-----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, SdQWthT9hPmHYCp4lEGZzeJ+n8prLJghC5gUItFX5S3lOK6AP1GzGnUL/Gp9wXJ9 GefAzftZbwPuqNWt6z+wjA== 0000950144-00-004122.txt : 20000331 0000950144-00-004122.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950144-00-004122 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 26 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED DOMINION INDUSTRIES LIMITED CENTRAL INDEX KEY: 0000029590 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 980125322 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08585 FILM NUMBER: 585265 BUSINESS ADDRESS: STREET 1: 2300 ONE FIRST UNION CENTER STREET 2: 301 SOUTH COLLEGE STREET CITY: CHARLOTTE STATE: NC ZIP: 28202-6039 BUSINESS PHONE: 7043476800 MAIL ADDRESS: STREET 1: 2300 ONE FIRST UNION CENTER STREET 2: 301 SOUTH COLLEGE STREET CITY: CHARLOTTE STATE: NC ZIP: 28202-6039 FORMER COMPANY: FORMER CONFORMED NAME: AMCA INTERNATIONAL LTD DATE OF NAME CHANGE: 19900802 FORMER COMPANY: FORMER CONFORMED NAME: DOMINION BRIDGE CO LTD DATE OF NAME CHANGE: 19820407 10-K405 1 UNITED DOMINION INDUSTRIES LIMITED 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 1-8585 UNITED DOMINION INDUSTRIES LIMITED (Exact name of registrant as specified in its charter) Canada 98-0125322 - ------------------------------------------ ---------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2300 One First Union Center, Charlotte, NC 28202-6039 - ------------------------------------------ ---------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code, is (704) 347-6800. Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on which Registered ------------------- ----------------------------------------- Common Shares (without par value) The Toronto Stock Exchange 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 other 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 __ Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not included as it is inapplicable to the registrant, a foreign private issuer. [X] The aggregate market value of voting stock held by non-affiliates of the registrant was approximately U.S. $635,000,000 as of March 14, 2000, assuming that officers and directors are affiliates. As of the same date, 39,122,355 Common Shares were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 1999 are incorporated by reference into Parts I and II and filed as Exhibit 13 hereto. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL United Dominion Industries Limited (the "Company" or the "Registrant") was initially incorporated in Canada as Dominion Bridge Company, Limited in 1882, reincorporated with the same name under the Companies Act of Canada on July 30, 1912, and continued with unlimited duration under the Canada Business Corporations Act effective May 8, 1980. The Company changed its name to AMCA International Limited on June 1, 1981 and to United Dominion Industries Limited effective June 4, 1990. The registered office of the Company is Suite 5300, Commerce Court West, P.O. Box 85, Toronto, Ontario, Canada M5L 1B9. Its principal executive office is at 2300 One First Union Center, 301 South College Street, Charlotte, North Carolina, 28202, USA. The Company manufactures proprietary engineered products for sale primarily to industrial and commercial markets worldwide. The Company's businesses are organized in four segments: Flow Technology, Machinery, Specialty Engineered Products and Test Instrumentation. The Company's Flow Technology businesses include: o Marley Cooling Tower, Spig and Cofimco -- cooling towers for power generation, refrigeration, HVAC and industrial uses. o Flair -- filters and dryers for compressed air systems. o Weil-McLain -- cast iron boilers for commercial and residential customers. o Waukesha Cherry-Burrell and Bran + Luebbe -- valves, pumps, fittings, and integrated systems for sanitary (i.e. food, beverages, dairy, pharmaceutical and cosmetics) and industrial processing markets. o Marley Pump -- submersible petroleum and water pumps and leak detection equipment. o Mueller Steam -- pipeline strainers and check, butterfly and plug valves. o CMB -- backflow prevention devices. The Company's Machinery businesses include: o BOMAG, HYPAC, Compaction America and Stow -- soil, asphalt and landfill compactors and light equipment for concrete placement and treatment. o Sunflower, Feterl and Richardton -- tilling equipment, augers, grain drills and handling systems. The Company's Specialty Engineered Product businesses include: o Door Products (Ceco, Trussbilt, Fleming and Dominion Building Products/Amsco) -- steel frames and doors for commercial, industrial and institutional markets. o Door Products (Serco, Kelley, TKO and Lee Engineering) -- dock levelers, vehicle restraints, dock seals and shelters, stackers, scissor lifts and tilters. o Marley Electric Heating -- electric resistant heaters and ventilation equipment for industrial, commercial and residential markets. o Fenn Manufacturing -- close-tolerance machining primarily for the aerospace industry and metal forming equipment. o C & M -- powered roller conveyor systems for the corrugated and solid fiber carton industry. 2 3 The Company's Test Instrumentation businesses include: o Test Measurement (Radiodetection, Riser-Bond and Bicotest) -- portable pipe and cable locators, and line management and monitoring systems for the utilities and telecommunications industries. o ATP (Amprobe TIF and Promax) -- hand-held testing equipment, refrigerant recovery and handling systems and refrigerant leak detection devices. o AIT -- diagnostic tools, precision fastening systems, and gaging devices primarily for the automotive industry; carbide machine parts and scales and weighing systems. o Lunaire/LDS -- environmental testing chambers, industrial ovens and electro-dynamic shakers for vibration testing. o Atmospheric Air (TMI and King) -- air supply systems for the automotive and food processing industries. The Company has consolidated assets of approximately $2.2 billion and employs approximately 14,000 people at over 90 manufacturing locations in more than 20 countries. The Company sells its products in over 120 countries and had 1999 consolidated sales of approximately $2.15 billion. References herein to the Company are, where the context so requires, to the Company and one or more of its subsidiaries. Dollar references are to U.S. dollars unless otherwise indicated. RECENT DEVELOPMENTS The Company completed twelve product line acquisitions during 1999 and early 2000, adding annualized sales approaching $300 million. During the first quarter, the Company purchased Riser-Bond, a manufacturer of cable fault locators, for Radiodetection, and Ranieri, an Italian producer of stick ice cream molds, for Waukesha Cherry-Burrell's ice cream division. The Company added Aqua-Cool, an Australian cooling tower company, in the second quarter. In August, the Company made a large acquisition, Bran + Luebbe, a German manufacturer of metering pumps and analyzers, which compliments the Company's Waukesha Cherry-Burrell business. Also in the third quarter, the Company added TKO Doors for Serco, Fleming, a Canadian steel door manufacturer, for Door Products, and Radiodetection China for Radiodetection. In the fourth quarter, the Company added the Williamson & Milwaukee-Thermoflo product lines to Weil-McLain, Patton industrial fans, heaters and ventilation equipment to Marley Electric Heating, Bicotest, a British producer of instruments to detect the distance to fault on wire cables, to Radiodetection and General Electronic Systems, a manufacturer of industrial platform scales, to the AIT group. In the first week of 2000 the Company added the Kelley Company, a full-line producer of dock equipment, to its Dock Products division. Kelley will compliment the Company's Serco business. The Company's UDXcellence initiative became the number one operating priority of the Company during 1999. The program was launched during the first quarter and is a comprehensive Company-wide initiative designed to improve productivity, increase efficiency and lower asset utilization. As part of the UDXcellence program, the Company incurred one-time charges during the year of $22.2 million in connection with the following initiatives: o Closing a Flair operation in Virginia and combining it with one in North Carolina; o Moving the King Company's manufacturing operations from Minnesota to South Carolina and thereby reducing the cost structure; o Rationalizing door and frame production at its Door Products division; o Combining and rationalizing the Test Measurement division, closing two facilities and reducing headcount; and o Consolidating some of Mueller Flow's product lines with Mueller Steam and Bran + Luebbe, and exiting others. 3 4 In September 1999, the Company completed its 2 million share repurchase program accomplished pursuant to a normal course issuer bid in Canada. That program began in October 1998. Together with its 3 million share issuer bid repurchase at the beginning of 1998, and its 2 million share normal course bid accomplished in 1997 and 1998, the Company has purchased approximately 15% of its outstanding common shares during the period 1997 through 1999. The Company announced in December a reorganization of its senior management, promoting Glenn A. Eisenberg to President and Chief Operating Officer, B. Bernard Burns, Jr. to Executive Vice President and Chief Administrative Officer and William Dries, Senior Vice President, to Chief Financial Officer. The Company's segment organization remains in place with James M. Gibbs continuing as President of Flow Technology and Lothar Wahl as President of Machinery. Richard F. Bradbury was named President of Specialty Engineered Products and Timothy J. Verhagen became President of Test Instrumentation. INDUSTRY SEGMENTS The Company's businesses are organized into four industry segments: Flow Technology, Machinery, Specialty Engineered Products and Test Instrumentation. The following table sets out the sales and operating income by segment for the Company's ongoing businesses: Year Ended December 31 1999 1998 1997 ---- ---- ---- (in millions) Sales ------ Flow Technology $ 992 $ 946 $ 846 Machinery 456 454 364 Specialty Engineered Products 388 349 310 Test Instrumentation 312 271 124 ------ ------ ------ Total $2,148 $2,020 $1,643 ====== ====== ====== Operating Income ---------------- Flow Technology $ 94 $ 97 $ 79 Machinery 51 51 42 Specialty Engineered Products 42 39 42 Test Instrumentation 18 21 12 ------ ------ ------ Total $ 205 $ 207 $ 175 ====== ====== ====== Additional information about the Company's industry segments for each of the last three fiscal years is contained in Note 12 of the Notes to Consolidated Financial Statements incorporated by reference into this document. FLOW TECHNOLOGY SEGMENT Marley Cooling Tower According to industry sources, Marley Cooling Tower is the leading United States-based manufacturer of water cooling towers. It manufactures and markets products globally ranging from small, factory-assembled cooling towers used in refrigeration and air conditioning systems to large mechanical draft and hyperbolic concrete cooling towers constructed on-site for electric utilities and industrial applications. Marley Cooling Tower also furnishes spare parts and rebuilds and upgrades cooling towers designed by 4 5 Marley or its competitors. Its Recold Division manufactures and markets evaporative condensers and closed circuit coolers for the air conditioning and refrigeration industry. Marley Cooling Tower's principal competitors include Baltimore Aircoil, Balcke-Durr, Evapco, GEA, Hamon, Psychometric Services and Liang Chi. Marley Cooling Tower's business is divided among the industrial, utility and HVAC markets. It has nine regional sales offices and more than 70 representative offices across the United States and Canada, as well as subsidiary companies in England, Germany, Spain, Australia and Malaysia, and sales offices and joint venture partners in various places throughout the world. The Company's 1999 acquisition of Aqua-Cool, in Australia, increased Marley Cooling Tower's Australian presence. Marley Cooling Tower's Resolite business produces engineered fiberglass reinforced plastic composite panels in opaque and light transmitting versions which are used in industrial applications requiring superior corrosion resistance. Resolite uses the pultrusion process to manufacture fiberglass reinforced composite products, principally for the electrical and structural markets. Resolite's principal competitors are Enduro Composite Systems and Bedford Reinforced Plastics, Inc. Flair According to industry sources, Flair is the leading United States manufacturer of equipment used to dehydrate, filter and purify air and gas in various industrial applications. Flair's products include dryer and purification equipment such as regenerative and refrigerated compressed air and oil dryers that eliminate moisture and contaminants from compressed gases. Flair also supplies filter assemblies, elements, valves and desiccant used in the replacement market. Products are marketed under the following names: Pneumatic Products (regenerative dryers); General Pneumatics (refrigerated and regenerative dryers); Deltech (refrigerated and regenerative dryers); Dollinger (filters and oil mist eliminators); Delair (refrigerated and regenerative air dryers for the European market); Kemp (regenerative dryers for liquids and gases other than air); Siva (solvent distillation equipment); and Technolab (compressed air filters). Components for compressed air systems plus replacement filters and parts represent a majority of Flair's business. Flair produces substantially all of the components in a compressed air system with the exception of the compressor itself. Ingersoll-Rand, the largest United States manufacturer of compressors, is Flair's largest customer. Flair has operations throughout North America and Western Europe, and certain products are marketed by distributors and sales representatives. Its international presence includes a global strategic alliance with Ingersoll-Rand for the supply of private label compressed air dryers and other products for worldwide distribution. In addition to its presence in Europe, Flair has formed joint ventures in India, Japan and Korea. Flair's principal competitors for compressed air products include Hankison, Zeks Air Dryer, General Air, Henderson Engineering, Balston, Finite, Ultrafilter and Domnick Hunter. Waukesha Cherry-Burrell Waukesha Cherry-Burrell manufactures stainless steel equipment for dairy, food, beverage, pharmaceutical and industrial processing. Product families include: positive displacement, centrifugal, gear and high pressure piston pumps; automated and manual valves; tubular fittings and clamps; scraped surface, tubular and plate heat exchangers; homogenizers and other dispersion equipment; and freezers, ingredient feeders, fillers, stick novelty and wrapper equipment for frozen confectionery. The 1999 acquisition of Ranieri, along with the acquisitions of PMS/Alliance (1997) and APV Ice Cream (1998), have positioned Waukesha Cherry-Burrell as a leading, full-line equipment supplier to the ice cream industry. Waukesha Cherry-Burrell manufactures its 5 6 products in the United States, Mexico, Denmark and Italy, and also has engineering groups in Mexico City and Louisville, Kentucky that design and install turnkey food and beverage systems throughout North, Central and South America. The primary markets for Waukesha Cherry-Burrell are the Americas, Western Europe and the Pacific Rim. Its primary competitors are Tetra Laval, APV and GEA. These companies are European-based and also manufacture broad equipment lines. Waukesha Cherry-Burrell markets its products through a combination of direct sales and independent distributor partners and systems integrators. Bran + Luebbe Bran + Luebbe, a German-based company acquired in August 1999, manufactures a broad line of metering pumps and systems (the metering division) and a range of analyzers for laboratories and the process industry (the analyzers division). Its product families include precision diaphragm metering pumps, high-pressure pumps, screw feeders, solids metering systems, blending systems, laboratory analyzers, in-line process analyzers and environmental monitors. Bran + Luebbe's primary markets are chemical, petrochemical, pulp and paper, pharmaceuticals and cosmetics, oil and gas, food and beverage, agriculture and private and public laboratories. It serves these industries through thirteen marketing companies in strategic locations around the world. Bran + Luebbe's primary manufacturing facility is located near Hamburg, Germany, with systems assembly facilities in Sweden, France, the United States and the U.K. Bran + Luebbe's major competitors in metering are Milton Roy and LEWA. The analyzer market is more fragmented, with Foss and Thermo Electron among the more significant competitors. Weil-McLain According to industry sources, Weil-McLain is the leading North American manufacturer of oil and gas fired cast iron boilers used for heating homes, apartment buildings, offices and schools. In addition, Weil-McLain manufactures and markets products associated with the sale of its boilers, such as hydronic baseboards, in-floor radiation, oil burners, control panels and indirect water heaters. In 1999, Weil-McLain expanded its boiler line and entered the oil furnace market by acquiring Williamson and Milwaukee-Thermoflo. Approximately 80% of Weil-McLain's total revenue is derived from the replacement market. Boilers are sold throughout North America, with the largest volume concentrated in the New England, middle Atlantic and midwest sections of the United States. Weil-McLain's principal United States competitors in the cast iron boiler market are Burnham, Peerless, Earl Reed International and Mestek. Weil-McLain believes it is the lowest cost producer of cast iron boilers in the United States and the industry technology leader. In addition, management believes that Weil-McLain's distribution system is a leader in its industry, with approximately 250 distributors in 650 locations. Distributors sell to independent heating contractors and dealers who install the boilers. Marley Pump Marley Pump designs, manufactures and sells pumps for gasoline service stations, bulk petroleum facilities and water well systems. Products are sold under the "Red Jacket" brand name to major oil companies and various equipment distributors. According to industry sources, Marley Pump has a leading United States market share in submersible gasoline pumps. Marley Pump also produces mechanical and electronic leak detection devices that monitor underground storage tanks and pumping equipment at service stations and other bulk fuel facilities worldwide. In addition, Marley Pump competes in the submersible and surface 6 7 pump water systems market worldwide. At year end 1998, Marley Pump sold its motor manufacturing business, which permitted it to focus on its core pump manufacturing business. Marley Pump's principal competitors are Goulds Pumps, Sta-Rite Industries, The Grundfos Group, F.E. Meyers, Aermotor and F.E. Petro. Marley Pump's products are marketed domestically primarily through distributors, and internationally through distributors and sales representatives. Mueller Steam Mueller Steam Specialty manufactures three primary product lines: strainers, check valves and butterfly valves. Strainers and valves are used in various industrial processes in which piping systems exist. Mueller Steam believes that it is the largest manufacturer of non-automatic pipeline strainers in the world. In addition, Mueller Steam designs and manufactures a line of specialized products directed primarily to the oil, gas and petrochemical industries. These products include fabricated strainers, lined plug and ball valves, temporary strainers and other flow products. Mueller Steam has international sales offices in the United Kingdom, Singapore, Canada and the United Arab Emirates and serves Latin America from the United States. Mueller Steam serves industrial and commercial markets through independent sales representatives and distributors. Principal competitors include Haywood, Keckley, Keystone & Bray, and Crane. CMB CMB designs and manufactures fluid control valves and distributes them worldwide through its network of distributors and sales representatives. FEBCO, CMB's complete line of bronze and ductile iron backflow prevention assemblies, is used in irrigation, plumbing, industrial, municipal and fire protection markets. CMB also manufactures the Polyjet Control Valve, a custom-designed, multi-jet sleeve valve designed to control high pressure or rapid flow or to provide very precise flow control. POLYJET valves are used primarily in hydro or dam construction projects and in other unique waterworks applications. CMB's K-FLO AWWA Butterfly Valves are used in specialized applications including waterworks and waste water systems, which are sold throughout the world. CMB's competitors include Watts Industries, Zurn/Wilkins, Henry Pratt Co. and Kvaerner. MACHINERY SEGMENT Compaction Management believes that BOMAG, headquartered in Germany, is the world leader in the production and sale of compaction equipment for soil and asphalt applications. BOMAG also manufactures equipment for soil stabilizing, recycling and sanitary landfill applications, and offers an integrated Compaction Management System which processes on-line compaction data for the most advanced dynamic compaction control methods. BOMAG pioneered the double vibratory roller concept and its product line consists of more than 100 models ranging from small, hand-operated tampers up to its 36-ton landfill compactor. BOMAG entered the grader business in 1998 with four models in the 60-132 kW classes. With its acquisition of Stow Manufacturing (1997), BOMAG broadened its light equipment product offering to include equipment for concrete placement and treatment, paving and site preparation. Products are marketed under the BOMAG, HYPAC and STOW brand names throughout the world by independent distributors and licensees and through direct sales to the rental industry and all segments of the general construction and waste management industries, including a wide range of governmental agencies. Compaction America, BOMAG's manufacturing base in North America, produces both BOMAG and HYPAC products. BOMAG Light Equipment, located in Conklin, New York, is a division of Compaction America and produces the STOW products. 7 8 BOMAG operates through subsidiaries in the United States, Canada, England, France, Austria and Germany, with manufacturing facilities located in Germany, Illinois and New York and additional sales and service centers located in Jordan and Singapore. BOMAG owns an interest in Nippon BOMAG in Japan and has license or cooperation agreements with partners in India, Malaysia and the Czech Republic. BOMAG competes directly with a number of small regional companies and several major international companies, including Ingersoll Rand, Caterpillar, Dynapac and Wacker, some of which are larger than BOMAG and offer other construction-related products in addition to compaction equipment. Agricultural Equipment Agricultural Equipment consists of three businesses: Sunflower Manufacturing Company, Feterl Manufacturing Company and Richardton Manufacturing Company. Management believes that Sunflower is among the world's leading producers of high-quality disc harrows. Its other tillage equipment, grain drills and grain carts are used for seedbed preparation, seeding and harvesting operations. Sunflower's primary market is the midwestern and high plains areas of the United States. Its products, which are sold through a direct sales force and a network of more than 700 independent dealers, compete against equipment manufactured by John Deere, Case IH, Krause, D.M.I., Landoll, Brillion, Brent and Parker. Feterl, which manufactures grain augers, cleaners and service bodies, primarily serves the same areas as Sunflower. Its products are sold through independent sales representatives and a network of more than 600 independent dealers. Its principal competitors are Westfield, Hutch-Mayrath and Sudenga. Richardton manufactures grain carts which are marketed by and sold with the Sunflower name. Richardton also manufactures and sells forage and specialty crop wagons. Its products are marketed primarily in the northeastern and peanut-producing regions of the United States. Richardton's products are sold through independent sales representatives and a network of more than 600 dealers. Its principal competitors are Byron and United Farm Tool. SPECIALTY ENGINEERED PRODUCTS SEGMENT Door Products Door Products consists of a group of companies that manufacture and market standard, specialty and custom steel doors and door frames for commercial, industrial and institutional applications. Management believes that Door Products is the United States market leader in the commercial-distributor, commercial-OEM and detention steel door markets. Ceco Door manufactures side-hinged steel doors and frames for commercial and industrial markets nationwide and in selected overseas locations. It maintains service centers in major cities throughout the United States. Ceco products can be found in office buildings, schools, hospitals and nursing homes, apartments, hotels and motels, and retail, industrial and commercial buildings. Door Products expanded its commercial market share and product offerings in 1999 by acquiring Fleming Limited. Management believes that S.W. Fleming is the leading Canadian manufacturer of commercial side-hinged steel doors and frames and a low cost producer. Trussbilt manufactures heavy gauge steel doors and frames for security and detention markets. Trussbilt also produces security ceilings for detention and other applications. Dominion Building Products/Amsco manufactures and distributes pre-hung and unassembled steel doors, frames and windows for the metal building industry. While most of its products are sourced from Ceco, Amsco provides the unit its own manufacturing capability. 8 9 According to industry sources, Door Products, Steelcraft and Curries are the three largest participants by market share in the U.S. side-hinged steel door industry. Dock Products Dock Products is comprised of four businesses: Serco, Kelley, TKO Doors and Lee Engineering. Serco manufactures and distributes a broad range of loading dock equipment for industrial and commercial markets in North America. Serco's products include dock levelers, vehicle restraints and loading dock seals and shelters. These products are sold through an extensive distribution network, including captive sales and service centers (The Paul Reilly Company, Casco and Just Rite Equipment) and independent material handling distributors. The Kelley Company was acquired on January 5, 2000. Like Serco, Kelley manufactures and distributes dock levelers, vehicle restraints and loading dock seals and shelters. Kelley also offers elevating dock platforms, scissor lift tables, rail lift tables and truck levelers. Kelley sells its products through an extensive distribution network. Primary markets for both Serco and Kelley include industrial plants, distribution centers and wholesale and retail warehouses. Principal competitors of Serco and Kelley include Rite-Hite, McGuire, and Blue Giant. TKO Doors, acquired in 1999, is the leading designer, manufacturer and seller of "knockout" doors for loading docks in the United States. Knockout doors contain spring-loaded plungers that permit door panels to release under pressure, thereby absorbing impact without sustaining damage. TKO's competitors include Rite-Hite, Overhead Door, Wayne Dalton and Albany International. Lee Engineering manufactures material handling equipment such as manually propelled pallet lifts, stackers, and stationary and portable scissor lift tables. Its products are sold to the industrial market under the Presto and Regal brand names, primarily through third party catalog companies, sales representatives and independent distributors. Lee's principal competitors include Big Joe, Bishamon and Southworth, each of which is larger than Lee, and a number of smaller, regional material handling manufacturers. Marley Electric Heating Management believes that Marley Electric Heating is the leading United States producer of electric resistance heating products for residential, commercial and light industrial markets. It manufactures a full range of electrical heating products, including baseboard, wall, portable and unit heaters. The base product line is supplemented by a complete line of commercial convectors, infrared heaters and numerous specialty application heaters. Products are sold under the Q-Mark, Berko, Aztec and Fahrenheat brand names. Principal competitors are TPI, Cadet and Dimplex. Q-Mark, Berko and Aztec products are marketed through independent sales representatives to wholesale electrical and mechanical distributors. Fahrenheat products serve the consumer "Do it Yourself" market through hardware and home center stores. Marley Electric Heating entered the commercial/industrial ventilation business in 1998 through the acquisition of Leading Edge and increased that presence in 1999 by acquiring Patton Industrial and Building Supply Products. Patton manufactures a broad line of industrial heating and ventilating products such as industrial fans, blowers and heaters and building supply products, including kitchen and bath ventilators, ceiling fans, door chimes and electric heaters for residential, commercial and light industrial markets. 9 10 C & M C & M engineers, manufactures and installs material handling systems for the corrugated industry. C & M's primary product is an accumulating belt driven roller conveyor which includes specialty devices for the transfer of corrugated product "on" and "off" the conveyor. It also manufactures power transfer cars that deliver and retrieve product from staging systems for delivery to converting operations. All systems are specially engineered to the individual customer's application. C & M has direct regional sales managers throughout the United States who provide on-site consultation. Foreign accounts are handled through sales agents who are geographically positioned in the region and represent other corrugated equipment. ACS and United Pentek are C & M's principal competitors. Fenn Fenn provides new and overhauled precision-machined critical parts and assemblies, principally for helicopter rotor and transmission systems. It also produces metal forming equipment for the ferrous and non-ferrous metal industries for rolling, shaping, forming, drawing and swaging metal strip, rod, wire and tube. Fenn's critical parts division sells primarily to the United States defense sector. Markets for the machinery division are diverse, ranging from a large number of small customers to large manufacturing companies. Markets include automotive forging, hand tool, medical, armament, specialty metal and tube. Fenn has a sales office in the United Kingdom to serve as its European machinery marketing arm. Competition is highly fragmented and depends on the specific product line. TEST INSTRUMENTATION SEGMENT Test Measurement The Company's Test Measurement division consists of Radiodetection and ATP. Radiodetection specializes in the design, manufacture and sale of products for the location and maintenance of buried pipes and cables. While portable pipe and cable locators are Radiodetection's primary products, Radiodetection also has developed line management systems (LMS) for locating and identifying metallic sheathed fiber optic cables. LMS products are sold primarily to long distance telecommunication carriers such as AT&T, MCI and Sprint. Other products include trenchless products (horizontal boring guidance systems), inspection products (inspection cameras for pipes and ducts) and power products (test sets for use in the power industry). Radiodetection expanded its product offerings in 1999 by acquiring Riser-Bond Instruments and Bicotest Limited, both of which design, manufacture and sell time domain reflectometers, which are used to find the "distance to fault" on a metallic cable. Bicotest also manufactures portable test equipment for the power industry. Radiodetection has a wide customer base that includes major utility and industrial companies, municipalities and thousands of independent contractors in over 80 countries throughout the world. The Company believes that Radiodetection is the market leader in portable locators in the UK, the United States and Germany. It also opened Radiodetection China during 1999 as a result of a small acquisition there. Radiodetection's competitors include Dynatel, Seba, Tektronix, Metrotech, C-Scope, Heath, Fuji and Takochiho. ATP is comprised of three businesses: Amprobe, Promax and TIF Instruments, which manufacture hand-held devices for testing and measuring electrical properties, for recovering and handling refrigerants, and for testing for leaks in refrigeration systems. Primary products include clamp-on ammeters, multimeters (volt/amp/ohmmeters), circuit tracers, harmonic analyzers, recorders, leak detectors and refrigerant recovery products. Test Measurement serves the HVAC/R, electrical, electronic, transportation and automotive markets. Sales are made through distributors and manufacturer representatives in the 10 11 United States and abroad. The Company believes that Amprobe is a market leader of selected electrical test and measurement products. Test Measurement believes that it is one of the largest suppliers of professional test and service tools for HVAC/R tradesmen. Its competitors are a mix of large companies such as Greenlee and Yokagawa, medium-sized companies such as Fluke (division of Danaher) and Robinaire (division of SPX) and small, privately-held companies such as Wavetek, CPS and Thermoflow. Advanced Industrial Technologies Advanced Industrial Technologies is comprised of four businesses which primarily serve the transportation and internal combustion markets. Advanced Assembly Group (AAG) supports the precision assembly and test markets with the tech-motive tool product line of electronic fastening tools and the GSE torque and force measurement products for production, test and audit of the assembly process. In addition, the AAG Systems Group provides solutions for specific customer applications such as multi-spindle nutrunner fastening systems and ABS brake system testing. Air Gage Company supplies manufacturers throughout the world with dimensional inspection gaging systems and calibration and certification services that satisfy a wide-range of automotive and non-automotive part inspection requirements. Great Lakes Eglinton manufactures reference equipment and carbide-based industrial tooling for wear resistance and dimensional stability (dies for forming cans, extruding dies for wire and precision plug gage members). GSE Scale Systems provides a broad line of industrial weighing equipment specializing in programmable controls for automated processing systems. Its products can be found in applications ranging from baggage weighing for air transportation to micro-ingredient batching systems for food processing to heavy truck weighing for land-fill management. GSE Scale added to its offerings in 1999 with the acquisition of General Electronic Systems, which designs and manufactures weighing equipment platforms and parts counters. Advanced Industrial Technologies markets its products throughout the world through a combination of direct sales, distributors and manufacturer representatives. Principal competitors include Atlas-Copco, Ingersoll Rand, Marposs, Glastonbury Gage and Oberg Manufacturing. Lunaire/LDS Lunaire manufactures a complete line of environmental test chambers for simulation and testing, heat processing equipment, and industrial and pharmaceutical ovens and dryers. Lunaire's principal competitors include Blue-M, Despatch Industries and Thermotron. Management believes that Ling Dynamic Systems (LDS) is an industry leader in supplying vibration test equipment for a broad array of industries including aerospace, automotive and electronic, with the express advantage of a strong European presence. Competitors include Unholtz Dickie and Ling Electronics. Lunaire and LDS market their products throughout the world through direct sales, distributors and manufacturer representatives. Atmospheric Air The Company's Atmospheric Air group, consisting of TMI and King, produces air supply systems to control critical processes such as automotive paint lines and food and pharmaceutical production. It also manufactures a complete line of heating, refrigeration and filtration equipment primarily for commercial and industrial markets. Principal competitors include Gamewell, Engineered Air, Applied Air, Industrial Air, Webco and Accuaire. 11 12 BACKLOG Backlog (firm orders for products not yet shipped) is one indicator of the Company's operating condition. However, for most of the Company's businesses, year-end backlog is not particularly predictive of the following year's performance because of short lead times and seasonality in those businesses. On a consolidated basis, the Company's ongoing businesses booked new work of $2.2 billion in 1999, representing a 10% increase from 1998's level. Backlog at the end of 1999 was $373 million, up 8% from $345 million a year earlier. Substantially all of the 1999 year-end backlog represents bookings for 2000 delivery. The following table sets out backlog for the periods indicated: As of December 31 1999 1998 ---- ---- (in millions) Flow Technology $195 $173 Machinery 52 52 Specialty Engineered Products 73 71 Test Instrumentation 53 49 ---- ---- Total $373 $345 ==== ==== SEASONALITY Many of the Company's businesses have historically been stronger in the second, third and fourth quarters than in the first quarter, primarily because of winter weather conditions impacting the production and sales of their respective products in the first quarter. Note 15 to the Consolidated Financial Statements, which is an unaudited summary of quarterly results, at page 44 of the Company's Annual Report to Shareholders for the year ended December 31, 1999, provides the numerical analysis of the seasonality of the Company's businesses, and is incorporated herein by this reference. RAW MATERIALS The principal raw material used in the Company's products is steel. Other significant materials used in the production of the Company's products include certain electrical and mechanical components. All such materials and components used are readily available from a number of sources, and the Company is not dependent on any single supply source. PATENTS The Company possesses rights under a number of patents in the U.S., Canada and Europe and is involved in various licensing arrangements. Although these patents and licenses are important to the Company's businesses, the Company does not believe that any of its business units is dependent on any single patent or license or any group of patents and licenses. RESEARCH AND DEVELOPMENT EXPENDITURES Many of the Company's businesses are involved in on-going research and development activities. During 1999, the Company spent approximately $29 million on these activities. 12 13 ENVIRONMENTAL EXPENDITURES Each of the Company's operating plants from time to time makes changes or modifications to comply with current United States and other federal, state and local provisions regulating the discharge of materials into the environment. In 1999, the Company performed a number of environmental audits, conducted seminars and took other actions necessary to ensure the Company's compliance with environmental laws, all consistent with its environmental policy. Capital expenditures for environmental control facilities in 1999 were not material. The Company believes compliance with environmental protection requirements and its environmental policy will not have a material adverse effect on the business or the consolidated financial position of the Company. EMPLOYEES AND LABOR RELATIONS As of March 2000, the Company had approximately 14,000 employees worldwide at over 90 locations and had 26 collective bargaining agreements covering approximately 2,200 employees at 28 unionized manufacturing and service locations. The Company believes its relations with its unions and its employees, both union and non-union, are satisfactory. INTERNATIONAL OPERATIONS During 1999, 1998 and 1997, approximately 28%, 25% and 23%, respectively, of the Company's sales were generated by units located outside the United States, and 33%, 32% and 31%, respectively, of the Company's sales were to destinations outside the United States. Information concerning the Company's sales and identifiable assets attributable to each of the Company's geographic segments is set forth in Note 12 to the Consolidated Financial Statements of the Company incorporated by reference into this document. International operations are necessarily subject to various risks that differ in certain respects from risks encountered in the United States and Canada. These different risks, including political pressures, exchange and currency fluctuations and controls, export controls, tax changes, labor difficulties, price controls and other governmental actions, are difficult to appraise. ITEM 2. PROPERTIES The Company owns and leases plant facilities, offices and warehouses in various parts of the world. The Company has more than 80 primary operating locations. Management believes that the Company's properties and equipment are in good condition, well maintained and suitable for their intended uses. The location and approximate size of the Company's 15 largest facilities are included in the table below. 13 14 TOTAL LOCATION UNIT SQUARE FEET -------- ---- ----------- Boppard, Germany ..................... BOMAG 645,100 Michigan City, Indiana ............... Weil-McLain 535,500 Milan, Tennessee ..................... Door Products 426,000 Bennettsville, South Carolina(1)...... Marley Electric Heating 387,000 Kewanee, Illinois .................... BOMAG/HYPAC 299,000 Olathe, Kansas ....................... Marley Cooling Tower 231,700 St. Pauls, North Carolina ............ Mueller Steam 216,000 Louisville, Kentucky ................. Marley Cooling Tower 214,800 Norderstedt, Germany ................. Bran + Luebbe 200,000 Delavan, Wisconsin ................... Waukesha Cherry-Burrell 197,000 Newington, Connecticut ............... Fenn Manufacturing 190,000 Jeffersontown, Kentucky .............. Waukesha Cherry-Burrell 186,000 Davenport, Iowa ...................... Marley Pump 175,000 Beloit, Kansas ....................... Sunflower 165,000 Etten Leur, Netherlands .............. Flair 156,000 - ---------- (1) The Bennettsville, South Carolina facility is leased from The Industrial Development Corporation of the City of Bennettsville, South Carolina through 2034. ITEM 3. LEGAL PROCEEDINGS Although the Company and its subsidiaries are parties to a number of pending legal proceedings seeking damages and other relief, management is of the opinion, based upon information presently available to it, that it is unlikely that any liability, to the extent not provided for through insurance or otherwise, would be material in relation to the Company's consolidated financial condition. The Company has been named along with several other parties in a number of administrative proceedings maintained by federal and state agencies arising out of alleged releases or contributions of hazardous substances into the environment. None of the proceedings is, in the opinion of management, either individually or viewed in connection with all the proceedings, material to the business or consolidated financial condition of the Company. The Company has participated and in the future will participate in the funding of clean up costs in connection with certain of the proceedings. However, it does not believe that monetary sanctions in excess of $100,000 will be imposed against it as a result of any of the proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's shareholders during the fourth quarter of 1999. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common shares (hereinafter "Common Shares") are traded on The Toronto Stock Exchange and the New York Stock Exchange. As of March 14, 2000 the Company had 1,353 holders of record of its Common Shares. The additional information called for by this Item appears in the Company's Annual Report to Shareholders for the year ended December 31, 1999 on page 46 under the heading "Six-Year Statistical Summary" opposite the captions "Number of common shareholders" and "Common dividends," and on the inside back cover under the 14 15 heading "Common Share Market Prices." Such information, limited where applicable to the years 1998 and 1999, is incorporated herein by this reference. It is the Company's policy to review the declaration of dividends on the Common Shares quarterly. The payment of future dividends will be determined by the Company's Board of Directors in light of circumstances then existing, including the Company's earnings, financial requirements and general business conditions. The following is a general summary of the principal tax considerations under the laws of Canada for owners of Common Shares who hold such shares as capital property, who are neither resident, nor deemed to be resident, in Canada, and who neither carry on business, nor are deemed to carry on business, in Canada. Dividends, including stock dividends, paid, or deemed to be paid, on Common Shares held by nonresidents of Canada are subject to Canadian withholding tax. Withholding tax is levied at a basic rate of 25%. Depending on the terms of any applicable tax treaty, the basic 25% rate may be reduced. For residents of the United States, generally the rate is 15% under the United States/Canada tax treaty. U.S. resident trusts that are exempt from U.S. tax and are operated exclusively to provide pension, retirement, or employee benefits, generally are exempt from Canadian withholding tax. No other income or capital gains tax is payable by such owners under the laws of Canada in respect of Common Shares or the dividends thereon, except on a capital gain realized on the disposition of Common Shares by a holder, if, subject to applicable tax treaties, at any time during the period of five years immediately preceding the disposition of Common Shares by such holder, not less than 25% of the issued shares of any class of capital stock of the Company were owned by the nonresident holder and by persons with whom such holder did not deal at arm's length. At present, there are no estate taxes or succession duties imposed by Canada or any of its provinces. ITEM 6. SELECTED FINANCIAL DATA The information called for by this Item appears in the Company's Annual Report to Shareholders for the year ended December 31, 1999 under the heading "Six-Year Statistical Summary" on page 46 opposite the captions "Operating Results" - "Sales" and "Income from continuing operations," "Per Common Share Data" - "Continuing operations" and "Common dividends," and "Financial Condition and Ratios" - "Total assets" and "Long-term debt (including current portion)," and in the notes on page 46. Such information, limited where applicable to the years 1995 through 1999, is incorporated herein by this reference. Also, see Note 2 appearing in the Notes to Consolidated Financial Statements on page 34 of the Company's Annual Report to Shareholders for the year ended December 31, 1999, which is incorporated herein by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information called for by this Item appears on pages 23-28 of the Company's Annual Report to Shareholders for the year ended December 31, 1999 and is incorporated herein by this reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risks from changes in interest rates relates primarily to the fair value of its long-term fixed interest rate debt and the effects that changes in interest rates have on floating rate debt and short-term investments and cash 15 16 equivalents. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. A 50 basis point increase in interest rates would have a $5.3 million effect on the fair value of the Company's long-term debt as of December 31, 1999. A 50 basis point movement in the interest rate on the Company's floating rate debt and short-term investments and cash equivalents would result in an approximate $2.2 million annualized increase or decrease in net interest expense and cash flows. The Company does not trade in derivative financial instruments for trading or speculative purposes. However, it does enter into a limited range and number of derivative financial instrument contracts. The Company has operations in several foreign countries and conducts business in numerous foreign currencies. Changes in foreign currency exchange rates affect the Company's translation of its foreign companies' results into United States dollars and can impact the transaction costs of specific transactions denominated in foreign currencies. The Company has a program in place to manage foreign currency risk and as part of that program enters into a limited number of foreign currency foreign exchange contracts to hedge anticipated or specific foreign currency transactions. These foreign exchange contracts do not subject the Company to market risk due to exchange rate movement because gains and losses on these contracts offset losses and gains on the transactions being hedged. The Company has also mitigated its exposure to changes in foreign currency exchange rates by denominating certain long-term borrowings in foreign currencies. A 10% change in the value of all foreign currencies would not have a material effect on the Company's financial position, liquidity or results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (a) Financial Statements The financial statements listed on the Index to Consolidated Financial Statements and Schedule on page 16 of this report are incorporated herein by this reference. (b) Supplementary Financial Information The selected quarterly financial data required by Item 302(a) of Regulation S-K appears on page 44 of the Company's Annual Report to Shareholders for the year ended December 31, 1999 as Note 15 to the Consolidated Financial Statements which is an unaudited summary of quarterly results and is incorporated herein by this reference. (c) Other Financial Statements and Schedules Other financial statements and schedules required under Regulation S-X are filed pursuant to Item 14 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with accountants on accounting and financial disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding reports filed by officers and directors under Section 16(a) of the Securities Exchange Act is not required as a result of the Company's status as a foreign private issuer. 16 17 Set forth below are the names and ages of each person serving as a director, such person's present principal occupation or employment, the period during which such person has served as director of the Company, and additional biographical information. The directors are elected annually.
NAME, AGE, POSITIONS WITH THE COMPANY AND SIGNIFICANT DIRECTOR OF THE AFFILIATES, PRINCIPAL OCCUPATIONS, AND RECENT BUSINESS EXPERIENCE COMPANY SINCE - ----------------------------------------------------------------- --------------- DONALD N. BOYCE (1) (61). Chairman of the Board of IDEX Corporation (a 1997 diversified manufacturing company), 1988 to present. President and Chief Executive Officer of IDEX Corporation, 1988 to 1998. Director of IDEX Corporation and Walter Industries, Inc. HERMANN BUERGER (2) (56). Executive Vice President of Commerzbank AG 1997 (international bank), 1989 to present. Director of Security Capital Group Incorporated and Paging Network, Inc. JAMES E. COURTNEY (1) (3) (68). Chairman of the Board of First Community Bank of 1989 Southwest Florida (commercial bank), 1998 to present. Chairman of the Board, First Independence Bank of Fort Myers (commercial bank), 1996-1997. President of The Mariner Group, Inc. (real estate management and development company), 1992-1995. PETER A. CROSSGROVE (1) (63). Chairman of Premdor Inc. (international door 1993 manufacturing company), 1998 to present. President and Chief Executive Officer of Southern Africa Minerals Corporation (diamond exploration company), 1994 to present. Chairman and Chief Executive Officer of Brush Creek Corporation (investment holding company), 1993 to present. Director of Premdor Inc., Dundee Realty, Inc., Acadia Minerals Corp., Quadra Logic Technologies Inc., Southern Africa Minerals Corporation, Barrick Gold Corporation, Band-Ore Resources Inc., A.M.T. International Mining Corporation, QLT Photo Therapeutics Inc. and Philex Gold, Inc. R. STUART DICKSON (2) (4) (70). Chairman of the Executive Committee, Ruddick 1990 Corporation (industrial thread, regional supermarket and venture capital company), 1994 to present. Director of Textron, Inc., First Union Corporation, Dimon Incorporated and PCA International, Inc. JERE A. DRUMMOND (2) (60). Vice Chairman of BellSouth Communications Group 1999 (telecommunications company), January 1, 2000 to present. Group President and Chief Executive Officer, BellSouth Communications Group, 1998 to 1999. President and Chief Executive Officer, BellSouth TeleCommunications, Inc., 1995-1997. Director of Borg Warner Automotive, Inc. THE HONORABLE JAMES A. GRANT, P.C., Q.C. (3) (4) (62). Partner of Stikeman 1989 Elliott (law firm), 1970 to present. Chairman of Executive Committee of Stikeman Elliott, 1988 to 1999. Director of BioChem Pharma Inc., CAE Industries Ltd. and Canadian Imperial Bank of Commerce.
17 18 WILLIAM R. HOLLAND (4)(5) (61). Chairman of the Company and United Dominion 1985 Industries, Inc., 1987 to present. Chief Executive Officer of the Company and United Dominion Industries, Inc., 1986 to present. Director of The BFGoodrich Company and Lance, Inc. RUSSELL C. KING, JR. (2) (65). Retired as of May 20, 1994. President and Chief 1992 Operating Officer of Sonoco Products Company (international manufacturer of packaging products), 1990-1994. Director of Integrated Business Systems and Services, Inc. JOHN T. MAYBERRY (2) (55). President and Chief Executive Officer of Dofasco Inc. 1999 (steel producer), 1993 to present. Director of Dofasco Inc., Decoma International Inc. and The Bank of Nova Scotia. DR. HARRY A. NURKIN (3) (56). President and Chief Executive Officer of Carolinas 1999 Healthcare System (integrated healthcare services system), 1983 to present. DALTON D. RUFFIN (1) (4) (5) (70). Retired as of January 1, 1989. Regional Vice 1974 President of Wachovia Bank & Trust Company, N.A. (commercial bank), 1980-1988. WILLIAM W. STINSON (4)(5) (66). Retired as of May 1, 1996. Chairman of Canadian 1986 Pacific Limited (transportation, energy and hotel company), 1989-1996. President and Chief Executive Officer of Canadian Pacific Limited, 1985-1996. Director of PanCanadian Petroleum Limited, Western Star Ltd., Westshore Investment Trust, Sun Life Assurance Company of Canada and Massachusetts Financial Services Company. GEORGE S. TAYLOR (2) (59). Retired as of December 31, 1995. President and Chief 1995 Executive Officer of John Labatt Limited, 1992-1995. Director of Great Lakes Power Inc., EdperBrascan Limited, Acanthus Real Estate Corporation and Teknion Corporation.
- --------- (1) Member of Compensation & Human Resources Committee. (2) Member of Audit & Risk Management Committee. (3) Member of Nominating & Corporate Governance Committee. (4) Member of Executive Committee. (5) Also a member of the board of directors of United Dominion Holdings, Inc. and United Dominion Industries, Inc., wholly owned subsidiaries of the Company. 18 19 EXECUTIVE OFFICERS OF THE COMPANY Set forth below are the names and ages of each Executive Officer of the Company, such person's position with the Company, and the year in which such person became an executive officer.
Year Individual Became An Name Age Offices Held Executive Officer ---- --- ------------ ----------------- W. R. Holland.........61 Chairman of the Board 1977 and Chief Executive Officer G. A. Eisenberg.......38 President and 1992 Chief Operating Officer B. B. Burns, Jr.......51 Executive Vice President and 1989 Chief Administrative Officer R. F. Bradbury........54 Senior Vice President; 1998 President - Specialty Engineered Products J. M. Childress, II...42 Senior Vice President 1996 W. Dries..............48 Senior Vice President and 1990 Chief Financial Officer J. M. Gibbs...........47 Senior Vice President; 1999 President - Flow Technology T. J. Verhagen........53 Senior Vice President; 1993 President - Test Instrumentation L. Wahl...............58 Senior Vice President; 1998 President - Machinery J. P. Hassett.........54 Vice President 1996 C. T. Leinbach III....47 Vice President and Controller 1999 R. L. Magee...........42 Vice President, General Counsel 1996 and Secretary B. J. Smith...........39 Vice President 1999 T. J. Snyder..........49 Vice President and Treasurer 1991 N. H. Spurlock........51 Vice President 1999
Each executive officer is appointed by the Board of Directors of the Company and holds office until his successor is appointed or until the earlier of his death, resignation, or removal by the Board of Directors. All officers serve United Dominion Holdings, Inc. and United Dominion Industries, Inc., wholly-owned subsidiaries of the Company, in identical capacities. 19 20 WILLIAM R. HOLLAND has been Chairman of the Company since 1987 and Chief Executive Officer since 1986. Mr. Holland, who joined the Company in 1973, served as President of the Company from 1985 to 1988. GLENN A. EISENBERG was named President and Chief Operating Officer of the Company in December 1999, having served as President of the Company's Test Instrumentation Segment since September 1998 and Executive Vice President since January 1998. Mr. Eisenberg served as Chief Financial Officer from July 1995, and was Senior Vice President from July 1995 until January 1998. Mr. Eisenberg was Vice President, Planning and Development from 1992 until 1995. Mr. Eisenberg joined the Company in 1990 as Manager of Treasury Analysis and Services. B. BERNARD BURNS, JR. was named Executive Vice President in December 1999, having served as Senior Vice President since 1993. He was President of the Company's Specialty Engineered Products Segment from September 1998 until December 1999, President of the Company's Door Products division from 1997 to 1998, and President of the Company's former Building Products segment from 1996 to 1997. Mr. Burns was General Counsel of the Company from 1993 to 1996. Mr. Burns joined the Company in September 1989 as Vice President and Associate General Counsel. RICHARD F. BRADBURY was named President of the Company's Specialty Engineered Products Segment in December 1999, and remains a Senior Vice President of the Company, a position he was appointed to in September 1998. Mr. Bradbury had served as President of Flair Corporation since April 1998. Mr. Bradbury was President of the Company's Specialty Engineered Products division from 1997 to 1998 and President of Ceco Door Products from 1989 to 1997. J. MILTON CHILDRESS, II became a Senior Vice President of the Company in December 1999, having been a Vice President since July 1996. Mr. Childress was Director of Corporate Development from 1992 and Assistant Vice President from July 1995. Prior to joining the Company, Mr. Childress worked with Ernst & Young's Corporate Finance Advisory Group. WILLIAM DRIES was named Chief Financial Officer in December 1999. Mr. Dries has served as Senior Vice President of the Company since February 1999. He joined the Company in 1985 as Manager of Accounting and Auditing, became Director of that same department in 1986, was appointed Controller in 1988 and a Vice President in 1990. JAMES M. GIBBS was named Senior Vice President in February 1999 and has been President of the Flow Technology Segment since September 1998. Mr. Gibbs was President of The Marley Company in 1998, President of Marley Pump from 1996 to 1998, and President of Serco from 1994 to 1996. Prior to the Company's acquisition of Serco in April 1994, Mr. Gibbs was Chairman and Chief Executive Officer of Serco Corporation. TIMOTHY J. VERHAGEN was named President of the Company's Test Instrumentation Segment in December 1999, continuing as Senior Vice President, a position he has held since January 1998. Mr. Verhagen served as Vice President of the Company from October 1993 until January 1998. Prior to joining the Company, Mr. Verhagen was Vice President and Associate General Counsel for The Marley Company in Mission, Kansas from 1985 to 1993. LOTHAR WAHL was named President of the Company's Machinery Segment in September 1998 and has been Senior Vice President of the Company since January 1998. Mr. Wahl has served as President of the Company's Compaction Segment since 1994. Mr. Wahl joined BOMAG in 1969 and has held various positions since that time, including Senior Vice President of BOMAG from 1985 until 1993 and Chief Operating Officer of BOMAG from 1993 until 1994. JUNE P. HASSETT became a Vice President of the Company in July 1996. She joined the Company in 1980 as a research tax accountant, was named Manager of Federal Taxes in 1982, Director of Taxes in 1991, and Assistant Vice President in July 1995. 20 21 C. THEODORE LEINBACH III was named Controller in December 1999, continuing as a Vice President of the Company, a position to which he was appointed in February 1999. Mr. Leinbach joined the Company in 1989 as a Manager of Accounting, became a director of that department in 1992, and an Assistant Vice President in 1996. RICHARD L. MAGEE became a Vice President of the Company in July 1996 and Secretary of the Company in July 1997. He was appointed General Counsel in 1998. Mr. Magee joined the Company in 1989 as Assistant General Counsel and was appointed Associate General Counsel in 1993 and an Assistant Vice President in July 1995. B. J. SMITH became a Vice President of the Company in December 1999, having joined the Company as Assistant Vice President in November 1998. Prior to joining the Company, Mr. Smith worked in various human resources positions at Duke Energy Corporation, a Charlotte-based energy services company, most recently as senior human resources executive for its engineering services subsidiary DE&S, Inc. THOMAS J. SNYDER became a Vice President of the Company in June 1993. Mr. Snyder has been with the Company since 1977 in various positions within the corporate treasury department. He was appointed Treasurer of the Company in 1991. NANCY H. SPURLOCK was appointed Vice President of the Company in December 1999, having served as Assistant Vice President since August 1998. Ms. Spurlock joined the Company as Manager of Corporate Communications in October 1993 and has held various positions in that department during her tenure at the Company. 21 22 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION The following table, presented in accordance with the Canada Business Corporations Act ("CBCA") and the applicable provincial securities legislation in Canada, sets forth information concerning compensation paid to the Chief Executive Officer, and each of the other four most highly compensated executive officers of the Company (the "Named Executive Officers"), for services rendered to the Company and its subsidiaries during the financial years ended December 31, 1999, 1998 and 1997. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ---------------------------------- ------------------------------------- AWARDS PAYOUTS ------------------------- ------- OTHER ALL ANNUAL RESTRICTED SECURITIES LTIP OTHER COMPEN- STOCK UNDERLYING PAYOUTS COMPENSA- SALARY(1) BONUS(2) SATION(3) AWARDS(4) OPTIONS(5) (6) TION(7) NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($) - --------------------------- ---- --- --- --- --- --- --- --- W. R. Holland.............. 1999 850,000 615,825 126,808 894,160 72,750 536,831 4,322 Chairman & CEO 1998 850,000 603,202 85,942 38,097 70,000 571,954 4,843 1997 805,000 681,040 80,615 85,377 -- 656,860 4,250 G. A. Eisenberg............ 1999 315,000 117,731 48,810 243,698 15,000 124,168 333 President & COO 1998 293,750 144,749 28,981 30,652 58,000 100,209 302 1997 257,000 100,230 28,285 64,764 20,000 95,468 24,687 B. B. Burns, Jr............ 1999 292,000 159,505 36,059 177,699 15,000 103,148 631 Executive VP 1998 292,000 162,346 28,295 21,646 7,000 109,267 46,616 1997 286,000 130,425 25,422 69,191 22,500 88,745 99,780 J. M. Gibbs................ 1999 275,000 118,594 29,758 215,062 15,000 76,812 -- Senior VP and 1998 227,333 109,709 18,998 70,088 35,000 94,887 -- Segment President 1997 209,000 24,210 6,927 6,948 9,000 103,800 -- L. Wahl.................... 1999 348,600 325,419 8,328 -- 31,875 145,161 -- Senior VP and 1998 303,477 210,234 7,661 -- 47,500 151,182 -- Segment President 1997 289,353 162,761 7,510 65,104 12,000 283,067 --
- ---------- (1) Includes amounts voluntarily deferred pursuant to United Dominion Industries, Inc.'s Compass Plan (the "401(k) Plan"), a qualified defined contribution plan designed to satisfy the provisions of Section 401(k) of the United States Internal Revenue Code, and United Dominion Industries, Inc.'s Excess Deferred Compensation Plan (the "Excess Plan"), a non-qualified deferred compensation plan. (2) Bonuses were approved by the Compensation & Human Resources Committee (the "Comp Committee") and were paid in February of the following year. See "Report of the Compensation & Human Resources Committee on Executive Compensation." Amounts shown include amounts deferred pursuant to the 401(k) Plan and the Excess Plan. Amounts shown include only the cash portion of annual bonuses; Common Shares received pursuant to elections to receive shares in lieu of cash for a portion of the annual bonus are included in the column headed "Restricted Stock Awards." See Note (4) below. (3) Includes personal use of company airplane, gross-up of taxable use of company airplane, insurance on personal automobiles, automobile allowance, membership dues, executive tax service, health care benefits and credits, parking and matching contributions by the Company under the 401(k) Plan. (4) Includes the value of Common Shares issued in lieu of cash compensation under the Annual Management Incentive Plan of the Company (the "Annual Plan") and the Long-Term Management Performance Incentive Plan of the Company (the "Long-Term Plan"). These plans allow participants to elect to receive shares in lieu of a portion of cash bonuses, subject to the decision of the Comp Committee as to award multiple and eligible bonus percentage. The Comp Committee determines the maximum percentage of a participant's award that will be eligible for payment in Common Shares and an award multiple not to exceed 1.25. Participants in each of these plans may elect to receive Common Shares instead of cash, subject to the limitations established in the respective plans and by the Comp Committee. For awards each year, the Comp Committee approved an award multiple of 1.20 and allowed participants to elect to receive up to 35% of their incentive awards in Common Shares. Amounts shown in the "Bonus" column under "Annual Compensation" reflect the actual cash bonus received. Amounts shown in the "Restricted Stock Awards" column reflect the value of shares issued in lieu 22 23 of the cash bonus award otherwise payable under the Annual Plan (taking into account the award multiple). Amounts shown in the column "LTIP Payouts" include the cash award and the value of any Common Shares issued under the Long-Term Plan (taking into account the award multiple). Also includes for Mr. Holland, Mr. Eisenberg, Mr. Burns and Mr. Gibbs, the value of restricted share awards received in February 1999. (5) Stock options with respect to the indicated number of Common Shares were granted by the Comp Committee in February of each year indicated, except 1998, when options were awarded in February and October, and 1999 for Mr. Wahl, when options were also awarded in April. (6) Payments were approved by the Comp Committee and made pursuant to the Company's Long-Term Plan in February of each year based on performance units granted for the three-year period ended December 31 of the prior year. Amounts stated include the value of shares received pursuant to the plan as a result of elections by participants to receive shares in lieu of a portion of the cash bonus due. (7) Includes the following: for Mr. Burns (1997 and 1998), relocation reimbursements; for Mr. Eisenberg (1997), membership fees and related tax gross-up. Also includes imputed income on split dollar life insurance policies. Does not include amounts realized upon the exercise of stock options (see "Aggregated Option Exercises During the Most Recently Completed Financial Year and Financial Year-End Option Values"). STOCK OPTIONS The following table shows the stock options granted to the Named Executive Officers in February and April 1999. These non-qualified stock options become exercisable in thirds, one-third one year after date of grant, another one-third two years after date of grant, and the final one-third three years after date of grant. Options held by persons (including Mr. Holland) who are eligible to retire under United Dominion Industries, Inc.'s Revised Retirement Plan (age 55 plus not less than five years' service), become exercisable six months after grant. OPTION GRANTS IN MOST RECENT FINANCIAL YEAR
POTENTIAL REALIZABLE VALUE INDIVIDUAL GRANTS AT ASSUMED -------------------------------------- MARKET VALUE ANNUAL RATES OF % OF TOTAL OF SECURITIES SHARE PRICE NUMBER OF OPTIONS UNDERLYING APPRECIATION FOR UNDERLYING GRANTED TO OPTIONS OPTION TERM OPTIONS EMPLOYEES EXERCISE ON THE ------------------------- GRANTED IN FINANCIAL PRICE(1) DATE OF GRANT EXPIRATION 5% 10% NAME (#) YEAR ($CDN/SH) ($CDN) DATE(2) ($CDN) ($CDN) - ---- --- ---- --------- ------ ------- ------ ------ W. R. Holland........ 72,750 12.3% 29.80 2,167,950 02/11/09 1,363,000 3,455,000 G. A. Eisenberg...... 15,000 2.5% 29.80 447,000 02/11/09 281,000 712,000 B. B. Burns, Jr. .... 15,000 2.5% 29.80 447,000 02/11/09 281,000 712,000 J. M. Gibbs.......... 15,000 2.5% 29.80 447,000 02/11/09 281,000 712,000 L. Wahl.............. 15,000 2.5% 29.80 447,000 02/11/09 281,000 712,000 L. Wahl.............. 16,875 2.9% 32.775 553,078 04/26/09 348,000 881,000
- ---------- (1) The Exercise Price is the fair market value of the Common Shares on the grant date, defined to be the average of the previous day's high and low board-lot trading prices on the TSE. (2) Options expire 10 years after the date of the grant. If an officer retires, the 10-year period continues. The following table provides information as to options exercised by the Named Executive Officers in 1999 and the value of options held by such executives at year-end. 23 24 AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS SECURITIES AGGREGATED OPTIONS AT FY-END(#) AT FY-END($)(1) ACQUIRED ON VALUE ------------------------------- --------------------------------- NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE (2) UNEXERCISABLE - ---- ----------- -------------- -------------- ------------- --------------- ------------- W. R. Holland........ 48,000 267,008 332,750 100,000 251,644 -- G. A. Eisenberg...... -- -- 103,200 112,000 72,057 -- B. B. Burns, Jr. .... -- -- 106,333 64,667 242,935 -- J. M. Gibbs.......... -- -- 35,333 56,667 4,219 -- L. Wahl.............. -- -- 56,366 82,709 10,224 --
- ---------- (1) The values represent the difference between the exercise price of the options and the market price of Common Shares on the date of exercise (with respect to exercised options) and at year-end (with respect to unexercised options). (2) Exercisability was determined as of March 14, 2000. LONG-TERM INCENTIVE AWARDS The following table contains information regarding Performance Units awarded to the Named Executive Officers under the Long-Term Plan during the financial year ended December 31, 1999. The Long-Term Plan provides long-term cash incentive to focus corporate executives on achieving longer-term shareholder value. Shareholders approved the Long-Term Plan on April 27, 1999. Under the Long-Term Plan, participants receive annual grants of participation units that are payable at the end of three-year performance cycles. Long-Term incentive plans are also maintained on behalf of the Company's operating units for their key employees. Mr. Wahl participates in an operating unit plan; the other Named Executive Officers participate in the Long-Term Plan. LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FINANCIAL YEAR
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER NUMBER OF OTHER PERIOD NON-STOCK PRICE-BASED PLANS($) PERFORMANCE UNTIL MATURATION ------------------------------------------- NAME UNITS OR PAYOUT THRESHOLD TARGET MAXIMUM - ---- ----- --------- --------- ------ ------- W. R. Holland............. 5,950 1999-2001 301,070 595,000 N/A G. A. Eisenberg........... 1,260 1999-2001 63,756 126,000 N/A B. B. Burns, Jr........... 1,168 1999-2001 59,100 116,800 N/A J. M. Gibbs............... 1,100 1999-2001 55,660 110,000 N/A L. Wahl................... 1,394 1999-2001 70,536 139,400 N/A
UNITED DOMINION INDUSTRIES, INC. RETIREMENT PLAN The executive officers of the Company (other than Mr. Wahl) participate in the United Dominion Industries, Inc. Revised Retirement Plan (the "United Dominion Plan"), a qualified defined benefit plan available to all salaried employees of United Dominion Industries, Inc. The amount payable at age 65 is 0.8% of participant's final average earnings ("FAE"), defined as the annualized average of the highest consecutive five years of compensation out of the last ten years of employment, plus 0.6% of the participant's FAE in excess of the covered compensation (the average of the thirty-five social security wage bases in effect or projected to be in effect during the thirty-five years prior to the year during which the participant will reach age 65) multiplied by up to a maximum of 35 years of service. For each year of service over 35 years, the retirement benefit is increased by 0.5% of FAE. Compensation covered by the United Dominion Plan is total cash compensation paid during the plan year, including bonuses and awards made under the Annual Plan and Long-Term Plan described above, but excluding directors' fees and non-service related compensation. 24 25 The following table shows estimated annual gross benefits payable from the United Dominion Plan as a single life annuity upon retirement at age 65 in 1999 for employees in the salary classifications and with the years of service specified. The amount shown for each category is the total benefit payable under the United Dominion Plan benefit formula without regard to United States regulations which limit both the maximum benefit that can be paid from a qualified defined benefit plan and the amount of salary that can be included in a qualified plan's salary-based benefit formula. The Company pays the full amount due pursuant to the United Dominion Plan's benefit formula through a combination of the qualified defined benefit plan and either a non-qualified pension restoration plan or the Supplemental Plan described below. The Supplemental Plan provides additional retirement benefits to certain executives. See "Other Plans and Agreements."
AVERAGE CONTINUOUS BEST YEARS OF SERVICE FIVE YEARS OF ---------------------------------------------------------------------------- COMPENSATION 15 20 25 30 35 ------------ -- -- -- -- -- $ 100,000.......... $ 18,030 $ 24,040 $ 30,050 $ 36,060 $ 42,070 200,000.......... 39,030 52,040 65,050 78,060 91,070 300,000.......... 60,030 80,040 100,050 120,060 140,070 400,000.......... 81,030 108,040 135,050 162,060 189,070 500,000.......... 102,030 136,040 170,050 204,060 238,070 600,000.......... 123,030 164,040 205,050 246,060 287,070 800,000.......... 165,030 220,040 275,050 330,060 385,070 1,000,000.......... 207,030 276,040 345,050 414,060 483,070 1,200,000.......... 249,030 332,040 415,050 498,060 581,070 1,400,000.......... 291,030 388,040 485,050 582,060 679,070 1,600,000.......... 333,030 444,040 555,050 666,060 777,070 1,800,000.......... 375,030 500,040 625,050 750,060 875,070 2,000,000.......... 417,030 556,040 695,050 834,060 973,070
The Named Executive Officers (other than Mr. Wahl) have the credited years of service indicated beside each of their names: Mr. Holland -- 27, Mr. Burns -- 10, Mr. Eisenberg -- 10, Mr. Gibbs -- 22. Mr. Wahl does not participate in the United Dominion Plan; instead, he is covered by a German pension plan for BOMAG management. The plan is based on his salary, taking into account social security pension payments and years of service. The maximum annual amount payable under the BOMAG management plan is approximately 55% of Mr. Wahl's final salary. OTHER PLANS AND AGREEMENTS The Company provides a Supplemental Executive Retirement Plan (the "Supplemental Plan") to 12 of its key executives, including the Named Executive Officers except Mr. Wahl. Under the Supplemental Plan, a fully vested participant is eligible to receive a target annual benefit at age 62 equal to 60% of Final Average Earnings, reduced by retirement income from the United Dominion Plan described in the preceding section and Social Security. "Final Average Earnings" is defined for purposes of the Supplemental Plan as the average of the highest three years of "Eligible Income" out of the ten years immediately preceding retirement; Eligible Income includes salary and all incentive earnings under the Company's established incentive plans. To become fully vested under the Supplemental Plan a participant must accumulate, or be granted by the Comp Committee (as in the case of Messrs. Eisenberg and Burns), fifteen years of service. For purposes of the Supplemental Plan, Mr. Gibbs has been granted twelve years credit, five for his period of service with United Dominion and seven for his service with United Dominion's Serco business prior to its acquisition by United Dominion. Benefit accruals begin after five full years of service, with one-tenth of the target benefit vesting each year thereafter. All of the benefits under the Supplemental Plan are paid in a 50% joint and survivorship annuity for the life of the participant. A participant may elect to retire at any time after age 55 and receive a benefit, actuarially reduced, for life. 25 26 Pursuant to an agreement between Mr. Holland and the Company dated April 28, 1999, Mr. Holland will be entitled to receive his Supplemental Plan benefit in a lump sum upon his retirement or other separation from the Company. Also pursuant to the agreement, the discount computation rate that will be used to compute the lump sum benefit has been fixed at 5.25% (the 1999 GATT cash lump sum discount rate used in the United Dominion Plan). United Dominion Industries, Inc. has established a "grantor trust" (the "Trust") for the purpose of providing certain executives (including all of the Named Executive Officers other than Mr. Wahl) with greater assurances that the supplemental pension benefits to which such executives may be entitled under the Supplemental Plan and the change in control agreements described under the heading "Change in Control Agreements" would be satisfied in the event of a "change in control" as defined in the Trust (collectively, the "Covered Benefits"). The Trust is intended to constitute an "unfunded" arrangement. However, United Dominion Industries, Inc. has deposited into the Trust a letter of credit in the face amount of approximately $32.8 million, which is equal to 120% of the estimated value of the Covered Benefits that would be payable assuming a change in control had occurred on January 1, 1999 and all of the covered executives had terminated employment on that date. The Covered Benefits are redetermined annually as of January 1 of each year. To the extent the aggregate value of the Covered Benefits increases, additional contributions (in the form of letters of credit or otherwise) are required to be made to maintain the assets of the Trust at a level equal to 120% of the estimated benefit values. Upon the occurrence of a change in control, United Dominion Industries, Inc. is required to make additional contributions to the Trust in cash so that the aggregate amount of the assets held by the Trust equals 120% of the Covered Benefits determined as of the date such change occurs. The letter(s) of credit would be drawn upon to the extent any supplemental pension benefits which become payable under the Supplemental Plan or the change in control agreements are not otherwise paid by United Dominion Industries, Inc. The assets of the Trust are subject to the claims of the creditors of United Dominion Industries, Inc. in the event United Dominion Industries, Inc. becomes "Insolvent" as defined in the Trust. The Company also provides several other supplemental executive benefit plans to the Named Executive Officers, including split-dollar life insurance and long-term disability insurance. The life insurance plan provides participants a death benefit equal to one hundred percent of their current salary and prior year's incentive bonus. The supplemental long-term disability plan provides a make-up benefit to ensure that participants receive a disability benefit at least equal to 60% of eligible total compensation when combined with the Company's group long-term disability benefit plan. CHANGE IN CONTROL AGREEMENTS United Dominion Industries, Inc. has agreements with fifteen of its key employees, including each of the Named Executive Officers except Mr. Wahl, providing for protection in the event of a change in control of the Company. In general, the agreements provide for (a) a lump-sum severance payment by United Dominion Industries, Inc. to the employee equal to the amount of base salary that the employee would have earned had he continued to be employed until the earlier of (i) the end of the thirty-six month period following the date of termination or (ii) the attainment of normal retirement age, assuming the employee's salary rate would be equal to his highest monthly rate during the thirty-six month period preceding termination, (b) amounts in lieu of continued participation in incentive compensation and stock option plans based on assumptions concerning the Company's results for the thirty-six month period following termination and the employee's continued participation for the period, (c) insurance and other benefits for the thirty-six month period after termination (to the extent the employee does not receive comparable benefits during the period), and (d) supplemental pension benefits, if the Company experiences a change in control and the employee is terminated for reasons other than death, disability, retirement or cause, or terminates his employment for reasons relating 26 27 to a change in, among other things, his compensation, duties, benefits or location. These agreements are designed to provide the benefits the employee would have received had he continued working for United Dominion Industries, Inc. for three additional years. The amount to be paid is not subject to reduction for compensation earned from subsequent employment or from subsequent pension benefits. The agreements provide for a "gross-up" of the awards to reimburse participants for any excise tax payable on account of any "excess parachute payment" under United States Internal Revenue Code Section 280(G). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN PERSONS The directors and officers of the Company believe that, as of March 14, 2000, the following persons beneficially owned, directly or indirectly, or exercised control or direction over, Common Shares carrying more than 5% of the votes attached to the Common Shares:
PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF COMMON SHARES OUTSTANDING - ------------------------------------ ----------------------- ----------- Ontario Teachers' Pension Plan Board (1)............. 4,679,031 12.0% 5650 Yonge Street, 5th Floor Toronto, Ontario M2M 4H5 TAL Global Asset Management Inc. (2)................. 3,475,016 8.9% 1000 de la Gauchetiere West, Suite 3100 Montreal, Quebec H3B 4W5 Mackenzie Financial Corporation (3).................. 3,067,400 7.8% 150 Bloor Street West, Suite M111 Toronto, Ontario M5S 3B5 The Prudential Insurance Company of America (4)...... 2,058,500 5.3% 751 Broad Street Newark, New Jersey 07102-3777
- ------ (1) Ontario Teachers' Pension Plan Board ("Ontario Teachers") provides pension services to active and retired teachers and is the largest single invested pension plan in Canada. As of March 14, 2000, according to a Schedule 13D/A filed with the Company and the United States Securities and Exchange Commission on March 15, 2000, Ontario Teachers had sole dispositive and voting power in respect of the number of Common Shares shown. (2) On February 12, 2000, TAL Global Asset Management Inc. ("TAL"), filed a report on Schedule 13G indicating that, in its capacity as a registered investment advisor and in the ordinary course of its business, it has sole dispositive power over the referenced number of Common Shares and sole voting power over 181,497 Common Shares. TAL manages common stock and bond portfolios for mutual funds and institutional and private investors. According to T.A.L., none of the several accounts that it manages has an interest in more than 5% of the Common Shares. (3) On February 14, 2000, Mackenzie Financial Corporation filed a report on Schedule 13G in its capacity as an investment advisor indicating that several accounts it manages have the right to receive dividends and proceeds from the sale of the referenced number of Common Shares. Mackenzie, a registered investment adviser, indicated that none of these accounts individually owns more than 5% of the Common Shares. (4) The Prudential Insurance Company of America informed the Company in March 2000 that, at the end of February 2000, it had direct or indirect voting and/or investment discretion over the referenced number of Common Shares, which are held for the benefit of its clients. Prudential is a Newark, New Jersey based insurance company and a registered investment adviser. The directors and officers of the Company are not aware of any other person who beneficially owns, directly or indirectly, or exercises control or direction over, 5% or more of the Common Shares. 27 28 SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT The following table presents the number of equity securities of the Company beneficially owned, directly or indirectly, or controlled or directed by, its directors, nominees and executive officers (with sole voting and investment power, except as otherwise indicated) as of March 14, 2000. Beneficial ownership has been determined in accordance with subsection 2(1) of the CBCA and Rule 13d-3 under the United States Securities Exchange Act of 1934, as amended.
TOTAL SHARES NUMBER OF OPTIONS PRESENTLY BENEFICIALLY PERCENT OF NAME OF BENEFICIAL OWNER SHARES(A) EXERCISABLE OWNED CLASS - ------------------------ --------- ----------- ----- ----- Donald N. Boyce....................... 1,000 7,000 8,000 (b) Hermann Buerger....................... 2,000 7,000 9,000 (b) James E. Courtney..................... 1,535 13,000 14,535 (b) Peter A. Crossgrove................... 5,000 12,000 17,000 (b) R. Stuart Dickson..................... 1,790 14,000 15,790 (b) Jere A. Drummond...................... 0 0 0 (b) James A. Grant........................ 1,000 14,000 15,000 (b) William R. Holland.................... 253,041(c)(d) 332,750 585,791 1.5% Russell C. King, Jr................... 5,000 9,000 14,000 (b) John T. Mayberry...................... 1,000 0 1,000 (b) Harry A. Nurkin....................... 1,000 0 1,000 (b) Dalton D. Ruffin...................... 6,757 14,000 20,757 (b) William W. Stinson..................... 15,042 19,000 34,042 (b) George S. Taylor....................... 11,000 10,000 21,000 (b) All directors and executive officers as a group (28 persons)......................... 424,901(c)(d) 993,422 1,418,323 3.5%
- ---------- (a) Shares listed are Common Shares actually owned beneficially, not including presently exercisable options. (b) Less than 1% of the outstanding Common Shares. (c) Includes, for Mr. Holland, 88,626 restricted Common Shares, and for all directors and executive officers as a group, 154,691 restricted Common Shares. (d) Does not include Common Shares held in United Dominion Industries, Inc.'s Compass Plan, a qualified defined contribution plan designed to satisfy the provisions of Section 401(k) of the United States Internal Revenue Code, which permits investment of employee accounts in a pooled fund invested principally in Common Shares and maintained for the plan by its plan administrator. The following table shows the fees payable to directors of the Company. Directors who also serve as executive officers of the Company are not separately compensated for serving as directors. Directors are also paid their out-of-pocket expenses for attending each meeting of the Board of Directors of the Company and its committees. SCHEDULE OF BOARD AND COMMITTEE FEES Board of Directors Annual Retainer................................. $30,000 Fee per Meeting................................. 1,200 Executive Committee Annual Retainer................................. 4,500 Compensation & Human Resources Committee Annual Retainer................................. 4,000 Fee per Meeting................................. 1,200 Audit & Risk Management Committee Annual Retainer................................. 4,000 Fee per Meeting................................. 1,200 Nominating & Corporate Governance Committee Annual Retainer................................. 4,000 Fee per Meeting................................. 1,200 In the most recently completed financial year, the Company paid fees in the aggregate amount of U.S. $642,775 to thirteen directors. In 1999, ten directors were each granted options to purchase 2,000 Common Shares pursuant to the Company's non-qualified Stock Option and Restricted Stock Plan. 28 29 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS DIRECTORS' AND OFFICERS' LIABILITY INSURANCE The Company and its directors and officers are covered under a directors' and officers' liability insurance policy maintained by the Company that has aggregate coverage limits of $100,000,000. This policy includes a per-loss deductible of $250,000 with regard to claims against the Company, but no deductible with regard to claims against individual directors and officers. The premium paid by the Company in 1999 was $273,750 in respect of its officers and directors as a group. The Company paid all of the premiums. CERTAIN BUSINESS RELATIONSHIPS AND RELATED TRANSACTIONS The Honorable James A. Grant, P.C., Q.C., a director of the Company (and a nominee for re-election), is a partner in the law firm Stikeman Elliott, which provides certain legal services to the Company. Mr. William W. Stinson, a director of the Company (and a nominee for re-election) entered into a management consulting agreement with the Company effective January 1, 1998. That agreement was renewed for successive additional one-year terms effective January 1, 1999 and January 1, 2000. Mr. Stinson was paid $150,000 during 1999 and will be paid $150,000 during 2000 pursuant to the agreement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: 1. Financial Statements The Index to Consolidated Financial Statements and Schedule on page 32 of this report is incorporated herein by this reference. 2. Financial Statement Schedules The portion of the Index to Consolidated Financial Statements and Schedule under the caption "Consolidated Financial Statement Schedule" on page 32 of this report is incorporated herein by this reference. 3. Exhibits The list of the Exhibits contained in the Exhibit Index on pages 36-38 of this report is incorporated herein by this reference. The Company is a foreign private issuer and accordingly has not included financial data schedules. (b) Reports on Form 8-K: The Company filed no reports on Form 8-K during the fourth quarter of 1999. 29 30 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, on the 28th day of March, 1999. UNITED DOMINION INDUSTRIES LIMITED By: /s/ W. R. Holland ---------------------------------- W. R. Holland Chairman of the Board and Chief Executive Officer By: /s/ R. L. Magee ---------------------------------- R. L. Magee Vice President and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the date indicated. Signature Title Date --------- ----- ---- /s/ W. R. Holland Chairman of the Board, March 28, 2000 - ------------------------------ Chief Executive Officer W. R. Holland and Director /s/ G. A. Eisenberg President and March 28, 2000 - ------------------------------ Chief Operating Officer G. A. Eisenberg /s/ W. Dries Senior Vice President and March 28, 2000 - ------------------------------ Chief Financial Officer W. Dries /s/ C. T. Leinbach III Vice President and March 28, 2000 - ------------------------------ Controller C. T. Leinbach III /s/ D. N. Boyce * Director March 28, 2000 - ------------------------------ D. N. Boyce /s/ H. Buerger * Director March 28, 2000 - ------------------------------ H. Buerger /s/ J. E. Courtney * Director March 28, 2000 - ------------------------------ J. E. Courtney /s/ P. A. Crossgrove * Director March 28, 2000 - ------------------------------ P. A. Crossgrove 30 31 /s/ R. S. Dickson * Director March 28, 2000 - ------------------------------ R. S. Dickson /s/ J. A. Drummond * Director March 28, 2000 - ------------------------------ J. A. Drummond /s/ J. A. Grant * Director March 28, 2000 - ------------------------------ J. A. Grant /s/ R. C. King, Jr. * Director March 28, 2000 - ------------------------------ R. C. King, Jr. /s/ J. T. Mayberry * Director March 28, 2000 - ------------------------------ J. T. Mayberry /s/ H. A. Nurkin * Director March 28, 2000 - ------------------------------ H. A. Nurkin /s/ D. D. Ruffin * Director March 28, 2000 - ------------------------------ D. D. Ruffin /s/ W. W. Stinson * Director March 28, 2000 - ------------------------------ W. W. Stinson /s/ G. S. Taylor * Director March 28, 2000 - ------------------------------ G. S. Taylor - ------------ * By R. L. Magee, Attorney-in-Fact, pursuant to Powers of Attorney filed as Exhibits hereto. 31 32 United Dominion Industries Limited and Consolidated Subsidiaries Index to Consolidated Financial Statements and Schedule Page ---- Consolidated Financial Statements Consolidated Statements of Financial Position as of December 31, 1999 and 1998......................................... * Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997............................. * Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997................... * Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997....................... * Notes to Consolidated Financial Statements........................... * Auditors' Report..................................................... * Auditors' Report..................................................... 33 Consent of Chartered Accountants..................................... 34 Consolidated Financial Statement Schedule for the years ended December 31, 1999, 1998 and 1997 Schedule II - Allowance for Doubtful Accounts........................ 35 Schedules not included have been omitted because the required information is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the Consolidated Financial Statements or the Notes thereto. * Incorporated herein by reference to pages 32-45 of the Company's 1999 Annual Report to Shareholders. 32 33 INDEPENDENT AUDITORS' REPORT The Shareholders United Dominion Industries Limited: Under date of January 28, 2000, we reported on the consolidated statements of financial position of United Dominion Industries Limited as at December 31, 1999 and 1998, and the related consolidated statements of income, cash flows and changes in shareholders' equity for each of the years in the three-year period ended December 31, 1999, as contained in the 1999 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1999. In connection with our audits of the aforementioned consolidated financial statements, we have audited the related financial statement schedule in the accompanying Index to Consolidated Financial Statements and Schedule as of and for the years ended December 31, 1999, 1998 and 1997. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Chartered Accountants Toronto, Canada January 28, 2000 33 34 INDEPENDENT AUDITORS' CONSENT The Shareholders United Dominion Industries Limited: We consent to incorporation by reference in Registration Statements Nos. 33-46701, 2-92247, 33-65044, 33-97696, 333-1824 and 333-8230 of United Dominion Industries Limited on Forms S-8 and Registration Statement No. 333-94847 of United Dominion Industries Limited, United Dominion Holdings, Inc. and United Dominion Industries, Inc. on Form F-3 of our reports dated January 28, 2000, relating to the consolidated statements of financial position of United Dominion Industries Limited as at December 31, 1999 and 1998 and the related consolidated statements of income, cash flows and changes in shareholders' equity and the related financial statement schedule for each of the years in the three-year period ended December 31, 1999, which reports appear in or are incorporated by reference in the December 31, 1999 annual report on Form 10-K of United Dominion Industries Limited. KPMG LLP Chartered Accountants Toronto, Canada March 29, 2000 34 35 UNITED DOMINION INDUSTRIES LIMITED SCHEDULE II - ALLOWANCE FOR DOUBTFUL ACCOUNTS Years Ended December 31, 1999, 1998 and 1997 (in thousands)
Balance, Additions Balance, beginning charged to Write-off of end of Description of year income receivables Other (1) year - ----------- --------- ---------- ------------ --------- -------- 1999: Reserve deducted from assets: Allowance for doubtful accounts.................. $10,725 $ 2,306 $ (2,450) $ (935) $ 9,646 ======= ======= ======== ====== ======= 1998: Reserve deducted from assets: Allowance for doubtful accounts.................. $10,114 $ 1,991 $ (1,358) $ 22 $10,725 ======= ======= ======== ====== ======= 1997: Reserve deducted from assets: Allowance for doubtful accounts.................. $ 9,919 $ 4,104 $ (3,156) $ (753) $10,114 ======= ======= ======== ====== =======
(1) In 1997, relates primarily to the sale of Varco-Pruden, Windsor Door and Centria partially offset by the acquisition of Core Industries. 35 36 EXHIBIT INDEX** Exhibit Number ------- 3.1 o The Company's Charter as amended (Exhibit 3.1 to Registrant's Form 10-K filed March 29, 1991) 3.2 o The Company's Bylaws as amended (Exhibit 3.2 to Registrant's Form 10-K filed March 29, 1995) 4.1 o Description of Registrant's Securities (See Registrant's Form 8-K filed May 9, 1996) *10.1 o Amended and Restated United Dominion Industries, Inc. Corporate Annual Incentive Compensation Plan, as approved by shareholders on April 27, 1999 *10.1(a) o Amended and Restated United Dominion Industries, Inc. Operating Unit Annual Incentive Compensation Plan 10.2 o $450,000,000 Second Amendment and Restatement of the Credit Agreement and Guaranty dated as of July 28, 1997 among United Dominion Industries Limited, United Dominion Industries, Inc. and United Dominion Holdings, Inc., as obligors, Royal Bank of Canada, as agent bank, and the bank group named therein (Exhibit 10.2 to Registrant's Form 10-K filed March 26, 1998) 10.3 o United Dominion Industries, Inc. Compass Plan (Exhibit 4 to Registrant's Form S-8 filed October 3, 1995) *10.4 o United Dominion Industries, Inc. Supplemental Executive Retirement Plan (as amended and restated effective January 1, 1999) *10.5 o Form of United Dominion 1999 Change of Control Agreement with certain executive officers dated on or about March 1, 1999 *10.6 o United Dominion Industries Limited 1999 Stock Option and Restricted Stock Plan, as approved by shareholders on April 27, 1999 *10.7 o Amended and Restated United Dominion Industries, Inc. Long-Term Performance Incentive Plan as approved by shareholders on April 27, 1999 *10.7(a) o Amended and Restated United Dominion Industries, Inc. Operating Unit Long-Term Performance Incentive Plan 10.8 o United Dominion Industries Restoration Plan for the Salaried Defined Benefit Retirement Plans of United Dominion Industries, Inc. (Exhibit 10.8 to Registrant's Form 10-K filed March 29, 1996) 10.9 o Form of Executive Life Insurance Agreement for executive officers of United Dominion Industries, Inc. (Exhibit 10.9 to Registrant's Form 10-K filed March 29, 1996) 10.10 o Statements of Policy Cost and Benefit Information for split dollar life insurance policies on the life of W. R. Holland (Exhibit 10.10 to Registrant's Form 10-K filed March 29, 1996) 36 37 10.11 o Note Agreement dated September 21, 1992 between the Company, as Issuer, United Dominion Industries, Inc., as Guarantor, and the several United States insurance companies party thereto, in connection with the Company's issuance of U.S. $75 million 8.25% Senior Notes due 2002 (Exhibit 10.9 to Registrant's Form 10-K filed March 27, 1993) 10.12 o Note Agreement dated December 21, 1993 between United Dominion Industries, Inc., as Issuer, the Registrant, as Guarantor, and the several United States insurance companies party thereto, in connection with the issuance by United Dominion Industries, Inc. of U.S. $117 million 6.80% Senior Notes due 2002 (Exhibit 10.15 to Registrant's Form 10-K filed March 28, 1994) 10.13 o Note Purchase and Private Shelf Facility dated June 25, 1995 between United Dominion Industries, Inc., as Issuer, the Registrant, as Guarantor, and the Prudential Insurance Company of America in connection with the issuance by United Dominion Industries, Inc. of U.S. $50 million 7.67% Senior Series A Notes due 2007 and the possible issuance of up to U.S. $50 million of additional Senior Notes (Exhibit 10.13 to Registrant's Form 10-K filed March 29, 1996) 10.14 o Amended and Restated Receivables Sale Agreement dated as of January 31, 1995 among United Dominion Industries, Inc., as Seller and Collection Agent, Asset Securitization Cooperative Corporation, as Purchaser, and Canadian Imperial Bank of Commerce, as Servicing Agent, in connection with United Dominion Industries, Inc.'s $115 million facility for the on-going sale and collection of trade receivables of certain of its business units (Exhibit 10.10 to Registrant's Form 10-K filed March 29, 1995) 10.16 o Summary of Terms relating to the consulting arrangements between William W. Stinson and the Registrant (Exhibit 10.16 to Registrant's Form 10-K filed March 26, 1998) 10.17 o Letter Agreement dated February 16, 1996 between William R. Holland and the Registrant granting Mr. Holland restricted common shares (Exhibit 10.17 to Registrant's Form 10-K filed March 26, 1998) *10.18 o Letter Agreement dated April 28, 1999 between William R. Holland and the Registrant relating to the application to Mr. Holland of the Registrant's Supplemental Executive Retirement Plan *10.18 (a) o Letter Agreement dated November 30, 1999 between William R. Holland and the Registrant relating to the application to Mr. Holland of the Registrant's Supplemental Executive Retirement Plan 10.19 o Note Purchase Agreement dated as of May 1, 1998 among United Dominion Industries, Inc., as Issuer, United Dominion Holdings, Inc. and the Registrant, as Guarantors, and the several United States insurance companies party thereto, in connection with the Company's issuance of U.S. $110 million 6.64% Senior Notes, Series 1998-A due 2008 (Exhibit 10.19 to Registrant's Form 10-K filed March 26, 1999) *13 o Portions of the Company's Annual Report to Shareholders for the year ended December 31, 1999 that are expressly incorporated by reference into this Form 10-K *21 o Subsidiaries of United Dominion Industries Limited *24(a) o Power of Attorney of D. N. Boyce dated February 11, 2000 *24(b) o Power of Attorney of H. Buerger dated February 11, 2000 37 38 *24(c) o Power of Attorney of J. E. Courtney dated February 11, 2000 *24(d) o Power of Attorney of P. A. Crossgrove dated February 11, 2000 *24(e) o Power of Attorney of R. S. Dickson dated February 11, 2000 *24(f) o Power of Attorney of J. A. Drummond dated February 11, 2000 *24(g) o Power of Attorney of J. A. Grant dated February 11, 2000 *24(h) o Power of Attorney of R. C. King, Jr. dated February 11, 2000 *24(i) o Power of Attorney of J. T. Mayberry dated February 11, 2000 *24(j) o Power of Attorney of H. A. Nurkin dated February 11, 2000 *24(k) o Power of Attorney of D. D. Ruffin dated February 11, 2000 *24(l) o Power of Attorney of W. W. Stinson dated February 11, 2000 *24(m) o Power of Attorney of G. S. Taylor dated February 11, 2000 *99 o Management Proxy Circular/Proxy Statement dated March 22, 2000 in connection with the Annual and Special Meeting of Shareholders of United Dominion Industries Limited to be held on April 25, 2000 * Included herewith. The exhibits not so included are incorporated herein by reference to the exhibits to the prior filings indicated in parentheses. Each included exhibit is to be deemed "filed" herewith except Exhibit 99, the Company's Management Proxy Circular/Proxy Statement dated March 22, 2000, which is furnished herewith for information purposes and not deemed "filed". ** The Company is a foreign private issuer and accordingly has not included financial data schedules. 38 39 EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS o Amended and Restated United Dominion Industries, Inc. Corporate Annual Incentive Compensation Plan, as approved by shareholders on April 27, 1999 (Exhibit 10.1 to this Form 10-K) o Amended and Restated United Dominion Industries, Inc. Operating Unit Annual Incentive Compensation Plan (Exhibit 10.1(a) to this Form 10-K) o United Dominion Industries, Inc. Compass Plan effective January 1, 1995 (Exhibit 4 to Registrant's Form S-8 filed October 3, 1995) o United Dominion Industries, Inc. Supplemental Executive Retirement Plan as amended and restated effective January 1, 1999 (Exhibit 10.4 to this Form 10-K) o Form of United Dominion 1999 Change in Control Agreement effective March 1, 1999 (Exhibit 10.5 to this Form 10-K) o United Dominion Industries Limited Stock Option and Restricted Stock Plan (Revised and Restated), as approved by shareholders on April 27, 1999 (Exhibit 10.6 to this Form 10-K) o Amended and Restated United Dominion Industries, Inc. Long-Term Performance Incentive Plan, as approved by shareholders on April 27, 1999 (Exhibit 10.7 to this Form 10-K) o Amended and Restated United Dominion Industries, Inc. Operating Unit Long-Term Performance Incentive Plan (Exhibit 10.7(a) to this Form 10-K) o United Dominion Industries Restoration Plan for the Salaried Defined Benefit Retirement Plans of United Dominion Industries, Inc. effective January 1, 1995 (Exhibit 10.8 to Registrant's Form 10-K filed March 29, 1996) o Form of Executive Life Insurance Agreement for executive officers of United Dominion Industries, Inc. (Exhibit 10.9 to Registrant's Form 10-K filed March 29, 1996) o Statements of Policy Cost and Benefit Information for split dollar life insurance policies on the life of W. R. Holland (Exhibit 10.10 to Registrant's Form 10-K filed March 29, 1996) o Letter Agreement dated February 16, 1996 between William R. Holland and the Registrant (Exhibit 10.17 to Registrant's Form 10-K filed March 26, 1998) o Letter Agreement dated April 28, 1999 between William R. Holland and the Registrant relating to the application to Mr. Holland of the Registrant's Supplemental Executive Retirement Plan (Exhibit 10.18 to this Form 10-K) o Letter Agreement dated November 30, 1999 between William R. Holland and the Registrant relating to the application to Mr. Holland of the Registrant's Supplemental Executive Retirement Plan (Exhibit 10.18(a) to this Form 10-K) 39 EX-10.1 2 AMENDED CORPORATE INCENTIVE COMPENSATION PLAN 1 EXHIBIT 10.1 ANNUAL MANAGEMENT INCENTIVE COMPENSATION (MIC) PLAN FOR CORPORATE OFFICERS 1. PURPOSE The purpose of the United Dominion Industries, Inc. (the "Company") Annual Management Incentive Compensation Plan for Corporate Officers (the "Plan") is to provide an opportunity for corporate officers to earn incentive compensation based upon the performance of the corporation, including its divisions and subsidiaries. In particular, this Plan is designed to (a) pay Participants incentive compensation for meeting or exceeding various performance targets for the fiscal year; (b) link corporate management with the Company's strategic performance objectives; and (c) maintain competitiveness with general industry norms in executive compensation. 2. DEFINITIONS The following words shall have the following meanings unless the context clearly states otherwise: Board of Directors means the Company's Board of Directors. Target Award means the amount of annual incentive to be paid to a Participant under the Plan in the event the corporation achieves 100% of its Plan targets for the fiscal year. CEO means the Chief Executive Officer of the Company. CHRC means the Compensation and Human Resources Committee of the UDIL Board of Directors, which also handles compensation and human resources matters for the Company. Company means United Dominion Industries, Inc., a Delaware corporation. Annual Incentive means the incentive amount payable to a Participant under the Plan. Fiscal Year means the fiscal year of the Company, which currently is the twelve-month period ending December 31. Participant means an employee of the Company eligible to receive an annual incentive under this Plan. Plan means the United Dominion Industries, Inc. Annual Management Incentive Compensation Plan for Corporate Officers. Performance Targets means the performance targets assigned to the corporate unit. UDIL means United Dominion Industries Limited, a Canadian Corporation, which is the ultimate parent company of the Company. The Company provides management services for UDIL pursuant to a management agreement. 3. ELIGIBILITY Participation in the Plan shall be limited to corporate officers or other key corporate managers appointed by the CEO, with the approval of the CHRC. Additions or deletions to the Plan during a Fiscal Year shall be made only in the event of an unusual circumstance, such as a promotion or new hire. 4. DETERMINATION OF MAXIMUM AMOUNT PAYABLE The CHRC, after consultation with the CEO, may determine a maximum aggregate payment under the Plan to be made by the corporate unit for each Fiscal Year. The final determination of the maximum aggregate payment under the Plan for each Fiscal Year shall be made prior to the commencement of such Fiscal Year. In no event may any award payable pursuant to the Plan exceed 2.5 times the Participant's eligible base salary, or $2.5 million, whichever is the lesser amount. 1 2 5. DETERMINATION OF TARGET AWARDS AND PERFORMANCE TARGETS (a) Target Awards -- Each Participant shall be assigned a Target Award consistent with guidelines published by the Company's corporate Human Resources Department. All assignments are subject to the final approval of the CEO and CHRC. Generally, the Target Award categories will be designated as follows, with the percent listed below Target being the percent of Participant's base salary:
CATEGORY TARGET - -------- ------ AA.......................................................... 70% A........................................................... 50% BB.......................................................... 45% B........................................................... 40% CC.......................................................... 35% C........................................................... 30% DD.......................................................... 25% D........................................................... 20% EE.......................................................... 15% E........................................................... 10%
(b) Performance Targets -- Performance Targets shall be assigned for the Fiscal Year, against which the corporation's performance will be measured. The CEO will determine the Performance Targets, subject to the approval of the CHRC. Until revised pursuant to the Plan, the Performance Targets will be based upon predetermined Sales Growth and Return on Equity (ROE) measures. The category definitions are: Sales Growth is UDIL's Net Sales for the relevant Plan year compared to UDIL's Net Sales for the prior Plan year, expressed as a percentage. The percentage is derived from the following formula: Net Sales Current Year - Net Sales Prior Year --------------------------------------------------- Net Sales Prior Year ROE is UDIL's Return on Equity. The percentage is derived from the following formula: Net Income ----------------------- Ave. Common Equity Net Income is UDIL's Net Income as reported in UDIL's Annual Report and Average Common Equity is UDIL's monthly Average Common Equity during the Plan Year. The accounting definitions of Net Income and Average Common Equity shall be as determined by the Company's corporate Accounting Department from time-to-time. As soon as practicable after the beginning of each Fiscal Year, each Participant shall be notified of the Performance Targets by the Company's corporate Human Resources Department. 6. DETERMINATION OF ANNUAL INCENTIVE The incentive is derived by comparing the actual full-year Sales Growth and ROE accomplishment to the Plan Matrix. The Matrix has Sales Growth values on one axis and ROE values on a second axis. The actual award, if any, is determined by identifying the intersecting cell value in the Sales Growth row and ROE column that most nearly matches UDIL's actual performance in both categories. When an actual performance value is equidistant between two cell values in the Matrix, rounding up derives the applicable cell value. This "Point of Intersection" of the applicable row and column contains an award multiplier. To determine the amount of the bonus earned, the Participant multiplies his or her target bonus 2 3 by the value (expressed as a percentage) in the Point of Intersection. Below is a sample of the Plan matrix:
12% 100 110 120 140 160 SALES 11% 90 100 110 120 130 GROWTH 10% 80 90 100 110 120 9% 65 75 85 95 105 8% 55 65 75 85 95 9.6% 10.8% 12.0% 13.2% 14.4% ROE
The CEO, subject to approval of the CHRC, or the CHRC, may make negative adjustments to the calculated awards, but may not make any positive adjustments pursuant to this Plan. As soon as practicable after the end of the Fiscal Year, the Company's corporate Human Resources Department shall ensure that each Participant is notified of the amount of his Annual Incentive. 7. TIME FOR PAYMENTS Annual Incentives normally will be paid by the end of the second month following the Fiscal Year. Notwithstanding the normal payment date, each Participant shall have the right to elect to defer all or a part of his payment under the Award pursuant to the Company's Excess Deferral Plan. 8. FORM OF PAYMENTS (a) At the end of the Company's fiscal year, after the Company's financial results are final and the CHRC has approved such results, any awards earned under the Plan shall be paid in cash to Participants. However, in the discretion of the CHRC, Participants may be allowed to elect to have all or part of such award paid in common shares of UDIL ("Common Shares") at "Fair Market Value." The "Fair Market Value" of a Common Share is the average of the daily high and low board lot trading prices of a Common Share on The Toronto Stock Exchange on the most recent trading day next preceding the date an award is approved. (b) In an effort to encourage stock ownership, and subject to all applicable regulations of any securities or exchange body having jurisdiction over the Company or UDIL, the CHRC may, at its sole discretion, allow Participants to elect to have all or a portion of a predetermined multiple of their earned awards paid to them in Common Shares, subject to the following conditions: (i) The award multiple payable in Common Shares shall be 1.25 times the award's calculated cash value under the Plan for the relevant Plan year (the "Share Premium"). The CHRC, in its sole discretion, may reduce the Share Premium, but in no instance may it increase the Share Premium above 1.25 times the cash award otherwise payable. (ii) The CHRC, at its sole discretion, may limit the percentage of any Participant's calculated award that is eligible for payment in Common Shares under the Plan. (iii) Any Participant who elects to receive Common Shares in lieu of cash shall be obligated to retain ownership of such shares for at least eighteen months after the date of grant; provided, however, in the event the Share Price of the Common Shares at any time declines to 75% or less of the Fair Market Value at the time of grant, the Participant shall be permitted to immediately sell or otherwise transfer such shares free of such restrictions. The aforesaid restrictions shall survive the Participant's termination of employment from the Company for any reason, other than in the case of Participant's death, disability, retirement or other termination of employment in which case all such restrictions on the sale or transfer of the affected Participant's Common Shares immediately shall lapse. 3 4 (iv) In order for a Participant to be eligible to receive any Common Shares under the Plan, he or she must complete a written election form and tender it to the Company's corporate Human Resources Department on or before such date as it may set. Such election must state that the Participant elects to receive a percentage (from 5% to 100% in 5% increments, subject to any maximum established by the CHRC) of his or her incentive award in Common Shares. To facilitate an informed election, the Company shall inform all eligible Participants at least twenty (20) days prior to the end of the year upon which any incentive is based: (1) whether any Common Shares in lieu of cash will be offered, (2) the maximum percentage of any incentive subject to the Common Shares election, and (3) the amount of the Share Premium, if any. In the event a Participant has elected to defer a portion (or all) of his or her applicable incentive award, such deferred portion (or all such award, as the case may be) shall not be available for the Common Share election described in this subsection 8(b), above. (v) In the event the CHRC elects to grant a share election option, the Company shall provide a written disclosure of the general tax treatment of such action prior to and as a condition of accepting any election to accept Common Shares in lieu of cash under this Plan. (vi) The Company will withhold from any payments made pursuant to the Plan any taxes required to be withheld under applicable federal, state and local tax regulations. In addition, if necessary under the circumstances to ensure compliance with applicable withholding requirements, the Company reserves the right to condition the tender of Shares to the Participant on the Participant's prior payment of required withholding taxes to the Company. (vii) The aggregate number of Common Shares available for issuance from and after April 27, 1999 under the terms of the Plan at any time shall not exceed an aggregate of 50,000 Common Shares. 9. ADMINISTRATION OF THE PROGRAM The overall control of the Program, including final determination of the Awards to each Participant, is the responsibility of the CHRC and the CEO. The Company's senior corporate human resources officer shall be responsible for administering and implementing any actions required under the Program. 10. STATUS CHANGES OF PARTICIPANT DURING YEAR In the event a Participant's base salary changes during the course of the Plan Year, the eligible salary for purposes of calculating any incentive due shall be no greater than 130% of the Participant's base salary rate in effect as of January 1 of said Year. In the event a Participant changes positions or makes an inter-company transfer during the course of the Plan Year, and a result, is assigned a different incentive category, any incentive due shall be prorated, based on the number of complete months in each such category. In the event an employee is appointed a Participant in the Plan after the start of a Plan Year, the Participant shall receive a prorated award reflecting the number of full months actually worked during the Plan Year. Subject to paragraph 11, below, in the event a Participant terminates employment during the Plan Year, other than through death, disability or retirement, no incentive is due. 11. VESTING A Participant must be in the employ of the Company (or another of UDIL's subsidiary corporations) on the last day of the applicable Plan Year in order to be eligible for an Award. The final determination as to Awards to be granted and the amount of such Awards shall be made by the CHRC. Notwithstanding any other provision hereof, and in accordance with this paragraph, in the event a Participant terminates employment or is terminated by the Company at any time for any reason, including, but not limited to retirement, disability or death, the CHRC shall have the sole discretion as to whether any such Award shall be granted and, if so, the amount of any such Award. While such discretion includes a negative adjustment or appropriate proration of an earned award, it does not include discretion to make a positive adjustment to an earned award. 4 5 12. MISCELLANEOUS (a) All payments under the Plan shall be made from the general assets of the Company. To the extent any Participant acquires a right to receive payments under the Plan, such rights shall be no greater than those of an unsecured general creditor of the Company. (b) Nothing contained in the Plan and no action taken pursuant thereto shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any other person. (c) No amount payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, either voluntary or involuntary, and any attempt to so alienate, anticipate, sell, transfer, assign, pledge, encumber or charge the same shall be null and void. No such amount shall be liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person to whom such benefits or funds are or may be payable. (d) Nothing contained in the Plan shall be construed as conferring upon any Participant the right to continue in the employ of the Company or any of its direct or indirect subsidiaries, nor to limit the right of an employee's employer to discharge such employee at any time, with or without cause. (e) The Company reserves the right to terminate the Plan at any time; provided however, such termination shall not cause a forfeiture of any incentive accrued up to the time the Participant was notified of such termination. (f) The Plan shall be construed and administered in accordance with the laws of the State of North Carolina. 5 EX-10.1.A 3 AMENDED OPERATING UNIT INCENTIVE COMPENSATION PLAN 1 EXHIBIT 10.1(a) UNITED DOMINION INDUSTRIES ANNUAL MANAGEMENT INCENTIVE COMPENSATION (MIC) PLAN FOR OPERATING UNIT OFFICERS 1. PURPOSE The purpose of the United Dominion Industries Limited (the "Company") Annual Management Incentive Compensation Plan for Operating Unit Officers (the "Plan") is to provide an opportunity for operating unit officers to earn incentive compensation based upon the performance of their respective units in relation to predetermined performance targets. In particular, this Plan is designed to (a) pay Participants incentive compensation for meeting or exceeding various performance targets for a given fiscal year; (b) link operating management with the Company's strategic performance objectives; and (c) maintain competitiveness with general industry norms in executive compensation. 2. DEFINITIONS The following words shall have the following meanings unless the context clearly states otherwise: BOARD OF DIRECTORS means the Company's Board of Directors. TARGET AWARD means the amount of annual incentive to be paid to a Participant under the Plan in the event his Segment, Division or Operating Unit achieves 100% of its Plan targets for the Plan year. CEO means the Chief Executive Officer of the Company. CHRC means the Compensation and Human Resources Committee of the Company's Board of Directors. COMPANY means United Dominion Industries Limited, a Canadian Corporation. OPERATING UNIT means a single profit center owned or managed, directly or indirectly, by the Company. DIVISION means two or more operating units reporting under a common management structure. 1 2 SEGMENT means a line of business containing two or more Divisions or Operating Units, the results of which are reported in the Company's Annual Report. ANNUAL INCENTIVE means the amount payable to a Participant under the Plan. FISCAL YEAR means the fiscal year of the Company, which currently is the twelve-month period ending December 31. SEGMENT EXECUTIVE means the executive officer of the Company primarily responsible for Segment operations, which currently is the Segment President. PARTICIPANT means an employee of the Company or any of its operating entities eligible to receive an annual incentive under this Plan. PLAN means the United Dominion Management Incentive Compensation Plan for Operating Unit Officers. PERFORMANCE TARGETS means the performance targets assigned to a Segment, Division or Operating Unit for a Fiscal Year. 3. ELIGIBILITY Participation in the Plan shall be limited to Division or Operating Unit officers or other key managers appointed by the Segment President. The CEO, with the approval of the CHRC, shall make the final determination of eligible Plan Participants. Additions or deletions to the Plan during a Fiscal Year shall be made only in the event of an unusual circumstance, such as a promotion or new hire. 4. DETERMINATION OF MAXIMUM AMOUNT PAYABLE The CHRC, after consultation with the CEO, may determine a maximum aggregate payment under the Plan to be made by any Segment, Division or Operating Unit for each Fiscal Year. The final determination of the maximum aggregate payment under the Plan for each Fiscal Year shall be made prior to the commencement of such Fiscal Year. 5. DETERMINATION OF TARGET AWARDS AND PERFORMANCE TARGETS a.) TARGET AWARDS - Each Participant shall be assigned a Target Award consistent with guidelines published by the Company's corporate Human Resources Department. The appropriate Segment Executives may recommend adjustments to the guidelines, subject to the final approval of the CEO and CHRC. Generally, the Target Award categories will be designated as follows, with the percent listed below Target being the percent of Participant's base salary: 2 3 CATEGORY TARGET -------- ------ A 50% B 40% C 30% D 20% E 15% b.) PERFORMANCE TARGETS - Each applicable business unit shall be assigned Performance Targets for each Plan Year, against which the performance of such unit will be measured. The appropriate Segment Executive shall determine the Performance Targets for each such unit, subject to the approval of the CEO. Until revised pursuant to this Plan, the Performance Targets will be based upon predetermined Sales Growth and Return on Investment objectives. The category definitions are: SALES GROWTH is the relevant operating unit's Net Sales compared to the unit's prior year's Net Sales, expressed as a percentage. The percentage is derived from the following formula: Net Sales Current Year - Net Sales Prior Year --------------------------------------------- Net Sales Prior Year ROI is the relevant unit's Net Operating Profit expressed as a percentage of relevant Average Net Capital Employed. The formula is: Net Operating Profit ---------------------------- Average Net Capital Employed The accounting definitions of Net Operating Profit and Average Net Capital employed shall be as determined by the Company's corporate Accounting Department from time-to-time. The Average Net Capital Employed is the daily average. The Company will review the aggregate Performance Targets to ensure consistency with overall corporate Planning for the Fiscal Year. The relevant segment president, subject to the approval of the CEO and CHRC, shall make the final determination of the Performance Targets. As soon as practicable after the beginning of each Fiscal Year, each Participant shall be notified of his unit's Performance Targets by the corporate Human Resources Department. 6. DETERMINATION OF ANNUAL INCENTIVE The incentive is derived by comparing the relevant unit's actual full-year Sales Growth and ROI accomplishment to the values contained the Plan Matrix. The Matrix has Sales Growth values on one axis and ROI values on a second axis. The actual award, if any, is determined by identifying the intersecting cell value in the Sales Growth row and ROI column that most nearly matches the relevant unit's actual performance in both categories. When an actual performance value is equidistant between two cell 3 4 values in the Matrix, the applicable cell value is derived by rounding up. This "Point of Intersection" of the applicable row and column contains an award multiplier. To determine the amount of the bonus earned, the Participant multiplies his or her target bonus by the value (expressed as a percentage) in the Point of Intersection. Below is a sample of the Plan matrix: 12% 100 110 120 140 160 Sales 11% 90 100 110 120 130 Growth 10% 80 90 100 110 120 9% 65 75 85 95 105 8% 55 65 75 85 95 20.0% 22.5% 25.0% 27.5% 30.0% ROI The appropriate Segment Executives may make requests for negative adjustments to the calculated awards in the appropriate circumstances. The CEO with the CRHC's approval or the CHRC may make negative adjustments to the calculated awards, but may not make any positive adjustments pursuant to this Plan. As soon as practicable after the end of the Fiscal Year, the Company's corporate Human Resources Department shall ensure that each Participant is notified of the amount of his Annual Incentive. 7. TIME FOR PAYMENTS Annual Incentives normally will be paid by the end of the second month following the Fiscal Year. Notwithstanding the normal payment date, each Participant shall have the right to elect to defer all or a part of his payment year under the Award pursuant to the Company's Excess Deferral Plan. 8. FORM OF PAYMENTS a.) At the end of the Company's fiscal year, after the Company's financial results are final and the CHRC has approved such results, any awards earned under the Plan shall be paid in cash to Participants. However, in the discretion of the CHRC, Participants may be allowed to elect to have all or part of such award paid in common shares of the Company ("Common Shares") at "Fair Market Value." The "Fair Market Value" of a Common Share is the average of the opening and closing price of a Common Share on the Toronto Stock Exchange on the business day next preceding the date an award is approved. b.) In an effort to encourage stock ownership, and subject to all applicable regulations of any securities or exchange body having jurisdiction over the Company, the CHRC may, at its sole discretion, allow Participants to elect to have all or a portion of a predetermined multiple of their earned awards paid to them in Common Shares, subject to the following conditions: 4 5 (i) The award multiple payable in Common Shares shall be 1.25 times the award's calculated cash value under the Plan for the relevant Plan year (the "Share Premium"). The CHRC, in its sole discretion, may reduce the Share Premium, but in no instance may it increase the Share Premium above 1.25 times the cash award otherwise payable. (ii) The CHRC, at its sole discretion, may limit the percentage of any Participant's calculated award that is eligible for payment in Common Shares under the Plan. (iii) Any Participant who elects to receive Common Shares in lieu of cash shall be obligated to retain ownership of such shares for at least eighteen months after the date of grant; provided, however, in the event the Share Price of the Common Shares at any time declines to 75% or less of the Fair Market Value at the time of grant, the Participant shall be permitted to immediately sell or otherwise transfer such shares free of such restrictions. The aforesaid restrictions shall survive the Participant's termination of employment from the Company for any reason, other than in the case of Participant's death, disability, retirement or other termination of employment in which case all such restrictions on the sale or transfer of the affected Participant's Common Shares immediately shall lapse. (iv) In order for a Participant to be eligible to receive any Common Shares under the Plan, he or she must complete a written election form and tender it to the Company's corporate Human Resources Department on or before such date as it may set Such election must state that the Participant elects to receive a percentage (from 5% to 100% in 5% increments, subject to any maximum established by the CHRC) of his or her incentive award in Common Shares. To facilitate an informed election, the Company shall inform all eligible Participants at least twenty (20) days prior to [the end of the year upon which any incentive is based] the date by which an election must be made: (1) whether any Common Shares in lieu of cash will be offered, (2) the maximum percentage of any incentive subject to the Common Shares election, and (3) the amount of the Share Premium, if any. In the event a Participant has elected to defer a portion (or all) of his or her applicable incentive award, such deferred portion (or all such award, as the case may be) shall not be available for the Common Share election described in this subsection 9(b), above. (v) In the event the CHRC elects to grant a share election option, the Company shall provide a written disclosure of the general tax treatment of such action prior to and as a condition 5 6 of accepting any election to accept Common Shares in lieu of cash under this Plan. (vi) The Company will withhold from any payments made pursuant to the Plan any taxes required to be withheld under applicable federal, state and local tax regulations. In addition, if necessary under the circumstances to ensure compliance with applicable withholding requirements, the Company reserves the right to condition the tender of Shares to the Participant on the Participant's prior payment of required withholding taxes to the Company. (vii) The aggregate number of Common Shares available for issuance under the terms of the Plan at any time shall not exceed .30% of the then outstanding Common Shares; provided that in no circumstance can more than an aggregate of 120,000 Common Shares be reserved for issuance under the Plan, and provided further that no Common Shares may be issued under this Plan if, after such issuance, the total number of Common Shares issued under this Plan together with the total number of Common Shares issued under all other incentive compensation plans of the Company after the date of the 1999 annual and special meeting of the shareholders, exceed 1.9% of the outstanding Common Shares of the Company at the time of issuance. 9. ADMINISTRATION OF THE PROGRAM The overall control of the Program, including final determination of the Awards to each Participant, is the responsibility of the CHRC and the CEO. The Company's senior corporate human resources officer shall be responsible for administering and implementing any actions required under the Program. 10. STATUS CHANGES OF PARTICIPANT DURING YEAR. In the event a Participant's base salary changes during the course of the Plan Year, the eligible salary for purpose of calculating any incentive due shall such Participant's monthly average salary for the year. In the event a Participant changes positions or makes an inter-company transfer during the course of the Plan Year, and a result, is assigned a different incentive category, any incentive due shall be prorated, based on the number of complete months in each such category. In the event an employee is appointed a Participant in the Plan after the start of a Plan Year, the Participant shall receive a prorated award reflecting the number of full months actually worked during the Plan Year. Subject to paragraph 11, below, in the event a Participant terminates employment during the Plan Year, other than through death, disability or retirement, no incentive is due. 11. VESTING 6 7 A Participant must be in the employ of the Company (or another of the Company's subsidiary corporations) on the last day of the applicable Plan Year in order to be eligible for an Award. The final determination as to Awards to be granted and the amount of such Awards shall be made by the CHRC. Notwithstanding any other provision hereof, and in accordance with this paragraph, in the event a Participant terminates employment or is terminated by the Company at any time for any reason, including, but not limited to retirement, disability or death, the CHRC shall have the sole discretion as to whether any such Award shall be granted and, if so, the amount of any such Award. While such discretion includes a negative adjustment or appropriate proration of an earned award, it does not include discretion to make a positive adjustment to an earned award. 12. MISCELLANEOUS a.) All payments under the Plan shall be made from the general assets of the Company. To the extent any Participant acquires a right to receive payments under the Plan, such rights shall be no greater than those of an unsecured general creditor of the Company. b.) Nothing contained in the Plan and no action taken pursuant thereto shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any other person. c.) No amount payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, either voluntary or involuntary, and any attempt to so alienate, anticipate, sell, transfer, assign, pledge, encumber or charge the same shall be null and void. No such amount shall be liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person to whom such benefits or funds are or may be payable. d.) Nothing contained in the Plan shall be construed as conferring upon any Participant the right to continue in the employ of the Company or any of its direct or indirect subsidiaries, nor to limit the right of an employee's employer to discharge such employee at any time, with or without cause. e.) The Company reserves the right to terminate the Plan at any time; provided however, such termination shall not cause a forfeiture of any incentive accrued up to the time the Participant was notified of such termination. f.) The Plan shall be construed and administered in accordance with the laws of the State of North Carolina. UNITED DOMINION INDUSTRIES CHARLOTTE, N.C. 7 EX-10.4 4 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1 EXHIBIT 10.4 UNITED DOMINION INDUSTRIES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (as amended and restated effective January 1, 1999) 2 Table of Contents
Page ARTICLE I NAME AND PURPOSE.............................................................................1 Section 1.1. Name.............................................................................1 Section 1.2. Purpose..........................................................................1 ARTICLE II CONSTRUCTION, DEFINITIONS AND APPLICABLE LAW................................................2 Section 2.1. Construction and Definitions.....................................................2 Section 2.2. Applicable Law..................................................................13 ARTICLE III PARTICIPATION...................................................................13 Section 3.1. General.........................................................................13 Section 3.2. Eligibility.....................................................................13 ARTICLE IV BENEFITS...................................................................................14 Section 4.1. General.........................................................................14 Section 4.2. Normal Retirement...............................................................14 Section 4.3. Early Retirement................................................................15 Section 4.4. Delayed Retirement..............................................................15 Section 4.5. Termination After Six or More Years of Creditable Service.......................16 Section 4.6. Disability......................................................................16 Section 4.7. Death...........................................................................18 Section 4.8. Adjustment in Benefits..........................................................18 Section 4.9. Minimum Benefit.................................................................19 Section 4.10. Beneficiary or Beneficiaries....................................................19 Section 4.11. Change in Control...............................................................20 Section 4.12. Separation From Service Prior to Assumed Retirement Date........................21 ARTICLE V PLAN COMMITTEE..............................................................................21
i 3 Section 5.1. Appointment, Term of Office and Vacancy.........................................21 Section 5.2. Organization of Plan Committee..................................................21 Section 5.3. Powers of the Plan Committee....................................................22 Section 5.4. Expenses of Plan Committee......................................................22 Section 5.5. Indemnification of Plan Committee...............................................22 ARTICLE VI AMENDMENT AND TERMINATION..................................................................22 Section 6.1. Amendment of Plan...............................................................22 Section 6.2. Termination of Plan.............................................................22 Section 6.3. Procedure for Amendment or Termination..........................................23 Section 6.4. Effect of Amendment or Termination on Certain Benefits..........................23 ARTICLE VII MISCELLANEOUS.............................................................................23 Section 7.1. Adoption by a Subsidiary Corporation............................................23 Section 7.2. Authorization and Delegation to the Compensation and Human Resources Committee..24 Section 7.3. Spendthrift Clause..............................................................24 Section 7.4. Benefits Payable From General Assets of the Participating Employers.............24 Section 7.5. Allocation of Benefits Among theParticipating Employers.........................24 Section 7.6. Benefits Limited to the Plan....................................................25 ARTICLE VIII CLAIMS PROCEDURE.........................................................................25 Section 8.1. Claims Procedure................................................................25 Section 8.2. Agent for Service of Process....................................................27
ii 4 UNITED DOMINION INDUSTRIES, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (as amended and restated effective January 1, 1999) THIS INSTRUMENT is executed as of the _____ day of _______________, 1999 by UNITED DOMINION INDUSTRIES, INC. ("UDI"). Statement of Purpose UDI and certain of its subsidiaries (collectively, the "Participating Employers") sponsor the United Dominion Industries, Inc. Supplemental Executive Retirement Plan (the "Plan"). The Participating Employers desire to amend the Plan to (i) modify the definition of "Change in Control," (ii) provide for the full accrual of the "Target Retirement Benefit" following a Change in Control and (iii) provide for a reduction in benefits in the event of premature separation from service for certain Participants. The Participating Employers believe that such amendments can best be made by amending and restating the Plan in its entirety effective as of January 1, 1999. In Section 6.1 of the Plan, the Participating Employers have reserved the right to amend the Plan at any time in whole or part by resolution of the Compensation and Human Resources Committee, and such Committee has authorized and approved the amendments set forth herein. NOW, THEREFORE, the Participating Employers do hereby amend and restate the Plan effective as of January 1, 1999 to consist of the terms and provisions set forth in Article I through Article VIII, inclusive, as follows: ARTICLE I NAME AND PURPOSE Section 1.1. Name. The Plan shall be known as the "United Dominion Industries, Inc. Supplemental Executive Retirement Plan." Section 1.2. Purpose. The purpose of the Plan is to provide certain Key Officers of the Participating Employers who are designated as Participants in this Plan with certain benefits in accordance with the provisions of the Plan. 5 ARTICLE II CONSTRUCTION, DEFINITIONS AND APPLICABLE LAW Section 2.1. Construction and Definitions. (a) Construction. Article, section and paragraph headings have been inserted for convenience of reference only in the Plan and are to be ignored in any construction of the provisions hereof. If any provision of the Plan shall for any reason be invalid or unenforceable, the remaining provisions shall nevertheless be valid, enforceable and fully effective. (b) Definitions. Whenever used in the Plan, unless the context clearly indicates otherwise, the following terms shall have the following meanings: (1) Adjusted Retirement Plan Compensation, with respect to a Retirement Plan, means: (i) in the case of the United Dominion Industries, Inc. Retirement Plan, "Earnings" as defined in that Retirement Plan; (ii) in the case of the Marley Company Pension Plan for Salaried Employees, "gross annual earnings" as defined in that Retirement Plan; (iii) in the case of the Marley Cooling Tower Company Pension Plan for Salaried Employees, "Compensation Base" as defined in that Retirement Plan; (iv) in the case of the CMB Industries Pension Plan, "Plan Compensation" as defined in that Retirement Plan; and (v) in the case of the Core Industries Inc. Pension Plan and the Benefit Equalization Plan for Certain Employees of Core Industries Inc., "Compensation" as defined in the Core Industries Inc. Pension Plan; provided, however, that notwithstanding any contrary provision in the applicable Retirement Plan (A) a Participant's Adjusted Retirement Plan Compensation for a Plan Year shall include any amount of such Participant's compensation that is (x) reduced during such Plan Year in accordance with Code Sections 401(k) or 125 or (y) deferred under any other plan or arrangement sponsored by a Participating Employer and (B) a Participant's Adjusted Retirement Plan Compensation for a Plan Year shall be 2 6 determined without regard to the compensation limitation set forth in Code Section 401(a)(17). (2) Assumed Retirement Benefit means, with respect to a Participant as of any date, the sum of annual benefits, if any, which would have been payable to such Participant as of such date under the applicable Retirement Plan, assuming for such purpose: (A) in the case of a married Participant, that the Participant had elected to receive such benefits in the form of a Joint and 50% Survivor Annuity; and (B) in the case of an unmarried Participant, that the Participant had elected to receive such benefits in the form of a Ten-Year Certain and Life Annuity. The foregoing assumptions are made solely for the purpose of determining the benefits, if any, payable under this Plan, and such assumptions shall be applied regardless of the actual method of payment used to provide such Participant's benefits under the applicable Retirement Plan. (3) Assumed Retirement Date means, with respect to a Participant, the date the Participant attains the age of fifty-five (55) or such later date determined by the Compensation and Human Resources Committee in its sole and exclusive discretion at the time the Participant commences participation in the Plan. (4) Beneficiary means the person(s) or entity(ies) designated by a Participant or the provisions of the Plan to receive such benefits as may become payable to such person(s) or entity(ies) in accordance with the provisions of the Plan. (5) Change in Control means a change in control of United Dominion Industries, Inc., a Delaware corporation (the "Company"), of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; provided that, without limitation, a Change in Control shall be deemed to have occurred if: 3 7 (A) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company or United Dominion Industries Limited, a Canadian corporation ("Limited") (in each case, the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company or Limited entitled to vote generally in the election of directors (in each case, the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (A), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company or Limited, (ii) any acquisition by the Company or Limited, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or Limited or any corporation controlled by or under common control with the Company or Limited or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (C); or (B) Individuals who, as of the date hereof, constitute the board of directors of Limited (the "Limited Board") cease for any reason to constitute at least a majority of the Limited Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by Limited's shareholders, was approved by a vote of at least a majority of the directors then comprising the Limited Board shall be considered as though such individual were a member of the Limited Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Limited Board; or 4 8 (C) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or Limited (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power or the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or Limited or all or substantially all of the Company's or Limited's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or Limited or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of any corporation resulting from such Business Combination, or any corporation with direct or indirect control over any such corporation, were members of the Limited Board at the time of the execution of the 5 9 initial agreement, or of the action of the Board or the Limited Board, providing for such Business Combination; or (D) Approval by the shareholders of the Company or Limited of a complete liquidation or dissolution of the Company or Limited; or (E) The Company or Limited executes an agreement, the consummation of which would result in the occurrence of a Change in Control as described above. (6) Claim means a claim for benefits under the Plan. (7) Claimant means a person making a Claim. (8) Code means the Internal Revenue Code of 1986, as amended from time to time, and references thereto shall include the valid Treasury regulations issued thereunder. (9) Commuted Payment Amount means an amount equal to the actuarial equivalent single sum value of certain benefits payable under the Plan to the subject Participant calculated as of the applicable determination date, using the actuarial assumptions and procedures set forth on Exhibit A which is attached hereto and made a part hereof. (10) Compensation and Human Resources Committee means the committee of United Dominion Industries, Ltd., the corporate parent of UDI, designated from time to time as the "Compensation and Human Resources Committee." (11) Creditable Service means, with respect to a Participant as of any date, the sum of (A) and (B) where (A) is such Participant's Years of Credited Service determined in accordance with the applicable Retirement Plan as of January 1 of the Plan Year in which such Participant commences participation in the Plan; provided, however, at the time the Compensation and Human Resources Committee designates a Key Officer as a Participant in the Plan the Compensation and Human Resources Committee in its sole and exclusive discretion may increase or decrease the number of Years of Credited 6 10 Service to be credited to such Participant for purposes of this Section 2.1(b)(10)(A); and (B) is such Participant's Years of Credited Service determined in accordance with the provisions of the applicable Retirement Plan for periods from and after January 1 of the Plan Year in which such Participant commences participation in the Plan. In addition, at any time after a Key Officer has been designated a Participant in the Plan and prior to such Participant's separation from Service the Compensation and Human Resources Committee in its sole and exclusive discretion may increase such Participant's Years of Credited Service otherwise determined under Section 2.1(b)(10)(A) and 2.1(b)(10)(B) for purposes of determining such Participant's Creditable Service under the Plan. (12) Delayed Retirement means, with respect to a Participant, such Participant's separation from Service after the Plan Year in which such Participant attains the Normal Retirement Age. (13) Delayed Retirement Benefit means, with respect to a Participant, an annual amount equal to (A) minus (B) where (A) is such Participant's Target Retirement Benefit (computed on the basis of such Participant's Final Average Compensation at the time such Participant attained the Normal Retirement Age); and (B) is the sum of such Participant's (i) Assumed Retirement Benefit and (ii) Social Security Benefit. (14) Disability means, with respect to a Participant, a condition entitling the Participant to disability benefits under the applicable Retirement Plan. (15) Disabled means, with respect to a Participant, suffering a "Disability" as defined above. (16) Early Retirement means, with respect to a Participant, such Participant's separation from Service after having attained age fifty-five (55). (17) Early Retirement Benefit means, with respect to a Participant, an annual amount equal to (A) minus (B) where 7 11 (A) is such Participant's Target Retirement Benefit reduced by one two hundredth (1/200) for each month that the date such Participant commences receiving such Participant's Early Retirement Benefit precedes the month in which such Participant would have attained age sixty-two (62); and (B) is the sum of such Participant's (i) Assumed Retirement Benefit and (ii) Social Security Benefit, which such Social Security Benefit shall be reduced by one two hundredth (1/200) for each month that the date such Participant commences receiving such Participant's Early Retirement Benefit precedes the month in which such Participant would have attained age sixty-two (62). (18) Effective Date means, with respect to the Plan, January 1, 1996. (19) Employment Commencement Date means, with respect to a Participant, the date the Participant commences Service with the Participating Employers or such other earlier date determined by the Compensation and Human Resources Committee in its sole and exclusive discretion at the time the Participant commences participation in the Plan. (20) Final Average Compensation means, with respect to a Participant as of any determination date, the average of the annual Adjusted Retirement Plan Compensation paid to such Participant during the three (3) calendar years of highest Adjusted Retirement Plan Compensation (which calendar years need not be consecutive) during the ten (10) calendar years next preceding the earlier to occur of (A) the calendar year in which such Participant attains the Normal Retirement Age; or (B) such Participant's separation from Service, to be determined by dividing the aggregate Adjusted Retirement Plan Compensation received by the Participant during the appropriate three (3) calendar years by three (3). If a Participant has completed less than three (3) calendar years of Service as hereinabove provided, such Participant's Final Average Compensation shall be determined by dividing the aggregate Adjusted Retirement Plan Compensation received by the Participant during said calendar years by the number of such calendar years. 8 12 (21) Involuntary Termination Without Cause means termination by a Participating Employer of a Participant's employment with the Participating Employer without "cause." For purposes of this Plan, "cause" means: (i) conviction of the Participant for any crime constituting a felony in the jurisdiction in which committed, or the entry by the Participant of a plea of guilty to a felony in any such jurisdiction, (ii) any violation by the Participant of such Participant's fiduciary duty to any Participating Employer which has the effect, or any willful or intentional act of the Participant committed for the purpose, or having the reasonably foreseeable effect, of materially injuring any Participating Employer or its business or reputation or of improperly or unlawfully converting for the Participant's own personal benefit any material property of any Participating Employer, or (iii) chronic alcoholism or any other form of addiction that impairs the Participant's abilities to perform Participant's duties of employment with the Participating Employers. (22) Joint and 50% Survivor Annuity means an annuity for the life of a Participant with a survivor annuity for the life of such Participant's spouse which is fifty percent (50%) of the amount of the annuity payable during the joint lives of the Participant and such Participant's spouse. (23) Key Officer means a person employed by any of the Participating Employers in the position of vice president or higher for a period of at least one (1) year. (24) Long Term Disability Plan means, with respect to a Participant, the long term disability plan or arrangement (whether a group plan or otherwise) sponsored by a Participating Employer in which the Participant participates, if any. (25) Long Term Disability Plan Benefit means, with respect to a Participant, the annual amount of benefits payable to a Disabled Participant from time to time pursuant to the provisions of the Long Term Disability Plan in which the Participant participates, if any. (26) Normal Retirement means, with respect to a Participant, such Participant's separation from Service after attainment of the Normal Retirement Age. (27) Normal Retirement Age means, with respect to a Participant, age sixty-two (62). 9 13 (28) Normal Retirement Benefit means, with respect to a Participant, an annual amount equal to (A) minus (B) where (A) is such Participant's Target Retirement Benefit; and (B) is the sum of such Participant's (i) Assumed Retirement Benefit and (ii) Social Security Benefit. (29) Participant means a Key Officer who has been designated as a Participant in the Plan as provided in Section 3.2 of the Plan. (30) Participating Employers means: (A) United Dominion Industries, Inc., a Delaware corporation; (B) the following Subsidiary Corporations of United Dominion Industries, Inc.: (i) The Marley Company, a Delaware corporation; (ii) The Marley Cooling Tower Company, a Delaware corporation; (iii) any other Subsidiary Corporations of United Dominion Industries, Inc. participating in one of the Retirement Plans as of January 1, 1999; and (C) those Subsidiary Corporations of United Dominion Industries, Inc. which in the future adopt the Plan pursuant to the provisions of Section 7.1 hereof. (31) Plan means the United Dominion Industries, Inc. Supplemental Executive Retirement Plan, as amended from time to time. (32) Plan Committee means the committee described in Article V hereof. (33) Plan Year means the calendar year. (34) Retirement means, with respect to a Participant, such Participant's separation from Service on account of such Participant's Normal Retirement, Early Retirement or Delayed Retirement. (35) Retirement Plan means each of the following as in effect from time to time: (i) the United Dominion Industries, Inc. Retirement Plan, (ii) the Marley Company Pension Plan for Salaried Employees, (iii) the Marley Cooling Tower Company Pension 10 14 Plan for Salaried Employees, (iv) the CMB Industries Pension Plan, (v) the Core Industries Inc. Pension Plan and (vi) the Benefit Equalization Plan for Certain Employees of Core Industries Inc. These plans are sometimes referred to collectively herein as the "Retirement Plans." (36) Service means employment by United Dominion Industries, Inc. or any Subsidiary Corporation. (37) Social Security Benefit means, with respect to a Participant, the annual Primary Insurance Amount estimated by the Plan Committee to be payable to the Participant at age sixty-five (65) under the Federal Social Security Act as in effect on the date of determination; provided, however, that; (A) the Social Security Benefit for a Participant who dies, retires or terminates employment prior to age sixty-five (65) shall be calculated assuming that (A) the Participant will not receive any future wages which would be treated as wages for purposes of the Federal Social Security Act and (B) the Participant will elect to begin receiving the Participant's Social Security Benefit as of the earliest age then allowable under the Federal Social Security Act, or if later, the actual date of Retirement; and (B) the Social Security Benefit, once calculated, shall be frozen as of the date the Participant dies, retires or terminates employment, whichever is applicable. (38) Subsidiary Corporation means (A) any corporation more than fifty percent (50%) of whose outstanding voting capital stock is owned by United Dominion Industries, Inc.; (B) any corporation at least eighty percent (80%) of whose outstanding voting capital stock and at least eighty percent (80%) of each class of whose outstanding non-voting capital stock is owned by a corporation more than fifty percent (50%) of whose outstanding voting capital stock is owned by United Dominion Industries, Inc.; or 11 15 (C) any corporation at least eighty percent (80%) of whose outstanding voting capital stock and at least eighty percent (80%) of each class of whose outstanding non-voting capital stock is owned by a corporation described in subparagraph (B) above. (39) Surviving Spouse means, with respect to a deceased Participant, the person, if any, who was married to such deceased Participant on the date of such deceased Participant's death. (40) Target Retirement Benefit means, with respect to a Participant as of any date, an annual amount equal to the product of (A) multiplied by (B) where (A) is sixty percent (60%) of such Participant's Final Average Compensation; and (B) is a percentage determined under the following schedule: Completed Years of Applicable Creditable Service Percentage ------------------ ---------- 5 or less...................................0% 6..........................................10% 7..........................................20% 8..........................................30% 9..........................................40% 10.........................................50% 11.........................................60% 12.........................................70% 13.........................................80% 14.........................................90% 15 or more................................100% Notwithstanding the foregoing schedule, if a Change in Control occurs, then the "Applicable Percentage" for a Participant in Service immediately prior to the date of the Change in Control shall be one hundred percent (100%) from and after the date of such Change in Control. (41) Ten-Year Certain and Life Annuity means a monthly amount payable to a Participant beginning on the date benefits are to commence under the Plan and continuing on the last day of each calendar month thereafter for ten (10) consecutive years certain and thereafter on the last day of each calendar month until the death of such Participant and providing that in the event that such Participant shall die prior to the expiration of the 12 16 ten (10) year-certain period, payments for the remainder of such period shall be made to such Participant's Beneficiary. (42) Years of Credited Service means, with respect to a Participant, (i) under (A) the United Dominion Industries, Inc. Retirement Plan, (B) the Marley Company Pension Plan for Salaried Employees, (C) the Marley Cooling Tower Company Pension Plan for Salaried Employees, (D) the Core Industries Inc. Pension Plan and (E) the Benefit Equalization Plan for Certain Employees of Core Industries Inc., such Participant's "Years of Credited Service" determined in accordance with the provisions of the applicable Retirement Plan and (ii) under the CMB Industries Pension Plan, such Participant's "total years of service" used for determining benefits in accordance with the provisions of the CMB Industries Pension Plan. (43) Years of Service Fraction means, with respect to a Participant, a fraction (A) the numerator of which equals the number of full or partial years between such Participant's Employment Commencement Date and the date of such Participant's separation from Service and (B) the denominator of which equals the number of full or partial years between such Participant's Employment Commencement Date and such Participant's Assumed Retirement Date. Section 2.2. Applicable Law. The Plan shall be construed, administered, regulated and governed in all respects under and by the laws of the United States to the extent applicable, and to the extent such laws are not applicable, by the laws of the State of North Carolina. ARTICLE III PARTICIPATION Section 3.1. General. No person shall become a Participant unless or until such person is or becomes a Key Officer. In addition, in no event shall any Key Officer be eligible to participate in the Plan prior to the Effective Date of the Plan. Section 3.2. Eligibility. The Compensation and Human Resources Committee, in its sole and exclusive discretion, shall determine which Key Officers shall become Participants. Designation of Key Officers as Participants shall be made in such manner as the Compensation and Human Resources Committee shall determine from time to time. 13 17 ARTICLE IV BENEFITS Section 4.1. General. In the event a Participant separates from Service after completion of six (6) or more years of Creditable Service, such Participant shall become entitled to the applicable retirement benefit provided for in Section 4.2, Section 4.3, Section 4.4 or Section 4.5. In the event a Participant becomes Disabled prior to the attainment of the Normal Retirement Age, such Participant shall become entitled to the benefits, if any, provided for in Section 4.6. In the event a Participant separates from Service on account of death while in Service, the benefits, if any, provided for in Section 4.7 shall be paid to the Participant's Surviving Spouse. In the event a Participant separates from Service for a reason other than as described above, then no benefit shall be payable to such Participant under the Plan, subject to the provisions of Section 4.9 (regarding certain minimum benefits) and Section 4.11 (regarding benefits after a Change in Control). The Participating Employers shall withhold from any payment of Plan benefits to a Participant (or Surviving Spouse or Beneficiary, if applicable) any federal, state or local income or employment taxes required by law to be withheld from such payment and shall remit such taxes to the proper taxing authority. Section 4.2. Normal Retirement. Subject to the provisions of Sections 4.8 and 4.12 and Article VI, a Participant who separates from Service for a reason other than death (i) after having completed at least six (6) years of Creditable Service, and (ii) following the attainment of the Normal Retirement Age and prior to the end of the Plan Year in which such Participant attains the Normal Retirement Age, shall become entitled to such Participant's Normal Retirement Benefit. If such Participant is unmarried at the time of such Participant's separation from Service, such Participant's Normal Retirement Benefit shall be payable in the form of a Ten-Year Certain and Life Annuity in a monthly amount equal to one-twelfth (1/12) of the annual amount of such Participant's Normal Retirement Benefit. If such Participant is married at the time of such Participant's separation from Service, such Participant's Normal Retirement Benefit shall be payable in the form of a Joint and 50% Survivor Annuity in a monthly amount equal to one-twelfth (1/12) of the annual amount of such Participant's Normal Retirement Benefit. A Participant's Normal Retirement 14 18 Benefit shall commence and thereafter be paid at the same time as such Participant's benefits under the applicable Retirement Plan. Section 4.3. Early Retirement. Subject to the provisions of Sections 4.8 and 4.12 and Article VI, a Participant who separates from Service for a reason other than death (i) after having completed at least six (6) years of Creditable Service, and (ii) after having attained age fifty-five (55) but prior to having attained the Normal Retirement Age, shall become entitled to such Participant's Early Retirement Benefit. If such Participant is unmarried at the time of such Participant's separation from Service, such Participant's Early Retirement Benefit shall be payable in the form of a Ten-Year Certain and Life Annuity in a monthly amount equal to one-twelfth (1/12) of the annual amount of such Participant's Early Retirement Benefit. If such Participant is married at the time of such Participant's separation from Service, such Participant's Early Retirement Benefit shall be payable in the form of a Joint and 50% Survivor Annuity in a monthly amount equal to one-twelfth (1/12) of the annual amount of such Participant's Early Retirement Benefit. A Participant's Early Retirement Benefit shall commence and thereafter be paid at the same time as such Participant's benefits under the applicable Retirement Plan. Section 4.4. Delayed Retirement. Subject to the provisions of Sections 4.8 and 4.12 and Article VI, a Participant who separates from Service for a reason other than death (i) after having completed at least six (6) years of Creditable Service, and (ii) after the Plan Year in which such Participant attains the Normal Retirement Age, shall become entitled to such Participant's Delayed Retirement Benefit. If such Participant is unmarried at the time of such Participant's separation from Service, such Participant's Delayed Retirement Benefit shall be payable in the form of a Ten-Year Certain and Life Annuity in a monthly amount equal to one-twelfth (1/12) of the annual amount of such Participant's Delayed Retirement Benefit. If such Participant is married at the time of such Participant's separation from Service, such Participant's Delayed Retirement Benefit shall be payable in the form of a Joint and 50% Survivor Annuity in a monthly amount equal to one-twelfth (1/12) of the annual amount of such Participant's Delayed Retirement Benefit. A Participant's Delayed Retirement 15 19 Benefit shall commence and thereafter be paid at the same time as such Participant's benefits under the applicable Retirement Plan. Section 4.5. Termination After Six or More Years of Creditable Service. Subject to the provisions of Sections 4.8 and 4.12 and Article VI, a Participant who separates from Service for a reason other than death (i) after having completed at least six (6) years of Creditable Service, and (ii) before reaching age fifty-five (55), shall become entitled to such Participant's Early Retirement Benefit. If such Participant is unmarried at the time of such Participant's separation from Service, such Participant's Early Retirement Benefit shall be payable in the form of a Ten-Year Certain and Life Annuity in a monthly amount equal to one-twelfth (1/12) of the annual amount of such Participant's Early Retirement Benefit. If such Participant is married at the time of such Participant's separation from Service, such Participant's Early Retirement Benefit shall be payable in the form of a Joint and 50% Survivor Annuity in a monthly amount equal to one-twelfth (1/12) of the annual amount of such Participant's Early Retirement Benefit. A Participant's Early Retirement Benefit under this Section 4.5 shall commence and thereafter be paid at the same time as such Participant's benefits under the applicable Retirement Plan; provided, however, that in no event shall a Participant's Early Retirement Benefit under this Section 4.5 commence prior to the Participant attaining at least age fifty-five (55). Section 4.6. Disability. In the event a Participant becomes Disabled prior to the attainment of the Normal Retirement Age, the following provisions shall apply: (a) Such Participant shall be entitled to receive such Participant's Long Term Disability Plan Benefit, if any, provided for under the Long Term Disability Plan in which the Participant participates, if any. (b) For purposes of determining such Participant's benefits under this Plan, such Participant's Creditable Service shall include such Participant's period of Disability to the extent provided in the applicable Retirement Plan, and such Participant's Final Average Compensation shall be determined as of the date such Participant became Disabled. 16 20 (c) In the event such Participant remains Disabled until such Participant attains the Normal Retirement Age, then subject to the provisions of Section 4.8 and Article VI, such Participant shall be entitled to receive such Participant's Normal Retirement Benefit as provided in Section 4.2 and Section 4.6(b); provided, however, the amount of such Participant's Normal Retirement Benefit otherwise payable as determined in accordance with Section 4.2 and Section 4.6(b) shall be reduced by such Participant's Long Term Disability Plan Benefit, if any, payable after such Participant attains the Normal Retirement Age. (d) In the event such Participant ceases to be Disabled for a reason other than death prior to the attainment of the Normal Retirement Age and such Participant does not reenter active Service upon the cessation of such Participant's Disability, then such Participant shall be deemed to have separated from Service as of the date of the cessation of such Participant's Disability. If such Participant is eligible for Early Retirement on the date such Participant is deemed to have separated from Service, or if the Participant has completed at least six (6) years of Creditable Service as of such date, then subject to the provisions of Section 4.8 and Article VI, such Participant shall become entitled to such Participant's Early Retirement Benefit determined in accordance with the provisions of Section 4.3 or Section 4.5, as applicable, and Section 4.6(b). If such Participant is not eligible for Early Retirement or had not completed at least six (6) years of Creditable Service on the date such Participant is deemed to have separated from Service, then no benefits shall be payable to such Participant under this Plan. (e) In the event such Participant ceases to be Disabled for a reason other than death prior to the attainment of the Normal Retirement Age and such Participant reenters active Service upon the cessation of such Participant's Disability, then such Participant's Creditable Service shall include such Participant's period of Disability to the extent provided in the applicable Retirement Plan and such Participant shall resume active participation in the Plan on the date such Participant reenters active Service. (f) If a Participant becomes eligible to receive such Participant's Early Retirement Benefit determined in accordance with the provisions of Section 4.3 or Section 4.5, as applicable, and Section 4.6(b), the amount of such Early Retirement 17 21 Benefit shall be reduced by such Participant's Long-Term Disability Plan Benefit, if any, payable after the commencement of such Early Retirement Benefit. Section 4.7. Death. (a) Death After Commencement of Benefits. In the event a Participant dies following the commencement of such Participant's benefits under the Plan, the benefits, if any, payable after such Participant's death shall be determined in accordance with the provisions of such Joint and 50% Survivor Annuity or Ten-Year Certain and Life Annuity, as applicable, pursuant to which such Participant was receiving or entitled to receive benefits at the time of such Participant's death. (b) Death While in Service. If a Participant dies while in Service or while Disabled at a time when the Participant would have been eligible for a benefit under the provisions of Sections 4.2, 4.3, 4.4 or 4.5 had the Participant then separated from Service, a death benefit shall be payable to the Participant's Surviving Spouse, if any, under the provisions of this Section 4.7(b). If there is no Surviving Spouse, there shall be no death benefit under the Plan. If there is a Surviving Spouse, the amount of the death benefit shall be determined as follows: (i) First, the Participant shall be deemed to have separated from Service immediately prior to death; (ii) Second, the Participant shall be deemed to have begun the benefits payable under this Plan as of the earliest possible date in the form of a Joint and 50% Survivor Annuity; and (iii) Third, the Participant shall be deemed to have died immediately after commencement of the Joint and 50% Survivor Annuity. For purposes of determining the amount of benefits payable under this Section 4.7(b), the deceased Participant's Assumed Retirement Benefit shall be determined under the same assumptions set forth above. The death benefit payable to a Surviving Spouse shall commence on the earliest possible date the survivor benefit would have begun being paid to the Surviving Spouse under the assumptions set forth above. (c) Article VI Controlling. The provisions of this Section 4.7 shall be subject to the provisions of Article VI. Section 4.8. Adjustment in Benefits. A Participant's Assumed Retirement Benefit and Long Term Disability Plan Benefit can vary from time to time under the terms of the applicable 18 22 Retirement Plan and the applicable Long Term Disability Plan or because of possible future amendments to such Plans at the election of the Participating Employers or as may be required by applicable law. As of each date on which any benefit payable to a Participant (or his Surviving Spouse or Beneficiary) under the applicable Retirement Plan or the applicable Long Term Disability Plan changes for any reason, there shall be a recalculation of the benefits, if any, payable under this Plan (based on the assumptions contained herein) to such Participant (or his Surviving Spouse or Beneficiary) using the benefits then payable under the applicable Retirement Plan and the applicable Long Term Disability Plan as a result of such changes. Such increased or decreased benefits payable under this Plan shall become effective at the same time as the change in benefits under the applicable Retirement Plan and the applicable Long Term Disability Plan. Notwithstanding the provisions of this Section 4.8, once a Participant's Social Security Benefit is determined for purposes of determining benefits payable under this Plan, such benefits shall not be subject to recalculation after benefits commence under the terms of this Plan due to increases or decreases in benefits payable from time to time under the Federal Social Security Act. Section 4.9. Minimum Benefit. Notwithstanding any provision of the Plan to the contrary, in no event shall the amount of a Participant's retirement benefit under Sections 4.2, 4.3, 4.4 or 4.5, as applicable, or the amount of a Surviving Spouse's death benefit under Section 4.7(b), if applicable, be less than the amount of the benefit (expressed in the same form of benefit as payable under this Plan) that would have been payable to the Participant or the Participant's Surviving Spouse, if applicable, under the Restoration Plan for the Salaried Defined Benefit Retirement Plans of United Dominion Industries, Inc. as in effect from time to time had the Participant been a participant in that plan. Section 4.10. Beneficiary or Beneficiaries. (a) Designation or Change of Beneficiary by a Participant. Each Participant may from time to time designate the person(s) or entity(ies) to whom any survivor benefit is to be paid under the Ten-Year Certain and Life Annuity method. A Participant may from time to time change such designation and upon any such change, any previously designated Beneficiary's right to receive any benefits under the Plan shall terminate. In order to be effective, any designation or change of designation of a Beneficiary must be made on a form furnished by the Plan Committee and signed by the Participant and received by the Plan Committee while the 19 23 Participant is alive. If a Beneficiary of a deceased Participant shall survive the deceased Participant but die prior to the receipt of all benefits payable to said Beneficiary under the Plan, then such benefits as would have been payable to said deceased Beneficiary shall be paid to such Beneficiary's estate at the same time and in the same manner as such benefits would have been payable to said deceased Beneficiary. (b) Beneficiary Designated by the Plan. In the event that a Participant shall die without having designated a Beneficiary, or in the event that a Participant shall die having revoked an earlier Beneficiary designation without having effectively designated another Beneficiary, or in the event that a Participant shall die but the Beneficiary designated by such Participant shall fail to survive such Participant, then and in any such event, the person(s) who shall constitute the Beneficiary of such deceased Participant shall be determined as follows: (i) In the event said deceased Participant is survived by a child, children or by issue of a deceased child or children, such surviving children and surviving issue of such deceased children shall share as Beneficiaries on a per stirpes basis, the issue of a deceased child of the deceased Participant to take per stirpes the same share their parent would have taken if living. (ii) In the event said deceased Participant is not survived by any person described in subparagraph (i), then said deceased Participant's estate shall be such deceased Participant's Beneficiary. Section 4.11. Change in Control. (a) Separation From Service Prior to a Change in Control. If a Participant separates from Service prior to a Change in Control and is receiving benefits under the Plan as of the date of such Change in Control or is entitled to receive future benefits under the Plan as of a date following such Change in Control, then within thirty (30) days following the Change in Control the Participant shall be paid in a single cash payment the Commuted Payment Amount of the Participant's benefits (or, if applicable, remaining benefits) under the Plan determined as of the date of such Change in Control unless the Participant waived the application of this Section 4.11(a) at the time the Participant separated from Service in accordance with procedures prescribed by the Plan Committee for such purpose from time to time. (b) Separation From Service On or After a Change in Control. If a Participant separates from Service on or after the date of a Change in Control, then within thirty (30) days following the Participant's separation from Service the Participant shall be paid in a single cash 20 24 payment the Commuted Payment Amount of the Participant's benefits under the Plan determined as of the date of such separation from Service. Section 4.12. Separation From Service Prior to Assumed Retirement Date. Notwithstanding any provision of the Plan to the contrary, if a Participant separates from Service prior to such Participant's Assumed Retirement Date for any reason other than death, Disability or Involuntary Termination Without Cause, then the amount of the Participant's retirement benefit under Section 4.2, 4.3, 4.4 or 4.5, as applicable, shall be reduced by multiplying the amount of the applicable retirement benefit by the Participant's Years of Service Fraction. In no event shall this Section 4.12 apply in the event of a Participant's separation from Service after a Change in Control. In addition, the provisions of this Section 4.12 shall not apply to any Participant who became a Participant in the Plan prior to January 1, 1999. ARTICLE V PLAN COMMITTEE Section 5.1. Appointment, Term of Office and Vacancy. The Plan Committee shall consist of one or more persons from the United Dominion Industries, Inc. Human Resources Department who are appointed to the Plan Committee by the Compensation and Human Resources Committee and who shall serve at the pleasure of the Compensation and Human Resources Committee. The Compensation and Human Resources Committee shall have the absolute right to remove any member of the Plan Committee at any time, with or without cause, and any member of the Plan Committee shall have the right to resign at any time. If a vacancy in the Plan Committee should occur, from death, resignation, removal or otherwise, a successor shall be appointed by the Compensation and Human Resources Committee. Section 5.2. Organization of Plan Committee. The Compensation and Human Resources Committee shall designate one of the members of the Plan Committee to serve as its Chairman, one member as its Vice-Chairman and one member as its Secretary. One person may hold more than one office. The Plan Committee may appoint such agents, who need not be members of the Plan Committee, as it may deem necessary for the effective performance of its duties, and may delegate to such agent such powers and duties, whether ministerial or discretionary, as the Plan Committee may deem expedient or appropriate. The Plan Committee shall act by majority vote and may adopt such bylaws, rules and regulations as it deems desirable 21 25 for the conduct of its affairs. The members of the Plan Committee shall serve as such without compensation. Section 5.3. Powers of the Plan Committee. The Plan Committee shall administer the Plan. The Plan Committee shall have all the powers to enable it to carry out its duties under the Plan properly. Not in limitation of the foregoing, the Plan Committee shall have the power to construe and interpret the Plan and determine all questions that shall arise thereunder. It shall decide all questions relating to eligibility to receive benefits under the Plan. The Plan Committee shall have such other and further specified duties, powers, authority and discretion as are elsewhere in the Plan either expressly or by necessary implication conferred upon it. The decision of the Plan Committee upon all matters within the scope of its authority shall be final and conclusive on all persons, except to the extent otherwise provided by law. Section 5.4. Expenses of Plan Committee. The reasonable expenses of the Plan Committee incurred by the Plan Committee in the performance of its duties under the Plan, including without limitation, reasonable counsel fees and expenses of other agents, shall be paid by the Participating Employers. Section 5.5. Indemnification of Plan Committee. To the extent permitted by applicable law, the Participating Employers shall indemnify and hold harmless each member of the Plan Committee from and against any and all liability, claims, demands, costs, and expenses (including the costs and expenses of attorneys incurred in connection with the investigation or defense of claims) in any manner connected with or arising out of any actions or inactions in connection with the administration of the Plan except for such actions or inactions which are not in good faith or which constitute willful misconduct. ARTICLE VI AMENDMENT AND TERMINATION Section 6.1. Amendment of Plan. Subject to the provisions of Section 6.4, the Participating Employers expressly reserve the right, at any time and from time to time, to amend in whole or in part any of the terms and provisions of the Plan for whatever reason(s) the Participating Employers may deem appropriate. Section 6.2. Termination of Plan. Subject to the provisions of Section 6.4, the Participating Employers expressly reserve the right, at any time and for whatever reason they may deem appropriate, to terminate the Plan. 22 26 Section 6.3. Procedure for Amendment or Termination. Any amendment to the Plan or termination of the Plan shall be made by the Participating Employers by resolution of the Compensation and Human Resources Committee, and evidenced by a written instrument of United Dominion Industries, Inc., and shall not require the approval or consent of any Participant or Beneficiary in order to be effective. Section 6.4. Effect of Amendment or Termination on Certain Benefits. (a) No amendment or termination of the Plan shall reduce or eliminate the benefits (if any) payable under the Plan (without regard to such amendment or termination) to any Participant, Surviving Spouse or Beneficiary who commenced receiving benefits under the Plan prior to the amendment or termination date. (b) No amendment or termination of the Plan shall: (i) reduce the amount of a Participant's Normal, Early or Delayed Retirement Benefit, as applicable, below the amount of such benefit determined immediately prior to such amendment or termination date based on the terms and provisions of the Plan then in effect as if the Participant had separated from Service at such time; (ii) reduce the amount of a Participant's death benefit payable to the Participant's Surviving Spouse below the amount of such benefit determined immediately prior to such amendment or termination date based on the terms and provisions of the Plan then in effect as if the Participant had died while in Service at such time; (iii) from and after the date of a Change in Control, reduce the Commuted Payment Amount of a Participant below the amount of such benefit determined immediately prior to such amendment or termination date based on the terms and provisions of the Plan then in effect as if the Participant had separated from Service at such time; or (iv) from and after the date of a Change in Control, modify or eliminate a Participant's right to be paid the Commuted Payment Amount in a single cash payment to the extent provided in the Plan immediately prior to the Change in Control. ARTICLE VII MISCELLANEOUS Section 7.1. Adoption by a Subsidiary Corporation. A Subsidiary Corporation may, with the approval of the Compensation and Human Resources Committee and the Board of Directors of such Subsidiary Corporation, elect to adopt the Plan as of the date mutually 23 27 agreeable to the Compensation and Human Resources Committee and the Board of Directors of such Subsidiary Corporation. Any such adoption of the Plan by a Subsidiary Corporation shall be evidenced by an appropriate instrument of adoption executed by such Subsidiary Corporation. Section 7.2. Authorization and Delegation to the Compensation and Human Resources Committee. Each Subsidiary Corporation which is or hereafter becomes a Participating Employer authorizes and empowers the Compensation and Human Resources Committee (i) to amend or terminate the Plan without further action by said Subsidiary Corporation as provided in Article VI and (ii) to perform such other acts and do such other things as the Compensation and Human Resources Committee is expressly directed, authorized or permitted to perform or do as provided herein. Section 7.3. Spendthrift Clause. To the extent permitted by law, no benefits payable under the Plan shall be subject to the claim of any creditor of any Participant or to any legal process by any creditor of any Participant and no Participant entitled to benefits hereunder shall have any right whatsoever to alienate, commute, anticipate or assign any benefits under the Plan. Section 7.4. Benefits Payable From General Assets of the Participating Employers. All benefits payable hereunder shall be paid from the general assets of the Participating Employers. No assets of the Participating Employers shall be segregated or placed in trust pursuant to the Plan in a manner which would put such asset beyond the reach of the general creditors of any of the Participating Employers, and the rights of any Participant (or Surviving Spouse or Beneficiary) to receive any benefits hereunder shall be no greater than the right of any general, unsecured creditor of the Participating Employers. Nothing contained in the Plan shall create or be construed as creating a trust of any kind or any other fiduciary relationship between the Participating Employers and a Participant. In the event the Participating Employers purchase any insurance policies insuring the life of any Participant hereunder, no Participant shall have any rights whatsoever therein and the Participating Employers shall be the sole owner and beneficiary thereof and shall possess and exercise all incidents of ownership therein. Section 7.5. Allocation of Benefits Among the Participating Employers. The benefits payable under the Plan to a particular Participant (or Surviving Spouse or Beneficiary, if applicable) shall be allocated among the Participating Employers in such proportion as shall reasonably reflect the proportion of such Participant's benefits under the Plan that are 24 28 attributable to such Participant's employment by, and compensation from, the respective Participating Employers (or their predecessors in interest). Section 7.6. Benefits Limited to the Plan. Participation in the Plan shall not give a Participant any right to be retained in the employ of any one or more of the Participating Employers nor, upon dismissal, any right or interest in the Plan except as expressly provided herein. ARTICLE VIII CLAIMS PROCEDURE Section 8.1. Claims Procedure. (a) General. In the event that a Claimant has a Claim under the Plan, such Claim shall be made by the Claimant's filing a notice thereof with the Plan Committee within ninety (90) days after such Claimant first has knowledge of such Claim. Each Claimant who has submitted a Claim to the Plan Committee shall be afforded a reasonable opportunity to state such Claimant's position and to present evidence and other material relevant to the Claim to the Plan Committee for its consideration in rendering its decision with respect thereto. The Plan Committee shall render its decision in writing within sixty (60) days after the Claim is referred to it, and a copy of such written decision shall be furnished to the Claimant. (b) Notice of Decision of Plan Committee. Each Claimant whose Claim has been denied by the Plan Committee shall be provided written notice thereof, which notice shall set forth: (i) the specific reason(s) for the denial; (ii) specific reference to pertinent provision(s) of the Plan upon which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect such Claim and an explanation of why such material or information is necessary; and (iv) an explanation of the procedure hereunder for review of such Claim; all in a manner calculated to be understood by such Claimant. (c) Review of Decision of Plan Committee. Each such Claimant shall be afforded a reasonable opportunity for a full and fair review of the decision of the Plan Committee denying 25 29 the Claim. Such review shall be by the Compensation and Human Resources Committee. Such appeal shall be made within ninety (90) days after the Claimant received the written decision of the Plan Committee and shall be made by the written request of the Claimant or such Claimant's duly authorized representative of the Compensation and Human Resources Committee. In the event of appeal, the Claimant or such Claimant's duly authorized representative may review pertinent documents and submit issues and comments in writing to the Compensation and Human Resources Committee. The Compensation and Human Resources Committee shall review the following: (i) the initial proceedings of the Plan Committee with respect to such Claim; (ii) such issues and comments as were submitted in writing by the Claimant or the Claimant's duly authorized representative; and (iii) such other material and information as the Compensation and Human Resources Committee, in its sole discretion, deems advisable for a full and fair review of the decision of the Plan Committee. The Compensation and Human Resources Committee may approve, disapprove or modify the decision of the Plan Committee, in whole or in part, or may take such other action with respect to such appeal as it deems appropriate. The decision of the Compensation and Human Resources Committee with respect to such appeal shall be made promptly, and in no event later than sixty (60) days after receipt of such appeal, unless special circumstances require an extension of such time within which to render such decision, in which event such decision shall be rendered as soon as possible and in no event later than one hundred twenty (120) days following receipt of such appeal. The decision of the Compensation and Human Resources Committee shall be in writing and in a manner calculated to be understood by the Claimant and shall include specific reasons for such decision and set forth specific references to the pertinent provisions of the Plan upon which such decision is based. The Claimant shall be furnished a copy of the written decision of the Compensation and Human Resources Committee. Such decision shall be final and conclusive upon all persons interested therein, except to the extent otherwise provided by applicable law. 26 30 Section 8.2. Agent for Service of Process. United Dominion Industries, Inc. shall be the agent for service of legal process upon this Plan, and its address for such purpose shall be the address of its principal place of business in Charlotte, North Carolina. IN WITNESS WHEREOF, the undersigned authorized officers of United Dominion Industries, Inc. have executed this instrument on behalf of the Participating Employers as of the day and year first above written. UNITED DOMINION INDUSTRIES, INC. By: /s/ Glenn A. Eisenberg Name: Glenn A. Eisenberg Title: President & COO By: /s/ Richard L. Magee Name: Richard L. Magee Title: Vice President & Secretary 27 31 EXHIBIT A Assumptions and Procedures for Determining Commuted Payment Amount In accordance with Section 2.1(b)(8), Section 4.11 and Section 6.4, the following procedures and assumptions shall be used to determine the actuarial equivalent single sum value ("AESSV") of certain benefits under the Plan: (1) Benefit Calculation Date. For purposes of this Exhibit A, the "Benefit Calculation Date" for a Participant shall be determined as follows: (a) For a Participant who separates from Service on or after the date of a Change in Control, the "Benefit Calculation Date" shall be the date of such Participant's separation from Service. (b) For a Participant who separates from Service prior to the Change in Control and is receiving benefits under the Plan as of the date of such Change in Control or is entitled to receive future benefits under the Plan as of a date following such Change in Control, the "Benefit Calculation Date" shall be the date of the Change in Control. (2) Date of Distribution. The "Date of Distribution" shall be the date as of which the Commuted Payment Amount shall be paid and shall occur within thirty (30) days after the applicable Benefit Calculation Date; provided, however, that if for reasons of administrative practicality a later date is required, the Date of Distribution shall be such later date which is the earliest possible date on which the calculation can be finalized and payment made. (3) Calculation Procedures. (a) Participant Under Age 55 not in Pay Status. For a Participant who is under age 55 and not receiving benefits under the Plan, determine the AESSV at age 55 of the Participant's Early Retirement Benefit calculated as of the Benefit Calculation Date assuming that payment of such benefit commences at age 55 and using the actuarial assumptions set forth below. Then discount that AESSV to the applicable Date of Distribution using the interest rate assumption set forth below. (b) Participant Age 55 or Older not in Pay Status. For a Participant who is age 55 or older and not receiving benefits under the Plan, determine the AESSV at the Date of Distribution of the Participant's Normal, Early or Delayed Retirement Benefit (as applicable) calculated as of the Benefit Calculation Date assuming such benefit commences as of the Date of Distribution and using the actuarial assumptions set forth below. 32 (c) Participant in Pay Status. For a Participant receiving benefits under the Plan, determine the AESSV at the Date of Distribution of the Participant's remaining benefits payable under the Plan as of the Benefit Calculation Date using the actuarial assumptions set forth below. (4) Actuarial Assumptions. The mortality and interest/discount rate assumptions for purposes of determining the AESSV of a benefit shall be the mortality and interest rate assumptions for lump sum payments in effect under the United Dominion Industries, Inc. Retirement Plan as in effect on the applicable Benefit Calculation Date. As of the effective date of this Plan, such assumptions are as follows: Mortality: The "applicable mortality table," as such term in defined in Section 417(e)(3) of the Code, as amended by the Retirement Protection Act of 1994. Interest: The "applicable interest rate," as such term is defined in Section 417(e) of the Code, as amended by the Retirement Protection Act of 1994. The "lookback month" (within the meaning of Treas. Reg. Section 1.417(e)-1T(d)(4)(iii)) for the determination of the applicable interest rate with respect to a calculation on a Benefit Calculation Date during a Plan Year shall be the November immediately preceding such Plan Year. The "stability period" (within the meaning of Treas. Reg. Section 1.417(e)-1T(d)(4)(ii)) during which the applicable interest rate remains constant shall be the Plan Year immediately succeeding the lookback month. (5) Special Rule. For purposes of Section 6.4 of the Plan, the Benefit Calculation Date and Date of Distribution shall be the effective date of the applicable Plan amendment, and the Commuted Payment Amount shall be calculated assuming the Participant separated from Service as of such date. EX-10.5 5 1999 CHANGE OF CONTROL AGREEMENT 1 EXHIBIT 10.5 [UNITED DOMINION Letterhead] March 1, 1999 PRIVILEGED AND CONFIDENTIAL [Participant] Dear [Participant]: United Dominion Industries, Inc. (the "Company") and its ultimate parent company, United Dominion Industries Limited ("Limited"), for which the Company provides management services, consider it essential to the best interests of their shareholders to foster the continuous employment of key Company management personnel. Further, the boards of directors of the Company (the "Board") and of Limited (the "Limited Board") recognize that the possibility of a change in control exists, and that such possibility, and the uncertainty and questions which may arise among management, may result in the departure or distraction of management personnel to the detriment of the Company, Limited and their shareholders. The Board and the Limited Board have determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the management of the Company and its subsidiaries, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from any possible change in control of the Company or Limited. In order to induce you to remain in the employ of the Company, the Company agrees that you shall receive the severance benefits set forth in this letter agreement (the "Agreement") in the event your employment with the Company is terminated subsequent to a Change in Control -1- 2 (as defined in Section 2 hereof) under the circumstances described below. 1. Term of Agreement. The term of this Agreement (the "Term") shall commence on the date hereof and shall continue in effect for a period of three years from the date hereof; provided, however, the original Term of this Agreement shall automatically be extended each year, on the anniversary date of this Agreement, for an additional year unless, not later than ninety (90) days prior to any such anniversary date, the Company shall have given notice that it does not wish to extend the Term, in which case this Agreement shall expire at the end of the two-year period following such anniversary date. Notwithstanding any such notice by the Company not to extend the Term, if a Change in Control shall have occurred during the original or extended Term, the Term shall continue in effect for a period of thirty-six (36) months beyond such Change in Control. 2. Change in Control. No benefits shall be payable hereunder unless there shall have been a Change in Control, as set forth below. For purposes of this Agreement, a "Change in Control" shall mean any one or more of the events set forth below or a change in control of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement. Without limitation, a Change in Control shall be deemed to have occurred if: (A) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company or Limited (in each case, the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company or Limited entitled to vote generally in the election of directors (in each case, the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (A), the following acquisitions shall -2- 3 not constitute a Change in Control: (i) any acquisition directly from the Company or Limited, (ii) any acquisition by the Company or Limited, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or Limited or any corporation controlled by or under common control with the Company or Limited or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (C); or (B) Individuals who, as of the date hereof, constitute the Limited Board cease for any reason to constitute at least a majority of the Limited Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Limited's shareholders, was approved by a vote of at least a majority of the directors then comprising the Limited Board shall be considered as though such individual were a member of the Limited Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Limited Board; or (C) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or Limited (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such -3- 4 transaction owns the Company or Limited or all or substantially all of the Company's or Limited's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or Limited or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of any corporation resulting from such Business Combination, or any corporation with direct or indirect control over any such corporation, were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board or the Limited Board, providing for such Business Combination; or (D) Approval by the shareholders of the Company or Limited of a complete liquidation or dissolution of the Company or Limited; or (E) The Company or Limited executes an agreement, the consummation of which would result in the occurrence of a Change in Control as described above, then, with respect to a termination of your employment, other than a termination resulting from your death or Retirement, or initiated by the Company for Cause or Disability, or otherwise initiated by you other than for Good Reason occurring after such event or the execution of such agreement and prior to the expiration or termination of such agreement, a Change in Control shall be deemed to have occurred as of the date of such event or the execution of such agreement. -4- 5 3. Potential Change in Control. You agree, subject to the terms and conditions of this Agreement, to remain in the employ of the Company in the event of a Potential Change in Control until the earliest of (a) a date which is two hundred seventy (270) days from the occurrence of such Potential Change in Control, (b) the termination of your employment by reason of your death or your Disability or Retirement as defined in Subsection 4(A) of this Agreement, respectively, or (c) the date on which you first become entitled under this Agreement to receive the benefits provided in Subsection 5(D) of this Agreement. For purposes of this Agreement, a Potential Change in Control shall be deemed to have occurred if: (A) The Company or Limited enters into an agreement or agreements which, if carried out, would result in the occurrence of a Change in Control; (B) Any person publicly announces an intention to take or to consider taking actions which, if carried out, would constitute a Change in Control; (C) Any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or Limited (or a company owned, directly or indirectly, by the shareholders of the Company or Limited in substantially the same proportions as their ownership of shares of the Company or Limited), who is or becomes the beneficial owner, directly or indirectly, of securities of the Company or Limited representing 10 percent or more of the combined voting power of the Company's or Limited's then outstanding securities, increases his beneficial ownership of such securities by 10 percentage points or more over the percentage so owned by such person on the date hereof; or (D) The Board or the Limited Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 4. Termination Following Change in Control. If any of the events described in Section 2 hereof constituting a Change in Control shall have occurred, you shall be entitled to the benefits provided in Subsection 5(D) hereof upon subsequent termination of your employment -5- 6 during the Term unless such termination is because of your death or Retirement, by the Company for Cause or Disability, or by you other than for Good Reason. (A) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Company for six (6) consecutive months, and within thirty (30) days after written Notice of Termination is given, you shall not have returned to the full-time performance of your duties, the Company may terminate your employment for "Disability". Any question as to the existence of your Disability upon which you and the Company cannot agree shall be determined by a qualified independent physician selected by you (or, if you are unable to make such selection, it shall be made by any adult member of your immediate family), and approved by the Company. The determination of such physician made in writing to the Company and to you shall be final and conclusive for all purposes of this Agreement. Termination of your employment based on "Retirement" shall mean your voluntary termination of employment on an Early or Normal Retirement Date as defined in the United Dominion Industries, Inc. Revised Retirement Plan (the "Pension Plan") as in effect immediately prior to the occurrence of a Change in Control whether or not you are a participant in the Pension Plan, or in accordance with any retirement arrangement established with your consent with respect to you. (B) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (i) the willful and continued failure by you substantially to perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or from your Retirement or any such actual or anticipated failure resulting from termination by you for Good Reason) after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties, or, (ii) the willful engaging by you in conduct which is demonstrably and materially injurious to the Company, -6- 7 monetarily or otherwise. For purposes of this Subsection, no act or failure to act on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall be delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of conduct set forth above in clause (i) or (ii) of the first sentence of this Subsection and specifying the particulars thereof in detail. (C) Good Reason. You shall be entitled to terminate your employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, any of the following: (i) Inconsistent Duties. A meaningful and detrimental alteration (in your reasonable good faith determination) in the nature or status of your responsibilities (including those as a director of the Company, if any) from those in effect immediately prior to the Change in Control; (ii) Reduced Salary. A reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Relocation. The relocation of the office of the Company where you are employed at the time of the Change in Control (the "CIC Location") to a location that is more than fifty (50) miles from your current location, or which in your good faith assessment is an area not generally considered conducive to maintaining the executive offices of a company such as -7- 8 the Company because of hazardous or undesirable conditions, including without limitation a high crime rate or inadequate facilities; (iv) Incentive Compensation Plans. The failure by the Company to continue in effect any compensation plan in which you participate, including but not limited to the United Dominion Industries Corporate Net Worth Incentive Compensation Plan or any other plans adopted prior to the Change in Control, which failure has a significant adverse effect on your total compensation, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan in connection with the Change in Control, or the failure by the Company to continue your participation therein on at least as favorable a basis, in terms of the amount of benefits available to you as existed at the time of the Change in Control; (v) Benefits and Perquisites. The failure by the Company to continue to provide you with benefits and perquisites substantially similar to those enjoyed by you under the Company's pension, life insurance, medical, health and accident, disability, savings and other qualified and non-qualified executive benefit plans in which you were participating at the time of the Change in Control; (vi) No Assumption by Successor. The failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 6 hereof or, if the business of the Company for which your services are principally performed is sold at any time after a Change in Control, the purchaser of such business shall fail to agree to provide you with the same or a comparable position, duties, compensation and benefits (as described in Clauses 4(C)(iv) and (v) above) as provided to you by the Company -8- 9 immediately prior to the Change in Control; or (vii) No Notice. Any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection (D) below (and, if applicable, the requirements of Subsection (B) above); for purposes of this Agreement, no such purported termination shall be effective. (D) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 7 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (E) Date of Termination, Etc. "Date of Termination" shall mean (i) if your employment is terminated for Disability, thirty (30) days after a Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty (30) day period), and (ii) if your employment is terminated pursuant to Subsection (B) or (C) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection (B) above shall not be less than thirty (30) days, and in the case of a termination pursuant to Subsection (C) above shall not be less than thirty (30) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a -9- 10 court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given and continue you as a participant in all compensation, benefit, and insurance plans and perquisites in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 5. Compensation Upon Termination or During Disability. Following a Change in Control, upon termination of your employment or during Disability during the Term, the Company shall cause there to be provided to you the following benefits: (A) Disability. During any period that you fail to perform your full-time duties with the Company as a result of your Disability, you shall continue to receive your base salary at the rate in effect at the commencement of any such period, inclusive of all compensation payable to you under the Company's disability insurance coverage or other plan during such period, until your employment is terminated pursuant to Subsection 4(A) hereof. Thereafter, your benefits shall be determined in accordance with the Company's insurance programs and other benefit or pension plans then in effect, including those listed in Clause 4(C)(v) hereof. (B) Termination for Other than Good Reason or for Cause. If your employment shall be terminated by the Company for Cause or by you other than for Good Reason, death or Retirement, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and any -10- 11 amounts to be paid to you pursuant to the Company's benefit and pension plans then in effect, including those listed in Clause 4(C)(v), and the Company shall have no further obligations to you under this Agreement. (C) Retirement; Death. If your employment shall be terminated for Retirement, or by reason of your death, your benefits shall be determined in accordance with the Company's benefit and pension plans then in effect, including those listed in Clause 4(C)(v). (D) Termination Otherwise. If your employment with the Company shall be terminated by the Company for a reason other than Cause, Retirement, Disability, or your death, or if your employment with the Company shall be terminated by you for Good Reason, then you shall be entitled to the benefits provided below: (i) Base Salary. The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time the Notice of Termination is given; (ii) Severance Payment. In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you, not later than the fifth (5th) day following the Date of Termination (the "Payment Date"), a lump sum severance payment (the "Severance Payment") equal to the amount of base salary you would have earned had you continued to be employed until the earlier of (a) the end of the thirty-six (36) month period following the Date of Termination or (b) the attainment of your Normal Retirement age (the "Severance Period"), assuming that your rate of monthly base salary during the Severance Period would be equal to the highest monthly rate of base salary which was payable to you by the Company (or any company affiliated with the Company) during the thirty-six (36) month period immediately preceding the Date of Termination. -11- 12 (iii) Incentive Compensation Plans. The Company shall pay you any amounts required to be paid to you under the terms of the United Dominion Industries Corporate Net Worth Incentive Compensation Plan and the United Dominion Industries Long-Term Performance Incentive Plan, other applicable management incentive compensation programs in effect, or any successor plan(s) in which you participate (each an "MIC Plan"). The Company shall pay you, in cash, in a lump sum, no later than the Payment Date, an amount in lieu of your participation in an MIC Plan during the Severance Period which shall be equal to the sum of: (A) for the year during which the Date of Termination occurs, an amount equal to the greater of (I) your target bonus determined in accordance with your class of participation in such MIC Plan, and (II) the amount that would have been payable to you under such MIC Plan for that year, if the actual performance of the Company from the beginning of that year to the end of the most recently completed fiscal quarter during that year, if any, prior to the Date of Termination, on an annualized basis, were the actual performance of the Company for that year and (B) for each other year or portion thereof remaining in the Severance Period, an amount equal to your target bonus determined in accordance with your class of participation in such MIC Plan prior to your Date of Termination multiplied by the number of full years remaining in the Severance Period following the year during which the Date of Termination occurs, plus a portion of such annual bonus for any partial year remaining during the Severance Period, prorated based upon the number of days completed during such year. (iv) Benefit and Perquisite Continuation. For a thirty-six (36) month period after such termination (or for such longer period that the Company may have obligated itself by separate agreement -12- 13 with you), the Company shall arrange to provide you with life, disability, accident, automobile liability, health & dental insurance and such other benefits and perquisites substantially similar to those which you are receiving immediately prior to the Notice of Termination. In addition, the Company shall provide you with reasonable outplacement benefits consistent with the Company's Corporate Office Severance Policy in effect prior to the Change in Control. Benefits otherwise receivable by you pursuant to this Clause 5(D)(iv) shall be reduced to the extent comparable benefits are actually received by you during the thirty-six (36) month period following your termination, and any such benefit actually received by you shall be reported to the Company. (v) Supplemental Pension. In addition to the pension benefits to which you are entitled under the Pension Plan or any related excess benefit or supplemental retirement programs or any successor plans thereto, including without limitation the United Dominion Industries, Inc. Supplemental Executive Retirement Plan and the Restoration Plan for the Salaried Defined Benefit Plans of United Dominion Industries, Inc. (collectively, the "Defined Benefit Plans"), the Company shall pay you in one sum in cash on the fifth (5th) day following the Date of Termination, a lump sum determined as of the Date of Termination equal to the actuarial equivalent (determined based on your attained age as of the Date of Termination) of the excess of (1) the retirement pension (determined as a joint and 50% survivor annuity if you are married or a 10-year certain and life annuity if you are unmarried, in either case such annuity commencing at age fifty-five (55), or if you have already attained age fifty-five (55) at the Date of Termination, commencing at the Date of Termination) which you would have accrued under the terms of the Defined Benefit -13- 14 Plans in which you are a participant as of the Date of Termination (without regard to any amendment to the Defined Benefit Plans made subsequent to the Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of pension benefits thereunder) determined as if you had accumulated (after the Date of Termination) thirty-six (36) additional months of both age and service credit under each of the Defined Benefit Plans in which you participate as of the Date of Termination at your highest annual rate of compensation during the twelve (12) months immediately preceding the Date of Termination (but in no event shall you be deemed to have accumulated additional months of age or service credit after your sixty-fifth (65th) birthday for purposes of the Pension Plan), over (2) the retirement pension (stated in the same form of annuity and commencing on the same date as described in subclause (1) above) which you had then accrued pursuant to the provisions of the Defined Benefit Plans in which you are a participant as of the Date of Termination. For purposes of subclause (1), the term "compensation" shall include amounts payable pursuant to Clauses 5(D)(ii) and (iii) hereof, and amounts payable pursuant to Clauses 5(D)(ii) and (iii) hereof shall be deemed to represent thirty-six (36) months of compensation (or for purposes of the Pension Plan such lesser number of months of compensation to your sixty-fifth (65th) birthday) for purposes of determining benefits under the Defined Benefit Plans. For purposes of this Subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Pension Plan immediately prior to the Change in Control. (vi) Employee Benefit Plans. Any unvested rights in any employee benefit plan in which you are eligible to participate -14- 15 shall immediately vest, such plans including but not limited to those listed on Schedule A to this letter agreement. You shall be entitled to receive all benefits payable to you under the Company's benefit and pension plans, not otherwise specifically provided for in Subsection 4(D), including those listed in Clause 4(C)(v). (vii) Normal Retirement Date. In the event you become eligible for pension benefits under the Pension Plan on the first day of the month following your attaining age sixty-five (65), your Normal Retirement Date, during the thirty-six (36) month period following the commencement of payments pursuant to Subsection 5(D), then you will only be entitled to the lump sum payment as provided by Clauses 5(D)(ii), (iii) and (v) for that period between the Date of Termination and the last day of the month immediately preceding your Normal Retirement Date. In addition, any entitlement you shall have to benefits provided by Clauses 5(D)(iv) and (vi) shall also cease as of the date you attain your Normal Retirement Date. (E) No Mitigation. You shall not be required to mitigate the amount of any payment provided for in this Section 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 5 be reduced by any compensation earned by you as the result of employment by another employer or by pension benefits after the Date of Termination, or otherwise except as specifically provided in this Section 5. (F) Gross-Up Payment. In the event that any payment received by you or paid by the Company on behalf of you under this Agreement or under any other plan, arrangement or agreement with the Company or any person whose actions result in a Change in Control (collectively, the "Total Payments") will be subject to the excise tax (the "Excise Tax") imposed by section 4999 (or any successor provision) of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay -15- 16 to you an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Total Payments and on any federal, state and local income, excise and/or other taxes upon the Gross-Up Payment provided for by this Section 6, shall be equal to the Total Payments. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the written opinion of tax counsel selected by the Company's independent auditors such other payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income and other taxes at the highest applicable marginal rate of taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income and other taxes at the highest applicable marginal rate of taxation in the state and locality of your residence on the date the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and any other taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, you shall repay to the Company, at the time that the amount of such reduction in Excise Tax is -16- 17 finally determined or upon your receipt of a refund from the taxing authorities of the amount attributable to the reduction in the excise tax, whichever is later, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and other taxes imposed on the Gross-Up Payment being repaid by you to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by you with respect to such excess) at the time that the amount of such excess is finally determined. You and the Company shall each reasonably cooperate with the other in connection with any administration or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. The Gross-Up Payment payable pursuant to this subsection shall be payable on the earlier of (i) the date the Company is required to withhold the Excise Tax pursuant to Section 4999 of the Code, or (ii) the date you are required to pay the Excise Tax. You shall notify the Company of any audit or review by the Internal Revenue Service of your federal income tax return for the year in which a payment under this Agreement is made within ten (10) days of your receipt of such audit or review. In addition, you shall notify the Company of the final resolution of such audit or review within ten (10) days of such resolution. 6. Successors: Binding Agreement (A) Assumption by Successor. The Company will require any successor (whether direct or indirect, by -17- 18 purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled hereunder if you had terminated your employment for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "the Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (B) Enforceability by Beneficiaries. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 7. Notice. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed in the United States, registered mail, return receipt requested, postage prepaid, addressed to UNITED DOMINION INDUSTRIES, INC., ONE FIRST UNION CENTER, SUITE 2300, CHARLOTTE, NC 28202, with a copy to the Senior Vice President - Human Resources & Administration (or his successor) of the Company, or to you at the address set forth on the first page of this Agreement or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. -18- 19 8. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement and this Agreement shall supersede all prior agreements, negotiations, correspondence, undertakings, and communications of the parties, oral or written, with respect to the subject matter hereof. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of North Carolina applicable to contracts entered into and performed in such State. Notwithstanding the fact this Agreement is governed by the laws of the State of North Carolina, any action brought by you may be instituted in your state of residence. 9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. 11. Expenses of Enforcement. In the event of any dispute between the Company and you with respect to the subject matter of this Agreement and the enforcement of rights hereunder, the Company shall reimburse you for all reasonable costs and expenses relating to litigation, actions or other proceedings as they are incurred, including reasonable attorney's fees and expenses reasonably incurred, regardless of whether such litigation, actions or other proceedings result in any settlement or judgment or order in favor of any party; provided, however, that such costs and expenses will be reimbursable in the event of any claim or action initiated by you relating to this Agreement only if such claim shall have been made or -19- 20 brought after reasonable inquiry and shall be well-grounded in fact, and warranted by existing law or a good faith argument for the extension, modification or reversal of existing law, and that is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. Unless required by applicable Delaware law, in no event shall you be required to reimburse the Company for any of the costs and expenses relating to such litigation or other proceeding. The obligation of the Company under this Section 11 shall survive the termination for any reason of this Agreement (whether such termination is by the Company, by you, upon the expiration of this Agreement or otherwise). 12. No Contract of Employment. Nothing in this Agreement shall be construed as giving you any right to be retained in the employ of the Company. 13. Headings. The headings contained in this Agreement are intended solely for convenience and shall not affect the rights of the parties to this Agreement. 14. Confidentiality. In consideration for the payments to be made by the Company hereunder, you agree to maintain the confidentiality of all information relating to the Company, Limited, or any of its or their subsidiaries not otherwise available to the public during the term, and following the expiration, of this Agreement. 15. Guarantee by Limited. In consideration of the management services provided to it by the Company, and by its signature hereto, Limited agrees that it will guarantee the payment and performance of all obligations of the Company hereunder. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, [Signatures] -20- EX-10.6 6 1999 STOCK OPTION AND RESTRICTED STOCK PLAN 1 EXHIBIT 10.6 UNITED DOMINION INDUSTRIES LIMITED 1999 STOCK OPTION AND RESTRICTED STOCK PLAN ARTICLE I PURPOSE The purpose of the United Dominion Industries Limited 1999 Stock Option and Restricted Stock Plan (the "Plan") is to stimulate the interest and efforts of, and to retain in service, employees, officers and directors; to provide a facility that would make it easier for members of the UDI Group (as hereinafter defined) to attract employees, officers and directors; and to enable such employees to participate in the long-term growth and financial success of United Dominion Industries Limited. ARTICLE II DEFINITIONS 2.1 "Award" shall mean a grant of a Stock Option, Limited Stock Appreciation Right or Restricted Stock Award under the Plan. 2.2 "Beneficiary" shall mean a person or persons designated by a Participant to succeed to, in the event of death, any outstanding Award held by the Participant. Any Participant may, subject to such limitations as may be prescribed by the Committee, designate one or more persons primarily or contingently as beneficiaries in writing by notice delivered to the Corporation, and may revoke such designations in writing. If a Participant fails effectively to designate a beneficiary, then the Participant's estate shall be the Participant's beneficiary. 2.3 "Board" shall mean the Board of Directors of the Corporation. 2.4 "Code" shall mean the United States Internal Revenue Code of 1986, as amended. 2.5 "Committee" shall mean the Board's Compensation and Human Resources Committee, as appointed from time to time by the Board, so long as each of the voting members of the Committee is not an "insider" or a "related" director, as such terms are defined and interpreted by The Toronto Stock Exchange. Otherwise, "Committee" shall mean the outside, "unrelated" directors, as such term is interpreted by The Toronto Stock Exchange, who serve on the Board's Compensation and Human Resources Committee. The Committee shall be responsible for administering the Plan in accordance with Article III of the Plan. 2.6 "Common Shares" shall mean the common shares (without par value) in the capital of the Corporation. 2.7 "Corporation" shall mean United Dominion Industries Limited, or any successor corporation. 2.8 "Disability" shall mean a condition resulting from an injury or sickness that renders the Participant unable to perform any occupation for which the Participant is qualified or may reasonably become qualified by reason of education, training or experience, whether or not a job involving such occupation is available within a member of the UDI Group. 2.9 "Employee" shall mean an individual employed by any member of the UDI Group who is, in the judgment of the Board, of special value to such member. 2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, or any successor statute. 2.11 "Fair Market Value" of a share on a specified date shall mean the average of the daily high and low board lot trading prices for such share on The Toronto Stock Exchange on the most recent day prior to the grant date in which Shares were traded on The Toronto Stock Exchange, or if no trade occurred on any one of the preceding ten (10) trading days on such exchange, then on the New York Stock Exchange, or if no trade occurred on any one of the preceding 10 days on either the Toronto or New York exchanges, then on the Montreal Exchange, or if no trade occurred on any one of the preceding 10 days 1 2 on any of the aforesaid exchanges, then on such other securities exchange or market (including, without limitation, the automated quotation system of the National Association of Securities Dealers, Inc. or the Canadian Dealing Network System) on which such shares are listed or admitted for trading as may be selected for such purpose by the Board with the consent of The Toronto Stock Exchange. If Fair Market Value is determined in U.S. dollars, such Fair Market Value shall be restated in Canadian dollars based upon the noon buying rate in New York City for cable transfers of Canadian dollars payable in U.S. dollars as certified for custom's purposes by the Federal Reserve Bank of New York on the date an Award is granted. 2.12 "Incentive Stock Option" shall mean any Stock Option granted pursuant to the Plan that is intended to be and is specifically designated as an "Incentive Stock Option" within the meaning of Section 422 of the Code. 2.13 "Limited Stock Appreciation Right" or "Limited Right" shall mean an Award granted in connection with the grant of a Stock Option pursuant to the provisions of Section 6.1 of the Plan. 2.14 "Non-Qualified Stock Option" shall mean any Stock Option granted pursuant to the provisions of the Plan that is not an Incentive Stock Option, or is specifically identified as not being an Incentive Stock Option. 2.15 "Optionee" shall mean a Participant who has received the grant of a Stock Option. 2.16 "Participant" shall mean an individual who is eligible to participate and is granted an Award under the Plan. 2.17 "Plan" shall mean the United Dominion Industries Limited 1999 Stock Option and Restricted Stock Plan set forth herein, as amended from time to time. 2.18 "Restricted Stock Award" shall mean an Award granted pursuant to the provisions of Section 7.1 of the Plan. "Restricted Stock" means Shares granted pursuant to Section 7.1 of the Plan. "Restricted Stock Agreement" means the agreement between the Corporation and the recipient of Restricted Stock that contains the terms, conditions and restrictions pertaining to such Restricted Stock. 2.19 "Retirement" shall mean termination of employment because of normal or early retirement under the UDI Group's Retirement Plan. 2.20 "Retirement Plan" shall mean the United Dominion Industries, Inc. Retirement Plan, as amended or replaced from time to time, or such other similar retirement plan applicable to an Employee as a result of such Employee's employment with an entity in the UDI Group that does not participate in such plan. 2.21 "Shares" shall mean Common Shares. 2.22 "Stock Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option granted pursuant to Article V of the Plan. "Stock Option Agreement" means the agreement between the Corporation and the Optionee that contains the terms and conditions pertaining to a Stock Option. 2.23 "UDI Group" shall mean the Corporation and its subsidiary corporations (as that term is defined under Code Section 424(f)). The companies comprising such group are hereinafter sometimes referred to collectively as "members of the UDI Group" and individually as a "member of the UDI Group." ARTICLE III ADMINISTRATION 3.1 Composition of the Committee. The Plan shall be administrated by the Committee. The Board may from time to time remove members from, or add members to, the Committee. Subject to Section 2.5 of the Plan, the Board shall have the authority to fill vacancies on the Committee, however caused. 3.2 Actions by the Committee. The Committee shall hold meetings at such times and places as it may determine. Acts approved by a majority of the members of the Committee present at a meeting at 2 3 which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. 3.3 Powers of the Committee. The Committee shall have the authority to administer the Plan in its sole discretion, subject, where applicable, to the requirements of The Toronto Stock Exchange and, when required, to the approval of the Corporation's shareholders. To this end, the Committee is authorized to construe and interpret the Plan, to promulgate, amend and rescind rules relating to the implementation of the Plan and to make all other determinations necessary or advisable for the administration of the Plan, including, but not limited to, the recommendation to the Board of individuals who may be granted Awards, the number of Shares to be subject to each Award, the Award price, if any, the vesting or duration of Awards, the designation of Stock Options as Incentive Stock Options or Non-Qualified Stock Options, and any other terms and conditions of Awards. The Committee may designate persons other than members of the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem appropriate. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration or application of the Plan shall be final, conclusive and binding upon all persons participating in the Plan and any person validly claiming under or through persons participating in the Plan. 3.4 Compliance with Laws. The administration of the Plan by the Committee, including the provisions of Sections 3.1-3.3 above, shall in all respects be subject to the provisions of the Corporation's Bylaws, as amended from time to time, and applicable laws, rules and regulations. ARTICLE IV ELIGIBILITY 4.1 Eligibility. The individuals eligible to be granted Awards under the Plan are the officers and directors of the Corporation and Employees. Participants shall include the officers, directors and such Employees as determined by the Committee, subject to approval or rejection by the Board. ARTICLE V STOCK OPTIONS 5.1 Awards of Stock Options. Stock Options may be granted to an officer, director or Employee, either alone or in addition to other Awards granted under the Plan. The Committee shall from time to time recommend to the Board those individuals to whom Stock Options should be granted, specifying the number of Shares that should be placed under the Stock Option to each such individual. Each Stock Option granted under this Plan shall be one of two types: (i) an Incentive Stock Option or (ii) a Non-Qualified Stock Option. Participants may be awarded one or more Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options. The Board may (i) accept all or any part of such a recommendation of the Committee or (ii) refer all or any part thereof back to the Committee for further consideration and recommendation. The grant of every Stock Option hereunder shall be made by written agreement between the Corporation and the Optionee, the provisions of which shall conform to the applicable provisions of the Plan and shall otherwise be satisfactory to the Committee. 5.2 Incentive Stock Options. Anything in this Plan to the contrary notwithstanding, no term of this Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under this Plan be so exercised, so as to disqualify this Plan under Section 422 of the Code, or without the consent of the Participant affected, to disqualify any Incentive Stock Option under Section 422 of the Code. No Incentive Stock Options may be awarded after December 31, 2008. No Incentive Stock Options shall be granted to a Participant who is not an Employee. 3 4 5.3 Terms of Stock Options. Stock Options granted under this Plan shall be subject to the following terms and conditions and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem desirable: (a) Exercise Price. Each Stock Option shall state the price per Share, as determined by the Committee, at which the Stock Option may be exercised; provided, however, that the per Share exercise price shall not be less than the Fair Market Value of a Share on the date of grant. Further provided, in the case of an Incentive Stock Option granted to an Employee who owns more than 10% of the total combined voting power of all classes of stock of the Corporation, the exercise price per Share shall not be less than 110% of the Fair Market Value of a Share on the date of grant. (b) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than ten (10) years after the date the Stock Option is granted, or no more than five (5) years in the case of an Employee who owns more than 10% of the total combined voting power of all classes of stock of the Corporation. (c) Exercisability and Nontransferability of Stock Options. Except as provided below, no Stock Option may be exercised within one year of grant. At the end of one year, one-third of the grant will become exercisable. Thereafter, one-third of the grant will become exercisable at the conclusion of each of the succeeding two years. Notwithstanding the foregoing, an Optionee who is fully vested in the Retirement Plan may exercise any of such Optionee's Stock Options upon reaching "retirement age" as defined in the Retirement Plan so long as at least six months have passed since the date on which such options were granted. Directors of the Corporation who are not employees of the Corporation are subject only to the six-month vesting requirement set forth below with respect to the exercise of Options. The Committee may, in its entire discretion, at the time of the granting of Stock Options hereunder, specify another particular time period or periods following the date of the grant of the Stock Option during which an Optionee may exercise his Stock Options to purchase, may designate the number of Shares in respect of which such Optionee may exercise his Stock Option to purchase, and may designate the number of Shares in respect of which such Optionee may exercise his option during each time period; provided, however, in no event may the Committee specify a time period or periods following the date of the grant of Stock Options that would enable an Optionee to exercise all or part of his Stock Options within six months following the date of grant. No Stock Option shall be transferable by the Optionee otherwise than by will or the laws of descent and distribution. Stock Options shall be exercisable during the Optionee's lifetime, only by the Optionee, or his guardian, conservator, or other legal representative. An Optionee may elect that, upon his death, no right to exercise his option shall be transmitted or passed to his executors or other legal representatives. Such election must be made by written instrument signed by such Optionee and addressed and delivered to the Secretary of the Corporation and may thereafter, in like manner, be revoked and again made and revoked at any time and from time to time during the lifetime of such Optionee and so long as his Stock Option rights have not terminated or been wholly exercised. (d) Method of Exercise. Purchases of Shares by an Optionee shall be in lots of not less than 25 Shares, and all Shares must be paid in full at the time of their purchase. Purchase may be made in cash or, unless prohibited by the Committee at the time of the grant, by exchanging Shares owned by the Optionee or by a combination of cash and Shares provided that the combined value of cash and the Fair Market Value of Shares tendered is equal to the exercise price. (e) Death. If an Optionee's employment is terminated because of his death, all Stock Options previously granted will become exercisable and may be exercised at any time before their expiration date. 4 5 (f) Disability. If an Optionee's employment is terminated because of Disability, all Stock Options previously granted will remain exercisable according to their original schedule of exercisability and may be exercised until their expiration date. Stock Options exercised more than one year after employment is terminated because of Disability shall be considered Non-Qualified Stock Options. (g) Retirement. If an Optionee's employment is terminated because of Retirement, then in the event of Retirement (as defined in the Retirement Plan) all Stock Options previously granted to such retiring Optionee will become immediately exercisable and may be exercised at any time before their expiration date to the extent the Optionee is entitled to do so under clause (c) above. Stock Options exercised by a retired Optionee more than three months after Retirement shall be considered Non-Qualified Stock Options. (h) Other Termination of Employment. If an Optionee's employment is terminated for any reason other than death, Disability or Retirement, all Stock Options owned by such Optionee shall terminate on the date ninety (90) days after the date of the termination of such Optionee's employment; provided, however, the Committee may, in its sole and exclusive discretion, at any time either before or after the expiration of such ninety (90) day period, extend the right to exercise the Stock Options (including Stock Options not otherwise exercisable as of the date of such termination of employment) beyond such ninety (90) day period. The foregoing sentence notwithstanding, in no instance shall this paragraph operate to extend the term of any Stock Option. (i) Change in Control. All Stock Options shall become immediately exercisable upon a Change in Control (as defined in Section 6.1(g) hereof). (j) Directors. In the event the Optionee is a director of the Corporation and not an Employee of the UDI Group at the time of the grant, or at any time during the exercise period, Stock Options granted to such Optionee may be exercised, to the extent the Optionee is entitled to do so under clause (c) above, at any time until their expiration date. Stock Options granted to non-Employee directors shall be Non-Qualified Stock Options. The aggregate number of Shares subject to Stock Options granted to non-Employee directors of the Corporation as a group during any one year period shall not exceed 100,000 Shares. (k) Buyout and Settlement Provisions. The Committee may at any time offer to buy out a Stock Option previously granted, based on such terms and conditions as the Committee shall establish and communicate to the Participant at the time that such offer is made. (l) Optionee's Shareholder Rights. An Optionee shall be entitled to the rights appertaining to share ownership, such as to dividends and voting, only with respect to Shares that have been fully paid for and issued to him. (m) Exercise of Options. Stock Options shall be exercised only in accordance with the terms and conditions of the Stock Option Agreements under which they are respectively granted and shall be exercisable only in writing on forms to be provided by the Committee. (n) Limitation on Exercise. To the extent that the Fair Market Value of Shares with respect to which Incentive Stock Options (determined without regard to this paragraph) are exercisable for the first time by any individual during any calendar year exceeds $100,000, such Stock Option shall be designated at the time of grant and otherwise be treated as Non-Qualified Stock Options. 5.4 Replacement Options. As an incentive to encourage stock ownership in the Corporation on the part of the Optionees, the Committee may, at its discretion, subject to regulatory approval, authorize replacement Stock Option grants ("Replacement Options") to Optionees who exercise all or a portion of a grant by means of tendering Shares acquired not less than six months earlier. If an Optionee exercised part or all of a Stock Option grant by tendering Shares, the Committee may grant a Replacement Option grant equal to the number of tendered Shares. In addition to the foregoing terms of Section 5.3 above, the Replacement Option shall be subject to the following terms: (a) the Optionee agrees to retain ownership of the exercised Shares for a period of at least two years; and 5 6 (b) the exercise price of the Replacement Option will be equal to 100% of the Fair Market Value at the time of the granting of the Replacement Option; and (c) the expiration date of the Replacement Option will be the same as the expiration date of the original Stock Option that has been exercised. ARTICLE VI LIMITED STOCK APPRECIATION RIGHTS 6.1 Limited Stock Appreciation Rights. (a) The Committee shall have the authority to grant Limited Stock Appreciation Rights (the "Limited Rights") in connection with the grant of Stock Options under this Plan to any Optionee, and such rights may be granted either at or after the time of the grant of such Stock Option. (b) Limited Rights or any applicable portion thereof granted with respect to a given Stock Option shall terminate and no longer be exercisable upon the termination of the related Stock Option. Upon the exercise of a Stock Option, the related Limited Right shall cease to be exercisable to the extent of the Shares with respect to which such Stock Option is exercised. (c) An Optionee, in accordance with this Article VI, may exercise a Limited Right related to a Stock Option by surrendering the applicable portion of the related Stock Option. Upon such exercise and surrender, the Optionee shall be entitled to receive an amount determined in the manner prescribed in this Article VI, and the related Stock Option shall cease to be exercisable to the extent that the Shares with respect to which such Limited Rights are exercised. (d) Limited Rights shall only be exercisable following a Change in Control as defined in paragraph (g) of this Article VI, at which time all optioned Shares and the related Limited Rights shall become exercisable notwithstanding the provisions hereof; Limited Rights may only be exercised during the 30-day period following a Change in Control, unless the first six months of the term of the Limited Rights have not yet elapsed, in which case, the 30-day period will commence at the conclusion of the sixth month. (This six-month limitation shall not apply in the event of the Optionee's death or Disability.) (e) Upon the exercise of a Limited Right related to a Stock Option, an Optionee shall be entitled to receive an amount in cash equal in value to the excess of the higher of (i) the highest price per share paid in connection with the Change in Control, or (ii) the average of the daily high and low board lot trading prices for any five day continuous period on The Toronto Stock Exchange, such excess to be multiplied by the number of Shares in respect to which the Limited Right shall have been exercised. (f) Limited Rights shall be subject to such other terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee. (g) A "Change in Control" shall be deemed to have occurred if any of the following events occur: (i) The acquisition by any person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either the then outstanding voting securities entitled to vote generally in the election of directors; (ii) A change in the persons constituting the Board as it existed in the immediately preceding calendar year (the "Incumbent Board") such that the directors of the Incumbent Board no longer constitute a majority of the Board; provided that any person becoming a director in a subsequent year whose election, or nomination for election, by the Corporation's shareholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of 6 7 the directors of the Corporation, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of the Plan, considered as though such person was a member of the Incumbent Board; (iii) Approval by the shareholders of the Corporation of a reorganization, merger, amalgamation, arrangement or consolidation, in each case with respect to which persons who were the shareholders of the Corporation immediately prior to such reorganization, merger, amalgamation, arrangement or consolidation do not, immediately thereafter, own more than 50% of the combined voting power of the surviving corporation; (iv) Approval by the shareholders of the Corporation of a sale or other disposition of all or substantially all of the assets of the Corporation to an individual, corporation, firm or other entity which is not a wholly-owned subsidiary of the Corporation; or (v) Approval by the shareholders of the Corporation of a liquidation or dissolution of the Corporation or the sale of all or substantially all of the assets of the Corporation. ARTICLE VII RESTRICTED STOCK 7.1 Restricted Stock Awards. In consideration for prior service with the UDI Group and/or as an incentive for employment with the UDI Group, either as an Employee or as a director of the Corporation, Shares of Restricted Stock may be granted to an Employee or director of the Corporation either alone or in addition to other Awards granted under this Plan. The Committee shall, from time to time, recommend to the Board those individuals to whom, and the times at which, grants of Restricted Stock will be made, the number of Shares of Restricted Stock to be awarded, the time within which such Awards may be subject to forfeiture or repurchase by the Corporation, and all other terms and conditions not inconsistent with the express provisions of the Plan. The aggregate number of Shares of Restricted Stock granted to non-Employee directors of the Corporation as a group during any one year period shall not exceed 25,000 Shares. The terms of each Restricted Stock Award shall be set forth in a Restricted Stock Agreement between the Corporation and the Participant, which Agreement shall contain such provisions as the Committee determines to be necessary or appropriate to carry out the intent of the Plan with respect to such Award. Each Participant receiving a Restricted Stock Award shall be issued a stock certificate in respect of such Shares of Restricted Stock. Such certificate shall be registered in the name of such Participant, and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Award. The Committee shall require that the Corporation hold stock certificates evidencing such Shares until the restrictions thereon shall have lapsed. 7.2 Restrictions and Conditions. The Shares of Restricted Stock awarded pursuant to this Article VII shall be subject to the following terms, conditions and restrictions: (a) The Committee in its sole discretion shall specify the terms, conditions and restrictions under which Shares of Restricted Stock shall vest or be forfeited or repurchased by the Corporation. These terms, conditions and restrictions may include continued employment with the Corporation or other member of the UDI Group for a specified period of time, termination of the Employee's employment for specified reasons such as death, Disability or Retirement (as defined in the Retirement Plan) prior to the completion of the specified period, or the attainment of certain performance objectives. The period of time commencing with the date of such Award and ending on the date on which all Shares of Restricted Stock in such Award either vest or are forfeited or repurchased by the Corporation shall be known as the "Restriction Period." With respect to the Restricted Stock during the Restriction Period the Committee may, in its sole and exclusive discretion, at any time either before or after the termination of an Employee's employment, provide for the lapse of any such term, condition or restriction in installments and may accelerate or waive such term, condition or restriction in whole or in part, based on service, performance and/or such other factors or criteria as the Committee may determine in its sole discretion. During the Restriction 7 8 Period the Participant shall not be permitted to sell, transfer, pledge, assign or encumber Shares of Restricted Stock awarded under the Plan. (b) Except as provided in this paragraph (b) and paragraph (a) above, the Participant shall have, with respect to the Shares of Restricted Stock, all of the rights of a shareholder of the Corporation, including the right to vote the Shares and the right to receive any cash or stock dividends. The Committee, in its sole discretion, as determined at the time of an Award, may provide that the payment of cash dividends shall or may be deferred. Any deferred cash dividends may be reinvested as the Committee shall determine in its sole discretion, including reinvestment in additional Shares of Restricted Stock. Stock dividends issued with respect to Restricted Stock shall be Restricted Stock and will be subject to the same terms, conditions and restrictions that apply to the Shares with respect to which such dividends are issued. Additional Shares of Restricted Stock issued with respect to cash or stock dividends shall not be counted against the maximum number of Shares for which Awards may be granted under the Plan in each calendar year as set forth in Article VIII of the Plan. (c) If and when the Restriction Period applicable to Shares of Restricted Stock expires without a prior forfeiture or repurchase by the Corporation of the Restricted Stock, certificates for an appropriate number of unrestricted Shares shall be delivered promptly to the Participant upon request by the Participant for exchange and cancellation. ARTICLE VIII SHARES SUBJECT TO THE PLAN 8.1 Number of Shares Available for Awards. The aggregate number of Shares reserved for issuance under the Plan shall be equal to 1,200,000 Shares plus up to 2,638,666 Shares as to which Awards under the United Dominion Industries Limited Stock Option and Restricted Stock Plan dated effective as of February 11, 1994, as amended, may lapse, expire, terminate or be cancelled or repurchased by the Corporation; provided, however, the aggregate number of such Shares available for issuance under the Plan shall not exceed 10% of the outstanding Common Shares of the Corporation as of the effective date of the Plan determined in accordance with Article X below. The total number of Shares subject to Awards granted to all persons in any calendar year under this Plan shall not exceed 2% of the outstanding Common Shares of the Corporation as of the effective date of the Plan determined in accordance with Article X below. In addition, in no event shall more than an aggregate of 1,000,000 Shares be reserved under the Plan for Incentive Stock Options. 8.2 Limitations on Individual Awards. (a) The aggregate number of Shares subject to outstanding Awards (determined at time of grant) under the Plan to any one person shall not exceed the lesser of (i) 5% of the then outstanding Shares and (ii) 1,750,000 Shares in the aggregate. (b) No Participant shall be granted Awards under this Plan with respect to more than 500,000 Shares in any calendar year. (c) Awards to directors who are not Employees in the UDI Group shall be limited to the per year aggregate amounts set forth in Sections 5.3(j) and 7.1 above. 8.3 Lapsed or Terminated Awards. Shares that were subject to Awards that have lapsed or terminated or shares of Restricted Stock that have been repurchased at a nominal price and cancelled by the Corporation (and Shares tendered for payment of withholding taxes) shall thereby become reinstated as Shares reserved for Awards hereunder and, accordingly, shall again be available for the grant of an Award under the Plan. 8.4 Adjustment in Number of Shares for Recapitalizations and Related Transactions. If, through or as a result of any merger, amalgamation, arrangement, consolidation, sale of all or substantially all of the assets of the Corporation, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, (i) the outstanding Shares are increased, decreased or 8 9 exchanged for a different number or kind of shares or other securities of the Corporation, or (ii) additional Shares or new or different shares or other securities of the Corporation or other non-cash assets are distributed with respect to such Shares or other securities, an appropriate and proportionate adjustment may be made in (x) the maximum number and kind of shares reserved for issuance under the Plan, (y) the number and kind of shares subject to any then outstanding Awards under the Plan, and (z) the price for each Share subject to any then outstanding Awards under the Plan (without changing the aggregate purchase price, if any, of any Stock Options). Any adjustments under this Section 8.4 shall be made by the Board, whose determination as to what adjustments, if any, shall be made and the extent thereof shall be final, binding and conclusive. No fractional Shares shall be issued under the Plan on account of any such adjustments. 8.5 Merger, Consolidation, Asset Sale, Liquidation, etc. In the event of a consolidation, merger, amalgamation, arrangement or sale of all or substantially all of the assets of the Corporation in which outstanding Shares are exchanged for securities, cash or other property of any other corporation or business entity or in the event of a liquidation of the Corporation, the Board, or the board of directors of any corporation assuming the obligations of the Corporation, may, in its discretion, take any one or more of the following actions as to the outstanding Awards under the Plan: (i) provide that such Awards shall be assumed, or equivalent Awards shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof); provided that any such Awards substituted for Incentive Stock Options shall meet the requirements of Section 424(a) of the Code, (ii) upon written notice to the Participant, provide that all unexercised Awards will terminate within a specified period immediately prior to the consummation of such transaction unless exercised by the Participant within a specified period following the date of such notice, (iii) in the event of a merger, amalgamation or arrangement under the terms of which holders of Shares of the Corporation will receive upon consummation thereof a cash payment for each Share surrendered in the merger (the "Merger Price"), make or provide for a cash payment to the Participants equal to the difference between (A) the Merger Price times the number of Shares subject to such outstanding Award and (B) the aggregate exercise price, if any, of all such outstanding Awards in exchange for the termination of such Awards, and (iv) provide that all or any outstanding Awards shall become exercisable in full immediately prior to such event. ARTICLE IX GENERAL PROVISIONS 9.1 Shareholder Approval. The Plan, and any Award granted hereunder, shall be conditional upon obtaining the approval of the Plan by the shareholders of the Corporation within 12 months of adoption of the Plan by the Board. Furthermore, if required by applicable law, the grant of any Award under the Plan, including the terms thereof, shall be conditional upon obtaining the approval of the shareholders of the Corporation. 9.2 Amendment of Plan. Subject to applicable laws, rules and regulations, the Board may at any time and from time to time, by resolution, amend or terminate the Plan. No such amendment or termination shall, except with the written consent of the Participants concerned, affect the terms and conditions of Awards previously granted under the Plan. 9.3 Rights of Participants. It is not intended that the Plan shall in any way affect the policies or decision of any member of the UDI Group in relation to the remuneration of Employees, officers or directors. Moreover, no Employee shall have any claim or right to be granted an Award and the grant of an Award shall not be construed as giving the Participant the right to be retained in the employ of the Corporation or other member of the UDI Group. 9.4 Securities Law Requirements. No Shares shall be issued, and no Stock Options shall become exercisable, pursuant to the Plan unless and until the Corporation has determined that it and the Participant have taken all actions required under the securities laws of both the United States and Canada and including any applicable listing requirement of any stock exchange on which the Common Shares are listed. 9 10 9.5 Unfunded Status of Plan. This Plan is intended to be unfunded. With respect to any payments as to which a Participant has a fixed and vested interest but which are not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. 9.6 Other Plans. Awards granted under this Plan shall not be treated as compensation for purposes of any pension, profit sharing, life insurance, disability or any other retirement or welfare benefit plan now maintained or hereafter adopted by the members of the UDI Group, unless otherwise provided in such plan. 9.7 Withholding Taxes. (a) General. To the extent required by applicable federal, state, provincial, local or foreign law, the recipient of any payment or distribution under the Plan shall make arrangements satisfactory to the Corporation for the satisfaction of any withholding tax obligations that arise by reason of such payment or distribution. The Corporation shall not be required to make such payment or distribution until such obligations are satisfied. (b) Stock Withholding. Unless otherwise provided by the Committee, a Participant may satisfy all or part of his withholding tax obligations incident to the exercise of a Non-Qualified Stock Option or the vesting of Restricted Stock by having the Corporation withhold a portion of the Shares that otherwise would be issued to him. Such Shares will be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. The payment of withholding taxes by surrendering Shares to the UDI Group member, if permitted by the Committee, shall be subject to such restrictions as the Committee may impose, including any restrictions required by rules of the securities laws of Canada or the United States, and the Code. 9.8 No Assignment of Benefits. No Award or other benefit payable under this Plan shall, except as otherwise specifically provide by law or Section 5.3(c) hereof, be transferable in any manner, and any attempt to transfer any such benefit shall be void, and any such benefit shall not in any manner be subject to the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such benefit, nor shall it be subject to attachment or legal process for or against such person. 9.9 Governing Law. This Plan and actions taken in connection herewith shall be governed by and construed in accordance with the laws of the Province of Ontario. 9.10 Construction. Wherever any words are used in this Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. 9.11 Liability. No member of the Board, no member of the Committee and no Employee shall be liable for any act or failure to act hereunder by any other member or Employee or by any agent to whom duties in connection with the administration of this Plan have been delegated or, except in circumstances involving his bad faith, gross negligence or fraud, for any act or failure to act by the member or Employee. 9.12 Awards in Foreign Countries. The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with provisions of the laws of foreign countries in which the members of the UDI Group may operate to assure the viability of the benefits of Awards made to Participants employed in such countries and to meet the intent of the Plan. 9.13 Severability. The provisions of the Plan shall be deemed severable and the validity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 10 11 ARTICLE X EFFECTIVE DATE OF PLAN This Plan was adopted by the Board on February 12, 1999. This Plan shall become effective on the date it is approved by the shareholders of the Corporation. This Plan shall continue in effect until terminated by the Board pursuant to Section 9.2. 11 EX-10.7 7 LONG-TERM PERFORMANCE INCENTIVE PLAN 1 EXHIBIT 10.7 LONG-TERM PERFORMANCE UNIT PLAN FOR CORPORATE OFFICERS 1. PURPOSE The purpose of the United Dominion Industries, Inc. (the "Company") Long-term Performance Unit Plan for Corporate Officers (the "Plan") is to provide an opportunity for corporate officers to earn incentive compensation based upon the performance of the corporation, including its divisions and subsidiaries, over a long-term horizon. In particular, this Plan is designed to (a) pay Participants incentive compensation for meeting or exceeding various performance targets during a three-year Cycle; (b) link corporate management with the Company's strategic performance objectives; and (c) maintain competitiveness with general industry norms in executive compensation. 2. DEFINITIONS The following words shall have the following meanings unless the context clearly states otherwise: Board of Directors means the Company's Board of Directors. Target Award means the amount of long-term incentive to be paid to a Participant under the Plan in the event the corporation achieves 100% of its Plan targets for the three-year Plan Cycle. CEO means the Chief Executive Officer of the Company. CHRC means the Compensation and Human Resources Committee of the UDIL Board of Directors, which also handles compensation and human resources matters for the Company. Company means United Dominion Industries, Inc., a Delaware corporation. Cycle means the three-year term of the Plan, normally commencing on January 1 and ending on December 31 of the third year following Plan commencement. Incentive means the amount payable to a Participant under the Plan. Fiscal Year means the fiscal year of the Company, which currently is the twelve-month period ending December 31. Participant means an employee of the Company eligible to receive an incentive under this Plan. Plan means the United Dominion Industries, Inc. Long-term Performance Unit Plan for Corporate Officers. Performance Targets means the Cycle performance targets assigned to the corporate unit. UDIL means United Dominion Industries Limited, a Canadian company, which is the ultimate parent company of the Company. The Company provides management services for UDIL pursuant to a management agreement. 3. ELIGIBILITY Participation in the Plan shall be limited to corporate officers or other key corporate managers appointed by the CEO, with the approval of the CHRC. Additions or deletions to the Plan during a Fiscal Year shall be made only in the event of an unusual circumstance, such as a promotion or new hire. 4. DETERMINATION OF MAXIMUM AMOUNT PAYABLE The CHRC, after consultation with the CEO, may determine a maximum aggregate payment under the Plan to be made by the corporate unit for the Cycle. The final determination of the maximum aggregate payment under the Plan for a Cycle shall be made no later than ninety days after the commencement of the first year of the Plan Cycle. In no event may any award payable pursuant to the 1 2 Plan exceed 2.5 times the Participant's eligible base salary, or $2.5 million, whichever is the lesser amount. 5. DETERMINATION OF TARGET AWARDS AND PERFORMANCE TARGETS (a) Target Awards -- Each Participant shall be assigned a Target Award level consistent with guidelines published by the Company's corporate Human Resources Department. All assignments are subject to the final approval of the CEO and CHRC. Generally, the Target Award categories will be designated as follows, with the percent listed below Target being the percent of Participant's base salary in effect as of the first day of the Plan Cycle:
CATEGORY TARGET - -------- ------ AA.......................................................... 70% A........................................................... 50% B........................................................... 40% C........................................................... 30% D........................................................... 20%
Each Participant shall be awarded performance units, with each unit having a target value of $100.00. The aggregate number of performance units awarded to a Participant at the start of the Plan Cycle shall equal his or her respective Target Award. The value of those units at the end of the three-year Cycle shall be contingent on UDIL's satisfaction of the Performance Objectives established at the beginning of the three-year Cycle, as described below. (b) Performance Targets -- The corporate unit shall be assigned Performance Targets for at the beginning of the Plan Cycle, against which the corporation's performance will be measured. The CEO will determine the Performance Targets to be used, subject to the approval of the CHRC. Until revised pursuant to the Plan, the Performance Targets will be based upon predetermined Sales Growth and Return on Equity or ROE. The category definitions are: Sales Growth is UDIL's three-year Compound Annual Growth Rate (CAGR), expressed as a percentage. For purposes of calculating the CAGR, the base year shall be the year immediately preceding the first year of the three-year Plan Cycle. ROE is UDIL's Average Return on Equity during the three-year Plan Cycle, derived by dividing UDIL's three-year Average Net Income by UDIL's 36-month Average Common Equity for the same period. Net Income is UDIL's Net Income as reported in UDIL's Annual Report and Average Common Equity is UDIL's monthly Average Common Equity during the Plan Year. The accounting definitions of Net Income and Average Common Equity shall be as determined by the Company's corporate Accounting Department from time-to-time. As soon as practicable after the beginning of the Plan Cycle, each Participant shall be notified of the applicable Performance Targets by the corporate Human Resources Department. 6. DETERMINATION OF INCENTIVE The incentive is derived by comparing the actual three-year Sales Growth and ROE accomplishment to the values in the Plan Matrix. The Matrix has Sales Growth values on one axis and ROE values on a second axis. The actual award, if any, is determined by identifying the intersecting cell value in the Sales Growth row and ROE column that most nearly matches UDIL's actual performance in both categories. When an actual performance value is equidistant between two cell values in the Matrix, the applicable cell value is derived by rounding up. This "Point of Intersection" of the applicable row and column contains an award multiplier. To determine the amount of the bonus earned, the Participant multiplies his or her target 2 3 bonus by the value (expressed as a percentage) in the Point of Intersection. Below is a sample of the Plan matrix:
12% 100 110 120 140 160 SALES 11% 90 100 110 120 130 GROWTH 10% 80 90 100 110 120 9% 65 75 85 95 105 8% 55 65 75 85 95 9.6% 10.8% 12.0% 13.2% 14.4% ROE
The CEO, subject to approval of the CHRC, and the CHRC, may make negative adjustments to the calculated awards, but may not make any positive adjustments pursuant to this Plan. As soon as practicable after the end of the Plan Cycle, the Company's Human Resources Department shall ensure that each Participant is notified of the amount of his or her incentive. 7. TIME FOR PAYMENTS Plan incentives normally will be paid by the end of the second month following the completion of the three-year Cycle. Notwithstanding the normal payment date, each Participant shall have the right to elect to defer all or a part of his payment year under the Award pursuant to the Company's Excess Deferral Plan. 8. FORM OF PAYMENTS (a) At the end of the Plan Cycle, after the Company's financial results are final and the CHRC has approved such results, any awards earned under the Plan shall be paid in cash to Participants. However, in the discretion of the CHRC, Participants may be allowed to elect to have all or part of such award paid in common shares of UDIL ("Common Shares") at "Fair Market Value." The "Fair Market Value" of a Common Share is the average of the daily high and low board lot trading prices of a Common Share on The Toronto Stock Exchange on the most recent trading day next preceding the date an award is approved. (b) In an effort to encourage stock ownership, and subject to all applicable regulations of any securities or exchange body having jurisdiction over the Company or UDIL, the CHRC may, at its sole discretion, allow Participants to elect to have all or a portion of a predetermined multiple of their earned awards paid to them in Common Shares, subject to the following conditions: (i) The award multiple payable in Common Shares shall be 1.25 times the award's calculated cash value under the Plan for the relevant Plan year (the "Share Premium"). The CHRC, in its sole discretion, may reduce the Share Premium, but in no instance may it increase the Share Premium above 1.25 times the cash award otherwise payable. (ii) The CHRC, at its sole discretion, may limit the percentage of any Participant's calculated award that is eligible for payment in Common Shares under the Plan. (iii) Any Participant who elects to receive Common Shares in lieu of cash shall be obligated to retain ownership of such shares for at least eighteen months after the date of grant; provided, however, in the event the Share Price of the Common Shares at any time declines to 75% or less of the Fair Market Value at the time of grant, the Participant shall be permitted to immediately sell or otherwise transfer such shares free of such restrictions. The aforesaid restrictions shall survive the Participant's termination of employment from the Company for any reason, other than in the case of Participant's death, disability, retirement or other termination of employment in which case all such restrictions on the sale or transfer of the affected Participant's Common Shares immediately shall lapse. 3 4 (iv) In order for a Participant to be eligible to receive any Common Shares under the Plan, he or she must complete a written election form and tender it to the Company's corporate Human Resources Department on or before such date as it may set. Such election must state that the Participant elects to receive a percentage (from 5% to 100% in 5% increments, subject to any maximum established by the CHRC) of his or her incentive award in Common Shares. To facilitate an informed election, the Company shall inform all eligible Participants at least twenty (20) days prior to the end of the year upon which any incentive is based: (1) whether any Common Shares in lieu of cash will be offered, (2) the maximum percentage of any incentive subject to the Common Shares election, and (3) the amount of the Share Premium, if any. In the event a Participant has elected to defer a portion (or all) of his or her applicable incentive award, such deferred portion (or all such award, as the case may be) shall not be available for the Common Share election described in this subsection 8(b), above. (v) In the event the CHRC elects to grant a share election option, the Company shall provide a written disclosure of the general tax treatment of such action prior to and as a condition of accepting any election to accept Common Shares in lieu of cash under this Plan. (vi) The Company will withhold from any payments made pursuant to the Plan any taxes required to be withheld under applicable federal, state and local tax regulations. In addition, if necessary under the circumstances to ensure compliance with applicable withholding requirements, the Company reserves the right to condition the tender of Shares to the Participant on the Participant's prior payment of required withholding taxes to the Company. (vii) The aggregate number of Common Shares available for issuance from and after April 27, 1999 under the terms of the Plan at any time shall not exceed 50,000 Common Shares. 9. ADMINISTRATION OF THE PROGRAM The overall control of the Program, including final determination of the Awards to each Participant, is the responsibility of the CHRC and the CEO. The Company's senior corporate human resources officer shall be responsible for administering and implementing any actions required under the Program. 10. STATUS CHANGES OF PARTICIPANT DURING PLAN CYCLE In the event a Participant's base salary changes during the course of the Plan Cycle, the eligible salary for purpose of calculating any incentive due shall remain fixed at the level existing on the first day of the Plan Cycle. In the event a Participant changes positions or makes an inter-company transfer during the course of the Plan Cycle, and a result, is assigned a different incentive category, any incentive due shall be prorated, based on the number of complete months in each such category. In the event an employee is appointed a Participant in the Plan after the start of a Plan Cycle, the Participant shall receive a prorated award reflecting the number of full months actually worked during the Plan Cycle, and the eligible base salary shall be the Participant's salary rate as of the first day of his/her participation in the Plan. Subject to paragraph 11, below, in the event a Participant terminates employment, other than through death, disability or retirement, during the Plan Cycle, no incentive is due. 11. VESTING A Participant must be in the employ of the Company (or another of UDIL's subsidiary corporations) on the last day of the applicable Plan Cycle in order to be eligible for an Award. The final determination as to Awards to be granted and the amount of such Awards shall be made by the CHRC. Notwithstanding any other provision hereof, and in accordance with this paragraph, in the event a Participant terminates employment or is terminated by the Company at any time for any reason, including, but not limited to retirement, disability or death, the CHRC shall have the sole discretion as to whether any such Award shall be granted and, if so, the amount of any such Award. While such discretion includes a negative adjustment or appropriate proration of an earned award, it does not include discretion to make a positive adjustment to an earned award. 4 5 12. MISCELLANEOUS (a) All payments under the Plan shall be made from the general assets of the Company. To the extent any Participant acquires a right to receive payments under the Plan, such rights shall be no greater than those of an unsecured general creditor of the Company. (b) Nothing contained in the Plan and no action taken pursuant thereto shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any other person. (c) No amount payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, either voluntary or involuntary, and any attempt to so alienate, anticipate, sell, transfer, assign, pledge, encumber or charge the same shall be null and void. No such amount shall be liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person to whom such benefits or funds are or may be payable. (d) Nothing contained in the Plan shall be construed as conferring upon any Participant the right to continue in the employ of the Company or any of its direct or indirect subsidiaries, nor to limit the right of an employee's employer to discharge such employee at any time, with or without cause. (e) The Company reserves the right to terminate the Plan at any time; provided however, such termination shall not cause a forfeiture of any incentive accrued up to the time the Participant was notified of such termination. (f) The Plan shall be construed and administered in accordance with the laws of the State of North Carolina. 5 EX-10.7.A 8 OPERATING UNIT LONG-TERM PERFORMANCE INCENTIVE 1 EXHIBIT 10.7(a) UNITED DOMINION INDUSTRIES LONG-TERM PERFORMANCE UNIT PLAN FOR OPERATING UNIT OFFICERS 1. PURPOSE The purpose of the United Dominion Industries Limited (the "Company") Long-term Performance Unit Plan for Operating Unit Officers (the "Plan") is to provide an opportunity for operating unit officers to earn incentive compensation based upon the performance of their respective units over a long-term horizon. In particular, this Plan is designed to (a) pay Participants incentive compensation for meeting or exceeding various performance targets during a three-year Cycle; (b) link a portion of the operating unit management's pay with the Company's strategic performance objectives; and (c) maintain competitiveness with general industry norms in executive compensation. 2. DEFINITIONS The following words shall have the following meanings unless the context clearly states otherwise: BOARD OF DIRECTORS means the Company's Board of Directors. TARGET AWARD means the amount of long-term incentive to be paid to a Participant under the Plan in the event his employing unit achieves 100% of its Plan targets for the three-year Plan Cycle. CEO means the Chief Executive Officer of the Company. CHRC means the Compensation and Human Resources Committee of the Company's Board of Directors. COMPANY means United Dominion Industries Limited, a Canadian Corporation. CYCLE means the three-year term of the Plan, normally commencing on January 1 and ending on December 31 of the third year following Plan commencement. INCENTIVE means the amount payable to a Participant under the Plan. FISCAL YEAR means the fiscal year of the Company, which currently is the twelve-month period ending December 31. 1 2 PARTICIPANT means an employee of the Company eligible to receive a long-term incentive under this Plan. PLAN means the United Dominion Long-term Performance Unit Plan for Operating Unit Officers. PERFORMANCE TARGETS means the Cycle performance targets assigned to the relevant operating unit. 3. ELIGIBILITY Participation in the Plan shall be limited to the operating unit officers or other key managers appointed by the applicable segment executive, with approval of the CEO and CHRC. Additions or deletions to the Plan during a Cycle shall be made only in the event of an unusual circumstance, such as a promotion or new hire. 4. DETERMINATION OF MAXIMUM AMOUNT PAYABLE The CHRC, after consultation with the CEO, may determine a maximum aggregate payment under the Plan to be made by the segment for the Cycle. The final determination of the maximum aggregate payment under the Plan for a Cycle shall be made no later than ninety days after the commencement of the first year of the Plan Cycle. 5. DETERMINATION OF TARGET AWARDS AND PERFORMANCE TARGETS a.) TARGET AWARDS - Each Participant shall be assigned a Target Award level by the segment executive, consistent with guidelines published by the Company's corporate Human Resources Department. All assignments are subject to the final approval of the CEO and CHRC. Generally, the Target Award categories will be designated as follows, with the percent listed below Target being the percent of Participant's base salary in effect as of the first day of the Plan Cycle: CATEGORY TARGET -------- ------ AA 35% A 30% B 25% C 20% D 15% Each Participant shall be awarded performance units, with each unit having a target value of $100.00. The aggregate number of performance units awarded to a Plan Participant at the start of the Plan Cycle shall equal his or her respective Target Award. The value of those units at the end of the three-year Cycle shall be contingent on the applicable operating unit's satisfaction of the Performance Objectives established at the beginning of the three-year Cycle, as described below. 2 3 b.) PERFORMANCE TARGETS - The relevant operating unit shall be assigned Performance Targets at the beginning of the Plan Cycle, against which the unit's performance will be measured. The relevant segment executive will determine the Performance Target to be used, subject to the approval of the CEO and CHRC. Until revised pursuant to the Plan, the Performance Targets will be based upon predetermined Sales Growth and Return on Investment or ROI. The category definitions are: SALES GROWTH is the relevant Unit's three-year Compound Annual Growth Rate (CAGR), expressed as a percentage. For purposes of calculating the CAGR, the base year shall be the year immediately preceding the first year of the three-year Plan Cycle. ROI is the relevant unit's Average Return on Investment during the three-year Plan Cycle, derived by dividing the three-year Average Net Operating Profit by the 36-month Average Net Capital Employed for the unit. The accounting definitions of Net Operating Profit and Average Net Capital Employed shall be as determined by the Company's corporate Accounting Department from time-to-time. As soon as practicable after the beginning of the Plan Cycle, each Participant shall be notified of his unit's Performance Targets by the Company's corporate Human Resources Department. 6. DETERMINATION OF INCENTIVE The incentive is derived by comparing the relevant unit's actual three-year Sales Growth and ROI accomplishment to the values in the Plan Matrix, a copy of which is attached hereto as Appendix A. The Matrix has Sales Growth values on one axis and ROI values on a second axis. The actual award, if any, is determined by identifying intersecting cell value on the Sales Growth row and ROI column that most nearly matches the relevant unit's actual performance in both categories. If the actual performance values are equidistant between two cell values, the applicable cell value is derived by rounding up. This "Point of Intersection" of the applicable row and column contains an award multiplier. To determine the amount of the bonus earned, the Participant multiplies his or her target bonus by the value (expressed as a percentage) in the Point of Intersection. Below is a sample of the Plan matrix: 12% 100 110 120 140 160 11% 90 100 110 120 130 Sales 10% 80 90 100 110 120 Growth 9% 65 75 85 95 105 8% 55 65 75 85 95 20.0% 22.5% 25.0% 27.5% 30.0% ROI 3 4 The relevant segment executive, subject to approval of the CHRC, may make negative adjustments to the calculated awards, but may not make any positive adjustments pursuant to this Plan. As soon as practicable after the end of the Plan Cycle, the Company's corporate Human Resources Department shall ensure that each Participant is notified of the amount of his or her incentive. 7. TIME FOR PAYMENTS Plan incentives normally will be paid by the end of the second month following the completion of the three-year Plan Cycle. Notwithstanding the normal payment date, each Participant shall have the right to elect to defer all or a part of his payment year under the Award pursuant to the Company's Excess Deferral Plan. 8. FORM OF PAYMENTS a.) At the end of the relevant unit's Plan Cycle, after the Company's financial results are final and the CHRC has approved such results, any awards earned under the Plan shall be paid in cash to Participants. However, in the discretion of the CHRC, Participants may be allowed to elect to have all or part of such award paid in common shares of the Company ("Common Shares") at "Fair Market Value." The "Fair Market Value" of a Common Share is the average of the opening and closing price of a Common Share on the Toronto Stock Exchange on the business day next preceding the date an award is approved. b.) In an effort to encourage stock ownership, and subject to all applicable regulations of any securities or exchange body having jurisdiction over the Company, the CHRC may, at its sole discretion, allow Participants to elect to have all or a portion of a predetermined multiple of their earned awards paid to them in Common Shares, subject to the following conditions: (i) The award multiple payable in Common Shares shall be 1.25 times the award's calculated cash value under the Plan for the relevant Plan year (the "Share Premium"). The CHRC, in its sole discretion, may reduce the Share Premium, but in no instance may it increase the Share Premium above 1.25 times the cash award otherwise payable. (ii) The CHRC, at its sole discretion, may limit the percentage of any Participant's calculated award that is eligible for payment in Common Shares under the Plan. (iii) Any Participant who elects to receive Common Shares in lieu of cash shall be obligated to retain ownership of such shares for at least eighteen months after the date of grant; 4 5 provided, however, in the event the Share Price of the Common Shares at any time declines to 75% or less of the Fair Market Value at the time of grant, the Participant shall be permitted to immediately sell or otherwise transfer such shares free of such restrictions. The aforesaid restrictions shall survive the Participant's termination of employment from the Company for any reason, other than in the case of Participant's death, disability, retirement or other termination of employment in which case all such restrictions on the sale or transfer of the affected Participant's Common Shares immediately shall lapse. (iv) In order for a Participant to be eligible to receive any Common Shares under the Plan, he or she must complete a written election form and tender it to the Company's corporate Human Resources Department on or before such date as it may set Such election must state that the Participant elects to receive a percentage (from 5% to 100% in 5% increments, subject to any maximum established by the CHRC) of his or her incentive award in Common Shares. To facilitate an informed election, the Company shall inform all eligible Participants at least twenty (20) days prior to [the end of the year upon which any incentive is based] the date by which an election must be made: (1) whether any Common Shares in lieu of cash will be offered, (2) the maximum percentage of any incentive subject to the Common Shares election, and (3) the amount of the Share Premium, if any. In the event a Participant has elected to defer a portion (or all) of his or her applicable incentive award, such deferred portion (or all such award, as the case may be) shall not be available for the Common Share election described in this subsection 9(b), above. (v) In the event the CHRC elects to grant a share election option, the Company shall provide a written disclosure of the general tax treatment of such action prior to and as a condition of accepting any election to accept Common Shares in lieu of cash under this Plan. (vi) The Company will withhold from any payments made pursuant to the Plan any taxes required to be withheld under applicable federal, state and local tax regulations. In addition, if necessary under the circumstances to ensure compliance with applicable withholding requirements, the Company reserves the right to condition the tender of Shares to the Participant on the Participant's prior payment of required withholding taxes to the Company. (vii) The aggregate number of Common Shares available for issuance under the terms of the Plan at any time shall not exceed .30% of the then outstanding Common Shares; provided that in 5 6 no circumstance can more than an aggregate of 120,000 Common Shares be reserved for issuance under the Plan, and provided further that no Common Shares may be issued under this Plan if, after such issuance, the total number of Common Shares issued under this Plan together with the total number of Common Shares issued under all other incentive compensation plans of the Company after the date of the 1999 annual and special meeting of the shareholders, exceed 1.9% of the outstanding Common Shares of the Company at the time of issuance. 9. ADMINISTRATION OF THE PROGRAM The overall control of the Program, including final determination of the Awards to each Participant, is the responsibility of the CHRC and the CEO. The Company's senior corporate human resources officer shall be responsible for administering and implementing any actions required under the Program. 10. STATUS CHANGES OF PARTICIPANT DURING PLAN CYCLE. In the event a Participant's base salary changes during the course of the Plan Cycle, the eligible salary for purpose of calculating any incentive due shall remain fixed at the level existing on the first day of the Plan Cycle. In the event a Participant changes positions or makes an inter-company transfer during the course of the Plan Cycle, and a result, is assigned a different incentive category, any incentive due shall be prorated, based on the number of complete months in each such category. In the event an employee is appointed a Participant in the Plan after the start of a Plan Cycle, the Participant shall receive a prorated award reflecting the number of full months actually worked during the Plan Cycle, and the eligible base salary shall be the Participant's salary rate as of the first day of his/her participation in the Plan. Subject to paragraph 11, below, in the event a Participant terminates employment, other than through death, disability or retirement, during the Plan Cycle, no incentive is due. 11. VESTING A Participant must be in the employ of the Company (or another of the Company's subsidiary corporations) on the last day of the applicable Plan Year in order to be eligible for an Award. The final determination as to Awards to be granted and the amount of such Awards shall be made by the CHRC. Notwithstanding any other provision hereof, and in accordance with this paragraph, in the event a Participant terminates employment or is terminated by the Company at any time for any reason, including, but not limited to retirement, disability or death, the CHRC shall have the sole discretion as to whether any such Award shall be granted and, if so, the amount of any such Award. While such discretion includes a negative adjustment or appropriate proration of an earned award, it does not include discretion to make a positive adjustment to an earned award. 12. MISCELLANEOUS 6 7 a.) All payments under the Plan shall be made from the general assets of the Company. To the extent any Participant acquires a right to receive payments under the Plan, such rights shall be no greater than those of an unsecured general creditor of the Company. b.) Nothing contained in the Plan and no action taken pursuant thereto shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any other person. c.) No amount payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, either voluntary or involuntary, and any attempt to so alienate, anticipate, sell, transfer, assign, pledge, encumber or charge the same shall be null and void. No such amount shall be liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person to whom such benefits or funds are or may be payable. d.) Nothing contained in the Plan shall be construed as conferring upon any Participant the right to continue in the employ of the Company or any of its direct or indirect subsidiaries, nor to limit the right of an employee's employer to discharge such employee at any time, with or without cause. e.) The Company reserves the right to terminate the Plan at any time; provided however, such termination shall not cause a forfeiture of any incentive accrued up to the time the Participant was notified of such termination. f.) The Plan shall be construed and administered in accordance with the laws of the State of North Carolina. UNITED DOMINION INDUSTRIES CHARLOTTE, N.C. 7 EX-10.18 9 LETTER AGREEMENT DATED 4/28/99--WILLIAM HOLLAND 1 EXHIBIT 10.18 [UNITED DOMINION Letterhead] April 28, 1999 Mr. William R. Holland Chairman and Chief Executive Officer United Dominion Industries Limited 2300 One First Union Center 301 S. College Street Charlotte, NC 28202 Re: Supplemental Executive Retirement Plan Dear Bill: The purpose of this letter is to recite the agreement between you and the Company, as approved by the Company's Compensation and Human Resources Committee ("CHRC"), regarding your benefit under the Company's Supplemental Executive Retirement Plan ("SERP"). Under the current SERP plan design, upon your retirement at age 62, you are eligible to receive your accrued SERP benefit in the form of a life annuity, with a right of survivorship in your spouse. If you elect to retire before you reach 62, your benefit is reduced using an actuarial factor to reflect the early commencement of benefits. Additionally, in the event there is a "Change in Control" (as defined in the SERP), you will receive your SERP benefit in a single lump sum payment, calculated using the GATT discount rate determined from time to time under the United Dominion Retirement Plan for Salaried Employees (the "GATT rate"). The modifications to your SERP benefit are as follows: Your SERP benefit will be paid in a single lump sum payment if your employment terminates under any of the following circumstances prior to a Change in Control: 1. retirement upon reaching age 62, or thereafter 2. death or "Disability" (as defined under the SERP), or 3. termination without "Good Cause" (as defined in the Company's Corporate Office Severance Policy, as amended from time to time). In any of these events, the amount of the lump sum would be computed (i) using the GATT rate in effect as of the date of such termination, and (ii) in the case of your death, Disability 1 2 or termination without Good Cause occurring before age 62, without regard to the early retirement reduction factors that would otherwise apply to a SERP benefit commencing before age 62. The lump sum would be paid to you on or about the first business day of January of the calendar year following the calendar year in which your employment terminates. If you wish to waive this lump sum payment and receive the annuity benefits otherwise provided for under the SERP, you must provide the Company with written notice of this election before December 1, 1999, which election must be irrevocable. If you chose to waive the lump sum payment and your employment terminates prior to a Change in Control as a result of your death, Disability or termination without Good Cause occurring before you reach age 62, your annuity payments from the SERP will be calculated without regard to the early retirement reduction factors that would otherwise apply to a SERP benefit commencing before age 62. Nothing in this letter is intended to modify your benefits provided under the March 1, 1999 Change in Control agreement between you and the Company, or the current provisions of the SERP regarding the lump sum payment of the "Commuted Payment Amount" of your SERP benefits if your employment terminates after a Change in Control. Please sign below to acknowledge and agree to the changes described above. If you have any questions on this subject, please don't hesitate to call Tim Verhagen or me at any time. Best regards, UNITED DOMINION INDUSTRIES LIMITED /s/ Dalton D. Ruffin Dalton D. Ruffin Chairman, Compensation and Human Resources Committee Accepted: /s/ William R. Holland - ----------------------------------- William R. Holland 2 EX-10.18.A 10 LETTER AGREEMENT DATED 11/30/99--WILLIAM HOLLAND 1 EXHIBIT 10.18(a) [UNITED DOMINION Letterhead] November 30, 1999 Mr. William R. Holland Chairman & Chief Executive Officer United Dominion Industries Limited 2300 One First Union Center 301 S. College St. Charlotte, NC 28202 Re: United Dominion Industries, Inc. Supplemental Executive Retirement Plan (the "SERP") Dear Bill: As outlined in my letter to you dated April 28, 1999 regarding your benefits under United Dominion's SERP, you have been accorded the right to receive your SERP benefit upon retirement or separation in the form of a single lump sum in certain circumstances. In addition, you have been accorded the right to waive the lump sum method of payment of your SERP benefit provided that you make a written election of such intent by December 1, 1999. Although not required by the terms of your April 28 letter, you have advised the Company that you have decided not to waive your right to the lump sum payment of your SERP benefit. Accordingly, upon your retirement or other eligible separation, your accumulated SERP benefit will be paid to you in a lump sum. In recognition of your past service and anticipated future contributions to the corporation, the Compensation & Human Resources Committee has agreed to fix your lump sum discount computation rate at 5.25% (the 1999 GATT cash 1 2 lump sum discount rate used in the corporation's qualified pension plan). The corporation will use this fixed discount rate of 5.25% for purposes of computing the lump sum benefit due you upon retirement. Attached to this letter is a pension estimate for you prepared by the corporation's actuary, Towers Perrin. This estimate projects a lump sum benefit of $16,418,565 assuming the following: a 5.25% discount rate, payment as of January 1, 2002 and actual earnings through 1999, and projected income thereafter. At the time of your actual retirement, Towers Perrin will calculate a sum certain due you based on your actual earnings history through your retirement date. The SERP payment will be made to you as soon as practicable in the year next following your year of retirement. For example, if you retire in December 2000, the SERP benefit will be paid to you in January 2001. If you retire in April 2001, the SERP benefit will be paid to you in January 2002. In the event of a delay of more than thirty days between the effective date of your retirement and the date of payment, the corporation will pay to you interest on such sum at a rate equal to the GATT rate in effect during the year in which you retire. Interest will begin to accrue on the thirty-first day following your effective date of retirement. In the event of your death after retirement but prior to your receipt of the benefit, your estate will be immediately entitled to the full lump sum benefit. If you have any questions regarding this matter, please let me know. UNITED DOMINION INDUSTRIES LIMITED COMPENSATION & HUMAN RESOURCES COMMITTEE Best regards, /s/ D. D. Ruffin D. D. Ruffin Chairman cc: Timothy J. Verhagen Richard L. Magee 2 EX-13 11 PORTIONS OF ANNUAL REPORT TO SHAREHOLDERS 1 FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS United Dominion Industries The following is management's discussion and analysis of significant factors that have affected the results of operations and financial condition of United Dominion Industries Limited (the "company"). It should be read in conjunction with the Consolidated Financial Statements and accompanying notes which have been prepared based on accounting principles generally accepted in Canada. Note 14 to these statements describes differences between Canadian and United States generally accepted accounting principles (GAAP). Also, as described in "Accounting Pronouncements," the company's financial statements have been, and will be, affected by certain newly issued accounting rules. Results of Operations - 1999 vs. 1998 Sales of $2.15 billion in 1999 were 6% higher than the $2.02 billion reported for 1998. There were a number of non-recurring items recorded in net income in 1999 and 1998 which impacted the comparison of results for the two years. Excluding these items from both years, segment profit would have totaled $227.2 million, a 7% increase over 1998; net income would have totaled $98.4 million, a 13% increase over 1998; related earnings per share would have totaled $2.48 per share, a 15% increase over $2.15 per share in 1998 and earnings before goodwill charges would have equaled $2.99 per share, a 16% increase over 1998. These improvements were driven largely by the impact of acquisitions. The net impact of the non-recurring items was a decrease in per share earnings of approximately $.24 in 1999 and an increase in per share earnings of $.30 in 1998. After taking these items into account, the company reported net income of $88.9 million ($2.24 per share) in 1999, an 11% decline from the $99.7 million ($2.45 per share) reported for 1998. Income before goodwill charges totaled $110.6 million ($2.79 per share) in 1999, a 6% decline from $117.2 million ($2.88 per share) reported for 1998. Segment profit of $205.0 million in 1999 represented a 1% decrease from 1998 segment profit of $207.4 million. The non-recurring items included the following: - In late 1998, the company announced a cost reduction program which included reductions in force and facility rationalizations. These actions resulted in a pre-tax charge to 1998 earnings of $16.3 million, of which $9.5 million was reflected in segment profit and $6.8 million was reflected in corporate expenses. In 1999, the company expanded this cost reduction program to include, among other initiatives, additional facility rationalizations/relocations and the discontinuation of several unprofitable product lines. These actions resulted in a pre-tax charge to 1999 earnings of $22.2 million, all of which was reflected in segment profit. - The company recorded approximately $1.5 million and $15.2 million (pre-tax) in 1999 and 1998, respectively, of non-recurring charges primarily relating to previously divested units and litigation settlements. See Note 3 in the accompanying Consolidated Financial Statements. - During 1999, the company recorded income of $5.6 million (after-tax) associated with favorable foreign tax settlements, while in 1998 the company recorded income of $23.8 million (after-tax) associated with a foreign tax refund. See Note 4 in the accompanying Consolidated Financial Statements. - Also during 1998, the company completed the sale of the motor product line assets of Marley Pump Company (included in the Flow Technology segment) and recorded a pre-tax gain of $11.3 million. See Note 3 in the accompanying Consolidated Financial Statements. Other factors that influenced the year-to-year comparison were as follows: - Net interest expense increased 12% from $35.8 million in 1998 to $40.2 million in 1999 primarily due to the aforementioned acquisitions and a share repurchase program initiated in late 1998. The company spent approximately $194 million on these actions which led to additional borrowings in 1999. Although the share repurchases led to increased borrowings and interest expense, the lower number of shares outstanding had a beneficial impact on earnings per share. - Excluding the previously mentioned tax settlements and refund, the provision for income taxes in 1999 was 11% higher than in 1998 due to an increase in pre-tax earnings. The overall effective tax rate would have been 33.5% in 1999 as compared to 34.0% in 1998. Flow Technology Sales of $992 million in 1999 were 5% higher than 1998 sales of $946 million. Excluding the affects of acquisitions, sales would have declined by 2%. Segment profit of $94.0 million declined 3% from the $96.6 million reported in the prior year. Eliminating non-recurring items in both years, segment profit would have increased 9%, all of which was attributable to acquisitions. Operating margins (excluding non-recurring items) would have increased from 9.8% in 1998 to 10.3% in 1999. Marley Cooling Tower's sales, earnings and operating margins declined in 1999 from a very strong 1998. Steady HVAC and strong electric power markets were more than offset by weakness overseas (most notably in Great Britain). Domestic industrial sales declined which has caused extremely competitive pricing levels in its key petroleum and petrochemical United Dominion Industries 23 2 FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS United Dominion Industries markets. Results in 1999 were also negatively impacted by cost overruns on some large projects. Marley Pump experienced a decline in sales, earnings and operating margins in 1999. Last year's results benefited from the gain on the sale of its motor line assets and EPA compliance-driven petroleum sales. Water markets held steady while sales in its electronics line declined due to reduced markets and some product performance issues. Weil-McLain's sales and earnings improved in 1999 primarily due to market share gains and more favorable weather conditions. Unit volumes of boilers were 6% higher than 1998 levels. Selling price increases, cost reduction programs and improved foundry efficiencies also benefited 1999 results. Results at Waukesha Cherry-Burrell improved substantially over 1998 due to acquisitions, the benefit of 1998's cost reduction program and margin improvement initiatives. Sales growth was achieved in all divisions although weaker markets were experienced in Central and South America. Sales and earnings were down at Flair as it experienced lower sales in both its domestic and international markets. These volume shortfalls were partially offset by operational improvements and reductions in SG&A spending stemming from a major reduction in force in 1998. Excluding restructuring charges recorded in both years, Flair's earnings would have increased 10%. CMB reported double digit sales and earnings growth in 1999. All of its product lines performed well in very competitive markets. Margin improvement initiatives and increased focus on customer service contributed to 1999's strong results. Despite a decline in sales, Mueller Steam reported higher earnings in 1999. Weakness in its oil and gas markets hurt sales but productivity improvements and lower SG&A expenses stemming from 1998's reduction in force more than offset the volume shortfall. Mueller Flow was also negatively impacted by lower oil and gas prices as its markets for capital equipment declined dramatically and it reported an operating loss in 1999. Given the size and nature of this business, the company has chosen to relocate two of Mueller Flow's product lines and completely exit another. Accordingly, restructuring charges were recorded in 1999 in connection with this decision. Bran+Luebbe, a German manufacturer of precision metering pumps, analyzing equipment and integrated blending systems, was acquired in August 1999. Therefore, its results have been consolidated for five months. Its results are normally very seasonal, as it typically incurs operating losses in the first quarter with a significant increase in sales and earnings in the fourth quarter. Pro forma results would show a sales decline in 1999 but a significant improvement in earnings and operating margins. Machinery Total sales of $456 million in 1999 were basically unchanged from 1998 sales of $454 million. Segment profit in 1999 of $50.7 million was 1% lower than 1998 segment profit of $51.0 million. While BOMAG had a record year, low grain prices significantly impacted Agricultural Equipment's markets. BOMAG turned in a strong performance, setting new sales and earnings records for the third consecutive year. Increased volume in Europe more than offset a sales decline in the United States where consolidations within the equipment rental industry depressed sales. A more profitable mix of business and improved productivity, primarily at BOMAG's German plant, benefited year-over-year results. The Agricultural Equipment Division reported significant sales and earnings declines in 1999. Agricultural equipment markets in the United States were depressed due to low grain prices and its impact on the farm economy. Price discounting, lower volumes and the resulting absorption losses all contributed to weak results. Specialty Engineered Products Segment profit of $42.0 million in 1999 was 8% higher than 1998 segment profit of $38.9 million while 1999 sales of $388 million exceeded prior year sales of $349 million by 11%. Excluding the impact of non-recurring charges, segment profit would have shown a 4% improvement. Substantially all of the growth in sales and earnings was attributable to acquisitions. Door Products had a challenging year in 1999, as it addressed plant rationalization issues. While sales increased in 1999, profits were lower due to competitive pricing pressures and the inefficiencies and costs associated with relocating and consolidating the manufacturing operations for certain of its product lines. These plant rationalization efforts should result in lower costs and improved productivity going forward. Serco also had a disappointing year. Despite double digit sales growth from its existing operations and the additional benefits of acquiring TKO Doors in 1999, it reported lower operating results. Price erosion was experienced across all its product lines. In addition, productivity improvements could not be maintained at the higher volume levels and gross margins dropped year-over-year. In January 2000, the company acquired the Kelley Company, a leading manufacturer of dock levelers, vehicle restraints and dock accessories. The company's new Dock Products division, which was created as a result of the Kelley acquisition, forms the largest dock equipment supplier in North America. Marley Electric Heating produced double digit sales and earnings growth in 1999 benefiting in part from the 1998 acquisition of Leading Edge. Increased demand through wholesale distribution channels and improving productivity also increased margins. In December 1999, the Patton product line of industrial fans, heaters and building supply products was acquired to complement Marley Electric Heating's existing product lines. Fenn Manufacturing reported slightly lower sales, earnings and operating margins in 1999. An unfavorable change in the mix of products sold adversely impacted both the Critical Parts and Machinery divisions. The Critical Parts division also experienced some quality issues in the first half of 1999 with respect to several products. 24 United Dominion Industries 3 FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS United Dominion Industries C&M, acquired in mid-1998, reported higher sales in 1999 but lower earnings, all attributable to major consolidations and capacity reductions in its primary market. Test Instrumentation Sales of $312 million in 1999 were 15% higher than 1998 sales of $271 million. Segment profit decreased by 12% from $20.9 million in 1998 to $18.3 million in 1999. Excluding the impact of non-recurring charges, earnings would have shown an increase of 25%. While sales of the Atmospheric Air Division showed improvement, restructuring charges related to the relocation of King's manufacturing operations from Minnesota to South Carolina significantly impacted results. This relocation is expected to be completed in early 2000 and should result in improved operating margins in the future. Excluding the impact of these one-time charges, results would have increased substantially. Almost all of the year-over-year improvement resulted from TMI, which had a record year in 1999. It benefited from an increase in volume, primarily related to one large contract. Sales in 1999 at Advanced Industrial Technologies were flat with 1998 while earnings and operating margins declined. Material and overhead cost reductions benefited results but this was more than offset by an increase in SG&A spending. General Electronic Systems was acquired in November 1999 to expand Advanced Industrial Technologies' industrial weighing equipment product line. The Test Measurement Division reported a significant increase in sales in 1999, all due to Radiodetection. Strong markets worldwide and the 1999 acquisitions of Riser-Bond and Bicotest contributed to Radiodetection's strong year. The division's overall operating earnings declined from 1998 due to charges related to the consolidation and relocation of Advanced Test Products (ATP) (Amprobe, Promax and TIF) into one facility in Florida. Excluding the cost and inefficiencies caused by this move, Test Measurement Division's results would have shown strong improvement year-over-year, again entirely related to Radiodetection. Sales and earnings at Lunaire/LDS were both up almost 50% in 1999 primarily due to the acquisition of Ling Dynamic Systems (LDS) in mid-1998. On a pro forma basis, 1999 sales were flat compared to 1998 while earnings showed double-digit growth. Productivity improvements and lower material costs at LDS contributed to the improved margins. Focus on cost reductions also resulted in reduced SG&A spending at both Lunaire and LDS. Outlook Management anticipates continued modest growth in the U.S. economy, stable conditions in Europe and improving markets in the Far East in 2000. Based on these conditions, as well as savings that should result from cost reduction initiatives and additional earnings provided by recent acquisitions, operating results in 2000 are expected to continue to improve. Results of Operations - 1998 vs. 1997 The company reported net income of $99.7 million ($2.45 per share) in 1998, as compared to net income of $141.1 million ($3.17 per share) in 1997. Net income in 1997 included $56.2 million ($1.26 per share) in earnings from discontinued operations. Income from continuing operations in 1997 was $84.9 million ($1.91 per share). Sales of $2.02 billion in 1998 increased by 22% over 1997 sales of $1.65 billion. Segment profit in 1998 of $207.4 million was 19% higher than 1997 results of $174.7 million. The increases in sales and segment profit were driven largely by acquisitions completed in 1998 and late 1997. There were a number of non-recurring items recorded in income from continuing operations in 1998 and 1997 which impacted the comparison of results for the two years. As noted previously, the net impact of these items was to increase per share earnings by approximately $.30 in 1998. There was no net effect on 1997 results. The items included in 1998 results were discussed above. The following were the principal non-recurring items included in 1997 results: - The company recorded charges related to reorganization activities and asset write-offs of approximately $9.3 million (pre-tax) which were reflected in segment profit. - The company initiated a tender offer for the shares of Imo Industries Inc. (Imo). The shareholders of Imo subsequently received a higher offer, and Imo terminated the merger agreement. The company received a $7.7 million (pre-tax) termination fee (net of expenses). Excluding non-recurring items from both years would have resulted in year-over-year increases in segment profit, income from continuing operations and related per share amounts of 15%, 3% and 13%, respectively. These improvements were driven largely by the impact of acquisitions, as noted earlier, as well as share buyback programs implemented in 1998 and 1997. Other factors that influenced the year-to-year comparison were as follows: - Net interest expense almost doubled from $18.5 million in 1997 to $35.8 million in 1998 primarily due to the aforementioned acquisitions and share repurchase programs for which the company spent approximately $256 million. United Dominion Industries 25 4 FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS United Dominion Industries - Excluding the previously mentioned tax refund, the provision for income taxes in 1998 was approximately 3% lower than 1997 as pre-tax earnings declined by 4%. The overall effective tax rate would have been 34.0% in 1998 as compared to 33.7% in 1997. Flow Technology Sales of $946 million in 1998 were 12% higher than 1997 sales of $846 million. The increase would have been 2% excluding acquisitions. Segment profit of $96.6 million was 22% higher than the $79.4 million reported in the prior year. Eliminating non-recurring items in both years, the increase in segment profit would have amounted to 5%, all of which was attributable to acquisitions. Operating margins (excluding non-recurring items) would have declined from 10.5% in 1997 to 9.8% in 1998. Marley Cooling Tower produced higher sales, earnings and operating margins (excluding restructuring charges) in 1998 as its Italian operations experienced significantly improved activity levels. Earnings at its domestic operations were lower as depressed oil prices caused extremely competitive pricing levels (with resulting margin pressures) in its key petroleum and petrochemical markets. However, markets were strong for its factory-assembled products and reconstruction businesses. Marley Pump reported significantly higher earnings, primarily due to the gain on the sale of its motor line assets. Excluding this gain, results were still up substantially over 1997 as volume levels were higher in all product lines. The petroleum business benefited from new product introductions and EPA regulations. The water and electronics lines also showed strong unit volume increases, although margins were negatively impacted by higher costs which could not be recovered in the marketplace. Weil-McLain's sales and earnings declined substantially in 1998 primarily due to unseasonably warm weather that persisted in most of its key markets. Unit volumes of boilers were 16% lower than 1997 levels. The year-over-year decline was partially mitigated by reduced SG&A spending and a one-time charge in 1997 associated with a product replacement program. Results at Waukesha Cherry-Burrell were substantially improved over 1997 due, in part, to acquisitions. The implementation of a cost reduction program and several key margin improvement initiatives, principally two "focused factories" at its Wisconsin facility, helped improve gross margins significantly at this operation. Sales and earnings were down substantially at Flair which produced very disappointing results in both years. Low volumes in its engineered products (particularly in its oil-related markets) and various operating issues detracted from its operating margins. Charges were recorded in both years related to restructuring activities as well as asset write-offs in 1997. The Mueller Steam, CMB, Mueller Flow group of companies reported significant improvements in sales and earnings in 1998 primarily due to consolidating results for a full year (vs. only five months in 1997). On a pro forma basis, sales improved slightly while earnings declined. Downturns in petroleum markets depressed sales volumes at Mueller Flow. Competitive pricing, quality problems and an unfavorable product mix all contributed to a decline in margins at Mueller Steam. In 1998, results at Mueller Steam were also impacted by restructuring activities. CMB's results improved slightly year-over-year as it dealt with the effects of unusual weather on its markets and the integration of a new product line. Machinery Total sales of $454 million in 1998 were 25% higher than 1997 sales of $364 million, while 1998 segment profit of $51.0 million represented a 20% increase over 1997 segment profit of $42.5 million. The increases stemmed from an exceptionally strong year at BOMAG and the consolidation of Agricultural Equipment results for a full 12 months in 1998 (vs. five months in 1997). On a pro forma basis, sales and earnings in 1998 were up by 13% and 9%, respectively, over 1997 results. BOMAG's unit volume levels were substantially improved as the North American and most of the European markets remained very strong. The resulting absorption gains, favorable exchange rates and several new product introductions also contributed to its excellent performance. These positive variances were only partly negated by weak Far Eastern markets, competitive pricing pressures and increased strategic spending. On a pro forma basis, Agricultural Equipment sales and earnings both declined from 1997 levels. Recessionary conditions in the U.S. farm economy drove grain prices to very low levels, negatively impacting operating results in 1998. A less favorable product mix also affected results. 26 United Dominion Industries 5 FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS United Dominion Industries Specialty Engineered Products Segment profit of $38.9 million in 1998 was 7% lower than 1997 segment profit of $41.6 million while 1998 sales of $349 million exceeded prior year levels of $310 million by 12%. Excluding the impact of non-recurring charges, earnings would have shown a 10% improvement. Most of the growth in sales and earnings was attributable to acquisitions. Door Products had a strong year in 1998. Buoyant markets, improved productivity and expanded capacity enabled this unit to produce and sell significantly higher unit volumes. It also increased penetration in its three primary markets (commercial construction, detention facilities and metal buildings) through two acquisitions. Competitive pricing pressures were a restraining influence on margins which were basically flat compared to the prior year. Serco also had a strong year. While unit volumes of its seal and shelter line were down from 1997, increases in leveler and vehicle restraint lines helped improve margins. Its Lee Engineering division had a very disappointing year as it generated nominal profitability in 1998, well off 1997 levels. Results were hampered by lower unit volumes, poor productivity and various operating issues. Marley Electric Heating produced lower sales and earnings in 1998 despite the acquisition of Leading Edge. Although it benefited from record shipments of air circulators in 1998, its core heating business suffered from lower unit volumes largely attributable to the unusually warm winter weather. An unfavorable product mix and production inefficiencies also detracted from profitability and resulted in lower margins. Fenn Manufacturing produced solid improvements in both sales and earnings. The Critical Parts business experienced a strong increase in sales due, in part, to its entry into the commercial aerospace market. The Machinery Division produced a solid improvement in earnings on essentially flat sales volumes due to cost reductions initiated earlier in the year. C&M was acquired in mid-1998 and its results were consolidated for the last six months of 1998. As previously mentioned, its primary market has undergone a series of major consolidations and restructurings which have curtailed customer capital spending. Test Instrumentation Sales of $271 million in 1998 were more than double 1997 sales of $124 million while segment profit increased by 82% from $11.5 million in 1997 to $20.9 million in 1998. The increases were primarily attributable to acquisitions in 1998 and late 1997. Excluding these acquisitions and various non-recurring charges, sales and earnings would have shown increases of 13% and 2%, respectively. While sales of the Atmospheric Air Division showed strong improvement, litigation expenses and reorganization charges resulted in a slight decline in profitability. TMI was able to take advantage of an increase in automotive ventilation projects and the exit of a key competitor from its market to generate strong increases in sales and earnings over 1997 levels. Sales and earnings at Advanced Industrial Technologies were higher in 1998 as a result of consolidating its results for a full year (vs. five months in 1997). On a pro forma basis, sales and earnings both declined in 1998 due to a cutback in capital spending in the U.S. automotive market. Unit volumes for all major product lines were lower in 1998. The slowdown was driven partly by the Daimler Chrysler merger, which caused many programs to be put on hold, and the prolonged General Motors strike. Very competitive pricing levels contributed to a decline in operating margins. Test Measurement Division sales and earnings were also higher in 1998 due to consolidating ATP's results for a full year and the 1998 acquisition of Radiodetection. Pro forma sales would have shown a slight improvement and earnings and margins would have declined. Profitability suffered due to foreign exchange and an unfavorable product mix at Radiodetection and a combination of restructuring charges recorded in 1998, underabsorption, delays in bringing new products to market, labor inefficiencies and scrap/rework issues at ATP. Results at Lunaire/LDS were up strongly in 1998 primarily due to the mid-year acquisition of LDS. On a pro forma basis, 1998 sales were flat compared to 1997 while earnings declined. Lunaire showed improvements in both sales and earnings over 1997, although margins were under pressure due to competitive pricing levels. LDS's pro forma results in 1998 were off dramatically from 1997 due to a number of factors including delays in introducing a new product, weak Far Eastern markets and softness in its U.S. automotive markets. Liquidity and Capital Resources The company generated $180 million of cash flow from operating activities in 1999 compared to $107 million in 1998. A decrease in working capital requirements in 1999 was the primary reason for the increase as 1999 benefited from the collection of a foreign tax refund of approximately $32 million. After providing $76 million for capital and other operating expenditures and $14 million for dividends, free cash flow amounted to $89 million, up from $37 million in 1998. In 1999, the company spent approximately $155 million on acquisitions and $38 million to repurchase 1.75 million common shares. These activities were funded from free cash flow, additional borrowings and from existing cash balances. Cash balances decreased by $15 million during the year to $109 million at December 31, 1999. Total "operating" working capital balances (excluding cash and borrowings) increased to $416 million at December 31, 1999 from $409 million at the end of 1998. This was largely due to acquisitions. The company's ratio of net debt (borrowings less cash on hand) to total capital (net debt plus shareholders' equity) increased to 41% at December 31, 1999, up from 37% at the end of last year, primarily due to increased borrowings to finance acquisitions and share repurchases. United Dominion Industries 27 6 FINANCIAL REVIEW INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS United Dominion Industries At December 31, 1999, the company had available approximately $250 million of unused credit facilities. Management believes that the combination of cash available and the remaining unused credit facilities are adequate to provide for short-term cash needs and to support internal growth and future acquisitions. In addition, in January 2000, the company filed a registration statement for the issuance of up to $200 million in public debt. The company plans to invest more than $80 million in new plant and equipment in 2000. This amount represents approximately 140% of annual depreciation expense. Risks and Uncertainties The company's operating plants from time to time make changes or modifications to comply with current regulatory provisions governing the discharge of materials into the environment. The company believes that capital expenditures for environmental control facilities in 2000 will not be material. The company maintains an environmental policy that requires the performance of environmental audits, the conducting of seminars and other actions necessary to ensure compliance with environmental laws. Management believes that compliance with regulatory requirements and its environmental policy will have no material adverse effect on the business or the consolidated financial position of the company. In 1997, the company initiated a comprehensive review of its computer systems, equipment and facilities to identify any Year 2000 problems. By the end of 1999, all of the company's essential computer applications and systems were Year 2000 compliant and, to date, the company has not experienced, nor does it expect to experience, any significant Year 2000 consequences. However, there can be no assurance that all aspects of the Year 2000 issue that may yet affect the company, including those related to vendors, customers or other companies with which the company deals, have been fully resolved. The costs expended to achieve Year 2000 compliance were funded through operating cash flow and included approximately $3 million spent on identification, correction, reprogramming and testing, all of which has been expensed. While additional amounts were capitalized in connection with the purchase of new computer systems, almost all of these amounts were necessary capital expenditures that would have been made even had there been no Year 2000 issue. Accounting Pronouncements As described in Note 2 to the accompanying Consolidated Financial Statements, effective January 1, 1999, the company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3465, Income Taxes. This adoption has been retroactively applied to all years presented. As further described in Note 2, the company has also adopted the new presentation format allowed in Handbook Section 1580, Business Combinations, and accordingly the accompanying Consolidated Statements of Income have been reformatted to present income before goodwill charges and the related per share amounts. As described in Note 14, effective January 1, 2000, the company will be adopting the provisions of Handbook Section 3461, Employee Future Benefits. This new standard essentially harmonizes Canadian rules with United States GAAP as it relates to postretirement benefits and pension expense. The company intends to adopt CICA Handbook Section 3461 retroactively and will be restating prior year amounts accordingly. Effective January 1, 2001, the company will adopt, for United States GAAP disclosure purposes, Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133). The company is currently evaluating the effects of FAS 133 on its financial position and results of operations but does not believe it will have a material impact. The foregoing discussion and analysis contains forward-looking statements based on current expectations that are subject to the risks and uncertainties described. Those risks arise from certain assumptions and factors that could cause the actual results to differ, perhaps materially, from those set forth or implied. Those assumptions and factors include those listed on page 48 of this annual report. 28 United Dominion Industries 7 CONSOLIDATED STATEMENTS OF INCOME, RESTATED (note 2) United Dominion Industries Years Ended December 31, 1999, 1998 and 1997 (Amounts in Thousands of U.S. Dollars, Except Per Share Data)
1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Sales $ 2,148,338 $ 2,020,374 $ 1,654,679 - ----------------------------------------------------------------------------------------------------------------- Costs and expenses Cost of sales 1,480,866 1,401,802 1,168,654 Restructuring charges - inventory (note 3) 5,153 -- -- - ----------------------------------------------------------------------------------------------------------------- Total cost of sales 1,486,019 1,401,802 1,168,654 Selling, general and administrative expenses 447,583 429,591 328,271 Restructuring charges - other (note 3) 15,351 16,336 -- - ----------------------------------------------------------------------------------------------------------------- Total costs and expenses 1,948,953 1,847,729 1,496,925 - ----------------------------------------------------------------------------------------------------------------- Operating income 199,385 172,645 157,754 Other income (expense) Interest - net (note 10) (40,178) (35,750) (18,544) Gain on sale of business (note 3) -- 11,285 -- Other (note 3) (1,500) (6,852) 7,700 - ----------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes and goodwill charges 157,707 141,328 146,910 Income tax provision (note 4) (47,151) (24,147) (49,528) - ----------------------------------------------------------------------------------------------------------------- Income from continuing operations before goodwill charges 110,556 117,181 97,382 Goodwill charges, net of applicable income tax benefit of $1,422 in 1999, $1,278 in 1998 and $690 in 1997 (note 3) (21,646) (17,493) (12,492) - ----------------------------------------------------------------------------------------------------------------- Income from continuing operations 88,910 99,688 84,890 - ----------------------------------------------------------------------------------------------------------------- Income from discontinued operations (note 3) Earnings, net of applicable income tax expense of $2,211 -- -- 3,088 Gain on disposal, net of applicable income tax expense of $36,011 -- -- 53,086 - ----------------------------------------------------------------------------------------------------------------- -- -- 56,174 - ----------------------------------------------------------------------------------------------------------------- Net income $ 88,910 $ 99,688 $ 141,064 ================================================================================================================= Earnings per common share (note 1): Continuing operations before goodwill charges $ 2.79 $ 2.88 $ 2.19 ================================================================================================================= Continuing operations $ 2.24 $ 2.45 $ 1.91 Discontinued operations -- -- 1.26 - ----------------------------------------------------------------------------------------------------------------- Net earnings $ 2.24 $ 2.45 $ 3.17 =================================================================================================================
See accompanying notes to consolidated financial statements. United Dominion Industries 29 8 CONSOLIDATED STATEMENTS OF CASH FLOWS United Dominion Industries Years Ended December 31, 1999, 1998 and 1997 (Amounts in Thousands of U.S. Dollars)
1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------- Cash provided from operating activities Income from continuing operations $ 88,910 $ 99,688 $ 84,890 Add (deduct) items not affecting cash Depreciation 46,341 41,747 34,267 Amortization 28,376 23,118 16,570 Gain on sale of business -- (11,285) -- Deferred income taxes 2,839 (5,899) 15,395 Other 1,474 2,358 315 Net decrease (increase) in working capital other than cash (note 14) 11,153 (36,258) (23,334) Asset securitization 900 (6,100) (10,400) - ---------------------------------------------------------------------------------------------------------------- 179,993 107,369 117,703 - ---------------------------------------------------------------------------------------------------------------- Cash used by investing activities Additions to fixed assets (61,278) (51,741) (60,596) Acquisitions of businesses, net of cash balances (155,416) (172,181) (364,148) Net proceeds from disposal of businesses -- 25,008 274,641 Proceeds from (investments in) other assets (9,952) 10,354 8,851 Other (874) (8,040) (1,545) - ---------------------------------------------------------------------------------------------------------------- (227,520) (196,600) (142,797) - ---------------------------------------------------------------------------------------------------------------- Cash provided from (used by) financing activities Additional borrowings 155,597 331,907 119,020 Repayments of borrowings (71,488) (92,931) (66,886) Issuance of common shares 1,537 7,302 1,780 Repurchase of common shares (38,476) (83,565) (56,954) Dividends (14,158) (14,614) (12,413) - ---------------------------------------------------------------------------------------------------------------- 33,012 148,099 (15,453) - ---------------------------------------------------------------------------------------------------------------- Cash used by discontinued operations (note 3) -- -- (61,135) - ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and short-term investments (14,515) 58,868 (101,682) Cash and short-term investments at beginning of year 123,455 64,587 166,269 - ---------------------------------------------------------------------------------------------------------------- Cash and short-term investments at end of year $ 108,940 $ 123,455 $ 64,587 ================================================================================================================
See accompanying notes to consolidated financial statements. 30 United Dominion Industries 9 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION, RESTATED (note 2) United Dominion Industries December 31, 1999 and 1998 (Amounts in Thousands of U.S. Dollars)
1999 1998 - ---------------------------------------------------------------------------------------------------------------------- Assets Current assets Cash and short-term investments $ 108,940 $ 123,455 Accounts and notes receivable, less allowance for doubtful accounts of $9,645 in 1999 and $10,725 in 1998 (note 12) 334,398 335,424 Inventories (note 5) 390,654 368,842 Other current assets 61,386 81,679 - ---------------------------------------------------------------------------------------------------------------------- Total current assets 895,378 909,400 Fixed assets (note 6) 350,901 317,853 Goodwill (notes 1 and 3) 836,497 728,350 Other intangible assets (note 1) 43,547 46,470 Other assets (note 4) 115,252 88,584 - ---------------------------------------------------------------------------------------------------------------------- $ 2,241,575 $ 2,090,657 ====================================================================================================================== Liabilities and Shareholders' Equity Current liabilities Notes payable to banks (note 7) $ 103,544 $ 53,672 Current portion of long-term debt (note 7) 46,082 51,665 Accounts payable 169,362 158,708 Accrued liabilities 185,742 194,682 Customer advances 15,440 23,181 - ---------------------------------------------------------------------------------------------------------------------- Total current liabilities 520,170 481,908 Long-term debt (note 7) 591,506 544,771 Other liabilities 210,654 178,148 - ---------------------------------------------------------------------------------------------------------------------- 1,322,330 1,204,827 - ---------------------------------------------------------------------------------------------------------------------- Shareholders' equity (note 9) Common shares - outstanding 39,047,937 in 1999 and 40,520,982 shares in 1998 537,355 557,574 Contributed surplus 4,283 4,057 Retained earnings 421,137 360,796 - ---------------------------------------------------------------------------------------------------------------------- 962,775 922,427 Equity adjustment from foreign currency translation (notes 1 and 7) (43,530) (36,597) - ---------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 919,245 885,830 - ---------------------------------------------------------------------------------------------------------------------- $ 2,241,575 $ 2,090,657 ======================================================================================================================
See accompanying notes to consolidated financial statements. On behalf of the Board - William R. Holland, Director; R. Stuart Dickson, Director. United Dominion Industries 31 10 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY, RESTATED (note 2) United Dominion Industries December 31, 1999, 1998 and 1997 (Amounts in Thousands of U.S. Dollars)
Common Shares ------------------------ Equity Unamortized Adjustment/ Total Shares Restricted Contributed Retained Currency Shareholders' Issued Stock Surplus Earnings Translation Equity - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 $ 621,825 $(5,287) $1,409 $ 214,935 $(26,128) $ 806,754 Repurchase of 2,067,540 shares (28,222) -- -- (28,732) -- (56,954) Stock options exercised (110,255 shares) 1,780 -- 450 -- -- 2,230 Amortization of restricted stock grants -- 1,406 -- -- -- 1,406 Net income for the year -- -- -- 141,064 -- 141,064 Cash dividends - $.28 per share -- -- -- (12,413) -- (12,413) Net effect of currency translation adjustments -- -- -- -- (13,187) (13,187) Effect of hedging transactions -- -- -- -- 3,649 3,649 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 595,383 (3,881) 1,859 314,854 (35,666) 872,549 Repurchase of 3,250,000 shares (44,433) -- -- (39,132) -- (83,565) Stock options exercised (445,422 shares) 7,302 -- 2,198 -- -- 9,500 Incentive share election (43,845 shares) 1,219 -- -- -- -- 1,219 Amortization of restricted stock grants -- 1,984 -- -- -- 1,984 Net income for the year -- -- -- 99,688 -- 99,688 Cash dividends - $.36 per share -- -- -- (14,614) -- (14,614) Net effect of currency translation adjustments -- -- -- -- (3,432) (3,432) Effect of hedging transactions -- -- -- -- 2,501 2,501 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 559,471 (1,897) 4,057 360,796 (36,597) 885,830 Repurchase of 1,745,000 shares (24,065) -- -- (14,411) -- (38,476) Stock options exercised (103,400 shares) 1,537 -- 226 -- -- 1,763 Incentive share election (55,365 shares) 1,105 -- -- -- -- 1,105 Restricted stock issued (113,190 shares) 2,263 (2,263) -- -- -- -- Amortization of restricted stock grants -- 1,204 -- -- -- 1,204 Net income for the year -- -- -- 88,910 -- 88,910 Cash dividends - $.36 per share -- -- -- (14,158) -- (14,158) Net effect of currency translation adjustments -- -- -- -- (12,688) (12,688) Effect of hedging transactions -- -- -- -- 5,755 5,755 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 $ 540,311 $(2,956) $4,283 $ 421,137 $(43,530) $ 919,245 ==================================================================================================================================
See accompanying notes to consolidated financial statements. 32 United Dominion Industries 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, RESTATED (note 2) United Dominion Industries December 31, 1999, 1998 and 1997 (Amounts in Thousands of U.S. Dollars) 1. Summary of Significant Accounting Policies GENERAL The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada. These accounting principles are in conformity with accounting principles generally accepted in the United States except as indicated in note 14. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONSOLIDATION All subsidiary companies are consolidated and all significant intercompany accounts and transactions have been eliminated in consolidation. CONSOLIDATED STATEMENTS OF CASH FLOWS Cash and short-term investments include highly liquid investments with a maturity of three months or less. INVENTORIES Inventories are stated at the lower of cost (average or first-in, first-out) or net realizable value. FIXED ASSETS Property, plant and equipment are recorded at cost. Major renewals and betterments are capitalized; whereas, maintenance and repairs are expensed as incurred. Cost of property sold or otherwise disposed and related accumulated depreciation are removed from the accounts at the time of disposal and any resulting gain or loss is included in income. Depreciation of plant and equipment is determined on the straight-line method over the estimated useful lives of the assets. The average annual rates of depreciation range from 4% for buildings to 10% for machinery and equipment. GOODWILL Goodwill, which represents the excess of purchase price over fair value of net identifiable assets acquired, is amortized on the straight-line method over the expected periods to be benefited, generally 40 years. The company assesses the recoverability of this intangible asset based primarily upon an analysis of undiscounted future operating cash flows from the acquired operations. Accumulated amortization was $90,309 and $69,044 at December 31, 1999 and 1998, respectively. OTHER INTANGIBLE ASSETS Amounts assigned to other intangible assets, primarily trademarks and patents, are based on independent appraisals and are amortized on the straight-line method over periods ranging from four to 40 years. Accumulated amortization was $16,565 and $13,262 at December 31, 1999 and 1998, respectively. FOREIGN CURRENCY TRANSLATION The financial statements of those operations whose functional currency is a foreign currency are translated into U.S. dollars using the current rate method. Under this method, all assets and liabilities are translated into U.S. dollars using current exchange rates and income statement items are translated using weighted-average exchange rates. The translation adjustment is included as a component of shareholders' equity; whereas, gains and losses on foreign currency transactions are included in income. Foreign currency transaction losses totaled $2,768, $3,530 and $3,959 for 1999, 1998 and 1997, respectively. DERIVATIVE FINANCIAL INSTRUMENTS The company is party to certain derivative financial instruments, principally forward exchange contracts used to manage foreign currency exposures. Gains and losses on forward foreign exchange contracts are recognized in income in the same period as the foreign currency transactions to which they relate. FAIR VALUES The carrying values of cash and short-term investments, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short periods to maturity of the instruments. The fair value of the company's long-term debt is estimated based on the current rates available to the company for debt of the same remaining maturities. Since the company's fixed rate debt carries interest rates which are different than current market rates, the estimated fair value of the company's long-term debt was approximately $634,000 and $621,000 at December 31, 1999 and 1998, respectively. EARNINGS PER COMMON SHARE Earnings per common share are calculated by dividing net income by the weighted-average number of common shares outstanding during the year (39,641,606 shares for 1999, 40,755,170 shares for 1998 and 44,439,004 shares for 1997). The assumed exercise of outstanding stock options would not have a materially dilutive effect on reported earnings per common share. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform with current year presentation. United Dominion Industries 33 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, RESTATED (note 2) United Dominion Industries December 31, 1999, 1998 and 1997 (Amounts in Thousands of U.S. Dollars) 2. Restatement Related to Adoption of New Accounting Pronouncements Effective January 1, 1999, the company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 3465, Income Taxes. This adoption has been retroactively applied to all years presented in the accompanying consolidated financial statements. The adoption of this pronouncement did not have a material effect on the Consolidated Statement of Income for the year ended December 31, 1998 and it has not been restated. For the year ended December 31, 1997, the adoption of Handbook Section 3465 resulted in an increase in the gain on disposal of discontinued operations (note 3) and a related increase in net income of $3,086, or $.07 per share. At December 31, 1998, the adoption resulted in certain reclassifications related to the cost basis of various amounts in the Consolidated Statement of Financial Position. The reclassifications resulted in increases in fixed assets of $5,515 and accrued liabilities of $5,174 and decreases in inventories of $468, other current assets of $288, goodwill and other intangible assets of $1,344, other assets of $33,801, other liabilities of $24,109 and retained earnings of $11,451 as of December 31, 1998. As of December 31, 1996, the adoption of Handbook Section 3465 resulted in a reduction in retained earnings and total shareholders' equity of $14,537 in the Consolidated Statement of Changes in Shareholders' Equity. In 1999, the CICA amended Handbook Section 1580, Business Combinations, to allow for the separate presentation of goodwill amortization expense and goodwill impairment charges (collectively referred to as "goodwill charges"), net of tax, in the income statement. Accordingly, the presentation of income before goodwill charges, and the related per share amount, is also allowed. The company has adopted this presentation format and has reclassified the prior years' Consolidated Statements of Income to conform with the new presentation. This reclassification does not affect net income or net earnings per share as previously reported. ACQUISITIONS In February 1999, the company acquired Riser-Bond Instruments which designs and manufactures cable fault locators principally used by the telecommunications industry. In July, the company acquired TKO Doors, a manufacturer of loading dock doors. In August, the company acquired Bran + Luebbe, a manufacturer of precision metering pumps, analyzing equipment and integrated blending systems for a broad range of process industries. In October, the company acquired S.W. Fleming Limited, a manufacturer of commercial side-hinged steel doors and frames. The cost of these and other smaller acquisitions totaled approximately $155,000 and resulted in an increase in working capital of approximately $17,000, an increase in fixed assets of approximately $24,000, an increase in goodwill of approximately $129,000 and an increase in other liabilities of approximately $15,000. In February 1998, the company acquired Radiodetection which designs and manufactures portable pipe and cable locators and related equipment used in the utility and telecommunication industries. In March, the company acquired Tex-Steel Corporation, a manufacturer of custom steel doors and frames for commercial and detention markets. In April, the company acquired APV Ice Cream, a manufacturer of industrial ice cream production equipment. In May, the company acquired Leading Edge, Inc. which manufactures ceiling fans, air curtains and air circulators supplied to the industrial and electrical distributor markets. In July, the company acquired C&M, Inc., a manufacturer of powered roller conveyor systems primarily servicing the corrugated and solid fiber carton industry. In August, the company acquired Ling Dynamic Systems Limited which designs and builds vibration test systems and related equipment. The cost of these and other smaller acquisitions totaled approximately $172,000 and resulted in an increase in working capital of approximately $27,000, an increase in fixed assets of approximately $14,000, an increase in other assets of approximately $1,000 and an increase in goodwill of approximately $130,000. In 1997, the company completed the purchase of the common stock of Core Industries Inc (Core). Core was a diversified manufacturer of valves, strainers and backflow prevention products, agricultural equipment, electrical test and measurement equipment and integrated assembly systems used in automobile and other manufacturing applications. The total cost of the acquisition was approximately $302,000. If the acquisition of Core had occurred at the beginning of 1997, unaudited pro forma consolidated sales, net income and net earnings per share in 1997 would have been $1,826,273, $144,422 and $3.25, respectively. In 1997, the company also made several smaller product line acquisitions. In January, the company acquired Lee Engineering which produces vertical lifting equipment used in various industrial applications. In March, the company acquired Trussbilt, a manufacturer of doors, frames and related products for the security and detention markets. In April, the company acquired Dominion Door, 34 United Dominion Industries 13 which produces steel doors, frames and pre-hung windows for metal buildings. In September, the company acquired TIF Instruments, a manufacturer of electronic test instruments used primarily by the HVAC market. In September, the company also acquired Process Machinery & Supply Company and Alliance Food Equipment Corp. Both companies manufacture and recondition equipment for the ice cream industry. In November, the company acquired Stow Manufacturing, a manufacturer of light construction equipment. The cost of these and other smaller acquisitions totaled approximately $68,000. The above mentioned acquisitions have been accounted for by the purchase method and earnings have been included in the results of operations from the dates of the acquisitions. In 1997, the company initiated a tender offer for the shares of Imo Industries Inc. (Imo). Imo's Board of Directors ultimately terminated the merger agreement and, pursuant to the terms of the agreement, the company received a $7,700 termination fee, net of expenses. This amount is included in "Other income (expense)" in the Consolidated Statements of Income. DIVESTITURES (OTHER THAN DISCONTINUED OPERATIONS) In January 1998, the company sold its Little Falls Tank division of Waukesha Cherry-Burrell for approximately $4,000 which equaled its book value. In December 1998, the company sold the assets of its Marley Pump motor product line and entered into various consulting and supply arrangements for total proceeds of $17,500. The company recognized a pre-tax gain on the sale of $11,285 which is included in "Other income (expense)" in the Consolidated Statements of Income. DISCONTINUED OPERATIONS In 1997, the company sold Varco-Pruden, Centria and Windsor Door. These units were part of the company's Building Products segment. The company received approximately $240,000 in cash and recorded a net-of-tax gain of $53,086 on the sale of these businesses. The results of operations of these units and the related gain on sale have been separately classified as "Income from discontinued operations" in the Consolidated Statements of Income. The operating cash flows from these businesses have also been separately classified in the Consolidated Statements of Cash Flows. The "Cash used by discontinued operations" in the Consolidated Statement of Cash Flows for 1997 also includes approximately $44,000 in income tax payments which were directly related to the gain on the sale of discontinued operations. In 1999 and 1998, the company incurred charges of $1,500 and $6,852, respectively, related primarily to the settlement of legal claims and the write-down of assets to be realized from prior years' divestiture activities to their estimated net realizable value. These charges are included in "Other income (expense)" in the Consolidated Statements of Income. RESTRUCTURING CHARGES In 1998, the company announced a company-wide cost reduction plan. The plan included the net reduction of its global workforce by over 500 positions, principally administrative personnel, rationalizations involving 12 facilities and reduced discretionary spending. The company recorded a pre-tax charge to earnings in 1998 of $16,336 related to the plan. The company expanded the restructuring program in 1999 to include the rationalization of 11 additional facilities, including the shutdown of four manufacturing and one administrative facility, the transition of the manufacturing of several product lines to different sites and the discontinuation of several unprofitable product lines. Additional workforce reductions of approximately 500 positions were announced of which approximately 130 had actually been terminated by December 31, 1999. The company reported a pre-tax charge to earnings of $22,198 related to these new initiatives. Selected financial information relating to the two years' restructuring charges is as follows:
Expensed Incurred Accrual at Expensed Incurred Accrual at in 1998 in 1998 December 31, 1998 in 1999 in 1999 December 31, 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Severance and other employee costs $13,474 $(5,499) $7,975 $ 5,785 $ (6,990) $6,770 Facilities costs 1,930 (1,513) 417 5,791 (5,918) 290 Write-down of assets to net realizable value -- -- -- 8,693 (8,693) -- Other costs 932 -- 932 1,929 (2,522) 339 - ----------------------------------------------------------------------------------------------------------------------------------- Total $16,336 $(7,012) $9,324 $22,198 $(24,123) $7,399 ===================================================================================================================================
All costs are included in "Restructuring charges" in the Consolidated Statements of Income with the exception of $1,694 of goodwill impairment charges which were recorded in 1999 and are included in "Goodwill charges". Of the total charges, $7,399 remains accrued at December 31, 1999. The majority of the remaining restructuring activities should be completed during the first half of 2000. United Dominion Industries 35 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, RESTATED (note 2) United Dominion Industries December 31, 1999, 1998 and 1997 (Amounts in Thousands of U.S. Dollars) 4. Income Taxes The provision for income taxes on income from continuing operations before goodwill charges is comprised of the following:
1999 1998 1997 - ------------------------------------------------------------ Current Canada $ (954) $ 3,264 $ 2,961 United States 10,386 24,094 10,161 Other countries 30,226 2,688 21,011 - ------------------------------------------------------------ 39,658 30,046 34,133 - ------------------------------------------------------------ Deferred Canada (5,148) (7,241) (3,886) United States 15,199 9,686 26,257 Other countries (2,558) (8,344) (6,976) - ------------------------------------------------------------ 7,493 (5,899) 15,395 - ------------------------------------------------------------ $47,151 $24,147 $49,528 ============================================================
The related income (loss) from continuing operations before income taxes and goodwill charges is as follows:
1999 1998 1997 - ---------------------------------------------------------------- Canada $ (8,835) $(13,491) $ (5,455) United States 62,240 78,440 87,413 Other countries 104,302 76,379 64,952 - ---------------------------------------------------------------- $157,707 $141,328 $146,910 ================================================================
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31, 1999 and 1998 are as follows:
1999 1998 - ---------------------------------------------------------------------------------- Deferred tax assets: Net operating loss carryforwards $ 22,909 $ 10,805 Difference between tax on distributed and undistributed earnings 4,580 2,451 Accrued expenses not currently deductible 81,683 90,058 Other 2,975 4,240 - ---------------------------------------------------------------------------------- 112,147 107,554 Less: valuation allowance (4,080) -- - ---------------------------------------------------------------------------------- Total deferred tax assets 108,067 107,554 - ---------------------------------------------------------------------------------- Deferred tax liabilities: Plant and equipment, principally due to differences in basis and depreciation (35,081) (28,298) Intangible assets, principally due to differences in basis and amortization (13,601) (12,341) Inventory, principally due to differences in basis (6,427) (8,501) Other (15,954) (13,078) - ---------------------------------------------------------------------------------- Total deferred tax liabilities (71,063) (62,218) - ---------------------------------------------------------------------------------- Net deferred tax asset $ 37,004 $ 45,336 ==================================================================================
Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 1999 will be allocated to goodwill. Based on the company's historical and current earnings, management believes it is more likely than not that the company will realize the benefit of the remaining deferred tax assets that are not subject to the valuation allowance. The difference between the company's effective income tax rate and the statutory rate on income from continuing operations before goodwill charges is reconciled below.
1999 1998 1997 - ------------------------------------------------------------------------------------- Income tax expense at U.S. statutory rate of 35% $ 55,197 $(49,465) $ 51,419 State income taxes 2,792 3,563 3,618 Canadian and foreign tax refunds and tax settlements (4,984) (23,838) -- Canadian and foreign income taxes at less than U.S. statutory rate (6,962) (7,806) (7,714) Other 1,108 2,763 2,205 - ------------------------------------------------------------------------------------- $ 47,151 $(24,147) $ 49,528 =====================================================================================
The company has Canadian net operating loss carry-forwards for income tax purposes of approximately $43,000 which expire in 2003 through 2006. "Other Assets" in the Consolidated Statements of Financial Position include $4,580 and $2,451 at December 31, 1999 and 1998, respectively, primarily representing German taxes refundable to the company when German earnings are repatriated. Income taxes paid totaled $2,224, $53,085 and $71,240 for 1999, 1998 and 1997, respectively. 5. Inventories Inventories at December 31, 1999 and 1998 are summarized as follows:
1999 1998 - ----------------------------------------------------- Raw materials $131,444 $111,994 Work-in-process 101,122 99,402 Finished products 158,088 157,446 - ----------------------------------------------------- $390,654 $368,842 =====================================================
6. Fixed Assets Fixed assets are summarized as follows:
Accumulated Cost Depreciation Net - ------------------------------------------------------------------------------ December 31, 1999: Land $ 12,385 $ -- $ 12,385 Plant 143,508 50,479 93,029 Machinery and equipment 431,743 216,112 215,631 Construction in progress 29,856 -- 29,856 - ------------------------------------------------------------------------------ $617,492 $266,591 $350,901 ============================================================================== December 31, 1998: Land $ 11,215 $ -- $ 11,215 Plant 129,267 46,485 82,782 Machinery and equipment 394,222 184,320 209,902 Construction in progress 13,954 -- 13,954 - ------------------------------------------------------------------------------ $548,658 $230,805 $317,853 ==============================================================================
36 United Dominion Industries 15 7. Debt SHORT-TERM At December 31, 1999 and 1998, the company's notes payable to banks totaled $103,544 and $53,672, respectively, with weighted-average interest rates of 6.7% and 4.9%, respectively. At December 31, 1999, the company had available approximately $105,000 of unused short-term borrowing facilities. LONG-TERM The company's long-term debt at December 31, 1999 and 1998 is summarized as follows:
1999 1998 - -------------------------------------------------------------------------- Revolving credit bank notes $101,192 $ 35,958 Senior notes due 2002 - 6.80% 70,200 93,600 Senior notes due 2002 - 8.25% 37,500 50,000 Senior notes due 2007 - 7.67% 50,000 50,000 Senior notes due 2008 - 6.64% 110,000 110,000 Commercial paper 172,470 162,556 Multi-currency revolving notes 36,375 39,718 Other notes payable in installments through 2020 at interest rates varying from 2.9% to 10.0% 59,851 54,604 - -------------------------------------------------------------------------- 637,588 596,436 Less current portion of long-term debt 46,082 51,665 - -------------------------------------------------------------------------- $591,506 $544,771 ==========================================================================
The company has a revolving credit agreement (revolver) with a group of banks. This agreement gives the company the ability to borrow up to $450,000 through July 2002. Borrowings under the revolver are available in U.S. dollars and Deutsche Marks (DM) at the U.S. prime interest rate or LIBOR plus a margin. The margin ranges from 0.170% to 0.325% and is determined by a leverage ratio and the amount of utilization under the credit facility. The weighted-average interest rates on the borrowings under this agreement were 4.6% and 4.9% during 1999 and 1998, respectively. At December 31, 1999, $41,192 of the revolver borrowings were denominated in DM. The DM borrowings are designated as a hedge of the company's net investment in German subsidiaries and foreign exchange gains and losses on these borrowings are reflected in "Equity adjustment from foreign currency translation" in the Consolidated Statements of Financial Position. The company also pays an annual facility fee on the amount of this facility ranging from 0.08% to 0.125%, depending upon a leverage ratio. The company further pays an annual utilization fee on the amount of loans outstanding of up to 0.05%, depending on leverage and amount of utilization. At December 31, 1999, the margin, facility fee and utilization fee were 0.25%, 0.1% and 0%, respectively. The 6.80% senior notes are currently payable in annual installments of $23,400. The 8.25% senior notes are currently payable in annual installments of $12,500. The 7.67% senior notes are payable in annual installments of $10,000 beginning in 2003. The 6.64% senior notes are payable in full in 2008. During 1998, the company entered into an open-ended program whereby up to Cdn $250,000 of commercial paper can be issued. While the commercial paper is typically due in 30 - 60 days, with a maximum maturity of one year, it is the company's intention to continually refinance these borrowings. The company maintains unutilized long-term committed credit facilities sufficient to refinance the commercial paper outstanding. Therefore, the amounts outstanding at December 31, 1999 and 1998 (U.S. $172,470 and U.S. $162,556, respectively) are included in long-term debt in the Consolidated Statements of Financial Position. Interest rates on the commercial paper ranged from 5.1% to 5.7% and 4.7% to 6.1% with a weighted average of 5.3% and 5.2% in 1999 and 1998, respectively. The company has a $40,000 multi-currency revolving credit agreement with a bank which expires in June 2000. The agreement allows the company to designate subsidiaries to borrow under the facility at LIBOR interest rates plus margin and facility fees in total ranging from 0.7% to 1.0%. At December 31, 1999, $36,375 had been borrowed under this facility. This amount is included in long-term debt since the company has the capacity and intention to refinance this facility and extend its term prior to the expiration of the agreement. At December 31, 1999, the company had available approximately $150,000 of unused long-term revolving credit commitments. Various loan agreements contain covenants with respect to net worth, indebtedness and other items. The company has complied with all provisions of these agreements at December 31, 1999. Future principal payments on long-term debt are as follows: 2000 $ 46,082 2001 87,061 2002 315,375 2003 14,636 2004 10,927 Thereafter 163,507 - ------------------------------------------------------ $637,588 ======================================================
United Dominion Industries 37 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, RESTATED (note 2) United Dominion Industries December 31, 1999, 1998 and 1997 (Amounts in Thousands of U.S. Dollars) 8. Business Segments The company operates in the following industry segments: - - Flow Technology - air dehydration and filtration equipment and related parts and services for compressed air systems; valves, strainers and back flow prevention products; water system and submersible petroleum pumps; leak detection equipment; rotary positive displacement pumps and related fluid handling equipment for sanitary and industrial markets; ice cream equipment; high precision metering pumps, analyzing equipment and integrated blending systems for process industries; water cooling towers and related components; fiberglass panels and pultruded products and cast-iron boilers. - - Machinery - light and heavy duty soil, sanitary landfill and asphalt compaction equipment; asphalt recyclers and pavers; light construction equipment; tillage equipment; foraging wagons; and grain drills and augers. - - Specialty Engineered Products - steel doors and frames; electric resistance heating products; air circulation equipment; machined critical parts for aerospace markets; metal forming equipment; loading dock equipment; powered roller conveyor systems; and vertical lifting equipment. - - Test Instrumentation - air supply houses; heat process and environmental conditioning equipment; electrical test and measurement equipment; refrigerant leak detection and recovery systems; vibration test systems; portable pipe and cable locators; and integrated assembly systems used in automobile and other manufacturing applications. The significant accounting policies of the above segments are the same as those described in note 1. Inter-segment sales are recorded at current market prices. The company does not include income taxes or net interest expense in the determination of segment profit. Information about the company's segments, certain geographic information and a reconciliation of segment profit to net income is shown below. INDUSTRY SEGMENT
Flow Technology Machinery Specialty Engineered Products - ----------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Assets(1) $1,041,831 $ 943,703 $ 904,442 $274,544 $272,115 $234,249 $322,892 $259,387 $183,184 Sales Gross 992,466 945,828 845,716 456,348 454,460 363,690 387,748 349,070 310,340 Intersegment -- 16 -- -- -- -- -- 30 -- Net 992,466 945,812 845,716 456,348 454,460 363,690 387,748 349,040 310,340 Segment profit(2) 94,016 96,594 79,443 50,685 51,000 42,460 42,000 38,887 41,618 Capital expenditures(3) 22,404 21,145 26,383 13,952 12,270 8,200 14,988 10,537 10,202 Depreciation and amortization(3) 42,499 38,161 32,573 8,802 7,287 5,246 12,814 10,595 9,034
Test Instrumentation Subtotal - ------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------- Assets(1) $319,978 $305,383 $183,842 $1,959,245 $1,780,588 $1,505,717 Sales Gross 311,776 271,062 123,508 2,148,338 2,020,420 1,643,254 Intersegment -- -- -- -- 46 -- Net 311,776 271,062 123,508 2,148,338 2,020,374 1,643,254 Segment profit(2) 18,344 20,893 11,509 205,045 207,374 175,030 Capital expenditures(3) 9,618 4,482 1,708 60,962 48,434 46,493 Depreciation and amortization(3) 9,269 7,691 2,700 73,384 63,734 49,553
Divested Business Total - ------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------- Assets(1) $ -- $ -- $ 4,536 $1,959,245 $1,780,588 $1,510,253 Sales Gross -- -- 11,425 2,148,338 2,020,420 1,654,679 Intersegment -- -- -- -- 46 -- Net -- -- 11,425 2,148,338 2,020,374 1,654,679 Segment profit(2) -- -- (353) 205,045 207,374 174,677 Capital expenditures(3) -- -- 203 60,962 48,434 46,696 Depreciation and amortization(3) -- -- 307 73,384 63,734 49,860
38 United Dominion Industries 17 GEOGRAPHIC INFORMATION
United States Europe Other Countries - ----------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Long-lived assets(4) $ 948,198 $ 930,577 $ 880,844 $241,577 $151,292 $ 75,315 $ 41,170 $ 10,804 $ 9,279 Net sales(5) 1,441,068 1,380,155 1,125,060 424,559 371,469 266,086 282,711 268,750 252,108 Segment profit(6) 132,299 154,122 133,427 49,051 29,596 21,219 23,695 23,656 20,384
Divested Businesses Total - --------------------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - --------------------------------------------------------------------------------------------------- Long-lived assets(4) $ -- $ -- $ 4,536 $1,230,945 $1,092,673 $ 969,974 Net sales(5) -- -- 11,425 2,148,338 2,020,374 1,654,679 Segment profit(6) -- -- (353) 205,045 207,374 174,677
RECONCILIATION OF SEGMENT PROFIT TO NET INCOME
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Segment profit $ 205,045 $ 207,374 $ 174,677 Corporate expenses (23,673) (30,231) (29,485) Corporate restructuring charges -- (6,788) -- Interest - net (40,178) (35,750) (18,544) Other income (expense) - net (6,555) (12,048) 7,080 - ------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes(7) 134,639 122,557 133,728 Income tax provision(7) (45,729) (22,869) (48,838) - ------------------------------------------------------------------------------------------------------------------- Income from continuing operations 88,910 99,688 84,890 Income from discontinued operations -- -- 56,174 - ------------------------------------------------------------------------------------------------------------------- Net income $ 88,910 $ 99,688 $ 141,064 ===================================================================================================================
(1) Assets exclude $282,330, $310,069, and 238,568 of corporate amounts in 1999, 1998, and 1997, respectively,. (2) Includes restructuring costs of $7,712, $0, $5,402, and $9,084 in 1999 and $7,786, $275, $443, and $1,044 in 1998 for the Flow Technology, Machinery, Specialty Engineered Products and Test Instrumentation segments, respectively (note 3). In 1998, Flow Technology also includes an $11,285 gain on sale of business (note 3) while Specialty Engineered Products includes a $6,000 charge related to settlement of litigation. (3) Capital expenditures and depreciation and amortization exclude $316 and $1,333, $3,307 and $1,131, and $13,900 and $977 of corporate amounts in 1999, 1998 and 1997, respectively. (4) Long-lived assets consist of fixed assets, goodwill and other intangible assets. (5) Attributed to countries based on location of customer. (6) Attributed to countries based on location of customer. Includes restructuring costs of $21,661, $273, and $264 in 1999 and $6,614, $2,346, and $588 in 1998 in the United States, Europe, and other countries, respectively (note 3). (7) In the Consolidated Statements of Income, goodwill charges, net of tax, are shown separately while for segment reporting purposes the goodwill charges are included in segment profit and the realted tax benefit is included in the income tax provision. United Dominion Industries 39 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, RESTATED (note 2) United Dominion Industries December 31, 1999, 1998 and 1997 (Amounts in Thousands of U.S. Dollars) 9. Capital Stock The company is incorporated under the Canada Business Corporations Act and is authorized to issue an unlimited number of common and preferred shares of no par value. The company has a stock option and restricted stock plan under which options for a term not exceeding 10 years may be granted to key employees and directors to purchase common shares of the company at a price not less than 100% of their fair market value at the date of grant. Common shares reserved for exercise of these options or the issuance of restricted stock may not at any time exceed 10% of the number of common shares then outstanding. Transactions involving the plan are summarized below.
Options -------------------------- Available for Option Price Weighted-Average Future Grant Granted Per Share (Cdn.) Exercise Price (Cdn.) - ------------------------------------------------------------------------------------------------------------------------ Outstanding at December 31, 1996 1,546,622 1,776,575 $ 9.375-$33.125 $ 25.34 Exercised -- (110,255) 9.375-33.00 21.98 Granted (463,400) 463,400 36.65-38.87 36.83 - ------------------------------------------------------------------------------------------------------------------------ Outstanding at December 31, 1997 1,083,222 2,129,720 9.375-38.87 28.02 Exercised -- (445,422) 9.375-36.65 23.60 Granted (435,250) 435,250 28.95-40.00 35.26 Expired 21,100 (21,100) 26.375-36.65 29.76 - ------------------------------------------------------------------------------------------------------------------------ Outstanding at December 31, 1998 669,072 2,098,448 9.375-40.00 30.44 Exercised -- (103,400) 12.75-26.625 22.26 Granted (589,625) 589,625 29.80-32.775 30.03 Restricted stock issued (113,190) -- Additional shares authorized 1,196,993 -- - ------------------------------------------------------------------------------------------------------------------------ OUTSTANDING AT DECEMBER 31, 1999 1,163,250 2,584,673 $9.375-$40.00 $ 30.67 ======================================================================================================================== EXERCISABLE AT DECEMBER 31, 1999 1,736,724 $9.375-$40.00 $ 29.97 ========================================================================================================================
The following table provides certain information with respect to stock options outstanding at December 31, 1999.
Weighted- Weighted- average Stock options average remaining Range of exercise price outstanding exercise price contractual life - ------------------------------------------------------------------------- (Cdn.) (years) Under $28.00 (Cdn.) 802,011 $ 24.31 4.3 Over $28.00 (Cdn.) 1,782,662 33.54 7.9 - ------------------------------------------------------------------------- 2,584,673 $ 30.67 6.8 =========================================================================
The following table provides certain information with respect to stock options exercisable at December 31, 1999.
Weighted- Stock options average Range of exercise price exercisable exercise price - ---------------------------------------------------------------- (Cdn.) Under $28.00 (Cdn.) 802,011 $24.31 Over $28.00 (Cdn.) 934,713 34.84 - ---------------------------------------------------------------- 1,736,724 $29.97 ================================================================
The restricted stock issued during 1999 had a fair value at the date of grant of $2,263 or U.S. $19.99 per share. The sale of this stock is restricted for six years from the date of grant. Restricted stock was also issued during 1996 which is restricted for periods up to five years from the date of the grant. Compensation expense related to all restricted shares is recorded over the applicable restriction period and amounted to $1,204, $1,984 and $1,406 in 1999, 1998 and 1997, respectively. The company's management incentive plans contain a feature that allows participants the opportunity to elect to receive restricted common shares in lieu of a portion of their cash bonuses. The number of shares issued is increased by a multiple in order to provide participants an incentive to elect to receive shares. A total of 55,365 and 43,845 shares were issued in 1999 and 1998, respectively, to participants who made such share elections. 10. Interest Expense - Net Net interest expense is composed of the following:
1999 1998 1997 - ---------------------------------------------------------------------- Interest on long-term debt $ 38,217 $ 35,749 $ 22,441 Other interest expense 5,319 3,117 3,757 Interest income (3,358) (3,116) (7,654) - ---------------------------------------------------------------------- $ 40,178 $ 35,750 $ 18,544 =========================================================================
Net interest paid totaled $43,018, $33,082 and $20,104 for 1999, 1998 and 1997, respectively. 11. Benefit Plans The company and its subsidiaries have defined benefit pension plans covering approximately one half of all employees. Plans covering eligible salaried employees call for benefits to be paid at retirement based primarily upon years of service and their compensation rates near retirement. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. Contributions to the plans reflect benefits attributed to employees' services 40 United Dominion Industries 19 to date and also for benefits expected to be earned in the future. Assets of the plans consist primarily of cash and cash equivalents, common and preferred stocks, government bonds, investment-grade corporate bonds and other fixed income investments. The company also provides, through non-qualified plans, supplemental pension payments in excess of the qualified plan limits imposed by income tax regulations. These non-qualified plans are unfunded. The following tables set forth the change in projected benefit obligation, change in plan assets and the funded status of the company's North American benefit plans as of December 31, 1999 and 1998.
Pension Benefits Other Benefits --------------------------------------------------- 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------- Change in benefit obligation Benefit obligation at beginning of year $ 178,733 $ 167,993 $(33,659 $ 26,883 Service cost 3,988 3,917 690 729 Interest cost 14,947 14,162 2,617 2,216 Plan participants' contributions 5 17 -- -- Plan amendment -- -- 799 1,446 Actuarial (gain) loss (1,750) 2,403 1,045 3,588 Benefits paid (10,550) (9,759) (1,256) (1,203) - ------------------------------------------------------------------------------------------------------------- Benefit obligation at end of year 185,373 178,733 37,554 33,659 - ------------------------------------------------------------------------------------------------------------- Change in plan assets Fair value of plan assets at beginning of year 212,175 205,953 Return on plan assets 27,541 12,894 Employer contribution 1,754 3,070 Plan participants' contributions 5 17 Benefits paid (10,550) (9,759) - ------------------------------------------------------------------------------- Fair value of plan assets at end of year 230,925 212,175 - ------------------------------------------------------------------------------- Funded status 45,552 33,442 (37,554) (33,659) Unrecognized net actuarial (gain) loss (33,668) (23,933) 9,617 7,551 Unrecognized prior service cost 3,220 3,327 3,733 5,476 Unrecognized net transition obligation 18 27 1,335 1,502 - ------------------------------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost on the consolidated statements of financial position $ 15,122 $ 12,863 $(22,869) $(19,130) ==============================================================================================================
The weighted-average discount rate used to measure the projected benefit obligation is 8.5%, the average rate of increase in future compensation levels is approximately 5% and the expected long-term rate of return on assets is 8.5%. The company amortizes prior service cost and unrecognized gains and losses using the straight-line method over the average future service life of active participants. The components of net periodic benefit cost are as follows:
Pension Benefits Other Benefits ------------------------------------------------------------------------ 1999 1998 1997 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Service cost $ 3,988 $ 3,917 $ 4,557 $ 690 $ 729 $ 738 Interest cost 14,947 14,162 13,233 2,617 2,216 1,777 Expected return on plan assets (17,416) (16,067) (13,858) -- -- -- Amortization (1,543) (879) (682) 1,688 1,680 1,509 - --------------------------------------------------------------------------------------------------------------- Net periodic benefit cost $ (24) $ 1,133 $ 3,250 $4,995 $4,625 $4,024 ===============================================================================================================
A number of the company's operating units have defined contribution plans pursuant to Section 401(k) of the U.S. Internal Revenue Code. The total expense of these plans was $5,522, $5,475 and $3,893 for the years ended December 31, 1999, 1998 and 1997, respectively. The company's German operations have pension plans, which in accordance with applicable laws, are unfunded. The weighted average discount rate used to measure the projected benefit obligation of the German plans is 6% - 7% and the rate of increase in future compensation levels is 3% - 3.5% for 1999 and 1998. The status of the German plans at December 31, 1999 and 1998 as reflected in the Consolidated Statements of Financial Position is as follows:
1999 1998 - -------------------------------------------------------------------- Benefit obligation at beginning of year $ 17,992 $ 16,421 Service cost 433 376 Interest cost 1,291 1,126 Actuarial loss 1,138 265 Acquisition 7,330 -- Settlements (56) -- Benefits paid (687) (726) Foreign exchange rate changes (2,475) 530 - -------------------------------------------------------------------- Benefit obligation at end of year $ 24,966 $ 17,992 ====================================================================
United Dominion Industries 41 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, RESTATED (note 2) United Dominion Industries December 31, 1999, 1998 and 1997 (Amounts in Thousands of U.S. Dollars) The components of net periodic benefit cost are as follows:
1999 1998 1997 - ------------------------------------------------------------- Service cost $ 433 $ 376 $ 875 Interest cost 1,291 1,126 1,089 Amortization of prior service cost 128 134 136 - ------------------------------------------------------------- Net periodic benefit cost $1,852 $1,636 $2,100 =============================================================
The company provides certain postretirement health care and life insurance benefits to a limited number of employees. The costs associated with these benefits are not significant and are recorded on a "pay-as-you-go" or cash basis. 12. Commitments and Contingencies A number of claims and lawsuits seeking unspecified damages and other relief are pending against the company. It is impossible at this time for the company to predict with any certainty the outcome of such litigation. However, management is of the opinion, based upon information presently available, that it is unlikely that any liability, to the extent not provided for through insurance or otherwise, would be material in relation to the company's consolidated financial position. The company has been named along with several other parties in a number of administrative proceedings maintained by federal and state agencies arising out of alleged releases or contributions of hazardous substances into the environment. None of the proceedings is, in the opinion of management, either individually or viewed in connection with all the proceedings, material to the company's liquidity, consolidated operating results, or consolidated financial position. While the company has participated and in the future will participate in the funding of clean up costs in connection with certain of the proceedings, it does not believe that material monetary sanctions will be imposed against it as a result of any of the proceedings. The company has an agreement to sell certain qualifying accounts receivable to a financial institution on a revolving basis. The amount sold as of December 31, 1999 and 1998 was $62,900 and $62,000, respectively. The amount sold at any time must be supported by available credit under the revolver. Certain of the company's operations have entered into agreements with third party finance companies to provide wholesale financing of their product to distributors. The company is responsible for the repurchase of new product in the event it is acquired by the finance companies through repossession. At December 31, 1999, the total amount of new product financed under these agreements is approximately $12,000. At December 31, 1999, the company also has sold approximately $8,000 of receivables under recourse agreements. Reserves have been provided for any anticipated losses under these agreements. In the normal course of business, letters of credit and bank guarantees are issued by banks for account of the company, which in the opinion of management, have no material effect on the company's financial position. At December 31, 1999, the company was contingently liable for $84,000 under these arrangements. The company does not trade in financial instruments and does not engage in speculation. However, it does enter into a limited range and number of derivative financial instrument contracts. The company has a program in place to manage foreign currency risk. As part of that program, the company has entered into a limited number of foreign currency forward exchange contracts to hedge foreign currency transactions or intercompany loan payments. The company's foreign exchange contracts do not subject the company to risk due to exchange rate movements because gains and losses on these contracts offset losses and gains on the transactions being hedged. As of December 31, 1999, the company's German operations had approximately DM 183 million ($93,000) of forward exchange contracts outstanding which are designed to convert the receipt of foreign currencies from sales outside of Germany into DM. The forward exchange contracts generally have maturities which do not exceed one year and exchange rates are agreed to at the inception of the contracts. The company has operating leases covering machinery, equipment, office, warehouse and manufacturing facilities. Future minimum lease payments under operating leases at December 31, 1999 are as follows: 2000 $14,505 2001 13,025 2002 8,633 2003 5,003 2004 3,648 Thereafter 7,091 - ------------------------------------------------------ $51,905 ======================================================
13. Year 2000 The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. Although the change in date has occurred, it is not possible to conclude that all aspects of the Year 2000 Issue that may affect the company, including those related to customers, suppliers, or other third parties, have been fully resolved. 14. Differences Between Canadian and United States Accounting Principles Generally accepted accounting principles (GAAP) in Canada allow for the reduction of stated capital of outstanding common shares with a corresponding offset to deficit. This reclassification, which the company made in 1990, is not permitted by United States GAAP and would result in an increase in capital stock and a reduction in retained earnings at December 31, 1999 and 1998 of 42 United Dominion Industries 21 $128,093. Canadian GAAP also permits expenses related to the issue of capital stock, net of income taxes, to be deducted from retained earnings while United States GAAP requires such expenses to be deducted from the proceeds of stock issuances credited to capital stock. This reclassification would reduce capital stock and increase retained earnings by $20,905 at December 31, 1999 and 1998. The CICA recently adopted a new standard for recognizing the cost of pensions and other postretirement benefits (Handbook Section 3461). The new standard, effective for fiscal years beginning after January 1, 2000, essentially harmonizes Canadian rules with United States GAAP and requires accruing the cost of providing postretirement health care benefits during the years that the employee renders the necessary service. The company currently records health care benefits on a "pay-as-you-go" basis for benefits paid on behalf of active and retired employees. The healthcare benefit obligations not recorded by the company for active and retired employees due to use of the "pay-as-you-go" basis versus accrual accounting totaled approximately $12,000 at December 31, 1999. Additionally, CICA Handbook Section 3461 requires that for purposes of determining the pension liability, the discount rate must be based on current bond market yields rather than management's best estimate of the plan's long-term returns. This change in the discount rate will increase the volatility of pension expense in the future and create an additional pension liability of approximately $16,000 which will need to be recorded upon adoption of this new accounting standard. The company intends to retroactively adopt CICA Handbook Section 3461 in the first quarter of 2000. After tax effecting the above amounts, these changes will result in increases to other assets of approximately $3,000 and accrued liabilities of approximately $7,000 and decreases to other (non-current) assets of approximately $16,000, other (non-current) liabilities of approximately $3,000 and retained earnings of approximately $17,000. Canadian GAAP allows for the capitalization and subsequent amortization of start-up costs for new facilities and joint ventures. Effective January 1, 1999, United States GAAP requires the expensing of these costs as incurred as well as the expensing of any previously capitalized costs. As of December 31, 1999, United States GAAP would require the company to expense approximately $729, net of tax, of unamortized costs that had been capitalized in prior years. The income statement format adopted in 1999 by the company as permitted by CICA Handbook Section 1580, Business Combinations (note 2) is not allowed under United States GAAP. Presentation under United States GAAP requires that the gross goodwill charges be included as a component of operating income and the associated income tax benefit be included as a component of the income tax provision. This reclassification does not affect reported net income. United States GAAP requires the dual presentation of basic and diluted earnings per share. Diluted earnings per share reflects the assumed exercise of dilutive securities such as the company's stock options. The following table reflects the impact on net income, weighted-average shares outstanding and net earnings per share of complying with United States GAAP as it pertains to the items noted above.
1999 1998 1997 - ---------------------------------------------------------------------------- Net income under Canadian GAAP $88,910 $99,688 $141,064 Increased (decreased) by: Pension expense (1,990) (1,483) (1,470) Postretirement benefits (594) (588) (753) Start-up costs (729) -- -- Other 31 (321) 76 - ---------------------------------------------------------------------------- Net income under United States GAAP $85,628 $97,296 $138,917 ============================================================================ Weighted-average shares outstanding (000s) Canadian GAAP 39,642 40,755 44,439 Less restricted stock outstanding (177) (123) (269) - ---------------------------------------------------------------------------- United States GAAP - Basic 39,465 40,632 44,170 Effect of dilutive securities: Restricted stock 177 123 269 Employee stock options 176 281 303 - ---------------------------------------------------------------------------- United States GAAP - Diluted 39,818 41,036 44,742 ============================================================================ Net earnings per share Canadian GAAP Continuing operations $ 2.24 $ 2.45 $ 1.91 Discontinued operations -- -- 1.26 - ---------------------------------------------------------------------------- Net earnings $ 2.24 $ 2.45 $ 3.17 ============================================================================ United States GAAP - Basic Continuing operations $ 2.17 $ 2.39 $ 1.87 Discontinued operations -- -- 1.28 - ---------------------------------------------------------------------------- Net earnings $ 2.17 $ 2.39 $ 3.15 ============================================================================ United States GAAP - Diluted Continuing operations $ 2.15 $ 2.37 $ 1.84 Discontinued operations -- -- 1.26 - ---------------------------------------------------------------------------- Net earnings $ 2.15 $ 2.37 $ 3.10 ============================================================================
United States GAAP requires reporting on comprehensive income. For the years ended December 31, 1999, 1998 and 1997, comprehensive income, as defined under United States GAAP, is as follows:
1999 1998 1997 - ------------------------------------------------------------------------- Net income under United States GAAP $ 85,628 $ 97,296 $ 138,917 Foreign currency translation adjustments, net of tax (4,298) (576) (6,055) - ------------------------------------------------------------------------- Comprehensive income under United States GAAP $ 81,330 $ 96,720 $ 132,862 =========================================================================
United Dominion Industries 43 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, RESTATED (note 2) United Dominion Industries December 31, 1999, 1998 and 1997 (Amounts in Thousands of U.S. Dollars) The application of United States GAAP previously discussed would result in increases in other (non-current) liabilities of approximately $5,000 and common shares of approximately $107,000 and decreases in goodwill of approximately $2,000, other (non-current) assets of approximately $6,000, accrued liabilities of approximately $1,000, and retained earnings of approximately $119,000 as of December 31, 1999. At December 31, 1998, the application of United States GAAP would result in increases in accrued liabilities of approximately $2,000, other (non-current) liabilities of approximately $5,000 and common shares of approximately $107,000 and decreases in goodwill of approximately $2,000 and retained earnings of approximately $116,000. The company's accounting for stock options is essentially the same as the intrinsic value method prescribed by existing accounting pronouncements effective in the United States. United States GAAP encourages, but does not require companies to record compensation cost for stock option plans at fair value and requires the disclosure of pro forma net income and earnings per share information as if the company had accounted for its employee stock options issued beginning in 1995 under the fair value method. Accordingly, the fair value of the options issued have been estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of 5.2%, 5.1% and 6.2%; dividend yields of 1.8%, 1.6% and 1.0%; volatility factors of the expected market price of the company's common stock of .37, .39 and .33; and a weighted-average expected life of the options of eight years. The weighted-average grant-date fair values of options issued in 1999, 1998 and 1997 was $8.28, $12.60 and $12.43, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period that ranges from six months to three years. Retroactive application of the fair value method to prior years is not permitted, therefore the full effect of the fair value method will not be reflected in the pro forma disclosures until it has been applied to all non-vested options. Assuming the company had accounted for its stock options issued under the fair value method, United States GAAP pro forma net income and basic and diluted earnings per share for the years ended December 31, 1999, 1998 and 1997 would have been $82,556, $2.09 and $2.07; $94,134, $2.32 and $2.29; and $136,508, $3.09 and $3.05, respectively. United States GAAP requires disclosure of changes during the year in non-cash working capital balances pertaining to operating activities. The following table reflects such changes for the years ended December 31, 1999, 1998 and 1997.
1999 1998 1997 - ----------------------------------------------------------------------------- Decrease (increase) in current assets Accounts and notes receivable $ 19,677 $(39,063) $ (7,582) Inventories (16,677) (21,184) (15,124) Other current assets 23,249 (9,359) (4,937) Increase (decrease) in current liabilities Accounts payable and accrued liabilities (6,267) 27,148 5,140 Customer advances (8,829) 6,200 (831) - ----------------------------------------------------------------------------- $ 11,153 $(36,258) $(23,334) =============================================================================
United States GAAP requires disclosure of the effect of a one-percentage point increase or decrease in the assumed health care cost trend rates on the aggregate of the service and interest cost components of net periodic postretirement health care benefit cost and the accumulated post-retirement benefit obligation for health care benefits. The following table reflects such effects. Since the company is on a pay-as-you-go basis, this disclosure relates to the pro forma disclosures contained in the reconciliation of net income previously discussed.
1-Percentage 1-Percentage Point Increase Point Decrease - ----------------------------------------------------------------------- Effect on total of service and interest cost components $ 84 $ (76) Effect on postretirement benefit obligation 916 (848)
15. Quarterly Financial Information (Unaudited)
Net Earnings Sales Gross Profit* Net Income Per Share - ------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- First Quarter $ 478,404 $ 444,135 $141,667 $129,872 $13,986 $14,327 $0.35 $0.35 Second Quarter 549,272 523,692 166,518 161,329 27,348 26,608 0.69 0.65 Third Quarter 546,998 524,755 170,946 159,691 27,956 21,378 0.71 0.52 Fourth Quarter 573,664 527,792 183,188 167,680 19,620 37,375 0.50 0.92 - ---------------------------------------------------------------------------------------------------- Full year $2,148,338 $2,020,374 $662,319 $618,572 $88,910 $99,688 $2.24 $2.45 =========================================================================================================================
* Represents sales less cost of sales 44 United Dominion Industries 23 AUDITOR'S REPORT To the Shareholders of United Dominion Industries Limited We have audited the consolidated statements of financial position of United Dominion Industries Limited as at December 31, 1999 and 1998 and the related consolidated statements of income, cash flows and changes in shareholders' equity for each of the years in the three-year period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1999 in accordance with Canadian generally accepted accounting principles. /s/ KPMG LLP Chartered Accountants Toronto, Canada January 28, 2000 MANAGEMENT'S RESPONSIBILITY Management is responsible for the preparation and integrity of the Consolidated Financial Statements and other information appearing in this annual report. The Consolidated Financial Statements were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and, accordingly, include some amounts based on management's best judgments and estimates. Financial information in this annual report is consistent with that in the Consolidated Financial Statements. In fulfilling our responsibilities, management has developed and continues to maintain systems of internal accounting controls including written policies and procedures and segregation of duties and responsibilities. Although no cost-effective system of internal controls will prevent or detect all errors and irregularities, these systems are designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, transactions are properly recorded and the financial records are reliable for preparing the financial statements. Our independent auditors conduct an audit of the company's Consolidated Financial Statements in accordance with generally accepted auditing standards. Their audit includes a review of internal accounting controls to the extent they deem necessary for the purposes of their audit. Their report appears on this page. The Board of Directors carries out its responsibility for the Consolidated Financial Statements in this annual report principally through its Audit Committee, consisting solely of outside directors. The Audit Committee meets periodically with the independent auditors to discuss specific accounting, reporting and internal control matters. The independent auditors have full and free access to the Audit Committee. /s/ William R. Holland /s/ William Dries William R. Holland William Dries Chairman and Senior Vice President and Chief Executive Officer Chief Financial Officer January 28, 2000 United Dominion Industries 45 24 SIX-YEAR STATISTICAL SUMMARY United Dominion Industries Years Ended December 31 (U.S. $ Millions, Except Per Share Data)
1999 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------ OPERATING RESULTS - ------------------------------------------------------------------------------------------------ Sales 2,148 2,020 1,655 1,433 1,329 1,083 Income from continuing operations before goodwill charges 111 117 97 80 73 53 Income from continuing operations 89 100 85 69 65 47 Income from discontinued operations - - 56 17 14 15 Net income 89 100 141 87 79 62 FINANCIAL CONDITION AND RATIOS - ------------------------------------------------------------------------------------------------ Working capital 375 427 259 358 281 260 Current ratio 1.7 1.9 1.6 1.9 1.7 1.6 Total assets 2,242 2,091 1,749 1,587 1,475 1,334 Net fixed assets 351 318 301 289 270 228 Depreciation 46 42 34 30 27 24 Additions to fixed assets 61 52 61 51 39 24 Long-term debt (including current portion) 638 596 339 302 392 311 Shareholders' equity 919 886 873 807 607 565 Return on average common shareholders' equity(%) 9.9 11.9 16.4 12.9 13.5 13.0 PER COMMON SHARE DATA - ------------------------------------------------------------------------------------------------ Continuing operations before goodwill charges 2.79 2.88 2.19 1.79 1.77 1.31 Continuing operations 2.24 2.45 1.91 1.56 1.56 1.15 Discontinued operations - - 1.26 0.39 0.35 0.40 Net earnings 2.24 2.45 3.17 1.95 1.91 1.55 Common dividends 0.36 0.36 0.28 0.20 0.20 0.20 Book value 23.54 21.86 20.16 17.83 15.33 13.10 SHAREHOLDERS AND EMPLOYEES - ------------------------------------------------------------------------------------------------ Number of common shareholders 1,363 1,372 1,512 1,764 1,925 2,051 Number of employees 13,615 12,135 11,123 11,252 10,666 12,282 Number of common shares outstanding (thousands) 39,048 40,521 43,282 45,239 39,620 39,443 ================================================================================================
The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in Canada. If accounting principles generally accepted in the United States were applied, the net income and the related basic and diluted earnings per share amounts for 1999, 1998, 1997, 1996, 1995, and 1994 would amount to approximately $86 million, $97 million, $139 million, $84 million, $76 million and $60 million, or $2.17 and $2.15; $2.39 and $2.37; $3.15 and $3.10; $1.90 and $1.88; $1.84 and $1.83; and $1.48 and $1.48 per share, respectively. In addition, in 1994, $49 million of preferred shares would not be classified in the shareholders' equity caption but would be shown separately. See note 14 to the Consolidated Financial Statements. 46 United Dominion Industries 25 DIRECTORS AND OFFICERS United Dominion Industries
DIRECTORS - ------------------------------------------------------------------------------------------------------------------------------------ DONALD N. BOYCE (1997)(2) JERE A. DRUMMOND (1999)(3) DR. HARRY A. NURKIN (1999)(4) Chairman, IDEX Corporation President and Chief Executive Officer, President and Chief Executive Officer, (Diversified manufacturer) BellSouth Communications Group Carolinas Healthcare System (Telecommunications company) (Integrated healthcare services system) HERMANN BUERGER (1997)(3) Executive Vice President, Commerzbank THE HON. JAMES A. GRANT PC, QC DALTON D. RUFFIN (1974)(1,2) (International bank) (1989)(1,4) Corporate Director Partner, Stikeman, Elliot Chairman of the Compensation and Human JAMES E. COURTNEY (1989)(2,4) (Law firm) Resources Committee and Lead Director Corporate Director Chairman of the Nominating and Corporate Governance Committee WILLIAM W. STINSON(1986)(1) PETER A. CROSSGROVE (1993)(2) Corporate Director Chairman, Premdor Inc. WILLIAM R. HOLLAND (1985)(1) Chairman of the Executive Committee (International door manufacturing company) Chairman and Chief Executive Officer, United Dominion Industries Limited GEORGE S. TAYLOR (1995)(3) R. STUART DICKSON (1990)(1,3) Corporate Director Chairman of the Executive Committee, RUSSELL C. KING, JR. (1992)(4) Ruddick Corporation Corporate Director Committees of the Board of Directors (International thread and regional (1) Executive Committee supermarket company) JOHN T. MAYBERRY (1999)(3) (2) Compensation and Human Chairman of the Audit and Risk President and Chief Executive Officer, Resources Committee Management Committee Dofasco Inc. (3) Audit and Risk Management Committee (Steel producer) (4) Nominating and Corporate Governance Committee CORPORATE OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ WILLIAM R. HOLLAND JAMES M. GIBBS JUNE P. HASSETT Chairman and Chief Executive Officer Senior Vice President; Vice President, Taxes President, Flow Technology Segment GLENN A. EISENBERG C. THEODORE LEINBACH III President and Chief Operating Officer TIMOTHY J. VERHAGEN Vice President and Controller Senior Vice President; B. BERNARD BURNS, JR. President, Test Instrumentation Segment RICHARD L. MAGEE Executive Vice President and Vice President, General Counsel and Secretary Chief Administrative Officer LOTHAR WAHL Senior Vice President; B. J. SMITH WILLIAM DRIES President, Machinery Segment Vice President, Human Resources Senior Vice President and Chief Financial Officer J. MILTON CHILDRESS II THOMAS J. SNYDER Senior Vice President, Vice President, Treasurer RICHARD F. BRADBURY Planning and Development Senior Vice President; NANCY H. SPURLOCK President, Specialty Engineered Products Vice President, Corporate Communications OPERATING MANAGEMENT - ------------------------------------------------------------------------------------------------------------------------------------ FLOW TECHNOLOGY MACHINERY TEST INSTRUMENTATION JOHN L. BREWER GERALD H. MEIER MICHAEL J. GRAUSAM President, CMB President, Agricultural Equipment President, Lunaire/LDS Division JAMES P. DOHERTY LOTHAR WAHL THOMAS L. HAMMOND President, Flair President, Compaction Division President, Advanced Industrial Technologies Specially Engineered Products JOHN W. GLEDHILL SPECIALTY ENGINEERED PRODUCTS ANDREW G. HOARE President, Mueller Steam Specialty BEN E. FELLOWS President, Test Measurement Division President, Door Products Division WILLIAM C. GRIFFITHS DENNIS K. PORZIO President, Fluid Systems Division DAVID B. PALMER President, Atmospheric Air Division President, C&M RICHARD D. LANDON President, Marley Cooling Tower Company DENNIS K. PORZIO President, Marley Electric Heating IVAN G. LARSH President, Waukesha Cherry-Burrell VINCENT P. SULLIVAN President, Dock Products Division THOMAS O. MAY President, Weil-McLain GARY M. WOLFF President, Fenn Manufacturing ROBERT J. MOORE President, Marley Pump
United Dominion Industries 47 26 SHAREHOLDER INFORMATION United Dominion Industries UNITED DOMINION INDUSTRIES LIMITED The company was incorporated as Dominion Bridge Company, Limited in 1882, reincorporated under the Companies Act of Canada on July 30, 1912 and continued under the Canada Business Corporations Act effective May 8, 1980. ANNUAL MEETING The annual meeting of shareholders will be held in The Upper Canada Room of The Royal York Hotel, 100 Front Street West, Toronto, Ontario, Canada on Tuesday, April 25, 2000 at 2 p.m. STOCK LISTINGS Toronto, New York Ticker Symbol: UDI TRANSFER AGENT & REGISTRAR Canada - Montreal Trust Company, Montreal, Toronto, Winnipeg, Regina, Calgary, Vancouver United States - The Bank of Nova Scotia Trust Co. DIVIDEND INFORMATION United Dominion's dividend policy is to pay prudent and sustainable common share dividends. Cash dividends of U.S. $0.36 per common share were paid in 1999. TAXATION OF U.S. SHAREHOLDERS Under the terms of the Income Tax Act (Canada) and the United States-Canada tax convention, taxable dividends paid to United States resident shareholders (other than tax exempt organizations and qualified trusts) of United Dominion Industries Limited are, with limited exceptions, subject to a Canadian withholding tax of 15 percent. Generally, capital gains on the disposition by U.S. residents of securities issued by United Dominion Industries Limited are exempt from Canadian tax unless the securities were either held in the conduct of a Canadian business or held by a former long-term resident of Canada. COMPANY INFORMATION Information about United Dominion Industries is available from the following company sources: Shareholders should contact Richard L. Magee, Vice President, General Counsel and Secretary. Telephone 704/347-6909. Institutional investors, brokers and securities analysts should contact Thomas J. Snyder, Vice President and Treasurer. Telephone 704/347-6874. Or, Michael P. Morgan, Jr., Senior Manager, Investor Relations. Telephone 704/347-6529. For general information, including the company's 1999 Form 10-K without exhibits, previous annual reports, quarterly reports and company profile literature, contact Corporate Communications. Telephone 704/347-6916. North American shareholders may call the toll-free Shareholder Information Line - 1-800-956-4509. Current information about the company is available on-line at www.uniteddominion.com. All correspondence should be addressed to: United Dominion Industries 2300 One First Union Center 301 South College Street Charlotte, NC 28202 USA Telephone: 704/347-6800 Telefax: 704/347-6900 NONDISCRIMINATION POLICY No United Dominion employee or applicant for employment shall be discriminated against on account of race, color, religion, sex, national origin, disability or age. SAFE HARBOR STATEMENT This annual report may contain certain "forward-looking statements" within the meaning of Section 27A of the Securities Exchange Act of 1934, as amended, that represent the company's current expectations or beliefs concerning future events. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties. Factors that could influence the matters discussed in such forward-looking statements include (i) global economic conditions; (ii) the current business environment, both in North America and abroad, including interest rates and consumer and capital spending, (iii) competitive factors; (iv) new product development and introduction; (v) changes in laws and regulations, including those affecting taxes and environmental matters; (vi) technological developments and technological issues; (vii) the introduction of the Euro; and (viii) continuation of the favorable environment in which to make acquisitions, in North America and internationally, including regulatory requirements and the availability of acquisition candidates at affordable prices. Such factors, and other factors, could cause actual results or events to differ materially from expectations. This provision is intended to comply with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. ENVIRONMENTAL POLICY AND PRINCIPLES It is United Dominion's policy to protect air, water, and land resources; to provide a safe work environment for employees; and to be a responsible corporate citizen. The company is committed to the following principles: to preserve health, safety and a sound environment; to continue efforts to reduce, reuse or recycle, minimizing releases to the environment; to operate its facilities in compliance with applicable regulatory requirements; to work constructively with government bodies and the public to preserve precious environmental resources; to monitor the performance of its operations to ensure proper environmental performance and a safe workplace; to devote resources toward minimizing the impact of its processes and products on the environment; to conduct educational and instructional programs to ensure its employees know, understand and comply with environmental and health/safety laws and regulations; to provide information to the public regarding its operations and their relationship to the community; and to encourage conservation of resources and energy and promote recycling in its business practices in plants and offices around the world. 48 United Dominion Industries 27 TOTAL SHAREHOLDER RETURN The following graph compares cumulative total return (assuming reinvestment of dividends) for the company's common shares against The Toronto Stock Exchange Composite 300 (TSE 300) for the five-year period ended December 31, 1999, assuming $100 (Cdn.) invested on December 31, 1994. UNITED DOMINION VS. TSE 300/S&P* (Canadian Dollars) [GRAPH] COMMON SHARE MARKET PRICES
Toronto Stock Exchange New York Stock Exchange (Canadian Dollars) (U.S. Dollars) Quarter 1999 1998 1999 1998 - --------------------------------------------------------------- High Low High Low High Low High Low First 35.95 28.40 46.00 34.00 24.19 18.94 33.50 24.50 Second 40.00 29.50 50.00 43.00 27.19 19.69 35.00 30.38 Third 37.15 33.05 49.00 25.50 24.94 22.56 33.44 16.88 Fourth 35.20 28.50 34.00 25.00 23.88 18.94 22.13 16.13 Year 40.00 28.40 50.00 25.00 27.19 18.94 35.00 16.13 - ---------------------------------------------------------------
At December 31, 1999, the closing price was Cdn. $28.40 on The Toronto Stock Exchange and $19.94 on the New York Stock Exchange. [RECYCLE LOGO] Portions of this annual report printed on recycled paper. Designed and produced by Corporate Reports Inc./Atlanta EX-21 12 SUBSIDIARIES OF UNITED DOMINION INDUSTRIES LIMITED 1 EXHIBIT 21 Subsidiaries of United Dominion Industries Limited Set forth below are the names of all subsidiaries of United Dominion Industries Limited ("UDIL"). The "level" of a company indicates its direct relationship to UDIL; i.e., a level 1 company is a direct subsidiary of UDIL; a level 2 company is a subsidiary of a level 1 company, and so on.
Percentage Owned by Jurisdiction Immediate Level Subsidiary of Incorporation Parent - ----- ---------- ---------------- ---------- 1 AMCA International Canada Corporation............. Canada 100 1 177090 Canada Inc................................. Canada 100 1 Fenn Limited............ ......................... England 100 1 Flair-Japan Kabushiki Kaisha...................... Japan 50 1 Jemaco-Flair Corporation ......................... Korea 50 1 Marley Cooling Tower International Limited........ Canada 100 2 Beijing Marley Xingye Cooling Tower Company Ltd..................................... China 51 1 Pacific Investment Limited........................ B.W.I 50 2 Flair-Japan Kabushiki Kaisha.................... Japan 50 1 WCB Mexico, S.A. de C.V........................... Mexico 100 1 Serco Systems Limited ............................ Canada 100 1 UD-RD Holding Company Limited..................... England 81.25 2 Bicotest Limited................................ England 100 2 Ling Dynamic Systems Limited.................... England 100 3 SRE Electronics Limited...................... England 100 4 British Electronic Control Limited......... England 100 5 LDS Limited.............................. England 100 5 Vibration Sales and Service Limited...... England 100 3 Ling Dynamic Systems GmbH.................... Germany 100 3 Ling Dynamic Systems, Inc.................... Connecticut 100 3 Ling Dynamic Systems SARL.................... France 99 2 Radiodetection Holdings Limited.................. England 100 3 Radiodetection Limited........................ England 100 4 Electrolocation Limited.................... England 100 5 Radiodetection Corporation............... New Jersey 100 4 Direct Calibration Services Limited........ England 100 4 Meltrace Limited........................... England 100 4 Radiodetection Overseas Limited............ England 100
1 2
Percentage Owned by Jurisdiction Immediate Level Subsidiary of Incorporation Parent - ----- ---------- ---------------- ---------- 4 Radiodetection GmbH......................... Germany 100 4 Radiodetection China........................ China 100 4 Radiodetection Japan ....................... Japan 100 4 Radiodetection B.V.......................... Netherlands 100 4 Radiodetection SARL......................... France 100 4 Radiodetection Srl.................... ..... Italy 100 4 Radiodetection (Canada) Limited............. Canada 100 4 Radiodetection S.R.O........................ Czech Republic 100 4 Radiodetection Pty Limited.................. S. Africa 100 4 Radiodetection Sp z.o.o..................... Poland 100 4 Radiodetection S.L.......................... Spain 100 4 Radiodetection SRL (Rom).................... Romania 100 4 Radiodetection Megamma Kft.................. Hungary 51 4 Radiodetection Ukraine Limited.............. Ukraine 100 1 U.D.I. Finance Limited............................. Ireland 100 2 U.D.I. SRL....................................... Barbados 100 1 U.D.I. Mauritius Limited........................... Mauritius 100 2 PuriFlair India Private Limited.................. India 76 2 Varun Flair Filtration Private Limited........... India 76 1 FCD (Canada) Inc................................... Canada 100 1 United Dominion Holdings, Inc...................... Delaware 100 2 Core Industries Inc.............................. Nevada 100 3 Advanced Industrial Technologies, Inc......... Michigan 100 3 Air Gage Company.............................. Michigan 100 3 CII Tustin, Inc. ............................. California 100 4 Dynamic Acquisition Corporation............. California 100 3 CMB Industries, Inc. ..... ................... Michigan 100 3 United Dominiion Pte. Ltd..................... Singapore 100 3 Mueller Flow Technology, Inc.................. Michigan 100 4 Blakeshall Mill Limited..................... England 100 4 FCD Europe Limited.......................... England 100 3 Pasar, Inc.................................... Colorado 100 3 Poly Craft, Inc............................... Ohio 100 3 Robcar Corporation............................ Indiana 100 3 Sunflower Manufacturing Company, Inc.......... Kansas 100 3 TIF Instruments, Inc.......................... Florida 100
2 3
Percentage Owned by Jurisdiction Immediate Level Subsidiary of Incorporation Parent - ----- ---------- ---------------- ---------- 3 Universal Industrial Products Company........ Michigan 100 3 Core ESI, Inc................................ Michigan 100 3 Core Real Estate Holdings, Inc............... Michigan 100 3 Dynamic Instruments Acquisition Corp......... Michigan 100 3 Eglinton Co.................................. Michigan 100 3 Feterl Manufacturing Company................. South Dakota 100 3 Flexstar, Inc................................ California 100 3 Great Lakes Gauge Company.................... Michigan 100 2 Marley Cooling Tower (Holdings) Limited......... England 100 3 Marley Davenport Limited............... ..... England 98.4 4 Marley Cooling Tower Company UK Limited.... England 100 5 Marley Cooling Tower Company (France) SNC............................. France 2 3 United Dominion Industries (Italy) Srl....... Italy 100 4 Scam Cooling Towers SRL.................... Italy 100 4 Cofimco SPA................................ Italy 100 4 BON.FIN. SRL............................... Italy 100 5 Acquindustriali SRL...................... Italy 100 4 SPIG International SPA..................... Italy 100 4 WCB Ice Cream Italy SRL.................... Italy 100 2 United Dominion Industries, Inc................. Delaware 100 3 Kelley Company, Inc. ........................ Wisconsin 100 4 Kelley Atlantic Limited.................... Canada 100 4 Kelley Company FSC, Inc. .................. Barbados 100 3 Bran+Luebbe, (US) Inc........................ USA 100 4 Bran+Luebbe Inc............................ USA 100 4 Kelley (International) Limited............. Gilbralter 100 3 Maltex S.A. de CV............................ Mexico 100 3 AMCA International Corporation............... Delaware 100 3 AMCA/Koehring Company........................ Delaware 100 4 AMCA Brookfield International Sales Corporation.......................... Delaware 100 5 AMCA International Finance Corporation.............................. Delaware 100 6 AMCA International Finance Corporation of Georgia.................. Delaware 100
3 4
Percentage Owned by Jurisdiction Immediate Level Subsidiary of Incorporation Parent - ----- ---------- ---------------- ---------- 6 AMCA International Finance Corporation of Texas...................... Delaware 100 5 Arrendadora Korco, S.A. de C.V.............. Mexico 49 5 BOMAG Holding, Inc.......................... Delaware 100 6 Amprobe Test Measurement GmbH............. Germany 100 6 BOMAG ULM GmbH............................ Germany 100 7 BOMAG Unternehmensverwaltung GmbH ...... Germany 100 8 Bran+Luebbe AG........................ Frankfurt 100 9 Bran+Luebbe GmbH.................... Germany 49.84 10 Bran+Luebbe Int'l GmbH............ Germany 100 11 Bran+Luebbe SARL................ France 100 11 Bran+Luebbe S.L................. Spain 100 11 Bran+Luebbe KK.................. Japan 100 11 Bran+Luebbe Pty. Ltd............ Australia 100 11 Bran+Luebbe B.V................. Netherlands 100 11 Bran+Luebbe S.p.A............... Italy 100 11 Bran+Luebbe Ltd................. Singapore 100 11 Tomal AB........................ Sweden 100 10 Bran+Luebbe SA ................... Brazil 100 10 Bran+ Luebbe ..................... Austria 100 10 Bran+Luebbe Anglo American GmbH..................... Germany 100 11 Bran+Luebbe Ltd................. England 100 10 Bran+Luebbe Electronics Verwaltungs GmbH.................. Germany 100 11 Bran+Luebbe Electronics GmbH & Co. Kg................... Germany 100 11 Bran+Luebbe GmbH................ Germany 50.16 8 BOMAG GmbH & Co. OHG.................. Germany 99 9 BOMAG (Canada) Inc.................. Canada 46 9 BOMAG Finance UK Limited............ England 100 10 UD-RD Holding Company Ltd......... England 18.75 9 BOMAG S.A.F......................... France 100 9 Nippon BOMAG Co., Ltd............... Japan 10 6 BOMAG (Canada), Inc....................... Canada 54
4 5
Percentage Owned by Jurisdiction Immediate Level Subsidiary of Incorporation Parent - ----- ---------- ---------------- ---------- 6 BOMAG (Great Britain) Limited........... England 100 7 BOMAG Kent (UK) Limited............... UK 100 6 BOMAG Maschinenhandelsgesellschaft ..... Austria 100 6 Compaction America, Inc................. Delaware 100 6 Flair Filter-und Trocknertechnik GmbH.................................... Germany 100 6 GSE Scale System GmbH................... Germany 100 6 Marley Kuhlturm GmbH.................... Germany 100 5 BOMAG GmbH................................ Germany 1 4 BOMAG UDI GmbH ............................. Germany 100 5 BOMAG UDI GmbH & CO....................... Germany 1 3 AMCA/Monroe Holdings Corp..................... Delaware 100 4 The Litwin Corporation...................... Kansas 100 4 Litwin Engineers & Constructors, Inc........ Rhode Island 100 3 Amtel, Inc.................................... Rhode Island 100 3 Cofimco USA, Inc.............................. Virginia 100 3 Desa Industries Inc........................... Delaware 100 3 Flair Corporation............................. Delaware 100 4 The C.M. Kemp Manufacturing Company......... Delaware 100 4 Flair-New Castle, Inc....................... Delaware 100 5 Deltech B.V............................... Netherlands 100 6 Flair Filtration & Drying B.V........... Netherlands 100 6 Delair B.V. ............................ Netherlands 100 5 Flair Limited............................. United Kingdom 33.3 4 Dollinger Corporation....................... North Carolina 100 5 Dollinger World Limited................... Ireland 100 5 Flair Filtration Products Inc............. Canada 1 6 Dollinger Ireland Limited............... Ireland 100 4 The King Company............................ Minnesota 100 4 Pneumatic Products Corporation.............. Delaware 100 5 Flair Filtration Products Inc............. Canada 99 5 PPC Distribution Midwest, Inc.. .......... Florida 100 5 PPC Distribution Northeast, Inc........... Florida 100 5 Flair Limited.. .......................... United Kingdom 66.6 6 Pneumatic Products Limited.............. England 100 6 Deltech Engineering Ltd................. United Kingdom 100 4 Tom Miller, Inc............................. Michigan 100 3 Lee Engineering Company, Inc.................. Rhode Island 100 3 Lunaire Limited............................... Pennsylvania 100 3 LitSubs, Inc.................................. Delaware 100
5 6
Percentage Owned by Jurisdiction Immediate Level Subsidiary of Incorporation Parent - ----- ---------- ---------------- ---------- 3 The Marley Company.. .......................... Delaware 100 4 PEL Inc. (formerly Engineers and Fabricators Co.)............................. Delaware 100 4 The Marley Cooling Tower Company............. Delaware 100 5 Marley Canadian Inc........................ Canada 100 5 Marley Cooling Tower Asia Pacific Pte. Ltd................... .............. Singapore 100 5 Marley Davenport .......................... 1.6 5 PT Jaya Marley Indonesia................... Indonesia 40 6 Marley Water-Line SDN. BHD............... Malaysia 51 6 Marley Cooling Tower Asia Pacific SDN. BHD. (formerly Peaceage)............ Malaysia 100 5 Marley Cooling Tower Company (Europe) Limited.................................... England 100 5 Marley Cooling Tower Company (France) SNC........................................ France 98 5 Marley Do Brazil Participacoes Ltda........ Brazil 100 5 Marley Mexicana S.A. de C.V.... ........... Mexico 100 5 Marley Pan American Cooling Tower Corporation................................ Delaware 100 5 Marley Pellux Holdings Ltd................. British Virgin Isles 67 6 Marley-Sinro Cooling Tower Company, Ltd...................................... China 74.25 5 Marley TEMCEL Australia Pty. Limited....... Australia 100 5 Recold, Inc................................ California 100 5 XCEL Erectors, Inc......................... Delaware 100 4 Marley Pump Asia Pte Ltd..................... Singapore 100 4 Marley Pump Australia Pty. Ltd............... Australia 100 4 Marley Pump Europe B.V....................... Holland 100 5 AIA Comercial, S.A......................... Spain 67 4 The Marley-Wylain Company.................... Delaware 100 5 Cormac Trustee Corp........................ Indiana 100 3 PST, Inc....................................... Delaware 100 3 Dominion Building Products, Inc................ Texas 100
6 7
Percentage Owned by Jurisdiction Immediate Level Subsidiary of Incorporation Parent - ----- ---------- ---------------- ---------- 3 Quantum Erectors, Inc......................... North Carolina 100 3 ROSS Holding, Inc............................. Delaware 100 3 RPM Constructors, Inc......................... North Carolina 100 3 Span International Limited.................... Bahamas 100 3 TAPS, LLC..................................... North Carolina 25 3 U.D.I. Foreign Sales Corporation.............. Barbados 100 3 Varco Pruden Realty, Inc...................... Georgia 100 2 Marley Japan Kabushiki Kaisha ................... Japan 100 2 United Dominion Industries Spain, S.L............ Spain 100 3 Torraval, S.A................................. Spain 100 1 WCB Ice Cream A/S.................................. Denmark 100
7 EX-24.A 13 POWER OF ATTORNEY / D. N. BOYCE 1 EXHIBIT 24(a) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ D. N. Boyce - ------------------------------------ D. N. Boyce, Director February 11, 2000 EX-24.B 14 POWER OF ATTORNEY / H. BUERGER 1 EXHIBIT 24(b) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ H. Buerger - ----------------------------------- H. Buerger, Director February 11, 2000 EX-24.C 15 POWER OF ATTORNEY / J. E. COURTNEY 1 EXHIBIT 24(c) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ J. E. Courtney - -------------------------------------- J. E. Courtney, Director February 11, 2000 EX-24.D 16 POWER OF ATTORNEY / P. A. CROSSGROVE 1 EXHIBIT 24(d) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ P. A. Crossgrove - ----------------------------------------- P. A. Crossgrove, Director February 11, 2000 EX-24.E 17 POWER OF ATTORNEY / R. S. DICKSON 1 EXHIBIT 24(e) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ R. S. Dickson - ----------------------------------- R. S. Dickson, Director February 11, 2000 EX-24.F 18 POWER OF ATTORNEY / J. A. DRUMMOND 1 EXHIBIT 24(f) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ J. A. Drummond - ----------------------------------- J. A. Drummond, Director February 11, 2000 EX-24.G 19 POWER OF ATTORNEY / J. A. GRANT 1 EXHIBIT 24(g) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ J. A. Grant - ----------------------------------- J. A. Grant, Director February 11, 2000 EX-24.H 20 POWER OF ATTORNEY / R. C. KING, JR. 1 EXHIBIT 24(h) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ R. C. King, Jr. - ------------------------------------ R. C. King, Jr. Director February 11, 2000 EX-24.I 21 POWER OF ATTORNEY / J. T. MAYBERRY 1 EXHIBIT 24(i) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ J. T. Mayberry - -------------------------------------- J. T. Mayberry, Director February 11, 2000 EX-24.J 22 POWER OF ATTORNEY / H. A. NURKIN 1 EXHIBIT 24(j) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ H. A. Nurkin - ------------------------------------- H. A. Nurkin, Director February 11, 2000 EX-24.K 23 POWER OF ATTORNEY / D. D. RUFFIN 1 EXHIBIT 24(k) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ D. D. Ruffin - ----------------------------------- D. D. Ruffin, Director February 11, 2000 EX-24.L 24 POWER OF ATTORNEY / W. W. STINSON 1 EXHIBIT 24(l) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ W. W. Stinson - ------------------------------------- W. W. Stinson, Director February 11, 2000 EX-24.M 25 POWER OF ATTORNEY / G. S. TAYLOR 1 EXHIBIT 24(m) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned director of United Dominion Industries Limited hereby constitutes and appoints Richard L. Magee and William Dries and each of them singly, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of United Dominion Industries Limited for the year ended December 31, 1999, and any or all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, the New York Stock Exchange, the Toronto Stock Exchange and any Canadian securities commissions, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. /s/ G. S. Taylor - -------------------------------------- G. S. Taylor, Director February 11, 2000 EX-99 26 PROXY CIRCULAR/PROXY STATEMENT DATED 3/22/2000 1 EXHIBIT 99 [LOGO] UNITED DOMINION INDUSTRIES LIMITED NOTICE OF ANNUAL MEETING OF SHAREHOLDERS NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Meeting") of United Dominion Industries Limited (the "Corporation") will be held in the Upper Canada Room of the Royal York Hotel, 100 Front Street West, Toronto, Ontario, Canada on Tuesday, April 25, 2000 at 2:00 p.m. (Toronto time), for the following purposes: (1) to receive the consolidated financial statements of the Corporation for the year ended December 31, 1999, together with the auditors' report thereon, and the annual report of the directors; (2) to elect directors; (3) to reappoint KPMG LLP to serve as independent auditors of the Corporation until the close of the next annual meeting of shareholders and to authorize the Board of Directors to fix KPMG's remuneration; and (4) to transact such other business, if any, as may properly come before the Meeting or any adjournment or postponement thereof. By order of the Board of Directors, /s/ Richard L. Magee R. L. Magee Secretary Toronto, Ontario March 22, 2000 If you are unable to be present in person at the Meeting, please date, sign and return the enclosed form of proxy to the Corporation, care of Montreal Trust Company of Canada, Place Montreal Trust, 1800 McGill College Avenue, Montreal, Quebec, H3A 3K9, in the envelope provided for that purpose. For U.S. shareholders, please date, sign and return the enclosed form of proxy to The Bank of Nova Scotia Trust Company of New York, One Liberty Plaza, 23rd Floor, New York, New York, 10006, in the envelope provided for that purpose. To be effective, a form of proxy must be duly executed and deposited with the Corporation's registrar and transfer agent, Montreal Trust Company of Canada or The Bank of Nova Scotia Trust Company of New York, as the case may be, at the applicable address above, not less than 48 hours, Saturdays and holidays excepted, preceding the Meeting, or any adjournment or postponement thereof. 2 [LOGO] UNITED DOMINION INDUSTRIES LIMITED --------------- MANAGEMENT PROXY CIRCULAR/PROXY STATEMENT SOLICITATION OF PROXIES THIS MANAGEMENT PROXY CIRCULAR/PROXY STATEMENT (THE "PROXY CIRCULAR") IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS AND THE MANAGEMENT OF UNITED DOMINION INDUSTRIES LIMITED (THE "CORPORATION") FOR USE AT THE ANNUAL MEETING OF SHAREHOLDERS OF THE CORPORATION TO BE HELD ON APRIL 25, 2000 AT THE TIME, PLACE AND FOR THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF MEETING, AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF (THE "MEETING"). The Corporation will pay the cost of such solicitation. The Corporation will reimburse brokers and other intermediaries for costs incurred by them in mailing proxy materials to non-registered shareholders in accordance with National Policy No. 41 of the Canadian Securities Administrators. This Proxy Circular is being initially sent to shareholders on or about March 22, 2000. The principal executive offices of the Corporation are located at 2300 One First Union Center, 301 South College Street, Charlotte, North Carolina, 28202-6039, U.S.A. The Corporation's registered office is located at Suite 5300, Commerce Court West, Post Office Box 85, Toronto, Ontario, Canada, M5L 1B9. APPOINTMENT AND REVOCATION OF PROXIES The persons designated in the accompanying form of proxy are officers of the Corporation. A SHAREHOLDER ENTITLED TO VOTE AT THE MEETING HAS THE RIGHT TO APPOINT ANOTHER PERSON (WHO NEED NOT BE A SHAREHOLDER), OTHER THAN A PERSON DESIGNATED IN THE FORM OF PROXY, AS PROXYHOLDER TO REPRESENT SUCH SHAREHOLDER AND VOTE ON SUCH SHAREHOLDER'S BEHALF AT THE MEETING BY EXECUTING (OR CAUSING AN ATTORNEY DULY AUTHORIZED IN WRITING TO EXECUTE) THE ACCOMPANYING FORM OF PROXY OR ANOTHER LEGAL FORM OF PROXY AND APPOINTING THEREON SUCH OTHER PERSON AS PROXY. Execution of the form of proxy will not affect a shareholder's right to attend the Meeting and vote in person if such shareholder revokes a proxy as described below. Any shareholder giving a proxy has the right to revoke it at any time before it is acted upon (a) by depositing an instrument in writing executed by such shareholder or by an attorney authorized in writing, or, if the shareholder is a corporation, by a duly authorized officer or attorney thereof, (i) at the Corporation's registered office, Suite 5300, Commerce Court West, Post Office Box 85, Toronto, Ontario, M5L 1B9, at any time up to and including the last business day preceding the day of the Meeting, or any adjournment or postponement thereof at which the proxy is to be used, or (ii) with the Chairman of the Meeting on the day of the Meeting or an adjournment or postponement thereof; or (b) in any other manner permitted by law. RECORD DATE Only holders of record of the Corporation's common shares ("Common Shares") at the close of business on March 14, 2000 (the "Record Date") are entitled to notice of and to attend and vote at the Meeting, except that a transferee who acquires Common Shares after such date shall be entitled to vote at the Meeting if such transferee produces properly endorsed share certificates for such shares or otherwise establishes ownership of such shares and requests, not later than 10 days before the Meeting, that such transferee's name be included in the list of shareholders entitled to receive notice of and to vote at the Meeting, such list having been prepared as of the Record Date. 1 3 ACTION TO BE TAKEN UNDER PROXIES Shares represented by properly executed proxies in the accompanying form of proxy will be voted or withheld from voting in accordance with instructions indicated thereon. IF NO CONTRARY INSTRUCTION IS INDICATED, SHARES REPRESENTED BY SUCH PROXIES WILL BE VOTED BY THE PERSONS DESIGNATED IN THE PRINTED PORTION THEREOF: - FOR THE ELECTION OF THE NOMINEES NAMED HEREIN TO SERVE AS DIRECTORS UNTIL THE NEXT ANNUAL MEETING; - FOR THE REAPPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS OF THE CORPORATION TO SERVE UNTIL THE NEXT ANNUAL MEETING AT A REMUNERATION TO BE APPROVED BY THE BOARD OF DIRECTORS; AND - AT THE DISCRETION OF THE PROXYHOLDERS WITH RESPECT TO ANY AMENDMENTS TO MATTERS IDENTIFIED IN THE NOTICE OF MEETING OR OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. The Board of Directors and Management of the Corporation know of no such amendments or other business to be presented at the Meeting. The election of directors and the reappointment of KPMG LLP to serve as independent auditors of the Corporation must be approved by the affirmative vote of a majority of the votes cast by the holders of outstanding Common Shares who vote in respect of those actions. Abstentions and broker non-votes, which will not be counted "for" or "against" proposals, have no effect on the vote for the election of directors or the reappointment of KPMG LLP. REPORTING CURRENCY Unless otherwise indicated, all dollar amounts referred to herein are expressed in United States dollars. ELECTION OF DIRECTORS Management and the Board of Directors propose for nomination twelve (12) persons for election as directors at the Meeting. The Nominating & Corporate Governance Committee recommended to the Board that the number of directors of the Corporation be decreased by two, to twelve. The increase to fourteen in 1999 was intended to be temporary to prepare for the retirement in 2000 of two long-service directors. Messrs. Dalton D. Ruffin and R. Stuart Dickson will retire from the Board of Directors effective at the Meeting, having served since 1974 and 1990, respectively. The Board of Directors approved the committee's recommendation; the twelve remaining incumbents are nominated for re-election. Each director elected will hold office until the next annual meeting of shareholders, unless prior thereto such director resigns or such director's office becomes vacant by death, removal or other cause. Management does not expect that any of the nominees will be unable to serve as a director, but if a nominee should become unable to act as a director for any reason prior to the Meeting, the persons named in the accompanying form of proxy will have the right to vote for another nominee in their discretion unless the shareholder has specified in the proxy that shares are to be voted for another nominee or are to be withheld from voting on the election of directors. Set forth below are the names and ages of each person to be nominated for election as director, such person's present principal occupation or employment, the period during which such person has served as director of the Corporation, and additional biographical information. The number of equity securities of the Corporation beneficially owned, directly or indirectly (or over which control or direction is exercised) by each director is set forth under 2 4 the heading "Voting Shares and Principal Holders Thereof: Security Ownership of Directors and Management."
NAME, AGE, POSITIONS WITH THE CORPORATION AND SIGNIFICANT AFFILIATES, DIRECTOR OF THE PRINCIPAL OCCUPATIONS, AND RECENT BUSINESS EXPERIENCE CORPORATION SINCE --------------------------------------------------------------------- ----------------- DONALD N. BOYCE (1) (61). Chairman of the Board of IDEX Corporation 1997 (a diversified manufacturing company), 1988 to present. President and [PHOTOGRAPH] Chief Executive Officer of IDEX Corporation, 1988 to 1998. Director of IDEX Corporation and Walter Industries, Inc. HERMANN BUERGER (2) (56). Executive Vice President of Commerzbank AG 1997 [PHOTOGRAPH] (international bank), 1989 to present. Director of Security Capital Group Incorporated and Paging Network, Inc. JAMES E. COURTNEY (1) (3) (68). Chairman of the Board of First 1989 Community Bank of Southwest Florida (commercial bank), 1998 to [PHOTOGRAPH] present. Chairman of the Board, First Independence Bank of Fort Myers (commercial bank), 1996- 1997. President of The Mariner Group, Inc. (real estate management and development company), 1992-1995. PETER A. CROSSGROVE (1) (63). Chairman of Premdor Inc. (international 1993 door manufacturing company), 1998 to present. President and Chief Executive Officer of Southern Africa Minerals Corporation (diamond exploration company), 1994 to present. Chairman and Chief Executive Officer of Brush Creek Corporation (investment holding company), 1993 [PHOTOGRAPH] to present. Director of Premdor Inc., Dundee Realty, Inc., Acadia Minerals Corp., Quadra Logic Technologies Inc., Southern Africa Minerals Corporation, Barrick Gold Corporation, Band-Ore Resources Inc., A.M.T. International Mining Corporation, QLT Photo Therapeutics Inc. and Philex Gold, Inc. JERE A. DRUMMOND (2) (60). Vice Chairman of BellSouth Communications 1999 Group (telecommunications company), January 1, 2000 to present. Group [PHOTOGRAPH] President and Chief Executive Officer, BellSouth Communications Group, 1998 to 1999. President and Chief Executive Officer, BellSouth TeleCommunications, Inc., 1995-1997. Director of Borg Warner Automotive, Inc.
3 5
NAME, AGE, POSITIONS WITH THE CORPORATION AND SIGNIFICANT AFFILIATES, DIRECTOR OF THE PRINCIPAL OCCUPATIONS, AND RECENT BUSINESS EXPERIENCE CORPORATION SINCE --------------------------------------------------------------------- ----------------- THE HONORABLE JAMES A. GRANT, P.C., Q.C. (3) (4) (62). Partner of 1989 Stikeman Elliott (law firm), 1970 to present. Chairman of Executive [PHOTOGRAPH] Committee of Stikeman Elliott, 1988 to 1999. Director of BioChem Pharma Inc., CAE Industries Ltd. and Canadian Imperial Bank of Commerce. WILLIAM R. HOLLAND (4)(5) (61). Chairman of the Corporation and 1985 United Dominion Industries, Inc., 1987 to present. Chief Executive [PHOTOGRAPH] Officer of the Corporation and United Dominion Industries, Inc., 1986 to present. Director of The BFGoodrich Company and Lance, Inc. RUSSELL C. KING, JR. (2) (65). Retired as of May 20, 1994. President 1992 and Chief Operating Officer of Sonoco Products Company (international [PHOTOGRAPH] manufacturer of packaging products), 1990-1994. Director of Integrated Business Systems and Services, Inc. JOHN T. MAYBERRY (2) (55). President and Chief Executive Officer of 1999 [PHOTOGRAPH] Dofasco Inc. (steel producer), 1993 to present. Director of Dofasco Inc., Decoma International Inc. and The Bank of Nova Scotia. DR. HARRY A. NURKIN (3) (56). President and Chief Executive Officer 1999 [PHOTOGRAPH] of Carolinas Healthcare System (integrated healthcare services system), 1983 to present.
4 6
NAME, AGE, POSITIONS WITH THE CORPORATION AND SIGNIFICANT AFFILIATES, DIRECTOR OF THE PRINCIPAL OCCUPATIONS, AND RECENT BUSINESS EXPERIENCE CORPORATION SINCE --------------------------------------------------------------------- ----------------- WILLIAM W. STINSON (4)(5) (66). Retired as of May 1, 1996. Chairman 1986 of Canadian Pacific Limited (transportation, energy and hotel company), 1989-1996. President and Chief Executive Officer of [PHOTOGRAPH] Canadian Pacific Limited, 1985-1996. Director of PanCanadian Petroleum Limited, Western Star Ltd., Westshore Investment Trust, Sun Life Assurance Company of Canada and Massachusetts Financial Services Company. GEORGE S. TAYLOR (2) (59). Retired as of December 31, 1995. President 1995 [PHOTOGRAPH] and Chief Executive Officer of John Labatt Limited, 1992-1995. Director of Great Lakes Power Inc., EdperBrascan Limited, Acanthus Real Estate Corporation and Teknion Corporation.
- --------------- (1) Member of Compensation & Human Resources Committee. (2) Member of Audit & Risk Management Committee. (3) Member of Nominating & Corporate Governance Committee. (4) Member of Executive Committee. (5) Also a member of the board of directors of United Dominion Holdings, Inc. and United Dominion Industries, Inc., wholly owned subsidiaries of the Corporation. 5 7 COMPENSATION OF DIRECTORS The following table shows the fees payable to directors of the Corporation. Directors who also serve as executive officers of the Corporation are not separately compensated for serving as directors. Directors are also paid their out-of-pocket expenses for attending each meeting of the Board of Directors of the Corporation and its committees. SCHEDULE OF BOARD AND COMMITTEE FEES Board of Directors Annual Retainer........................................ $30,000 Fee per Meeting........................................ 1,200 Executive Committee Annual Retainer........................................ 4,500 Compensation & Human Resources Committee Annual Retainer........................................ 4,000 Fee per Meeting........................................ 1,200 Audit & Risk Management Committee Annual Retainer........................................ 4,000 Fee per Meeting........................................ 1,200 Nominating & Corporate Governance Committee Annual Retainer........................................ 4,000 Fee per Meeting........................................ 1,200
In the most recently completed financial year, the Corporation paid fees in the aggregate amount of U.S. $642,775 to thirteen directors. In 1999, ten directors were each granted options to purchase 2,000 Common Shares pursuant to the Corporation's non-qualified Stock Option and Restricted Stock Plan. COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS During 1999, the Corporation's Board of Directors met in person six times and held three telephonic meetings. The Board of Directors has standing Executive, Audit & Risk Management, Compensation & Human Resources, and Nominating & Corporate Governance committees. The Executive Committee is empowered to exercise the full powers of the Board of Directors when the Board is not in session, except those powers which, under the Canada Business Corporations Act (the "CBCA") or the Corporation's By-Laws, a committee of the Board of Directors has no authority to exercise. The Executive Committee did not meet during 1999; however, it took unanimous action in lieu of meeting three times. The Audit & Risk Management Committee (the "Audit Committee"), which met three times during 1999, reviews the audit plan developed by the Corporation's auditors in connection with their annual audit of the Corporation's books and records, the consolidated financial statements and results of the annual audit performed by the Corporation's auditors, the auditors' fees submitted to the Corporation, the response of Management to management letters issued by the auditors, current accounting rules and changes therein, the financial reviews performed by members of the Corporation's internal audit staff, and the financial control mechanisms and risk management procedures adopted by the Corporation. The Audit Committee also recommends the selection of auditors to the Board of Directors each year. The Board of Directors is required to have an audit committee by applicable statutory and regulatory requirements. The Compensation & Human Resources Committee (the "Comp Committee"), which met in person five times and by telephone two times during 1999, reviews the appropriateness and cost of the Corporation's compensation and benefit programs, including the salaries, incentive compensation and benefits of all executive officers and certain other key employees; assesses the effectiveness of the Corporation's chief executive officer; and monitors management development and succession planning programs. 6 8 The Nominating & Corporate Governance Committee was added in 1999 and met twice during the year. It is the Corporation's nominating committee, proposing a slate of directors and committee members each year. It also monitors corporate governance matters and prepares the Corporation's report on its status with the governance guidelines of The Toronto Stock Exchange ("TSE") for this Proxy Circular. Shares in the Corporation owned by directors are reported under the heading "Voting Shares and Principal Holders Thereof: Security Ownership of Directors and Management." VOTING SHARES AND PRINCIPAL HOLDERS THEREOF As of the Record Date, the Corporation had outstanding 39,122,355 Common Shares, each such share being entitled to one vote. SECURITY OWNERSHIP OF CERTAIN PERSONS The directors and officers of the Corporation believe that, as of the Record Date, the following persons beneficially owned, directly or indirectly, or exercised control or direction over, Common Shares carrying more than 5% of the votes attached to the Common Shares:
PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF COMMON SHARES OUTSTANDING ------------------------------------ ----------------------- ----------- Ontario Teachers' Pension Plan Board (1)......... 4,679,031 12.0% 5650 Yonge Street, 5th Floor Toronto, Ontario M2M 4H5 TAL Global Asset Management Inc. (2)............. 3,475,016 8.9% 1000 de la Gauchetiere West, Suite 3100 Montreal, Quebec H3B 4W5 Mackenzie Financial Corporation (3).............. 3,067,400 7.8% 150 Bloor Street West, Suite M111 Toronto, Ontario M5S 3B5 The Prudential Insurance Company of America (4)............................................ 2,058,500 5.3% 751 Broad Street Newark, New Jersey 07102-3777
- --------------- (1) Ontario Teachers' Pension Plan Board ("Ontario Teachers") provides pension services to active and retired teachers and is the largest single invested pension plan in Canada. As of March 14, 2000, according to a Schedule 13D/A filed with the Corporation and the United States Securities and Exchange Commission on March 15, 2000, Ontario Teachers had sole dispositive and voting power in respect of the number of Common Shares shown. (2) On February 12, 2000, TAL Global Asset Management Inc. ("TAL"), filed a report on Schedule 13G indicating that, in its capacity as a registered investment advisor and in the ordinary course of its business, it has sole dispositive power over the referenced number of Common Shares and sole voting power over 181,497 Common Shares. TAL manages common stock and bond portfolios for mutual funds and institutional and private investors. According to T.A.L., none of the several accounts that it manages has an interest in more than 5% of the Common Shares. (3) On February 14, 2000, Mackenzie Financial Corporation filed a report on Schedule 13G in its capacity as an investment advisor indicating that several accounts it manages have the right to receive dividends and proceeds from the sale of the referenced number of Common Shares. Mackenzie, a registered investment adviser, indicated that none of these accounts individually owns more than 5% of the Common Shares. (4) The Prudential Insurance Company of America informed the Corporation in March 2000 that, at the end of February 2000, it had direct or indirect voting and/or investment discretion over the referenced number of Common Shares, which are held for the benefit of its clients. Prudential is a Newark, New Jersey based insurance company and a registered investment adviser. 7 9 The directors and officers of the Corporation are not aware of any other person who beneficially owns, directly or indirectly, or exercises control or direction over, 5% or more of the Common Shares. SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT The following table presents the number of equity securities of the Corporation beneficially owned, directly or indirectly, or controlled or directed by, its directors, nominees and executive officers (with sole voting and investment power, except as otherwise indicated) as of March 14, 2000. Beneficial ownership has been determined in accordance with subsection 2(1) of the CBCA and Rule 13d-3 under the United States Securities Exchange Act of 1934, as amended.
TOTAL SHARES NUMBER OF OPTIONS PRESENTLY BENEFICIALLY PERCENT OF NAME OF BENEFICIAL OWNER SHARES(A) EXERCISABLE OWNED CLASS ------------------------ ---------- ----------------- ------------ ---------- Donald N. Boyce.................. 1,000 7,000 8,000 (b) Hermann Buerger.................. 2,000 7,000 9,000 (b) James E. Courtney................ 1,535 13,000 14,535 (b) Peter A. Crossgrove.............. 5,000 12,000 17,000 (b) R. Stuart Dickson................ 1,790 14,000 15,790 (b) Jere A. Drummond................. 0 0 0 (b) James A. Grant................... 1,000 14,000 15,000 (b) William R. Holland............... 253,041(c)(d) 332,750 585,791 1.5% Russell C. King, Jr.............. 5,000 9,000 14,000 (b) John T. Mayberry................. 1,000 0 1,000 (b) Harry A. Nurkin.................. 1,000 0 1,000 (b) Dalton D. Ruffin................. 6,757 14,000 20,757 (b) William W. Stinson............... 15,042 19,000 34,042 (b) George S. Taylor................. 11,000 10,000 21,000 (b) All directors and executive officers as a group (28 persons)....................... 424,901(c)(d) 993,422 1,418,323 3.5%
- --------------- (a) Shares listed are Common Shares actually owned beneficially, not including presently exercisable options. (b) Less than 1% of the outstanding Common Shares. (c) Includes, for Mr. Holland, 88,626 restricted Common Shares, and for all directors and executive officers as a group, 154,691 restricted Common Shares. (d) Does not include Common Shares held in United Dominion Industries, Inc.'s Compass Plan, a qualified defined contribution plan designed to satisfy the provisions of Section 401(k) of the United States Internal Revenue Code, which permits investment of employee accounts in a pooled fund invested principally in Common Shares and maintained for the plan by its plan administrator. CORPORATE GOVERNANCE PRACTICES The TSE requires that each company whose shares are listed and posted for trading on the TSE disclose, on an annual basis, such company's approach to corporate governance with reference to specified guidelines (the "TSE Guidelines") for effective corporate governance. These guidelines deal with the constitution of boards of directors and board committees, their functions, their independence from management, and other means of ensuring sound corporate governance. In light of the TSE requirements, a summary of the status of the Corporation with respect to the TSE Guidelines is set forth in Appendix "A" to this Proxy Circular. 8 10 EXECUTIVE COMPENSATION AND OTHER INFORMATION Summary Compensation The following table, presented in accordance with the CBCA and the applicable provincial securities legislation in Canada, sets forth information concerning compensation paid to the Chief Executive Officer, and each of the other four most highly compensated executive officers of the Corporation (the "Named Executive Officers"), for services rendered to the Corporation and its subsidiaries during the financial years ended December 31, 1999, 1998 and 1997. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS -------------------------------- ----------------------- ----------- OTHER ALL ANNUAL RESTRICTED SECURITIES OTHER COMPEN- STOCK UNDERLYING LTIP COMPEN- SALARY(1) BONUS(2) SATION(3) AWARDS(4) OPTIONS(5) PAYOUTS(6) SATION(7) NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($) - --------------------------- ---- --------- -------- --------- ---------- ---------- ----------- --------- W. R. Holland................ 1999 850,000 615,825 126,808 894,160 72,750 536,831 4,322 Chairman & CEO 1998 850,000 603,202 85,942 38,097 70,000 571,954 4,843 1997 805,000 681,040 80,615 85,377 -- 656,860 4,250 G. A. Eisenberg.............. 1999 315,000 117,731 48,810 243,698 15,000 124,168 333 President & COO 1998 293,750 144,749 28,981 30,652 58,000 100,209 302 1997 257,000 100,230 28,285 64,764 20,000 95,468 24,687 B. B. Burns, Jr.............. 1999 292,000 159,505 36,059 177,699 15,000 103,148 631 Executive VP 1998 292,000 162,346 28,295 21,646 7,000 109,267 46,616 1997 286,000 130,425 25,422 69,191 22,500 88,745 99,780 J. M. Gibbs.................. 1999 275,000 118,594 29,758 215,062 15,000 76,812 -- Senior VP and 1998 227,333 109,709 18,998 70,088 35,000 94,887 -- Segment President 1997 209,000 24,210 6,927 6,948 9,000 103,800 -- L. Wahl...................... 1999 348,600 325,419 8,328 -- 31,875 145,161 -- Senior VP and 1998 303,477 210,234 7,661 -- 47,500 151,182 -- Segment President 1997 289,353 162,761 7,510 65,104 12,000 283,067 --
- --------------- (1) Includes amounts voluntarily deferred pursuant to United Dominion Industries, Inc.'s Compass Plan (the "401(k) Plan"), a qualified defined contribution plan designed to satisfy the provisions of Section 401(k) of the United States Internal Revenue Code, and United Dominion Industries, Inc.'s Excess Deferred Compensation Plan (the "Excess Plan"), a non-qualified deferred compensation plan. (2) Bonuses were approved by the Comp Committee and were paid in February of the following year. See "Report of the Compensation & Human Resources Committee on Executive Compensation." Amounts shown include amounts deferred pursuant to the 401(k) Plan and the Excess Plan. Amounts shown include only the cash portion of annual bonuses; Common Shares received pursuant to elections to receive shares in lieu of cash for a portion of the annual bonus are included in the column headed "Restricted Stock Awards." See Note (4) below. (3) Includes personal use of company airplane, gross-up of taxable use of company airplane, insurance on personal automobiles, automobile allowance, membership dues, executive tax service, health care benefits and credits, parking and matching contributions by the Corporation under the 401(k) Plan. (4) Includes the value of Common Shares issued in lieu of cash compensation under the Annual Management Incentive Plan of the Corporation (the "Annual Plan") and the Long-Term Management Performance Incentive Plan of the Corporation (the "Long-Term Plan"). These plans allow participants to elect to receive shares in lieu of a portion of cash bonuses, subject to the decision of the Comp Committee as to award multiple and eligible bonus percentage. The Comp Committee determines the maximum percentage of a participant's award that will be eligible for payment in Common Shares and an award multiple not to exceed 1.25. Participants in each of these plans may elect to receive Common Shares instead of cash, subject to the limitations established in the 9 11 respective plans and by the Comp Committee. For awards each year, the Comp Committee approved an award multiple of 1.20 and allowed participants to elect to receive up to 35% of their incentive awards in Common Shares. Amounts shown in the "Bonus" column under "Annual Compensation" reflect the actual cash bonus received. Amounts shown in the "Restricted Stock Awards" column reflect the value of shares issued in lieu of the cash bonus award otherwise payable under the Annual Plan (taking into account the award multiple). Amounts shown in the column "LTIP Payouts" include the cash award and the value of any Common Shares issued under the Long-Term Plan (taking into account the award multiple). Also includes for Mr. Holland, Mr. Eisenberg, Mr. Burns and Mr. Gibbs, the value of restricted share awards received in February 1999. (5) Stock options with respect to the indicated number of Common Shares were granted by the Comp Committee in February of each year indicated, except 1998, when options were awarded in February and October, and 1999 for Mr. Wahl, when options were also awarded in April. (6) Payments were approved by the Comp Committee and made pursuant to the Corporation's Long-Term Plan in February of each year based on performance units granted for the three-year period ended December 31 of the prior year. Amounts stated include the value of shares received pursuant to the plan as a result of elections by participants to receive shares in lieu of a portion of the cash bonus due. (7) Includes the following: for Mr. Burns (1997 and 1998), relocation reimbursements; for Mr. Eisenberg (1997), membership fees and related tax gross-up. Also includes imputed income on split dollar life insurance policies. Does not include amounts realized upon the exercise of stock options (see "Aggregated Option Exercises During the Most Recently Completed Financial Year and Financial Year-End Option Values"). STOCK OPTIONS The following table shows the stock options granted to the Named Executive Officers in February and April 1999. These non-qualified stock options become exercisable in thirds, one-third one year after date of grant, another one-third two years after date of grant, and the final one-third three years after date of grant. Options held by persons (including Mr. Holland) who are eligible to retire under United Dominion Industries, Inc.'s Revised Retirement Plan (age 55 plus not less than five years' service), become exercisable six months after grant. OPTION GRANTS IN MOST RECENT FINANCIAL YEAR
POTENTIAL INDIVIDUAL GRANTS REALIZABLE VALUE ------------------------------------- AT ASSUMED MARKET VALUE ANNUAL RATES OF % OF TOTAL OF SECURITIES SHARE PRICE NUMBER OF OPTIONS UNDERLYING APPRECIATION FOR UNDERLYING GRANTED TO OPTIONS OPTION TERM OPTIONS EMPLOYEES EXERCISE ON THE --------------------- GRANTED IN FINANCIAL PRICE(1) DATE OF GRANT EXPIRATION 5% 10% NAME (#) YEAR ($CDN/SH) ($CDN) DATE(2) ($CDN) ($CDN) - ---- ---------- ------------ --------- ------------- ---------- --------- --------- W. R. Holland........ 72,750 12.3% 29.80 2,167,950 02/11/09 1,363,000 3,455,000 G. A. Eisenberg...... 15,000 2.5% 29.80 447,000 02/11/09 281,000 712,000 B. B. Burns, Jr...... 15,000 2.5% 29.80 447,000 02/11/09 281,000 712,000 J. M. Gibbs.......... 15,000 2.5% 29.80 447,000 02/11/09 281,000 712,000 L. Wahl.............. 15,000 2.5% 29.80 447,000 02/11/09 281,000 712,000 L. Wahl.............. 16,875 2.9% 32.775 553,078 04/26/09 348,000 881,000
- --------------- (1) The Exercise Price is the fair market value of the Common Shares on the grant date, defined to be the average of the previous day's high and low board-lot trading prices on the TSE. (2) Options expire 10 years after the date of the grant. If an officer retires, the 10-year period continues. 10 12 The following table provides information as to options exercised by the Named Executive Officers in 1999 and the value of options held by such executives at year-end. AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS SECURITIES AGGREGATED OPTIONS AT FY-END(#) AT FY-END($)(1) ACQUIRED ON VALUE ------------------------------ ------------------------------ NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE - ---- ----------- -------------- -------------- ------------- -------------- ------------- W. R. Holland........ 48,000 267,008 332,750 100,000 251,644 -- G. A. Eisenberg...... -- -- 103,200 112,000 72,057 -- B. B. Burns, Jr...... -- -- 106,333 64,667 242,935 -- J. M. Gibbs.......... -- -- 35,333 56,667 4,219 -- L. Wahl.............. -- -- 56,366 82,709 10,224 --
- --------------- (1) The values represent the difference between the exercise price of the options and the market price of Common Shares on the date of exercise (with respect to exercised options) and at year-end (with respect to unexercised options). (2) Exercisability was determined as of March 14, 2000. LONG-TERM INCENTIVE AWARDS The following table contains information regarding Performance Units awarded to the Named Executive Officers under the Long-Term Plan during the financial year ended December 31, 1999. The Long-Term Plan is described in this Proxy Circular in the "Report of the Compensation & Human Resources Committee on Executive Compensation." LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FINANCIAL YEAR
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER NUMBER OF OTHER PERIOD NON-STOCK PRICE-BASED PLANS($) PERFORMANCE UNTIL MATURATION -------------------------------- NAME UNITS OR PAYOUT THRESHOLD TARGET MAXIMUM - ---- ----------- ---------------- ---------- -------- -------- W. R. Holland......................... 5,950 1999-2001 301,070 595,000 N/A G. A. Eisenberg....................... 1,260 1999-2001 63,756 126,000 N/A B. B. Burns, Jr....................... 1,168 1999-2001 59,100 116,800 N/A J. M. Gibbs........................... 1,100 1999-2001 55,660 110,000 N/A L. Wahl............................... 1,394 1999-2001 70,536 139,400 N/A
REPORT OF THE COMPENSATION & HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION Composition of the Committee The Compensation & Human Resources Committee of the Board of Directors (the "Committee"), is composed of four non-employee directors, none of whom is considered by the Corporation to be a "related director" under the TSE Guidelines and all of whom are "outside directors" under Section 162(m) of the United States Internal Revenue Code. Background The Committee establishes and administers the executive compensation program for the Corporation's key executives. The executive compensation program is a well-defined management tool that reinforces the Corporation's culture and commitment to shareholders. It is designed to attract and retain high-quality executives, to encourage them to make career commitments to the Corporation, and to accomplish the Corporation's short and long-term objectives of continuously improving shareholder return. The Committee reviews and acts on any proposed changes to current compensation and benefit programs, and on proposed changes in salary and incentive levels for key executives. The Committee 11 13 fundamentally believes that a sound compensation program motivates and rewards executives for the accomplishment of the Corporation's stated financial objectives by linking a material portion of executive pay to those objectives. Principles of the Executive Compensation Program The Corporation has historically viewed executive compensation as a total package that includes base salary and variable short- and long-term performance-based compensation. The total program is structured to deliver a significant percentage of pay through variable at-risk pay programs, which reward executives if the performance of the Corporation warrants such recognition. The Executive Compensation Program is built on the following basic principles: - Maximize shareholder value. - Develop an entrepreneurial spirit among key executives. - Retain, reward and motivate key executives. - Compensate for performance rather than create a sense of entitlement. - Reward team results. - Build executive equity ownership in the Corporation. Components of Executive Compensation To determine the competitive level of total compensation, the Committee sets the total pay target in a competitive compensation range as benchmarked against published survey data and data derived through special studies of comparable industries. The Corporation's base salary program is designed to pay an experienced executive at or near the median or 50th percentile of the prevailing pay range in the industry for comparable positions. Base salaries are customarily increased annually, based on a combination of market conditions, individual performance and corporate performance. Generally, annual increases are no greater than industry median increases, except in instances of promotion or significant change in job responsibilities. Incentive compensation is variable and contingent upon the Corporation's financial performance against stated and pre-determined objectives. The Committee has the right to make discretionary payments outside the provisions of the Corporation's variable incentive compensation programs in very limited circumstances, for example, if an executive or group of executives has provided exceptional service to the benefit of shareholders and the Committee believes some recognition is due. Annual Management Incentive Compensation: The Corporation maintains a Corporate Annual Management Incentive Compensation Plan (the "Annual Plan") for a number of its key employees, including the Named Executive Officers. Shareholders of the Corporation approved the Annual Plan on April 27, 1999. The Committee determines the Chief Executive Officer's eligibility to participate in the Annual Plan, reviews the Chief Executive Officer's recommendations of other Annual Plan participants, and, with such changes as the Committee may determine, if any, approves the annual awards. Participants are classified into groups, with each group having an annual incentive opportunity of 10% to 80% of base salary. Annual cash incentive is paid only if the Corporation's performance meets or exceeds pre-established annual financial targets that are important to the Corporation and its shareholders. The relative importance of each target is determined each year by the Committee, and may vary depending upon the Corporation's financial objectives for that year. All incentive awards under the Annual Plan are subject to the Committee's approval, and are paid in February following the year with respect to which amounts are calculated. 1999 performance targets were based on sales growth and return on equity ("ROE"). In 1999, the Corporation achieved sales growth of 6.3% and ROE of 9.9%, resulting in an award equal to 66.8% of each participant's target award. Excluding restructuring charges, ROE was 11.5%. As a reward for management's aggressive actions to improve operations, including restructuring activities, the Committee provided ex gratia awards totaling $1.016 million to certain corporate officers, including the Named Executive Officers. Annual incentive compensation plans are also maintained on behalf of the Corporation's operating units for their key employees. During 1999, participants were able to earn cash incentives based on pre- 12 14 determined sales growth and return on investment goals derived from segment and operating unit business plans. The amount of annual incentive compensation is determined by the participant's position and base salary, with target awards ranging from 10% to 50% of base salary. Long-Term Incentive Compensation: The Corporation maintains a Long-Term Management Incentive Compensation Plan (the "Long-Term Plan") which provides long-term cash incentive to focus corporate executives on achieving longer-term shareholder value. Shareholders of the Corporation approved the Long-Term Plan on April 27, 1999. Under the Long-Term Plan, participants receive annual grants of participation units that are payable after the end of three-year performance cycles. The Committee establishes performance goals, such as earnings growth, sales growth, return on capital employed or other such measures, as it deems appropriate, given the Corporation's objectives. Participants earn from 0% to 150% of the value of their participation units based on the extent to which pre-established performance goals are achieved. Long-Term Incentive plans are also maintained on behalf of the Corporation's operating units for their key employees. During the 1997-99 plan cycle, participants were able to earn cash incentives based on pre-determined goals derived from operating unit business plans. The amount of annual incentive paid is determined by the participant's position and base salary, with target awards ranging from 10% to 35% of base salary. Under terms of the Annual Plan, the Long-Term Plan, and unit annual and long-term plans, the Committee may grant Plan participants an opportunity to receive a multiple of a portion of their annual incentive in the Corporation's Common Shares to further encourage equity ownership among management. With respect to incentives earned in 1999, the Committee approved an award multiple of 1.2 and allowed participants to receive up to 35% of their annual incentive in Common Shares. Stock Option Plan: Like cash incentives, stock options and restricted stock are important parts of the total compensation packages of key executives and are specifically focused on the Corporation's longer-term objectives. The Corporation maintains a non-qualified stock option and restricted stock plan (the "Option Plan") for key employees, officers and directors, including the Named Executive Officers. Shareholders of the Corporation approved the Option Plan on April 27, 1999. Stock option awards are vested one-third each year. Options are granted at 100% of the fair market value of the Corporation's common stock on the date of grant and expire ten years from the date of grant. The use of restricted stock is designed primarily to retain executive officers and other key employees of the Corporation while building stock ownership and long-term equity, and linking pay directly with shareholder return. Option Plan participation and the size of awards are determined by the individual's potential to make significant contributions to the Corporation's financial results, level of management responsibility and individual performance and potential. Under the Option Plan, the Committee recommends to the Board of Directors those employees, officers and directors to whom restricted stock or options to purchase Common Shares should be granted, and the number of shares to be placed under option. The Board of Directors may accept, modify or return for further consideration the Committee's recommendations. In no instance may the exercise price of options be less than 100% of the fair market value of the Common Shares at the time the option is granted. As of December 31, 1999, options to purchase 2,787,458 Common Shares were outstanding and remained unexercised under the Option Plan and 1,163,750 shares remained available for purposes of future grants. In February 1999, the Corporation's directors, officers and other employees received restricted stock and option grants in respect of 666,565 Common Shares, which was 1.64% of the Common Shares outstanding as of the date of grant. This total grant percentage compares to an industry median among comparable companies of approximately 1.76% of common shares outstanding, on an annual basis, based on data supplied by the Corporation's compensation consultants. The Corporation's incentive compensation programs are designed to reward executives for achievement of the Corporation's performance objectives. The plans, as approved by shareholders, are designed to comply with Internal Revenue Code Section 162(m) to ensure tax deductibility. However, the Committee considers it important to retain the flexibility to design compensation programs that are in the best interest of the Corporation and the shareholders and is therefore not necessarily constrained by that provision. 13 15 CEO Compensation In making its decisions late in 1998 regarding Mr. Holland and his management team's compensation for 1999, and in establishing incentive goals for 1999, the Committee considered the Corporation's continuing successful performance during 1998 and the steps Mr. Holland had taken to position the Corporation for future growth. 1998 sales grew to $2 billion. Segment operating income totaled $207 million, up 19% from 1997. Net income of $99.7 million produced earnings per share of $2.45, a year-over-year gain of 17% in income from continuing operations: Key achievements included: - Sales growth of 22% year-over-year, driven largely by acquisitions. 31% of total sales came from outside the United States. - The gain on the sale of the Marley Pump motor business and an international tax refund more than offset the non-recurring charges related to cost reduction initiatives and previously divested businesses. Excluding one-time gains and charges, net income would have totaled $87 million, or $2.15 per share. - The balance sheet remained strong, ending 1998 at 37% net debt to capital. In addition, the Corporation generated $41 million in free cash flow after capital expenditures totaling $52 million and $15 million in dividends. - Success of the Company's growth programs, including 11 product-line acquisitions for a total investment of $172 million with annualized sales of $150 million. - The Corporation repurchased 3.3 million Common Shares for $84 million. The Committee also recognized the continuing value of Mr. Holland's management expertise; his key role in the successful transition of the Corporation to manufacturing; his global expansion of the business; and his continuing efforts to take the Corporation to world-class manufacturer status. In addition, for the past three years Mr. Holland has worked closely with the Board of Directors to develop a transition plan to the next generation of senior management. In December 1999, as a result of this effort, Glenn A. Eisenberg was named President and Chief Operating Officer, B. Bernard Burns was named Executive Vice President and Chief Administrative Officer, and William Dries was named Chief Financial Officer. These steps, and the continued development of United Dominion's management under Mr. Holland's guidance, position the Corporation for continued success. The committee reviews Mr. Holland's performance at its December meeting pursuant to a written report from him, which, among other things, is used to assess the appropriateness of his compensation. For fiscal year 1999, Mr. Holland received a base salary of $850,000 and was awarded an incentive bonus of $397,758 under the Annual Plan based on the Corporation's achievement of $88.9 million in earnings and $128.3 million in sales growth, 66.8% of his targets. He also received a bonus under the Long-Term Plan for the 1997-1999 cycle of $479,313 as a result of the achievement by the Corporation of cumulative return on equity of 12.6% and cumulative net earnings of $326.6 million, 85.1% of the three-year targets set in 1996. In addition, the Committee recommended and the Board approved the payment to Mr. Holland of an ex gratia bonus in the amount of $286,492 in recognition of the significant restructuring activities led by Mr. Holland during the year to improve future operating performance. During 1999, Mr. Holland was awarded stock options in respect of 76,750 Common Shares and 27,250 restricted Common Shares under the Option Plan. He was also awarded 5,950 units for the 1999-2001 cycle under the Long-Term Plan. The value of the long-term award, if the Corporation's long-term target results are satisfied, is $595,000, equal to 70% of Mr. Holland's 1999 base salary. The Committee carefully reviewed Mr. Holland's executive compensation package. Given Mr. Holland's long-time service to the Corporation, the Corporation's continued solid financial performance in 1999, and the accomplishments described above, the Committee believes the package is appropriate and that the amount and nature of each component of the package is consistent with competitive pay practices among comparable United States companies, based on data supplied by the Corporation's compensation consultants. In conformity with its past practice, the Committee will 14 16 periodically review the compensation and benefits of Mr. Holland and the Corporation's other key executives and will from time to time make such changes, as it deems appropriate under the circumstances. Compensation & Human Resources Committee: D. N. Boyce J. E. Courtney, Vice Chairman P. A. Crossgrove D. D. Ruffin, Chairman UNITED DOMINION INDUSTRIES, INC. RETIREMENT PLAN The executive officers of the Corporation (other than Mr. Wahl) participate in the United Dominion Industries, Inc. Revised Retirement Plan (the "United Dominion Plan"), a qualified defined benefit plan available to all salaried employees of United Dominion Industries, Inc. The amount payable at age 65 is 0.8% of participant's final average earnings ("FAE"), defined as the annualized average of the highest consecutive five years of compensation out of the last ten years of employment, plus 0.6% of the participant's FAE in excess of the covered compensation (the average of the thirty-five social security wage bases in effect or projected to be in effect during the thirty-five years prior to the year during which the participant will reach age 65) multiplied by up to a maximum of 35 years of service. For each year of service over 35 years, the retirement benefit is increased by 0.5% of FAE. Compensation covered by the United Dominion Plan is total cash compensation paid during the plan year, including bonuses and awards made under the Annual Plan and Long-Term Plan described above, but excluding directors' fees and non-service related compensation. The following table shows estimated annual gross benefits payable from the United Dominion Plan as a single life annuity upon retirement at age 65 in 1999 for employees in the salary classifications and with the years of service specified. The amount shown for each category is the total benefit payable under the United Dominion Plan benefit formula without regard to United States regulations which limit both the maximum benefit that can be paid from a qualified defined benefit plan and the amount of salary that can be included in a qualified plan's salary-based benefit formula. The Corporation pays the full amount due pursuant to the United Dominion Plan's benefit formula through a combination of the qualified defined benefit plan and either a non-qualified pension restoration plan or the Supplemental Plan described below. The Supplemental Plan provides additional retirement benefits to certain executives. See "Other Plans and Agreements."
AVERAGE CONTINUOUS BEST YEARS OF SERVICE FIVE YEARS OF ---------------------------------------------------- COMPENSATION 15 20 25 30 35 - --------------- -------- -------- -------- -------- -------- $ 100,000 .................. $ 18,030 $ 24,040 $ 30,050 $ 36,060 $ 42,070 200,000 .................. 39,030 52,040 65,050 78,060 91,070 300,000 .................. 60,030 80,040 100,050 120,060 140,070 400,000 .................. 81,030 108,040 135,050 162,060 189,070 500,000 .................. 102,030 136,040 170,050 204,060 238,070 600,000 .................. 123,030 164,040 205,050 246,060 287,070 800,000 .................. 165,030 220,040 275,050 330,060 385,070 1,000,000 .................. 207,030 276,040 345,050 414,060 483,070 1,200,000 .................. 249,030 332,040 415,050 498,060 581,070 1,400,000 .................. 291,030 388,040 485,050 582,060 679,070 1,600,000 .................. 333,030 444,040 555,050 666,060 777,070 1,800,000 .................. 375,030 500,040 625,050 750,060 875,070 2,000,000 .................. 417,030 556,040 695,050 834,060 973,070
The Named Executive Officers (other than Mr. Wahl) have the credited years of service indicated beside each of their names: Mr. Holland -- 27, Mr. Burns -- 10, Mr. Eisenberg -- 10, Mr. Gibbs -- 22. 15 17 Mr. Wahl does not participate in the United Dominion Plan; instead, he is covered by a German pension plan for BOMAG management. The plan is based on his salary, taking into account social security pension payments and years of service. The maximum annual amount payable under the BOMAG management plan is approximately 55% of Mr. Wahl's final salary. OTHER PLANS AND AGREEMENTS The Corporation provides a Supplemental Executive Retirement Plan (the "Supplemental Plan") to 12 of its key executives, including the Named Executive Officers except Mr. Wahl. Under the Supplemental Plan, a fully vested participant is eligible to receive a target annual benefit at age 62 equal to 60% of Final Average Earnings, reduced by retirement income from the United Dominion Plan described in the preceding section and Social Security. "Final Average Earnings" is defined for purposes of the Supplemental Plan as the average of the highest three years of "Eligible Income" out of the ten years immediately preceding retirement; Eligible Income includes salary and all incentive earnings under the Corporation's established incentive plans. To become fully vested under the Supplemental Plan a participant must accumulate, or be granted by the Comp Committee (as in the case of Messrs. Eisenberg and Burns), fifteen years of service. For purposes of the Supplemental Plan, Mr. Gibbs has been granted twelve years credit, five for his period of service with United Dominion and seven for his service with United Dominion's Serco business prior to its acquisition by United Dominion. Benefit accruals begin after five full years of service, with one-tenth of the target benefit vesting each year thereafter. All of the benefits under the Supplemental Plan are paid in a 50% joint and survivorship annuity for the life of the participant. A participant may elect to retire at any time after age 55 and receive a benefit, actuarially reduced, for life. Pursuant to an agreement between Mr. Holland and the Corporation dated April 28, 1999, Mr. Holland will be entitled to receive his Supplemental Plan benefit in a lump sum upon his retirement or other separation from the Corporation. Also pursuant to the agreement, the discount computation rate that will be used to compute the lump sum benefit has been fixed at 5.25% (the 1999 GATT cash lump sum discount rate used in the United Dominion Plan). United Dominion Industries, Inc. has established a "grantor trust" (the "Trust") for the purpose of providing certain executives (including all of the Named Executive Officers other than Mr. Wahl) with greater assurances that the supplemental pension benefits to which such executives may be entitled under the Supplemental Plan and the change in control agreements described under the heading "Change in Control Agreements" would be satisfied in the event of a "change in control" as defined in the Trust (collectively, the "Covered Benefits"). The Trust is intended to constitute an "unfunded" arrangement. However, United Dominion Industries, Inc. has deposited into the Trust a letter of credit in the face amount of approximately $32.8 million, which is equal to 120% of the estimated value of the Covered Benefits that would be payable assuming a change in control had occurred on January 1, 1999 and all of the covered executives had terminated employment on that date. The Covered Benefits are redetermined annually as of January 1 of each year. To the extent the aggregate value of the Covered Benefits increases, additional contributions (in the form of letters of credit or otherwise) are required to be made to maintain the assets of the Trust at a level equal to 120% of the estimated benefit values. Upon the occurrence of a change in control, United Dominion Industries, Inc. is required to make additional contributions to the Trust in cash so that the aggregate amount of the assets held by the Trust equals 120% of the Covered Benefits determined as of the date such change occurs. The letter(s) of credit would be drawn upon to the extent any supplemental pension benefits which become payable under the Supplemental Plan or the change in control agreements are not otherwise paid by United Dominion Industries, Inc. The assets of the Trust are subject to the claims of the creditors of United Dominion Industries, Inc. in the event United Dominion Industries, Inc. becomes "Insolvent" as defined in the Trust. The Corporation also provides several other supplemental executive benefit plans to the Named Executive Officers, including split-dollar life insurance and long-term disability insurance. The life insurance plan provides participants a death benefit equal to one hundred percent of their current salary and prior year's incentive bonus. The supplemental long-term disability plan provides a make-up benefit to ensure that participants receive a disability benefit at least equal to 60% of eligible total compensation when combined with the Corporation's group long-term disability benefit plan. 16 18 PERFORMANCE GRAPH The following graph compares cumulative total return (assuming reinvestment of dividends) for the Corporation's Common Shares against the TSE Composite 300 (TSE 300) for the five-year period ended December 31, 1999, assuming $100 invested on December 31, 1994.
Measurement Period United (Fiscal Year Covered) Dominion TSE 300 1994 100 100 1995 110 112 1996 122 141 1997 137 159 1998 122 154 1999 112 200
CHANGE IN CONTROL AGREEMENTS United Dominion Industries, Inc. has agreements with fifteen of its key employees, including each of the Named Executive Officers except Mr. Wahl, providing for protection in the event of a change in control of the Corporation. In general, the agreements provide for (a) a lump-sum severance payment by United Dominion Industries, Inc. to the employee equal to the amount of base salary that the employee would have earned had he continued to be employed until the earlier of (i) the end of the thirty-six month period following the date of termination or (ii) the attainment of normal retirement age, assuming the employee's salary rate would be equal to his highest monthly rate during the thirty-six month period preceding termination, (b) amounts in lieu of continued participation in incentive compensation and stock option plans based on assumptions concerning the Corporation's results for the thirty-six month period following termination and the employee's continued participation for the period, (c) insurance and other benefits for the thirty-six month period after termination (to the extent the employee does not receive comparable benefits during the period), and (d) supplemental pension benefits, if the Corporation experiences a change in control and the employee is terminated for reasons other than death, disability, retirement or cause, or terminates his employment for reasons relating to a change in, among other things, his compensation, duties, benefits or location. These agreements are designed to provide the benefits the employee would have received had he continued working for United Dominion Industries, Inc. for three additional years. The amount to be paid is not subject to reduction for compensation earned from subsequent employment or from subsequent pension benefits. The agreements provide for a "gross-up" of the awards to reimburse participants for any excise tax payable on account of any "excess parachute payment" under United States Internal Revenue Code Section 280(G). 17 19 DIRECTORS' AND OFFICERS' LIABILITY INSURANCE The Corporation and its directors and officers are covered under a directors' and officers' liability insurance policy maintained by the Corporation that has aggregate coverage limits of $100,000,000. This policy includes a per-loss deductible of $250,000 with regard to claims against the Corporation, but no deductible with regard to claims against individual directors and officers. The premium paid by the Corporation in 1999 was $273,750 in respect of its officers and directors as a group. The Corporation paid all of the premiums. CERTAIN BUSINESS RELATIONSHIPS AND RELATED TRANSACTIONS The Honorable James A. Grant, P.C., Q.C., a director of the Corporation (and a nominee for re-election), is a partner in the law firm Stikeman Elliott, which provides certain legal services to the Corporation. Mr. William W. Stinson, a director of the Corporation (and a nominee for re-election) entered into a management consulting agreement with the Corporation effective January 1, 1998. That agreement was renewed for successive additional one-year terms effective January 1, 1999 and January 1, 2000. Mr. Stinson was paid $150,000 during 1999 and will be paid $150,000 during 2000 pursuant to the agreement. REAPPOINTMENT OF AUDITORS KPMG LLP has been the auditor of the Corporation since 1992. If no contrary instruction is indicated in the proxy, the persons named in the enclosed form of proxy intend to vote such proxy in favor of the reappointment of KPMG LLP as auditor of the Corporation to serve until the close of the next annual meeting of shareholders, at a remuneration to be approved by the Board of Directors. Arrangements have been made for one or more representatives of KPMG LLP to attend the Meeting. Representatives of KPMG LLP will be allowed to make a statement at the Meeting if they desire to do so, and will be available to respond to appropriate questions. SHAREHOLDERS' PROPOSALS FOR 2001 ANNUAL MEETING Under the CBCA, proposals by shareholders for any matter intended to be raised at the 2001 Annual Meeting of Shareholders of the Corporation must be received by the Secretary of the Corporation no later than January 25, 2001 in order to be included in the 2001 management proxy circular and on the proxy card that will be solicited by the Board of Directors in connection with that meeting. The inclusion of any proposal will be subject to applicable requirements of the CBCA. Written notice must be received by the Secretary of the Corporation at its principal executive office, 2300 One First Union Center, 301 South College Street, Charlotte, North Carolina 28202-6039, U.S.A. AVAILABILITY OF DOCUMENTS In accordance with National Policy No. 47 of the Canadian Securities Administrators, the Corporation shall provide to any person or company, upon request to the Secretary of the Corporation: (a) when the securities of the Corporation are in the course of a distribution pursuant to a short form prospectus or a preliminary short-form prospectus which has been filed in respect of a distribution of its securities, (i) one copy of the Corporation's annual report on Form 10-K together with one copy of any document, or the pertinent pages of any document, incorporated therein by reference; (ii) one copy of the comparative financial statements of the Corporation filed under applicable provincial securities legislation in Canada for the Corporation's most recently completed financial year in respect of which such financial statements have been issued, 18 20 together with the report of the auditor thereon, Management's discussion and analysis of financial condition and results of operations, and any interim financial statements of the Corporation filed under the said Act subsequent to the filing of the annual financial statements; (iii) one copy of the proxy circular of the Corporation filed under such Act in respect of the most recent annual meeting of shareholders of the Corporation which involved the election of directors; and (iv) one copy of any reports filed by the Corporation pursuant to such Act which are incorporated by reference into the preliminary short-form prospectus or the short-form prospectus; or (b) at any other time, the documents referred to in Clauses (a)(i), (ii) and (iii) above, provided that the Corporation may require the payment of a reasonable charge from such person or company who is not a security holder of the Corporation where the documents are furnished under this Clause (b). The Board of Directors of the Corporation has approved the contents and sending of this Proxy Circular. /s/ Richard L. Magee R. L. Magee, Secretary Toronto, Ontario March 22, 2000 19 21 APPENDIX "A" STATEMENT OF CORPORATE GOVERNANCE PRACTICES Set forth below are summaries of guidelines on corporate governance issued by The Toronto Stock Exchange and the Corporation's approach with respect to each guideline. 1. As stewards of the corporation, each board of directors should assume responsibility for the following: (i) adoption of a strategic planning process; Status: The Board of Directors (the "Board") of the Corporation follows a process whereby it reviews and approves a strategic plan presented to it by management annually. The Board also discusses developments impacting corporate strategy at every Board meeting and through periodic discussions with management. The Board has responsibility for monitoring management's success in implementing the strategic plan. (ii) identification of the principal risks of the corporation's business and ensuring the implementation of appropriate systems to manage these risks; Status: The Board, through its Audit & Risk Management Committee, and through periodic reports presented to it by the Corporation's insurance and management pension committees, and by various members of management, continually identifies principal risks facing the Corporation. Any material issues relating to the appropriateness or effectiveness of the Corporation's systems utilized to contain, manage or eliminate such risks are addressed by the Board and referred to management for resolution. (iii) succession planning, including appointing, training and monitoring senior management; Status: The Corporation utilizes a formal management development and succession planning program. Periodic reports relating to this program are provided to the Board of Directors and to the Compensation and Human Resources Committee. (iv) implementation of a policy of effective communication with shareholders and the general public; Status: The Corporation maintains a formal communications policy which requires, in part, that the Corporation be responsive and consistent in matters of external and internal communication about the Corporation's affairs. Through corporate communications and investor relations staff functions, shareholders, members of the investment community, stock exchanges and regulatory bodies are provided with information in a timely and continuous manner, using regular quarterly and annual reports, special mailings and the media. (v) ensuring the integrity of the corporation's internal control and management information systems. Status: The Board monitors the Corporation's internal control and management information systems through its Audit & Risk Management Committee, which reviews periodic reports and conducts discussions with senior management and regularly with internal audit personnel, in some cases without the presence of members of management. 2. A majority of the directors should qualify as unrelated directors, i.e. independent of management and free from any interest and any business or other relationship which could or could reasonably be perceived to materially interfere with the director's ability to act with a view to the best interests of the corporation, other than interests and relationships arising from shareholding. A-1 22 Status: The Corporation's Board Composition Philosophy requires that the Board be composed of a majority of directors who qualify as unrelated directors and no more than three inside directors. In addition, Committees should generally be composed of outside directors, majorities of whom are unrelated, although the Executive Committee may include one or more inside directors. The Board currently has one inside director and one outside director who is a related director. 3. The board should disclose on an annual basis whether the board has a majority of "unrelated directors". Status: The Corporation's annual Management Proxy Circular/Proxy Statement discloses any relationship between a director and the Corporation. 4. A committee of outside directors, a majority of whom are "unrelated", should be responsible for proposing new nominees to the board. Status: In 1999 the Board added a Nominating & Corporate Governance Committee. One of its responsibilities is to identify and select individuals as candidates for election to the Board of Directors. The Nominating & Corporate Governance Committee currently is comprised of four members, none of whom is an inside director or a related director. 5. The board should implement a process to be carried out by an appropriate committee for assessing the effectiveness of the board and of its committees and for assessing the contribution of each individual director. Status: The Board has assigned the Nominating & Corporate Governance Committee responsibility for assessing the effectiveness of the Board and of its committees and for assessing the Board's ability to conduct effective decision-making. This is accomplished through periodic Board and management discussions and by means of a detailed questionnaire completed biannually by each member of the Board of Directors. Use of this questionnaire also enables each individual director to assess his or her contribution as a member of the Board of Directors. The Corporation has a system in place whereby a Board member whose employment or vocation is materially changed is required to submit his resignation to the Chairman of the Board for consideration and action by the full Board. 6. An orientation and education program should be provided for new recruits to the board. Status: Each new director is provided with recent literature and reports relating to the Corporation and a handbook containing relevant information on issues or topics such as the Corporation's by-laws, directors, committees, officers, meetings, compensation, stock options, liability insurance, subsidiaries, and the Corporation's Code of Business Conduct. 7. The board should examine its size and undertake where appropriate a program to reduce the number of directors to a number which facilitates more effective decision-making. Status: Based on the Corporation's current composition and size, the Corporation and the Board believe that the size of the Board proposed for nomination at the 2000 Annual Meeting of Shareholders - 12 members, is appropriate in light of current circumstances. The Board will re-examine this issue periodically. 8. The board should review the adequacy and form of the compensation of directors and ensure the compensation realistically reflects the responsibilities and risk involved in being an effective director. Status: The adequacy and form of director compensation is currently reviewed on an annual basis, utilizing various types of survey data. The Board has assigned the Compensation & Human Resources Committee responsibility on an annual basis for determining the A-2 23 adequacy and form of Board compensation. Stock ownership in the Corporation by directors is encouraged; a minimum number of shares (presently, 1,000 Common Shares) is required to be owned by each director. Stock options as a portion of director compensation are also currently utilized to increase share ownership by members of the Board. 9. Committees should generally be composed of outside directors, a majority of whom are "unrelated", although some committees, such as the executive committee, may include one or more inside directors. Status: The Audit & Risk Management Committee, the Compensation & Human Resources Committee and the Nominating & Corporate Governance Committee are currently composed of outside and unrelated directors. The Executive Committee currently includes one inside and related director, one outside and related director and three unrelated directors. 10. The board should assume responsibility for, or assign to a committee, the general responsibility for developing the corporation's approach to governance issues. Status: Previously, the Compensation & Human Resources Committee had responsibility for corporate governance issues. The Board in 1999 added the Nominating & Corporate Governance Committee, in part to give more attention to governance matters. One of the new committee's responsibilities is to develop the Corporation's approach to corporate governance issues. 11. The board, together with the CEO, should develop position descriptions for the board and for the CEO, involving the definition of the limits to management's responsibilities. The board should approve or develop the corporate objectives, which the CEO is responsible for meeting. Status: The Compensation & Human Resources Committee, with the assistance of senior management, developed position descriptions for the Board and for the Chief Executive Officer which allocate responsibilities and define the limits of management's responsibilities. The Nominating & Corporate Governance Committee reviews annually the guidelines for each Board committee, which are then approved by the Board. In addition, the board approves, or develops with the Chief Executive Officer, the corporate objectives that the Chief Executive Officer is responsible for meeting. The Nominating & Corporate Governance Committee monitors the Board position descriptions and the Committee guidelines. The Compensation & Human Resources Committee monitors the performance of the Chief Executive Officer. 12. The board should have in place appropriate structures and procedures to ensure that the board can function independently of management. These structures and procedures may involve the board meeting on a regular basis without management present. The board should either (i) appoint a chair of the board who is not a member of management or (ii) adopt alternate means so that the board is able to function independently of management -- this could include assigning the responsibility to a committee or to a lead director. Status: The Board elects from its membership on an annual basis a lead director who is entitled, pursuant to the Corporation's by-laws, to call meetings of the Board to be held without management present. In addition, to the extent the Corporation's Chief Executive Officer or Chief Operating Officer is unavailable or is not the appropriate person to undertake such action, the lead director has the right to speak on behalf of the Corporation. Currently, Mr. Ruffin serves as lead director. A new lead director will be elected upon Mr. Ruffin's retirement in April 2000. The Board and each of its committees conduct regular in camera sessions outside the presence of members of management, including management directors. A-3 24 13. The audit committee should be composed only of outside directors. The role and responsibilities of the audit committee should be specifically defined. The audit committee should have direct communication channels with the internal and external auditors and should ensure management's design and implementation of an effective system of internal control. Status: The Audit & Risk Management Committee is composed solely of outside directors. The role and responsibilities of the Audit & Risk Management Committee are defined in the Corporation's by-laws and detailed in the Committee's guidelines. These guidelines are currently being reviewed and revised and will be converted into a charter for the Committee, which will be adopted by the Board in April. The Audit & Risk Management Committee periodically meets privately with the Corporation's internal and external auditors after or during regularly scheduled committee meetings. 14. The board should implement a system that enables an individual director to engage an outside adviser at the expense of the corporation in appropriate circumstances, subject to the approval of an appropriate committee. Status: The Board has adopted a resolution, which allows individual directors to engage outside advisors (such as lawyers or accountants) at the expense of the Corporation, in appropriate circumstances. The resolution requires that each request to engage outside advisors have the approval of the Compensation & Human Resources Committee and that management must be fully advised. The Nominating & Corporate Governance Committee will succeed the Compensation & Human Resources Committee as the committee that must approve any such engagement. A-4 -----END PRIVACY-ENHANCED MESSAGE-----