Supplementary Pensions 5.9.1 All of the persons employed with the Companies as of the Transfer Date are listed in Annex 18. The Annex also contains part-time employees and managing directors (hereinafter jointly referred to as "Employees"). The Annex lists the birth date, date of entry, current remuneration and other benefits, such as vacation pay, Christmas money, private use of company cars, benefits for retirement pension within the framework of direct company insurance, as well as the position of each Employee. No benefits granted in the past on the occasion of company anniversaries have been listed. No employment relations exist with persons not specified in the above-mentioned Annex. No obligations have been entered into vis-a-vis the Employees beyond the above-mentioned performances, unless such was required by law or collective agreements. No benefits for supplementary retirement pension beyond the direct insurance mentioned in the Annex have been promised. This also applies to former Employees. 103 5.9.2 No obligations from the cessation, termination, or rescission of employment agreements are in arrears. 5.9.3 With the exception of the Company Agreement on Premiums under Article 9 of the Collective Agreement (Annex 19), the Companies have not reached any agreements which the Employees or works councils which grant Employees claims to profit shares in relation to early retirement or to any acquisition of shares in the broadest sense. Mr. Dietmar Sarstedt receives a percentage of profit, while the commercial agents active for the Companies are remunerated independent of turnover. 5.10 Material Agreements 5.10.1 With the exception of the agreements listed in Annex 20 hereto, the Companies are not bound by any of the following agreements ("material agreements"): (a) lease or lease-purchase agreements with a term of more than six months; (b) agreements for the acquisition of goods or services for a period of more than six months and/or with a value of more than DM 60,000.00; (c) purchase or similar agreements whereby the Companies be obligated to acquire goods, provided such agreements have a term of more than six months and/or a value of more than DM 60,000.00; (d) shareholders', joint venture and similar agreements; 104 (e) loan and other bank and overdraft agreements other than those referred to in Section 3.3; (f) agreements which significantly restrict the freedom of the Companies in the future to compete in any business sector or vis-a-vis any particular persons; (g) agreements or obligations related to the business of either of the Companies as a whole; (h) powers of attorney in favor of third parties; (i) guarantees, sureties or similar obligations in favor of the Seller, Berges Italiana S.r.l. or third parties or agreements to provide securities in favor of others (In particular, no claim can be brought against the Companies based on the guarantees or the joint acceptance of bank lonas with respect to liabilities of the Seller of or Berges Italiana S.r.l.); (j) pledges or other securities (including the assignment of claims) other than those given to the banks; (k) agreements outside of the course of ordinary business and/or at conditions which would not normally be agreed upon with external third parties; (l) any other agreement which obligates the Companies to pay expenses of more than DM 60,000.00; (m) commercial agent and authorized dealer agreements. 105 5.10.2 According to the Seller's knowledge, within the framework of the material agreements concluded, no breach of contract has been committed by the parties to the agreements such that any significant prejudicial effects on the business activity of the Companies are to be anticipated. 5.10.3 According to the Seller's knowledge, no customer of the Companies intends to terminate or modify any existing agreements. In addition, no reason exists to assume that any customer of supplier of the Companies shall terminate or restrict its business relations with the Companies due to the execution of this Agreement and the covenants related hereto. 5.10.4 No reason exists to assume that any of the Employees of the Companies decisive for the business activity shall terminate his or her employment relation with either of the Companies due to this Agreement or the covenants related hereto. 5.10.5 Through the execution hereof and the covenants related hereto, the Seller shall not breach any other agreement to which the Companies are bound. The execution hereof shall furthermore neither enable the termination of any other agreement nor obligate either of the Companies to fulfill their obligations from any other agreement early nor shall either of the Companies fall into arrears in their obligations as a result hereof. In no case does the continuation of the agreements entered into by the Companies depend upon the fact that particular persons (as managing director or in any other capacity) have a legal relation to the Companies. 5.10.6 Beyond the course of ordinary business, the Companies have not issued any guaranties or undertakings or commitments in relation to the goods sold thereby. No servicing agreements which obligate the Companies to service the goods distributed thereby have been executed. The Seller is unaware of any warranty claims or claims to subsequent improvement or replacement deliveries which exceed the average framework of the previous year. 106 5.11 Legal Violations and Litigation 5.11.1 The Seller is unaware of any pending or threatened administrative or judicial proceedings or proceedings by the district attorney's office against the Companies or any of the Employees thereof which would significantly affect the financial or economic position of the Companies. 5.11.2 Apart from disputes related to individual rights, no labor disputes have occurred between the Companies and the Employees in the previous five years. No circumstances which could lead to labor disputes are currently evident to the Seller. 5.11.3 According to the Seller's knowledge, the Companies are not party to any agreements or covenants which violate the Act against Restraints on Competition or the corresponding provisions of other countries. No agreements or covenants are known which have been or should be registered in accordance with the above-mentioned laws or which have been or should have been notified to the European Commission in accordance with Article 85 of the EU Treaty. 5.11.4 The Companies have not received any requests or notices from the European Commission or from the authorities competent for cartel and competition matters in Germany or any other country which could affect the activities of the Companies in any aspect. 5.11.5 The Companies are not party to any legal disputes, whether they be criminal, civil (including labor law proceedings), administrative, arbitration or other proceedings, which are directed toward either of the Companies or affect them. Likewise, no such proceedings or investigations against the Companies are foreseeable. 107 5.12 Taxes 5.12.1 The Companies have properly filed in a timely fashion all tax and other declarations which had to be issued in relation to the taxes to be paid prior to the Transfer Date. All taxes were paid when due. Insofar as taxes for the period prior to the Transfer Date not yet be due, reserves shall be built for such in the Consolidated Half-Year Financial Statements. The Companies have properly and completely conducted all relevant fiscal transactions. 5.12.2 According to the Seller's knowledge, the Companies shall not lose any tax advantages due either to the performance of this Agreement or to any other transactions prior to the Transfer Date. 5.12.3 The structure of the available equity of GmbH as of 31 December 1996 is evident in Annex 21. 5.12.4 According to the Seller's knowledge, no hidden distributions of profit have been made. 5.12.5 Pursuant to the tax declaration as of 31 December 1996, the GmbH does not have any loss carry-forward for corporate income tax purposes. Pursuant to verbal information given by the auditor, the tax audit performed by the tax authority in 1997 did not result in any objections. A written confirmation has not yet been received. 108 5.13 Performance of Business Activity 5.13.1 According to the Seller's knowledge, the tangible and intangible assets and rights and know-how at the disposal of the Companies are sufficient to continue the business activity in the same manner as before the Transfer Date. 5.13.2 The Companies have access to all business documents and files, including such documents to which the Companies do not hold exclusive title or which are not under the direct control of the Companies. The Buyer is aware that the Companies have jointly used the computer systems of the Seller and Berges Italiana S.r.l. and shall also do so in the future. The Seller and Berges Italiana S.r.l. hereby agree to grant the Companies access at any time to the data which affects them. 5.13.3 During the 12 months prior to the execution of this Agreement, no material changes occurred in relation to the clientele, the business or other terms and conditions. This is true with the exception of the price changes known to the Buyer as well as the customers ICBT (France) and INAG (Germany). In addition, no significant customer or supplier of the Companies discontinued or significantly reduced its business relation with the Companies during such period. The Companies and the Seller have no reason to assume that any such change, discontinuation or reduction will occur in the foreseeable future. 5.14 Legal Relation between the Companies and the Seller as well as the Limited Partners Thereof and Berges Italiana S.r.l. The managing director agreements between GmbH and Messrs. Dietmar Sarstedt and Herbert Wolfslast will be rescinded by mutual agreement as of November 30, 1997. This also applies to the agreements upon which the activity of both Mr. Dietmar Sarstedt as Chairman of the Board of Directors of S.r.l. and Mrs. Karen Sarstedt as member thereof is based. Moreover, the lease and allocation agreements existing between GmbH and the Seller as well as S.r.l. and Berges Italiana S.r.l. have also been rescinded as of the above-mentioned date. Reference is hereby made to the new arrangements agreed upon in accordance with Nos. 7 to 9 hereof. 109 The Parties are aware that agreements for the exchange of goods and services have continuously been and shall still continuously be executed in the future between the Seller and Berges Italiana of the one part and the Companies of the other. 5.15 Product Liability No claims which have not been dealt with have been asserted from the point of view of product liability. The Seller is unaware that the products distributed by the Companies could disclose any design or series production defects. Reference is hereby made to No. 5.18.3 above. 5.16 Grants and Subsidies The Companies have not been granted or paid any grants, subsidies or similar preferential treatment during the last three years from any international, national or regional agency or authority. 5.17 Miscellaneous 5.17.1 All written information which has been provided by the Seller and the advisors thereof to the legal representatives, employees or advisors of the Buyer within the course of the negotiations over this Agreement is true, complete and accurate in every respect; such information is likewise not misleading as a result of any omissions or ambiguities or for any other reason. The contents of such information corresponds to the state of the Seller's knowledge. 110 5.17.2 The Buyer has audited both Companies within the framework of due diligence proceedings. The Seller hereby warrants and represents that all inquiries made within the framework of the purchase agreement negotiations and the due diligence proceedings have been answered completely and accurately to the best knowledge of the Seller. This applies in particular to inquiries related to the assets, the business activity and the financial situation of the Companies. 5.17.3 The Parties hereby agree that ss. 377 and 378 of the Commercial Code and the second sentence of ss. 460 of the Civil Code shall not be applicable hereto. 5.17.4 Through the execution or performance of this Agreement, the Seller is not selling either its entire assets or any substantial part thereof. 5.18 Legal Consequences 5.18.1 Insofar as the Seller has limited the above-mentioned representations and warranties by reference to its knowledge or lack thereof, warranty or damage compensation claims shall not exist if such statements merely be objectively false but shall only exist when such statements be consciously false. 5.18.2 The right to rescind this Agreement shall be excluded hereby. Insofar as any warranty claims or claims due to breach of contractual duties, warranties or representations exist, such shall be limited to reduction of the purchase price and damage compensation due to non-performance. Payment need only be rendered insofar as the sum of the justified reductions and damage compensation claims exceed DM 200,000.00. 111 This limitation shall apply neither to claims arising from the violations of Sections 5.2, 5.3, 5.4.7 or 5.12 above nor to the provisions regarding the formulation of the Consolidated Half-Year Financial Statements. The Buyer must establish a reasonable period of at least one month by way of registered letter for the Seller to produce the conditions in accordance herewith. 5.18.3 The representations and warranties issued by the Seller do not relate to the merchandise procured from the Guarantor or to any claims related to such merchandise. 112 5.19 Limitation of Claims 5.19.1 Unless provided otherwise herein, all claims of the Buyer, even warranty and damage compensation claims on whatever legal ground, shall lapse upon the expiration of June 30, 1999. 5.19.2 The Seller shall be liable for the legal existence of the shares as well as for the right to transfer such to the Buyer for a period of 30 years from the Transfer Date. 5.19.3 Any claims of the Buyer related to taxes and social security contributions, including any claims to exemptions, shall lapse within one year after the corresponding decision by the relevant authority has become non-appealable. 6. Covenant Not to Compete 6.1 The Seller hereby agrees for the period of five years from the Transfer Date to desist from any competition with the Companies in their current geographical and technical sector of activity. In particular, the Seller shall not hold shares either directly or indirectly in competing companies nor enter the service of any competing company nor promote any such company directly or indirectly in any way through advice or action. 6.2 The Parties are aware of the following: The Companies are active in the production and distribution of electrical and electronic propulsion elements, while the Seller and Berges Italiana S.r.l. produce and distribute mechanical propulsion elements which are merely electrically controlled. The Parties agree that the above-mentioned companies may continue to be active in their respective fields in the future, without such representing any breach of this Covenant Not to Compete. 113 This shall apply irrespective of the fact that electrical and mechanical propulsion elements are interchangeable in specific cases. So long as Mr. Dietmar Sarstedt be Managing Director of the Seller and Chairman or member of the Board of Directors of Berges Italiana S.r.l. on the one hand and Managing Director of GmbH and Chairman of the Board of Directors of S.r.l. on the other, such shall not represent a breach of any covenant not to compete arising from his fiduciary duty vis-a-vis the individual companies. 7. Management 7.1 Effective immediately, Mr. Herbert Wolfslast hereby resigns from his office as Managing Director of GmbH. Effective immediately, Mrs. Karen Sarstedt hereby withdraws as Prokuristin [holder of a general power of attorney] of the GmbH and from the Board of Directors of S.r.l. and shall provide any statements which are necessary to enter her withdrawal in the competent registry. 7.2 After the Buyer's take over of the shares in the Companies, Mr. Dietmar Sarstedt shall also manage the business of GmbH and S.r.l. as Managing Director and Chairman of the Board of Directors. The contractual relations between Mr. Dietmar Sarstedt and the two Companies shall be regulated as of the Transfer Date by way of the Employment Agreement attached hereto as Annex 22. Mr. Dietmar Sarstedt shall be entitled to Christmas money and a percentage of profit on a pro rata temporis basis for the 1997 calendar year from the employment agreements rescinded as of November 30, 1997. No further claims shall exist from the employment agreements rescinded as of November 30, 1997. 114 8. Lease Agreements The lease agreements existing between the Seller and Berges Italiana S.r.l. as Lessors of the one part and GmbH and S.r.l. as Lessees of the other regarding the commercial space used in Marienheide and Naturns shall be replaced as of the Transfer Date by the lease agreements attached hereto as Annex 14. 9. Allocation Agreements 9.1 Employees of the Seller and Berges Italiana S.r.l. are active for GmbH and S.r.l. particularly in the accounting and controlling areas as well as in the warehouse and shipping departments. Conversely, employees of GmbH and S.r.l. also render services for the Seller and Berges Italiana S.r.l. 9.2 Furthermore, various material costs, such as for electricity, postal fees, cleaning costs, insurance premiums, etc. are mutually settled between the above-mentioned companies. The amounts mutually settled in the period from 1994 to 1996 may be found in Annex 23. In relation thereto, the following is hereby agreed upon between the Parties: GmbH and S.r.l. shall modify the present phone and fax systems at their own expense in order to determine in detail which of the Companies is to be allocated the specific costs. New systems shall be installed if necessary. In relation to the other costs, the Parties hereby agree that such shall be divided and settled as far as possible in accordance with the scope of the actual use or instigation. Any agreements reached in the past between the Seller and Berges Italiana S.r.l. of the one part and GmbH and S.r.l. of the other shall lose their validity as of the Transfer Date. In the event no exact costs can be calculated, an estimate shall be made as appears just based on the percentages evident in Annex 23. 115 The cost prices shall always be decisive. The settlement shall be made for each calendar year prior to 31 March of the following year. The Seller and Berges Italiana S.r.l. shall be entitled to claim monthly payments on account in the amount of 1/12 of the costs paid in the previous year after deductions. In the event any individual costs which were considered in the previous year be eliminated or in the event new costs arise, such shall be taken into account accordingly. 10. Guarantee; Modified Joint and Several Liability 10.1 The Guarantor hereby assumes the absolute guarantee for all of the Seller's claims arising from this Agreement vis-a-vis the Buyer. 10.2 The Seller shall be liable jointly and severally for the obligations of Mrs. Karen Sarstedt arising from this Agreement and the Annexes hereto. The Buyer hereby waives the assertion of any claims from this Agreement against Mrs. Karen Sarstedt, with the exception of the claim to share transfer under Section1.3 hereof. 11. Transition 11.1 As soon as this Agreement becomes binding for both Parties, the Seller shall ensure that the Buyer's agents be provided upon request any information regarding business transactions and be granted the opportunity to inspect all business documents. 116 11.2 From the execution hereof, the Seller shall ensure that the Companies only conduct any transactions outside the course of ordinary business after obtaining the Buyer's prior approval. 11.3 The Seller and the Buyer shall be obligated to provide each other any information and to cooperate in all transactions and legal acts which are necessary for the performance of this Agreement and to desist from anything which opposes the performance hereof. In relation to the assertion of claims against third parties or the defense against third-party claims, the Parties shall provide each other all necessary information and grant each other the opportunity to inspect any business documents necessary in this regard. The Companies shall authorize the Seller to conduct any necessary administrative proceedings on behalf of the Companies but at the costs of the Seller, insofar as the financial results of such proceedings affect the Seller. 12. Final Provisions 12.1 Any modifications of or additions to this Agreement must be made in writing, unless notarization be required. 12.2 The Parties hereby confirm that no collateral agreements have been made. This Agreement completely and accurately reflects the will of the Parties. 12.3 In the event any provision hereof be null and void now or in the future, the remaining parts of this Agreement shall not be affected thereby. In the event of the nullity or invalidity of any clause hereof, such clause shall be replaced by that valid clause which most closely approximates the financial purpose of the invalid provision. This shall also apply in the event of any contractual gaps. 117 12.4 This Agreement shall replace all written and verbal declarations of intent of the Parties hereto which were issued in relation to the contractual negotiations, even in the event such declarations deviate from the content hereof. 12.5 This Agreement shall be subject to German law. Duesseldorf is hereby agreed upon as the jurisdiction for the settlement of all claims arising herefrom. 12.6 The Parties hereby declare that no property forms part of the assets of the Companies. 13. Costs The Buyer shall bear the costs of the notarization of the agreements pursuant to Section 1.2 and Section 1.3 and any further costs which might result from the application for registration with the commercial register of any actions under this Agreement. Each Party shall bear the costs of its advisors. Dusseldorf, this 23rd day of October 1997, 7 p.m. signed by K. Sarstedt, H. Wolfslast, D. Sarstedt and M. Schulte EX-10 4 EXHIBIT 10.48 TB WOOD'S CORPORATION GRANT OF FAIR MARKET VALUE (FMV)NON-QUALIFIED STOCK OPTION 1. Grant of Option and Exercise Price. Subject to the terms and conditions set forth herein and in the TB Wood's Corporation 1996 Stock-Based Incentive Compensation Plan (the "Plan"), TB Wood's Corporation (the "Company") hereby grants to ________________, (the "Optionee"), a stock option (the "Option") to purchase up to ________shares of Common Stock of the Company, par value $.01 per share (the "Common Stock"), at an exercise price of $_____ per share (the "Exercise Price"). The Option is a non-qualified stock option. 2. Vesting of Options. One-third of the shares of Common Stock subject to the option shall vest on the first anniversary of the date of grant of the Option (the "Grant Date"), an additional one-third of the shares of Common Stock subject to the option shall vest on the second anniversary of the Grant Date, and the final one-third of the shares of Common Stock subject to the option shall vest on the third anniversary of the Grant Date. 3. Time of Exercise. The Option may be exercised from time to time with respect to shares for which the Option has vested but no later than the tenth anniversary of the Grant Date. Upon the tenth anniversary of the Grant Date, the Optionee's right to exercise the Option shall terminate absolutely. 4. Payment for Shares of Common Stock. Upon exercise of an Option and before delivery of the shares of Common Stock, full payment for shares of Common Stock purchased upon the exercise of the Option shall be made in cash or, subject to the approval of the Company committee administering the Plan (the "Committee"), in whole or in part in shares of Common Stock valued at the fair market value on the date of exercise. 5. Manner of Exercise. The Option shall be exercised by giving written notice of exercise to the Company (Attn: Chief Financial Officer) at the Company's main office at 440 North Fifth Avenue, Chambersburg, Pennsylvania 17201-1778. Such notice of exercise must include a statement of preference as to the manner in which payment to the Company shall be made. Such notice shall be deemed to have been given when hand-delivered, telecopied or mailed, first-class postage prepaid, and shall be irrevocable once given. 6. Issuance of Certificates. As promptly as is reasonably practicable after the exercise of the Option as determined by the Company, a certificate for the shares of Common Stock issuable on the exercise of the Option shall be delivered to Optionee or to his personal representative, heir or legatee. 7. Nontransferability of Option. The Option may not be transferred or assigned by Optionee otherwise than by will or the laws of descent and distribution or be exercised other than by Optionee or, in the case of his death, by his personal representative, heir or legatee. 8. Taxes. Optionee shall be responsible to make appropriate provision for all taxes required to be withheld in connection with any Option, the exercise thereof and the transfer of the shares of Common Stock. Such responsibility shall extend to all applicable federal, state, local or foreign withholding taxes. In the case of exercise of the Option, the Company shall, at the election of Optionee, have the right to retain the number of shares of Common Stock whose aggregate fair market value equals the amount to be withheld in satisfaction of the applicable withholding taxes. 9. Termination of Employment. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated for any reason, all unvested Options shall be forfeited and the Optionee shall have no further right to exercise such Options. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated by reason of disability or retirement, all unexercised, vested Options may be exercised pursuant to the terms of the Option for a period of three months from the date of such termination of employment or until the expiration of the term of the Option, whichever period is shorter; provided, however, that if the Optionee's employment is terminated by death, all unexercised, vested Options may be exercised pursuant to the terms of the Option for a period of six months from the date of such termination of employment or until the expiration of the term of the Option, whichever period is shorter. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated for any reason other than death, disability or retirement, all unexercised, vested options shall terminate three months from the date of such termination of employment. 10. Rights Prior to Exercise. Neither Optionee nor his personal representative, heir or legatee shall have any of the rights of a stockholder with respect to any Common Stock until the date of the issuance to him or her of a certificate for such Common Stock as provided herein. 11. Amendments. The Committee may from time to time amend the terms of this Option to the extent it deems appropriate to carry out the terms and provisions of the Plan. 12. Interpretation. The Committee shall have sole power to resolve any dispute or disagreement arising out of this Agreement. The interpretation and construction of any provision of this Option or the Plan made by the Committee shall be final and conclusive and, insofar as possible, shall be consistent with the requirements of a non-qualified stock option. 13. Option Not to Affect Employment. The Option granted hereunder shall not confer upon Optionee any right to continue in the employment of the Company or any Subsidiary. TB WOOD'S CORPORATION By:____________________________ Michael L. Hurt, President Dated as of June 17, 1997 118 TB WOOD'S CORPORATION GRANT OF PREMIUM PRICED NON-QUALIFIED STOCK OPTION 1. Grant of Option and Exercise Price. Subject to the terms and conditions set forth herein and in the TB Wood's Corporation 1996 Stock-Based Incentive Compensation Plan (the "Plan"), TB Wood's Corporation (the "Company") hereby grants to ______________, (the "Optionee"), a stock option (the "Option") to purchase up to _________shares of Common Stock of the Company, par value $.01 per share (the "Common Stock"), at an exercise price of $_______b per share (the "Exercise Price"). The Option is a non-qualified stock option. 2. Vesting of Options. One-third of the shares of Common Stock subject to the option shall vest on the first anniversary of the date of grant of the Option (the "Grant Date"), an additional one-third of the shares of Common Stock subject to the option shall vest on the second anniversary of the Grant Date, and the final one-third of the shares of Common Stock subject to the option shall vest on the third anniversary of the Grant Date. 3. Time of Exercise. The Option may be exercised from time to time with respect to shares for which the Option has vested but no later than the fifth anniversary of the Grant Date. Upon the fifth anniversary of the Grant Date, the Optionee's right to exercise the Option shall terminate absolutely. 4. Payment for Shares of Common Stock. Upon exercise of an Option and before delivery of the shares of Common Stock, full payment for shares of Common Stock purchased upon the exercise of the Option shall be made in cash or, subject to the approval of the Company committee administering the Plan (the "Committee"), in whole or in part in shares of Common Stock valued at the fair market value on the date of exercise. 5. Manner of Exercise. The Option shall be exercised by giving written notice of exercise to the Company (Attn: Chief Financial Officer) at the Company's main office at 440 North Fifth Avenue, Chambersburg, Pennsylvania 17201-1778. Such notice of exercise must include a statement of preference as to the manner in which payment to the Company shall be made. Such notice shall be deemed to have been given when hand-delivered, telecopied or mailed, first-class postage prepaid, and shall be irrevocable once given. 6. Issuance of Certificates. As promptly as is reasonably practicable after the exercise of the Option as determined by the Company, a certificate for the shares of Common Stock issuable on the exercise of the Option shall be delivered to Optionee or to his personal representative, heir or legatee. 7. Nontransferability of Option. The Option may not be transferred or assigned by Optionee otherwise than by will or the laws of descent and distribution or be exercised other than by Optionee or, in the case of his death, by his personal representative, heir or legatee. 8. Taxes. Optionee shall be responsible to make appropriate provision for all taxes required to be withheld in connection with any Option, the exercise thereof and the transfer of the shares of Common Stock. Such responsibility shall extend to all applicable federal, state, local or foreign withholding taxes. In the case of exercise of the Option, the Company shall, at the election of Optionee, have the right to retain the number of shares of Common Stock whose aggregate fair market value equals the amount to be withheld in satisfaction of the applicable withholding taxes. 9. Termination of Employment. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated for any reason, all unvested Options shall be forfeited and the Optionee shall have no further right to exercise such Options. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated by reason of disability or retirement, all unexercised, vested Options may be exercised pursuant to the terms of the Option for a period of three months from the date of such termination of employment or until the expiration of the term of the Option, whichever period is shorter; provided, however, that if the Optionee's employment is terminated by death, all unexercised, vested Options may be exercised pursuant to the terms of the Option for a period of six months from the date of such termination of employment or until the expiration of the term of the Option, whichever period is shorter. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated for any reason other than death, disability or retirement, all unexercised, vested options shall terminate three months from the date of such termination of employment. 10. Rights Prior to Exercise. Neither Optionee nor his personal representative, heir or legatee shall have any of the rights of a stockholder with respect to any Common Stock until the date of the issuance to him or her of a certificate for such Common Stock as provided herein. 11. Amendments. The Committee may from time to time amend the terms of this Option to the extent it deems appropriate to carry out the terms and provisions of the Plan. 12. Interpretation. The Committee shall have sole power to resolve any dispute or disagreement arising out of this Agreement. The interpretation and construction of any provision of this Option or the Plan made by the Committee shall be final and conclusive and, insofar as possible, shall be consistent with the requirements of a non-qualified stock option. 13. Option Not to Affect Employment. The Option granted hereunder shall not confer upon Optionee any right to continue in the employment of the Company or any Subsidiary. TB WOOD'S CORPORATION By:____________________________ Michael L. Hurt, President Dated as of June 17, 1997 EX-10 5 EXHIBIT 10.49 TB WOOD'S CORPORATION GRANT OF FAIR MARKET VALUE (FMV)NON-QUALIFIED STOCK OPTION 1. Grant of Option and Exercise Price. Subject to the terms and conditions set forth herein and in the TB Wood's Corporation 1996 Stock-Based Incentive Compensation Plan (the "Plan"), TB Wood's Corporation (the "Company") hereby grants to ________________, (the "Optionee"), a stock option (the "Option") to purchase up to ________ shares of Common Stock of the Company, par value $.01 per share (the "Common Stock"), at an exercise price of $_____ per share (the "Exercise Price"). The Option is a non-qualified stock option. 2. Vesting of Options. One-third of the shares of Common Stock subject to the option shall vest on the first anniversary of the date of grant of the Option (the "Grant Date"), an additional one-third of the shares of Common Stock subject to the option shall vest on the second anniversary of the Grant Date, and the final one-third of the shares of Common Stock subject to the option shall vest on the third anniversary of the Grant Date. 3. Time of Exercise. The Option may be exercised from time to time with respect to shares for which the Option has vested but no later than the tenth anniversary of the Grant Date. Upon the tenth anniversary of the Grant Date, the Optionee's right to exercise the Option shall terminate absolutely. 4. Payment for Shares of Common Stock. Upon exercise of an Option and before delivery of the shares of Common Stock, full payment for shares of Common Stock purchased upon the exercise of the Option shall be made in cash or, subject to the approval of the Company committee administering the Plan (the "Committee"), in whole or in part in shares of Common Stock valued at the fair market value on the date of exercise. 5. Manner of Exercise. The Option shall be exercised by giving written notice of exercise to the Company (Attn: Chief Financial Officer) at the Company's main office at 440 North Fifth Avenue, Chambersburg, Pennsylvania 17201-1778. Such notice of exercise must include a statement of preference as to the manner in which payment to the Company shall be made. Such notice shall be deemed to have been given when hand-delivered, telecopied or mailed, first-class postage prepaid, and shall be irrevocable once given. 121 6. Issuance of Certificates. As promptly as is reasonably practicable after the exercise of the Option as determined by the Company, a certificate for the shares of Common Stock issuable on the exercise of the Option shall be delivered to Optionee or to his personal representative, heir or legatee. 7. Nontransferability of Option. The Option may not be transferred or assigned by Optionee otherwise than by will or the laws of descent and distribution or be exercised other than by Optionee or, in the case of his death, by his personal representative, heir or legatee. 8. Taxes. Optionee shall be responsible to make appropriate provision for all taxes required to be withheld in connection with any Option, the exercise thereof and the transfer of the shares of Common Stock. Such responsibility shall extend to all applicable federal, state, local or foreign withholding taxes. In the case of exercise of the Option, the Company shall, at the election of Optionee, have the right to retain the number of shares of Common Stock whose aggregate fair market value equals the amount to be withheld in satisfaction of the applicable withholding taxes. 9. Termination of Employment. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated for any reason, all unvested Options shall be forfeited and the Optionee shall have no further right to exercise such Options. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated by reason of disability or retirement, all unexercised, vested Options may be exercised pursuant to the terms of the Option for a period of three months from the date of such termination of employment or until the expiration of the term of the Option, whichever period is shorter; provided, however, that if the Optionee's employment is terminated by death, all unexercised, vested Options may be exercised pursuant to the terms of the Option for a period of six months from the date of such termination of employment or until the expiration of the term of the Option, whichever period is shorter. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated for any reason other than death, disability or retirement, all unexercised, vested options shall terminate three months from the date of such termination of employment. 122 10. Rights Prior to Exercise. Neither Optionee nor his personal representative, heir or legatee shall have any of the rights of a stockholder with respect to any Common Stock until the date of the issuance to him or her of a certificate for such Common Stock as provided herein. 11. Amendments. The Committee may from time to time amend the terms of this Option to the extent it deems appropriate to carry out the terms and provisions of the Plan. 12. Interpretation. The Committee shall have sole power to resolve any dispute or disagreement arising out of this Agreement. The interpretation and construction of any provision of this Option or the Plan made by the Committee shall be final and conclusive and, insofar as possible, shall be consistent with the requirements of a non-qualified stock option. 13. Option Not to Affect Employment. The Option granted hereunder shall not confer upon Optionee any right to continue in the employment of the Company or any Subsidiary. TB WOOD'S CORPORATION By:____________________________ Michael L. Hurt, President Dated as of January 29, 1998 119 TB WOOD'S CORPORATION GRANT OF PREMIUM PRICED NON-QUALIFIED STOCK OPTION 1. Grant of Option and Exercise Price. Subject to the terms and conditions set forth herein and in the TB Wood's Corporation 1996 Stock-Based Incentive Compensation Plan (the "Plan"), TB Wood's Corporation (the "Company") hereby grants to __________________, (the "Optionee"), a stock option (the "Option") to purchase up to ____________shares of Common Stock of the Company, par value $.01 per share (the "Common Stock"), at an exercise price of $_________per share (the "Exercise Price"). The Option is a non-qualified stock option. 2. Vesting of Options. One-third of the shares of Common Stock subject to the option shall vest on the first anniversary of the date of grant of the Option (the "Grant Date"), an additional one-third of the shares of Common Stock subject to the option shall vest on the second anniversary of the Grant Date, and the final one-third of the shares of Common Stock subject to the option shall vest on the third anniversary of the Grant Date. 3. Time of Exercise. The Option may be exercised from time to time with respect to shares for which the Option has vested but no later than the fifth anniversary of the Grant Date. Upon the fifth anniversary of the Grant Date, the Optionee's right to exercise the Option shall terminate absolutely. 4. Payment for Shares of Common Stock. Upon exercise of an Option and before delivery of the shares of Common Stock, full payment for shares of Common Stock purchased upon the exercise of the Option shall be made in cash or, subject to the approval of the Company committee administering the Plan (the "Committee"), in whole or in part in shares of Common Stock valued at the fair market value on the date of exercise. 5. Manner of Exercise. The Option shall be exercised by giving written notice of exercise to the Company (Attn: Chief Financial Officer) at the Company's main office at 440 North Fifth Avenue, Chambersburg, Pennsylvania 17201-1778. Such notice of exercise must include a statement of preference as to the manner in which payment to the Company shall be made. Such notice shall be deemed to have been given when hand-delivered, telecopied or mailed, first-class postage prepaid, and shall be irrevocable once given. 123 6. Issuance of Certificates. As promptly as is reasonably practicable after the exercise of the Option as determined by the Company, a certificate for the shares of Common Stock issuable on the exercise of the Option shall be delivered to Optionee or to his personal representative, heir or legatee. 7. Nontransferability of Option. The Option may not be transferred or assigned by Optionee otherwise than by will or the laws of descent and distribution or be exercised other than by Optionee or, in the case of his death, by his personal representative, heir or legatee. 8. Taxes. Optionee shall be responsible to make appropriate provision for all taxes required to be withheld in connection with any Option, the exercise thereof and the transfer of the shares of Common Stock. Such responsibility shall extend to all applicable federal, state, local or foreign withholding taxes. In the case of exercise of the Option, the Company shall, at the election of Optionee, have the right to retain the number of shares of Common Stock whose aggregate fair market value equals the amount to be withheld in satisfaction of the applicable withholding taxes. 9. Termination of Employment. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated for any reason, all unvested Options shall be forfeited and the Optionee shall have no further right to exercise such Options. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated by reason of disability or retirement, all unexercised, vested Options may be exercised pursuant to the terms of the Option for a period of three months from the date of such termination of employment or until the expiration of the term of the Option, whichever period is shorter; provided, however, that if the Optionee's employment is terminated by death, all unexercised, vested Options may be exercised pursuant to the terms of the Option for a period of six months from the date of such termination of employment or until the expiration of the term of the Option, whichever period is shorter. If the Optionee's employment by the Company (or a subsidiary thereof) is terminated for any reason other than death, disability or retirement, all unexercised, vested options shall terminate three months from the date of such termination of employment. 124 10. Rights Prior to Exercise. Neither Optionee nor his personal representative, heir or legatee shall have any of the rights of a stockholder with respect to any Common Stock until the date of the issuance to him or her of a certificate for such Common Stock as provided herein. 11. Amendments. The Committee may from time to time amend the terms of this Option to the extent it deems appropriate to carry out the terms and provisions of the Plan. 12. Interpretation. The Committee shall have sole power to resolve any dispute or disagreement arising out of this Agreement. The interpretation and construction of any provision of this Option or the Plan made by the Committee shall be final and conclusive and, insofar as possible, shall be consistent with the requirements of a non-qualified stock option. 13. Option Not to Affect Employment. The Option granted hereunder shall not confer upon Optionee any right to continue in the employment of the Company or any Subsidiary. TB WOOD'S CORPORATION By:____________________________ Michael L. Hurt, President Dated as of January 29, 1998 EX-21 6 EXHIBIT 21 EXHIBIT 21.1 Subsidiaries of Registrant TB Wood's Corporation and Subsidiaries January 2, 1998 Registrant: TB Wood's Corporation, Delaware Subsidiary: TB Wood's Incorporated, Pennsylvania Subsidiaries: Plant Engineering Consultants, Incorporated, Tennessee TB Wood's North Carolina, North Carolina TB Wood's Canada, LTD., Ontario, Canada TB Wood's Mexico, S.A. de C.V., Mexico City, Mexico TB Wood's Foreign Sales Corporation, Delaware TB Wood's Foreign Investment Company, Delaware Subsidiaries: Berges electronics, GmbH, Marienheide, Germany Berges electronics, S.R.L., Naturns, Italy EX-23 7 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in the Form 10-K, into the Company's previously filed Registration Statement File No. 333-07231, File No. 333-31785, and File No. 333-31787. Atlanta, Georgia March 25, 1998 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JANUARY 2, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. Amounts inapplicable or not disclosed as a seperate line on the Statement of Operations are reported as herein. 0001000227 TB WOOD'S CORPORATIONS & SUBSIDIARIES 1,000 U.S. DOLLARS YEAR JAN-2-1998 JAN-2-1998 1.000 2552 0 19698 476 26138 49831 47882 23794 89617 22552 25928 0 0 58 23606 89617 124027 126237 79015 28061 773 0 1695 14483 5794 8689 0 0 0 8689 1.49 1.47 Revenues are reported net of credits in the Statement of Operations.
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